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Measuring Poverty: A New Approach (1995)

Chapter: Quality of Income Data

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Suggested Citation:"Quality of Income Data." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 402
Suggested Citation:"Quality of Income Data." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 403
Suggested Citation:"Quality of Income Data." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
×
Page 404
Suggested Citation:"Quality of Income Data." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 405

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APPENDIX B 402 • housing costs and finance; • individual retirement accounts; • personal history (fertility, marital status, migration, welfare recipiency, and other topics); and • wealth (property, retirement expectations and pension plan coverage, assets and liabilities). In addition, each panel includes a topical module with variable content designed to respond to the needs of policy analysis agencies. Topics covered to date have included characteristics of job from which retired, child care, child support, disability status of children, energy use, extended measures of well- being, functional activities, health status and utilization of health care, home health care, household relationships, housing costs and finance, job offers and reservation wage, long-term care, pension plan coverage, retirement plans, support for non-household members, training, work expenses, and work schedule (see Citro and Kalton, 1993: Table 3-13). Summary Comparisons In evaluating the usefulness of a survey for measuring poverty, it is important to consider several characteristics: sample size and design; the amount of detail for data on income, taxes, assets, and expenditures; and the quality of the information. Table B-1 summarizes some key characteristics of the CEX, March CPS, PSID, and SIPP; the next section discusses in more detail the quality of the income data. (The last section provides a detailed comparison of the March CPS and SIPP.) The surveys range in size from 5,000 consumer units (CEX) to 60,000 households (March CPS). The CEX, March CPS, and PSID collect income data for a number of separate cash and in-kind sources for the previous calendar year or the 12 months prior to interview waves, with some differences among the three; the SIPP obtains income data at each 4-month wave, with monthly reporting for most sources. All the surveys, except the March CPS, collect information with which to determine a variety of taxes. The CEX and SIPP obtain detailed information on asset holdings; the PSID ascertains home value and equity; the March CPS does not ask about assets except to obtain income flows. Finally, all the surveys, except the March CPS, obtain regular information on such expenditures as food and shelter; the CEX obtains extensive expenditure information. Quality of Income Data A detailed comparison of data quality across the four surveys is beyond the scope of this appendix, but some rough aggregate comparisons for income reporting can be made.

APPENDIX B 403 All four surveys clearly experience net underreporting of income.5 The very rough comparisons of aggregate incomes for the population as a whole suggest that the March CPS captures about 90 percent of the regular cash income estimated by independent sources (Bureau of the Census, 1989a: Table A2; 1992b: Table C-1) and that the CEX (Interview Survey) in turn captures about 90 percent of the income reported in the March CPS (Cutler and Katz, 1991: Table A2). Aggregate income amounts for SIPP and the March CPS are virtually the same (Jabine, King, and Petroni, 1990: Table 10.8): SIPP obtains higher reports of nonearnings income (by about 6%), but somewhat lower reports of earnings (by about 2%) compared with the March CPS. The assumption is that some people are reporting net rather than gross earnings to SIPP. If SIPP obtained as complete reporting of earnings as the March CPS, it would capture 1-2 additional percentage points of regular income. In inferring from comparisons of poverty rates across the surveys, it appears that income underreporting at the lower end of the distribution is most problematic in the CEX, followed by the March CPS, with the PSID and SIPP obtaining more complete reporting. Thus, in the period 1984-1991, poverty rates based on before-tax cash income from the CEX were higher than the rates from the March CPS, which, in turn, were higher than those from SIPP (see Table 5-12). Duncan and Rodgers (1991) find that poverty rates in the PSID are below those in the March CPS and comparable to those in SIPP. Duncan, Smeeding, and Rodgers (1992: Table 1) consistently find a smaller percentage of families with incomes below $15,000 in the PSID than in the March CPS; the difference ranged from 0.4 to 3.0 percentage points in the period 1967-1988. (As noted above, PSID estimates of low-income families do not appear biased by differential attrition, although underrepresentation of Hispanics may account for some of the CPS-PSID difference.) The evidence suggests that the greater the emphasis on income reporting in a survey, the lower is the estimated poverty rate. Thus, the less complete income reporting at the lower end of the distribution in the March CPS relative to SIPP is probably partly due to the fact that the March CPS is a supplement to a survey in which the major emphasis is on collecting monthly labor force information. Income reporting is probably particularly poor in the CEX Interview Survey also partly because the CEX is an expenditure survey, not an income survey. The secondary role of income data is evident in many aspects of the Interview Survey design and questionnaire content. Thus, income is asked for the preceding 12 months, rather than quarterly; only a few major income sources are asked separately for each adult member of the 5 Net underreporting is a combination of underreports and overreports of income. For specific income types, classification errors also occur. Inferences of net underreporting, obtained from comparing survey estimates with those from the National Income and Product Accounts, other independent sources, or other surveys, must be made with care, as differences in definitions and processing procedures can affect the validity of the comparisons.

