Measuring Poverty A New Approach (1995) / Chapter Skim
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5 EFFECTS OF THE PROPOSED POVERTY MEASURE
5 EFFECTS OF THE PROPOSED POVERTY MEASURE
Pages 247-292
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From page 247... ...
Two aspects that we explore in detail are the effects of using different equivalence scales for the poverty thresholds and the accuracy of our imputations for out-of-pocket medical care costs and their implications for poverty rates. We then briefly review the data, procedures, and results for the more limited analysis that we were able to conduct for earlier years.
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From page 248... ...
We did use SIPP data to impute some of the elements for deriving disposable income that are not part of the March CPS. Because we have estimates of aggregate poverty rates from the March CPS and SIPP, using the current gross money income definition of family resources, we are reasonably confident of the type of results that we would have obtained had we used SIPP (see below)
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From page 249... ...
We implemented two versions of the proposed measure with the $14,800 reference family threshold: one with a scale economy factor of 0.75 and one with a scale economy factor of 0.65. Threshold Adjustments Table 5-1 shows the poverty thresholds for 1992 by family size and number of children for the current measure.
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From page 250... ...
However, we were limited in available time and resources.4 4 Readers interested in replicating our results or in conducting additional analyses may obtain a data file (from the Committee on National Statistics) that contains the March 1993 CPS extract file with our imputed variables and poverty status indicators for the current measure and the proposed measure.
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From page 251... ...
In-Kind Benefit Values and Taxes We used the 1992 values that the Census Bureau provided on the March 1993 CPS extract file for in-kind benefits (food stamps, school lunches, and public and subsidized housing) and for federal and state income and Social Security payroll taxes.
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From page 252... ...
252 MEASURING POVERTY TABLE 5-3 Housing Cost Adjustments for Proposed Poverty Thresholds Area and Population Size Index Value Northeast New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont) Nonmetropolitan areas and metropolitan areas under 250,000 Metropolitan areas of 250,000-500,000 Metropolitan areas of 500,000-1,000,000 Metropolitan areas of 1,000,000-2,500,000 Metropolitan areas of 2,500,000 or more Middle Atlantic (New Jersey, New York, Pennsylvania)
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From page 253... ...
Also, the portion of taxes due to realized capital gains should not be subtracted because such gains are not part of the proposed resources definition.) Out-of-Pocket Medical Care Expenditures The March CPS does not contain any information on medical care expenses (out-of-pocket or otherwise, although it does provide some relevant infor
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From page 254... ...
Out-of-pocket expenditures included health insurance premiums, copayments, deductibles, and all other health care expenditures paid directly by the family. The lower bounds for the 10 expenditure ranges were $1, $500, $1,000, $1,500, $2,000, $2,500, $5,000, $7,500, and $12,500.
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From page 255... ...
The object ofthis two-step procedure was to impute a set of medical expenditures that would reflect the entire distribution of expenditures and not to impute to all families the average level of expenditures consistent with their characteristics (see Betson, 1995~. Child Care Expenses The March CPS does not contain any inflation on child care expenses, although it does have information on the number and age of children and employment status and weeks worked for the parents, which is needed for imputation purposes.
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From page 256... ...
RESULTS Effects with a Constant Poverty Rate In our first analysis, we implemented the current measure with the official 1992 threshold of $14,228 for a two-adult/two-child family and the proposed measure with a threshold of S13,175 for this family type and a scale economy factor of 0.75. By design, the proposed measure under this scenario produces about the same 1992 poverty rate (14.54%)
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From page 257... ...
~1 ~J ~7 - - ~ able ~-0 shows the eject of the proposed poverty measure on the composition of the poor population. By age, somewhat more poor people are adults aged 18-64 and somewhat fewer poor people are adults aged 65 and older under the proposed measure in comparison with the current measure, while the proportion of children under age 18 among the poverty population is about the same under both measures.
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From page 258... ...
258 MEASURING POVERTY TABLE 5-5 Change in Poverty Status and Income-to-Poverty Ratio Under the Current and Proposed Poverty Measures, with Total Poverty Rate Held Constant at 14.5 Percent, 1992 Number ofPercent Distri Poverty Status and Peoplebutton Within Income-to-Poverty Ratio (millions) Category People Moved out of Poverty 7.35100.0 Current measure: income <50% of threshold Proposed measure Income 100-150% of threshold 0.456.1 Income 150-200% of threshold 0.000.0 Income 200% or more of threshold 0.000.0 Current measure: income 50-100% of threshold Proposed measure Income 100-150% of threshold 6.4287.3 Income 150-200% of threshold 0.476.4 Income 200% or more of threshold 0.010.1 People Moved into Poverty 7.37100.0 Current measure: income 100-150% of threshold Proposed measure Income <50% of threshold 0.020.3 Income 50-100% of threshold 5.8178.8 Current measure: income 150-200% of threshold Proposed measure Income <50% of threshold 0.000.0 Income 50-100% of threshold 1.4719.9 Current measure: income 200% or more of threshold Proposed measure Income <50% of threshold 0.000.0 Income 50-100% of threshold 0.070.9 People Poor Under Both Measures 29.54100.0 Current measure: income <50% of threshold Proposed measure Income <50% of threshold 8.4728.7 Income 50-100% of threshold 6.1020.6 Current measure: income 50-100% of threshold Proposed measure Income <50% of threshold 1.505.1 Income 50-100% of threshold 13.4745.6 People Not Poor Under Both Measures 209.71100.0 Current measure: income 100-150% of threshold Proposed measure Income 100-150% of threshold 14.797.1 Income 150-200% of threshold 3.481.7 Income 200% or more of threshold 0.250.1
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From page 259... ...
