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Measuring Poverty: A New Approach
for each working adult, deduct a flat amount per week worked (adjusted annually for inflation and not to exceed earnings) to account for work-related transportation and miscellaneous expenses; and
deduct child support payments from the income of the payer.
In the remainder of this section, we review the major alternative family resource definitions and our reasons for deciding against them. In the rest of the chapter we develop in more detail the proposed definition of disposable money and near-money income. Although the definition meets the test of operational feasibility, the decision to adjust income rather than the thresholds does increase the data requirements for the survey that is used to determine families' poverty status. The March CPS does not collect all of the needed information for estimating disposable money and near-money income and, for various reasons, it is not likely to become better suited for this purpose in the future. SIPP currently obtains most of the needed information and, because it is designed as an income survey rather than as a supplement to a labor force survey, can readily be modified to provide an adequate database. We conclude (see Chapter 5) that SIPP should become the basis for the official poverty statistics in place of the March CPS.
Resources as Consumption or Expenditures
Many researchers argue that it is preferable, for a combination of theoretical and empirical reasons, to look at what families actually consume or spend rather than at their income in order to determine their poverty status (see, e.g., Cutler and Katz, 1991, 1992; Jorgenson and Slesnick, 1987; Mayer and Jencks, 1993; Slesnick, 1991a, 1991b). A basic premise of this view is that families and individuals derive material well-being from the actual consumption of goods and services rather than from the receipt of income per se; hence, it is appropriate to estimate their consumption directly.
To "estimate consumption" does not usually mean to inspect people's clothes or what they actually eat but, rather, to estimate what they spend on such items. Researchers in the field define consumption as a subset of families' total expenditures, excluding taxes, contributions to pension funds (which represent savings), and, often, gifts, and including expenditures made with assistance from in-kind benefit programs, such as food stamps. The data source for estimating consumption or expenditures is the CEX.6
The CEX has two components—the Diary Survey and the Interview Survey. Researchers typically develop consumption-based measures of poverty from the Interview Survey, which provides detailed information on expenditures each quarter for about 5,000 "consumer units" (see Appendix B).