APPENDIX B 404 TABLE B-1 Summary Comparisons of CEX, March CPS, PSID, and SIPP Feature Consumer CPS (March Panel Study of Survey of Expenditure Income Income Income and Survey Supplement) Dynamics Program (Interview) Participation Sample 5,000 60,000 9,000 families; 40,000 Size and consumer households; overrepresents households Design units; each each low-income (50,000 unit in sample household in families; proposed); for 5 quarters; sample for 8 continuing panel new panel rotation group months over 2- with annual each February design; year period; interviews (every 4 years quarterly rotation group proposed); interviews design; each original monthly sample adult interviews in panel for 32 (income months (48 supplement months once per year) proposed); interviews every 4 months Income Annual data Data for prior Data for prior Data for about Data for 12 months calendar year calendar year for 70 cash and in- prior to 2nd for about 35 about 25 cash kind sources at and 5th cash and in- and in-kind each 4-month interviews; 5 kind sources sources with wave, with sources for specific months monthly individuals, received reporting for 11 sources for most sources consumer unit; major in- kind benefits Tax Data Information to None Information to Information to determine determine determine federal, state, federal and state federal, state, and local income taxes; and local income taxes; payroll taxes; income taxes; payroll taxes; property taxes payroll taxes; property property taxes taxes; sales taxes consumer unit; and the total number of sources asked about is considerably smaller than in the other surveys. Experience gained in the Income Survey Development Program (ISDP—the predecessor to SIPP) and SIPP itself suggests that each of these factors hampers complete income reporting.6 6 Experiments in the ISDP found that a "short" income form produced less complete reporting than the "long" form subsequently used in SIPP and that asking a single respondent about

APPENDIX B 405 Feature Consumer CPS (March Panel Study Survey of Expenditure Income of Income Income and Survey Supplement) Dynamics Program (Interview) Participation Asset Detailed None, except Regularly, Detailed Holdings inventory of ascertains information inventory of Dataa property home about home real and holdings and ownership value and financial household mortgage assets and appliances; debt; liabilities information at occasionally, once each 5th interview information panel; more on credit about saving frequent balances for behavior and measures for current month wealth assets and 1 year relevant for ago; assistance information on programs financial asset holdings currently and 1 year ago Expenditure Detailed None Monthly rent Information Data quarterly data or mortgage once or twice for costs; annual each panel on expenditures utility costs; last month's estimated to average out-of-pocket account for 60– weekly food medical care 70% of total costs; child costs, shelter expenditures; support costs global (or payments (mortgage or usual) rent and quarterly data utilities), for dependent expenditures care costs, estimated to and child account for support another 20– payments 25% of total a All four surveys obtain data on income flows from assets. One problem in estimating poverty from income surveys is that they often show people with zero or very low-income amounts that are not credible. As a result, analysts often find that people with very low-incomes are not substantially worse off than people with higher income levels on such measures as ownership of vehicles, air conditioning, and number of bathrooms in their income receipt by other members of the household produced less complete reporting than asking each member about his or her own income (Ycas and Lininger, 1983:27). Also, no imputations are performed in the CEX for missing income information.

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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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