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Measuring Poverty: A New Approach (1995)

Chapter: Discussion

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Suggested Citation:"Discussion." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 426
Suggested Citation:"Discussion." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 427

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APPENDIX C 426 partially offset by less time in the nonmarket activities by that second earner. On the basis of this evidence, Michael (1985:136) argues: "Almost certainly the impact on real income [of the second earner's wage earnings] is a small fraction of the change in money income." A more recent article by Jacobs, Shipp, and Brown (1989) uses the 1984-1986 CEX data and includes families that have children, so they can observe expenditures on child care, which the Lazear and Michael study did not consider. This study concludes (p. 15): "When a wife becomes a second earner, husband-wife families spend more on work-related and timesaving items such as child care and food away from home." They exploit the quarterly data from the CEX and compare family spending patterns in the second quarter of the survey year to that in the fifth quarter, looking specifically at those families in which the wife began employment between those two times and comparing the changes to a control group in which the wife was not employed throughout the year. The results were inconclusive in this strategy, but when a multivariate regression model was used, controlling for household characteristics, they find (Jacobs, Shipp, and Brown, 1989:21): Families in which the wife is employed spend significantly more on food away from home, child care, women's apparel and gasoline and motor oil than do families in which the wife does not work outside the home. Another recent study by Hanson and Ooms (1991) uses the 1980-1983 CEX data and suggests a further refinement. They conclude that the two-earner families that have relatively low levels of husband's earnings actually expend proportionately more on "work-related expenditures and taxes" (an increment of 69 percent) in comparison with families with middle levels of husband's earnings (an increment of 56 percent) or to families with upper levels of husband's earnings (an increment of only 29 percent). So to disregard work- related expenditures may be particularly problematic for lower income families. Discussion All these studies simply show the not-remarkable fact that when a second adult in the family enters the work force and earns income, some of that income is spent buying in the marketplace goods and services other families secure by nonmarket efforts. A skeptic might well ask: "So what? Isn't this also the case for the first earner? If the household had zero earners, wouldn't that household be inclined to do even more nonmarket production—growing its own food, sewing its own clothing, and so forth?" This point is correct, but a poverty threshold implicitly assumes some amount of nonmarket time and some likely amount of labor market effort: thus, a threshold of, say, $15,000 in money income for a family of some particular size and structure has embedded within it some implicit amount of time in the home. But when one

APPENDIX C 427 begins to compare households of different sizes and structures, one confronts the fact that there is a violation of the implicit assumption that the differences in money somehow also correspond to the differences in available nonmarket time. When it is clear that the nonmarket time in different families is far from proportionate to the money income in those two families, one may become uneasy in treating those families as equally well off. Consider the extreme example in which one family obtains the threshold level of money from labor market earnings and another family of identical structure and size receives the same income completely from government assistance programs. It is discomforting to characterize these two families as exactly equally well off: the second family has much more nonmarket time available than the working family, and somehow this should be taken into account. The illustration of households A and B above emphasized that when one looks only at the available money, a family's available total resources, including discretionary time, is almost surely misspecified. The expenditure data from the several CEX studies make the same point in reverse: some of the money earned is used to facilitate the earnings itself, and other of the money earned is used to buy in the marketplace goods and services that are typically produced at home by families with less earnings. Both these observations emphasize the intricately intertwined linkages between money and time. Time is money and to some degree the two are interchangeable: to disregard time is to misspecify the available resources in the family unit. Yet time and money are not fully interchangeable in all cases, of course; there are many uses of money that have no own-time substitute. For instance, no amount of one's own time can heal an abscessed tooth—a dentist is needed and, for that, money (or, at least, barter) is essential. In an effort to measure economic poverty, it is easiest to just ignore nonmarket time, and treat money as money, but the panel finds this inadequate. In fact, we argue in the text that near-money—food stamps, school lunches, and housing subsidies, for example—should be counted as part of a family's resources in comparing resources with the poverty threshold. In the proposed poverty measure, we convert near-money to money equivalence. If time is near- money, perhaps it, too, should be converted to money in the measurement of a family's resources. Similarly, in the text we argue that some expenditures are necessary to obtain labor market earnings—child care and other work-related expenses, for example—and should be subtracted from earnings in measuring the available money resources. In the proposed poverty measure, we convert gross money into net money available to expend on food, clothing, and shelter, and a little more. If time at home can be used to obtain food or clothing or shelter, perhaps it, too, should be valued in measuring a family's resources to obtain these commodities up to the poverty threshold levels.

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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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