National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Expenditure Data

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Suggested Citation:"Expenditure 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 425

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APPENDIX C 425 that is valued at $12,630. Again, household B seems to be better off than household A, and that is inconsistent with the goals that were set in establishing poverty thresholds for the two households. These dollar values on the available discretionary time simply quantify the point made earlier: the household with more discretionary time appears to be better off than the other one. Expenditure Data The illustrative example depicts the logic that if both time and money have value, and if poverty thresholds are defined on the basis of equivalence in money income only, then no matter how the money equivalents are set, the combined value of the time and money that households have at their disposal is misspecified. If the money alone is correctly calculated, when one looks at the value of time there is an apparent inconsistency. In this section, we discuss a related aspect of the interdependence of time and money: those families that have more than one adult employed in the job market appear to spend at least some, and perhaps a sizable portion, of the second earner's added income on goods and services that are associated with earning that money. Thus, it is arguable that some portion of those earnings is not in fact a net increase in the family's real income and does not reflect a real increase in command over resources. If this is so, it raises the question of how to adjust for this simple substitution of money for nonmarket time when one measures a family's level of income. The relevant data on expenditures are not hard to find, but the implications for what should be done to account for the differences are not so easy to find. Lazear and Michael (1980b) compare two sets of households from the 1972-1973 Consumer Expenditure Survey (CEX), both with two adults and no children, one set with one earner and the other with two earners. The before-tax income for these two sets differed by 35 percent (with the two-earner couples having the higher income, of course). In terms of total current consumption, however, the difference was only 17 percent. That is, the two-earner families both faced higher taxes and saved a higher portion of their income, so in terms of spending on goods and services, the difference, on average, was far less than the difference in gross (before-tax) income. More revealing, the two-earner families spent much more than one-earner families on items that can be considered market substitutes for home-produced goods: restaurant expenditures were 55 percent higher, dry cleaning services were 42 percent higher, and women's clothing was 60 percent higher, while expenditures on food at home were actually 15 percent lower. (Rental expenditures by renters were 12 percent higher.) It appears that much of the income earned by the second earner is spent on making it possible to earn that income. Thus, the net addition to the family's resources is less than the added income, since that income is at least

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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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