Measuring Poverty: A New Approach (1995)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

EFFECTS OF THE PROPOSED POVERTY MEASURE 278 scenario, we assumed that such a cap limited families' expenses to a maximum of $3,000 ($1,500 for an unrelated individual); under another scenario, we assumed that the cap limited families' expenses to a maximum of $2,000 ($1,000 for an unrelated individual). We applied these caps to the imputed values of out-of-pocket medical care expenses in our data file for 1992. The result is to reduce the 1992 poverty rate under the proposed measure from 18.1 percent to 17.2 percent for the higher cap and from 18.1 percent to 16.6 percent for the lower cap. Poverty Rates Using SIPP For the reasons described above, our analysis was conducted entirely with extracts from the March CPS. However, we recommend (see below) that SIPP become the source of the nation's official poverty statistics, beginning when the survey is redesigned in 1996. A question is what effects the use of SIPP, compared with the March CPS, will have on poverty rates. Table 5-12 presents a time series of poverty estimates for the total population based on the official thresholds and gross income data from the March CPS, SIPP, and the CEX, as well as estimates of poverty based on the official thresholds and a consumption or expenditure definition of family resources from the CEX. In looking at the income-based estimates, the poverty rates from SIPP for 1984-1991 are consistently lower than the rates from the March CPS: the difference ranges from 2.6 to 3.6 percentage points. This pattern suggests if we had analyzed our measure with SIPP, the result for 1992, using a $14,800 reference family threshold, would have been poverty rates of 14.9 to 15.8 percent (depending on the scale economy factor) instead of the rates of 18.1 to 19.0 percent that we obtained with the March CPS. In other words, the increase in the rate—compared with the official rate of 14.5 percent—would have been 0.4 to 1.3 percentage points instead of 3.6 to 4.5 percentage points. In turn, the March CPS rates for the years 1980-1991 are lower than the rates from the CEX, particularly in the years after 1983. These results suggest that surveys with a focus on measuring income in fact capture more income (at least at the lower end of the income distribution) and, hence, produce lower poverty rates. Indeed, the rates from SIPP, which is the survey with the greatest focus on income, are close to the CEX rates that use a consumption or expenditure-based definition of resources.20 20 Preliminary unpublished estimates of CEX consumption-based and expenditure-based poverty rates by Christopher Jencks (private communication) are lower than those shown above. Income-based poverty rate estimates from the CEX, March CPS, and SIPP would be lower by about 1 percentage point if food stamps were added to income. Food expenditures that are paid for by food stamps are included in the consumption- and expenditure-based measures. 

EFFECTS OF THE PROPOSED POVERTY MEASURE 279 TABLE 5-12 Poverty Rates Calculated from the Consumer Expenditure Survey, Current Population Survey, and Survey of Income and Program Participation, 1980–1991 Percent Poor of the Total Population Income Definition Consumption/Expenditure Definition Year CEXa March CPSb SIPPc CEX Consumptiond CEX Expenditurese 1980 13.7 13.0 N.A. 8.2 10.1 1981 14.3 14.0 N.A. N.A 8.8 1982 15.8 15.0 N.A N.A. 11.3 1983 16.1 15.2 N.A. N.A. 10.2 1984 17.6 14.4 11.5 9.9 10.2 1985 17.6 14.0 10.7 N.A. 10.1 1986 18.9 13.6 10.3 N.A. 9.4 1987 15.0 13.4 10.8 N.A 9.7 1988 15.8 13.0 10.0 9.3 9.5 1989 15.2 12.8 N.A. N.A. 9.7 1990 N.A. 13.5 10.1 N.A. N.A. 1991 N.A. 14.2 10.6 N.A. N.A. a Estimates from Slesnick (1991b: Table 7). b Estimates from Bureau of the Census (1992c: Table 2). c Estimates from unpublished tabulations, Bureau of the Census. The 1985 estimate is an average of the rates estimated from the 1984-1985 panels. d Estimates from Cutler and Katz (1991: Table 13). The estimates are crudely adjusted for use of the personal consumption deflator to update the thresholds instead of the CPI; a strictly comparable CPI- based poverty rate estimate for 1988 in Cutler and Katz (1992: Table 3) is 10.3 percent. Consumption is defined as all out-of-pocket expenditures minus spending on insurance, pensions, and Social Security plus net imputed rent for homes and vehicles. e Estimates from Slesnick (1991b: Table 7). There are several reasons that SIPP poverty rates are lower than the rates from the March CPS: SIPP obtains more complete reporting of transfer income (e.g., Social Security, SSI, and unemployment compensation); SIPP obtains higher reported numbers of recipients for most income types, and, with more income sources reported, there is a greater likelihood that respondents' total income will be above the poverty line; SIPP asks self-employed people about their income or cash ''draw" from their businesses, rather about their net profit or loss; and SIPP obtains a better match of family composition with income data, which has been shown to reduce the poverty rate (see Bureau of the Census, 1993c:xxii; Coder and Scoon-Rodgers, 1994; see also Appendix B). Recent Census Bureau research (Lamas, Tin, and Eargle, 1994) also suggests that a small fraction of the difference between the SIPP and March CPS poverty rates is due to higher attrition of low-income people from SIPP for which the weighting adjustments do not completely compensate.