and only 31 percent had a parent at home (estimated from Bureau of the Census, 1992d: Tables 56, 67, 618, 620). While only a fraction of families with both parents (or the only parent in the work force) pay out of pocket for child care, the estimated share of their income that is spent on child care can be significant. Thus, in 1987, one-third of all employed mothers and almost three-fifths of employed mothers with a child under age 5 paid for child care. The average amount they spent accounted for 7 percent of their total family income. Of employed mothers with family income below or near the official poverty line, one-quarter paid for child care, and the average amount they spent accounted for 22 percent of their total family income (O'Connell and Bachu, 1990: Table 7).

In order to more appropriately characterize the poverty status of working versus nonworking families, we propose to deduct weekly out-of-pocket child care costs from the income of families with both parents or the only resident parent in the work force, for each week worked in the year. We further propose to limit the deduction to the earnings of the parent with the lower earnings or to the value of a cap that is adjusted annually for inflation, whichever is lower (see below).

To make this adjustment to income in the March CPS requires imputing child care expenses because the survey does not ask about expenditures, whether for child care or other items. However, information is available on the numbers and ages of children and on the work status of parents with which to make a reasonable imputation. In contrast, SIPP has regularly asked about child care costs, either as part of a detailed child care module or as a single question in one of the other modules. Indeed, we used SIPP data to impute child care costs to the March CPS to analyze the effects on poverty rates of implementing the proposed measure (see Chapter 5).

On the question of how high to set the cap for child care expenses, one possibility is to set it at a percentage of median expenditures, following the procedure that we recommend to derive the food, clothing, and shelter component of the poverty thresholds. Data from the 1990 SIPP indicate that median weekly child care expenditures for working families with such expenses were $44 for families with one child and $51 for families with two or more children.32 However, amounts that are below these medians may be too low to serve as a cap, particularly for larger families, for several reasons. For example, they do not make allowances for such factors as the age of the children, and child care expenditures for children under 5 are considerably higher than for school-age children (see O'Connell and Bachu, 1990: Table 7). Indeed, the relatively low median expense by families with two or more children relative to families with one child is undoubtedly because more families in the former group have older children.


Based on tabulations prepared for the panel; dollar amounts are for 1992.

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