among the population. This viewpoint would reject the notion that it is preferable to estimate permanent or life-cycle income. Furthermore, its proponents would argue that including amounts in income that are obtained by such means as charging to the limit on one's credit cards distorts the purpose of the poverty measure as a timely policy indicator of the possible need for public or private action to alleviate economic distress (see, e.g., Ruggles, 1990). Thus, a consumption resource definition is likely to lag behind other indicators of economic distress because of all the steps that families can take to sustain their consumption. In contrast, an income resource definition will include income-poor families who may be reaching the end of their ability to sustain their consumption through such means as unsecured borrowing. Hence, it may prove more useful as a warning signal to policy makers.

Assessment

On the fundamental question of whether to base the definition of family resources for the poverty measure on income or consumption, we believe that there are merits to the conceptual arguments on both sides of the debate. On balance, many members of the panel find more compelling the arguments in favor of a consumption definition that attempts to assess actual levels of material well-being. However, in the United States today, adequate data with which to implement a consumption-based resource definition for use in the official poverty measure are not available.

Although the federal government sponsors several comprehensive large-scale income surveys, the only regular consumption survey is the Consumer Expenditure Survey. Although the CEX had its beginnings nearly a century ago, it was conducted only every 10-15 years until 1980, when an annual survey began. The sample size of the CEX is significantly smaller than the sample size of the major income surveys, and the delay between collection and release is longer for consumption data than for income data.

The CEX is currently intended to support the periodic respecification of the market basket for the Consumer Price Index (CPI) and, more generally, to provide information on expenditure patterns. Its design—which features two separate surveys, one focused on larger and more regular expenditures and the other on smaller items—does not readily permit the development of a comprehensive resource estimate for individual families, which is essential for poverty measurement.9 The CEX questionnaire is very detailed and complex, and response rates for the survey, which have averaged about 85 percent since 1980, are significantly lower than response rates for the major income surveys. Studies of data quality in the CEX have documented serious recall and other

9  

The CEX also does not readily support development of annual resource estimates (see Appendix B).



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