National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Census Bureau Valuation Procedures

« Previous: Nonmedical In-Kind Benefits
Suggested Citation:"Census Bureau Valuation Procedures." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 220
Suggested Citation:"Census Bureau Valuation Procedures." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 221

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DEFINING RESOURCES 220 work (e.g., child care, parking, training subsidies, or free uniforms or tools) should not be included because the definition of disposable income excludes out-of-pocket costs for child care and other work-related expenses, net of any employer subsidy.16 Also, employer contributions for pensions should not be included. The National Income and Product Accounts (NIPA) include such contributions as income and, conversely, exclude actual pension income. However, the contrasting approach that has traditionally been followed for poverty measurement, namely, counting pension income as received and excluding pension contributions, makes much more sense for a measure of current economic poverty. Other kinds of employer benefits, such as contributions for life or accident insurance, are more problematic. To the extent they free up resources for consumption, they should be counted as income. However, there are measurement problems. Also, such benefits are difficult to value because of the likelihood that recipients would place a lower value on the benefit than its cost to employers. (This problem affects other in-kind benefits as well, but perhaps not to the same extent; see below.) Census Bureau Valuation Procedures The Census Bureau's procedures for assigning values for food stamps, school lunches, and public housing rely on the market value approach, in which the full private market value of the benefit (minus contributions by the recipient) is assigned as income.17 For food stamps, the procedure is very simple, counting as income the full face (market) value of food stamp benefits that are reported for the year by respondents to the March CPS. For "regular price" school lunches, the procedure for determining the subsidy value uses information from the U.S. Department of Agriculture (USDA) on subsidies per meal for lunches that are provided at the "full established price." (Because of USDA assistance to the states, the full price represents less than the total cost of the meal.) The annualized subsidy value is added to family income for children ages 5-18 whose families reported in the March CPS that they "usually" ate hot lunches at school during the year and did not receive these meals free or at a reduced price. For those children who are reported to have received free or reduced-price school lunches, an additional subsidy value is assigned, also using information from the Department of Agriculture. Unlike food stamps, which function virtually like money, the approach of counting school 16 The alternative approach of adjusting the thresholds would involve adding child care and other work expenses to the thresholds for working families, and then adding the value of employer subsidies to income (see Renwick and Bergmann, 1993, for an example). The net effect would be about the same as under our approach but actually more data-intensive to implement (data would be needed to estimate the threshold amounts and the subsidies). 17 See Chapter 5 for a description of the effects on poverty rates of adding values to disposable income for these programs with the current valuation methods.

DEFINING RESOURCES 221 lunch subsidies as income at the full subsidy value is not without problems (see Bureau of the Census, 1993a:ix). Thus, participating families have no choice about the type or quantity of food and may well value the benefit at less than the full subsidy value. The procedure for valuing rent subsidies for people living in public or subsidized housing is complex (see Bureau of the Census, 1993a: B-1) because the March CPS ascertains residence in such housing but not the rents paid by residents or the rent subsidies. To estimate the subsidy values to add to the CPS income amounts, the Census Bureau uses the results of an analysis from the 1985 American Housing Survey (AHS), updated each year to reflect changes in the Consumer Price Index for housing. In the AHS analysis, the Census Bureau compared the actual gross rent (including utilities) paid by families in subsidized housing to the estimated market rent these families would have been expected to pay if their units had not been subsidized. The comparisons were carried out separately for families in three income groups: under $6,000, $6,000- $9,000, and $10,000 and over. The market rent estimates for each set of comparisons were developed by using the coefficients from a model that related gross rent for two-bedroom nonsubsidized units by region from the AHS to number of bathrooms, number of appliances, number of housing flaws, and presence of satisfactory neighborhood services. The relative subsidies estimated for two-bedroom units were assumed to apply to smaller and larger units. For 1981-1985, the Census Bureau developed values for in-kind benefits using two other approaches in addition to market value: the recipient value approach and an approach called ''poverty budget shares" (see Bureau of the Census, 1986). The recipient value approach attempts to measure the value of a benefit to the recipient, which may be lower than the market value. However, in many cases it is difficult to measure recipient value. The poverty budget shares approach links the value of in-kind benefits to the current poverty measure by placing a limit on the value of specific benefits that is equal to the amount spent on the item by unsubsidized families and individuals with incomes near the poverty level. (The limit is equal to the lesser of the market value or the poverty budget share value.) The assumption is that recipients cannot use "extra" amounts of an in-kind benefit to meet their basic needs for other items. Comparisons of estimates of nonmedical in-kind benefit values using the three methods indicate that the recipient value approach and, to a lesser extent, the poverty budget shares approach had less effect in lowering poverty rates than the market value approach. Thus, in 1985, the market value approach to adding values for food stamps, school lunches, and subsidized housing to money income reduced the poverty rate by 1.5 percentage points (from 14 to 12.5%)—an 11 percent reduction in the rate (Bureau of the Census, 1986: Table C). The recipient value approach reduced the rate by 1.2

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Each year's poverty figures are anxiously awaited by policymakers, analysts, and the media. Yet questions are increasing about the 30-year-old measure as social and economic conditions change.

In Measuring Poverty a distinguished panel provides policymakers with an up-to-date evaluation of:

  • Concepts and procedures for deriving the poverty threshold, including adjustments for different family circumstances.
  • Definitions of family resources.
  • Procedures for annual updates of poverty measures.

The volume explores specific issues underlying the poverty measure, analyzes the likely effects of any changes on poverty rates, and discusses the impact on eligibility for public benefits. In supporting its recommendations the panel provides insightful recognition of the political and social dimensions of this key economic indicator.

Measuring Poverty will be important to government officials, policy analysts, statisticians, economists, researchers, and others involved in virtually all poverty and social welfare issues.

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