National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Illustration

« Previous: APPENDIX C The Interdependence of Time and Money
Suggested Citation:"Illustration." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 422
Suggested Citation:"Illustration." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 423
Suggested Citation:"Illustration." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 424

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APPENDIX C 422 ''TIME IS MONEY" The old adage that "time is money" essentially says it all, but unfortunately it does not tell one how to measure the value of time when measuring the available economic resources in a family unit. Nor does it tell one how to take account of the fact that two families with similar economic resources might have vastly different time resources that somehow should be taken into account in determining their material well-being. In this section we first illustrate the dilemma and the seemingly inadequate strategy of just ignoring the value of time when measuring a family's command over resources. Next we show actual expenditure data that reinforce the concern that it is not appropriate simply to count all the dollars of income and ignore all the time resources. Illustration To illustrate the issue simply, consider two households. Household A has one adult; household B has two adults; neither has any children. The official (1992) poverty thresholds for these households (averaged by age of the head) are $7,143 and $9,137, respectively. This pair of thresholds implies that household B requires 128 percent as much income as household A to be at comparable poverty thresholds. With these numbers, we can illustrate the question of time; see Table C-1. Since there are 168 hours in each week, household A has a total of 168 hours available every week, and B has twice that much time, 336 hours, since both adults have 168. Suppose that within each week every person requires 70 hours for sleep, personal hygiene, and eating—8 hours for sleep and 2 hours for personal hygiene and eating. (We use these values only for illustration and profess no expertise about their magnitudes; if the numbers are changed, the same points apply.) Subtracting this 70 hours per week from the total of 168 leaves just under 100 hours per person for discretionary use, that is, for all other activities. Next, assume that the adults in households A and B each have a wage rate of $3.57. We selected this arbitrary wage rate to yield exactly $7,143 in annual income per adult if that adult worked 40 hours each week for 50 weeks of the year. This wage rate permits the full-time earner in household A to achieve exactly the poverty threshold level of income. Subtracting that 40 hours from the discretionary weekly hours, the adult in that household has now 58 hours available for all remaining activities. But for household B, the two adults only need to be employed a combined total of 51 hours per week to earn the poverty threshold level of income. One of the two might work full time, for 40 hours a week, and the other work part time for about 11 hours a week; or they might both work part time, averaging a little over 25 hours of work per

APPENDIX C 423 TABLE C-1 A Comparison of the Value of Time in Two Households Household Composition Factors in Valuing Time A: One Adult B: Two Adults Official Poverty Threshold, 1992a $7,143 $9,137 Relation of Thresholds 1.00 1.28 Time Allocation, Weekly Hours Total 168 336 Personal care (subtract) -70 -140 Discretionary, net 98 196 Needed to earn poverty threshold @$3.57/hour -40 -51 (subtract) Available, net 58 145 Available per person, net 58 72.5 Valuing the Nonmarket Time Hours available per week 58 145 Annual value @$3.57/hour $10,353 $25,882 Assuming No Scale Economies in Nonmarket Time Scale 1.00 2.00 Monetary equivalent $10,353 $20,706 Extra resources for B — $5,176 Assuming the Same Scale Economies in Nonmarket Time as in Money Usage Scale 1.00 1.28 Monetary equivalent $10,353 $13,252 Extra resources for B — $12,630 a Weighted averages from Bureau of the Census (1993c: Table A). week. After subtracting these work hours, household B has 145 hours available for all remaining activities. If the two households have exactly met their poverty threshold level of income, and all adults have the same (arbitrarily set) hourly wage rate, then the two households are equally well off in terms of economic resources. That is, after all, just what these poverty threshold levels are supposed to achieve. But notice that in household B, the remaining discretionary time is a total of 145 hours or 72.5 hours per person; in household A it is 58 hours. This fact highlights the underlying issue: having set poverty threshold levels of income for households A and B that reflect the economies of scale in living together (putting aside whether the scale economies are correctly measured or not) necessarily results in the larger household's having more discretionary time per adult than the smaller household. Thus, the two households are not equally

APPENDIX C 424 well off at the poverty thresholds, even though those thresholds were set at levels that were intended to achieve just that condition. After meeting their personal care needs and working enough (at a similar wage rate) to earn the poverty threshold level of income, each person in household B has 72.5 free hours, but the person in household A has only 58 hours. It looks as though the two people in household B are better off than the person in household A. This particular illustration makes the point simply: if one ignores time in measuring poverty, one overlooks an important resource that can be converted into money. If we had used larger households in the illustration, the point could be made with even larger discrepancies. (Different values for the personal care needs or for the scale economies or for the wage rate in the illustration do not qualitatively change the conclusion.) Moreover, since time is used in earning the money that meets the poverty thresholds, time is not just an example of a separate and independent resource that has been overlooked or set aside. Unlike many other resources, this resource —time—is generally correlated with the money earned. In many cases, it is traded for money in the labor market. Thus, for many family units, time is systematically and negatively correlated with money: those who have more leisure or home time have less money, and those who spend more time in the labor market earning money have correspondingly less discretionary time for other activities. To return to the illustrative example above, one can get an estimate of the monetary value of the extra time in household B in comparison with household A (see Table C-1). To do so, one needs to decide two things: what money value to use in measuring the time value of the discretionary time, and what (if any) scale economies to assume in the use of that nonmarket time. For the former, we use the market wage rate of $3.57. (Again, the point made here could be made with many other arbitrarily set nonmarket time valuations.) Regarding scale economies, we use two extreme assumptions to suggest bounds on the point: first, that there are no scale economies in nonmarket time use; second, that the economies of scale are the same as the scale economies in using money. The 58 discretionary hours available to household A have the value $10,353, and the 145 discretionary hours in household B have the value $25,882. Under the assumption that there are no scale economies in using this nonmarket time, household B would need twice as much time as A to achieve the same per capita outcome, which is $20,706 worth of time, leaving as a residual an extra bit of time in household B that is valued at $5,176. That extra resource—the time valued at $5,176—seems to be inconsistent with viewing the two households as equally well off. Under the assumption that scale economies are the same for nonmarket time as for purchased commodities, household B needs only $13,252 in time value to obtain what household A obtains ($10,353 × 1.28); this implies that household B has an extra bit of time

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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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