The share of poor people who reside in the Northeast and West increases under the proposed measure, while the share of poor people who reside in the South and, to a lesser extent, the Midwest decreases.8 Another way to consider the differences in the current and proposed measures is to look at the poverty rates for various groups. While the overall poverty rate of 14.5 percent is the same under both the current and the proposed measures, the rates for some groups differ appreciably; see Table 5-7.
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From page 260... ...
course, there are significant differences in poverty rates among groups under the current measure: for example, the rate for children (22%) is 50 percent higher than the overall rate of 14.5 percent; the rate for people in families receiving AFDC or SSI (59%)
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From page 261... ...
bA threshold of $13,175 for two-adult/two-child families, with a 0.75 scale economy factor; see text for discussion. CSee text for derivation.
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From page 262... ...
The purpose of this analysis was to determine the effect on the overall poverty rate, as well as the effect on groups, of raising the poverty threshold in real terms in addition to implementing the recommended adjustments to the threshold and family resource definition. The Overall Rate Under the proposed measure with a $14,800 reference family threshold and a 0.75 scale economy factor for 1992, 46.0 million people are poor, and the poverty rate is 18.1 percent, compared with the official count of 36.9 million and the official rate of 14.5 percent.
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From page 263... ...
-0 Housing cost index +0.1 +0.1 Proposed resource definition +2.0 +2.0 Net interaction effect + 1.5 + 1.7 The use of a higher reference family threshold accounts for only 0.7 percentage point of the increase in the poverty rate. The use of a 0.75 scale economy factor (alternative 1)
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From page 264... ...
In comparing the effects of the two equivalence scales in the proposed measure, the use of a 0.65 scale economy factor (alternative 2) increases the poverty rate for most groups by 0.5-1.0 percentage point more than the use of a 0.75 scale economy factor (alternative 1~.
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From page 265... ...
The poverty rates are for individuals: They are determined on the basis of comparing the income of their family (or one's own income if an unrelated individual) to the appropriate threshold.
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From page 266... ...
Table 5-9 shows the marginal effect on the rate for specific groups of making each of the following changes in isolation: the adjustment to the thresholds for geographic area differences in the cost of housing, the use of a 0.75 scale economy factor, the use of a 0.65 scale economy factor, adding the value of in-kind benefits to income, subtracting out-of-pocket medical care expenses from income, subtracting income and payroll taxes from income, subtracting child care expenses from income, and subtracting other work-related expenses from income. Not shown is the marginal effect of a particular reference family threshold or the net interaction effect.
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From page 267... ...
We do not have a directly comparable estimate of the effect of child support payments on poverty rates. Tabulations prepared for us from the 1990 SIPP panel, which compare aggregate poverty rates under the current measure and under a measure in which child support payments are subtracted from income, indicate that the effect might be to increase the overall poverty rate by about 0.3-0.5 percentage point, similar to the effect of child care expenses.
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From page 268... ...
very high. This occurs because welfare families benefit proportionately more than others from in-kind programs, including health insurance (as reflected in lower out-of-pocket medical care expenses)
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From page 269... ...
Finally, the poverty rate for children increases by 3 percentage points or close to the overall increase- because poor children are members of both welfare families and working families. Equivalence Scale Effects Use of the panel's proposed equivalence scale has significant implications for poverty rates for certain groups relative to the equivalence scale that underlies the current measure.
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From page 270... ...
, but with different thresholds for other family types calculated from the proposed equivalence scale formula with a scale economy factor of 0.75 or 0.65.~3 The only factor that we change in these comparisons is the equivalence scale: that is, we do not change the reference family threshold (up or down) or the resource definition or adjust the thresholds for differences in cost of housing.
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From page 271... ...
These relationships are not quite the same when the second person in a family is a child; see Chapter 3.) The scale economy factor of 0.65 affects poverty rates to a moderate extent for people in almost all family size categories, although the net effect for the total population balances out to almost zero.
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From page 272... ...
Also, the imputed amounts make sense in relation to families' income levels: for families with gross money incomes around the median, we imputed an average of about $2,150 for out-of-pocket medical care expenses; for families with incomes around the 10th percentile, we imputed an average of only $450 for such expenses. (Table 5-4 shows the combined amount of deductions for out-of-pocket medical care, child care, and other work-related expenses that were imputed to families at different points in the income distribution.)
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From page 273... ...
is likely to overstate the expenses of enough people so as to overstate the increase in the poverty rate. Finally, there is an unexplained difference attributable to the use of a different survey file: namely, estimates of the effect on the poverty rate of subtracting out-ofpocket medical care costs with the NMES are lower than those with the March CPS, even when the same procedure of imputed subgroup means is used.~5 Overall, it is not possible to draw a definitive conclusion about our approach because of the differences in the data and procedures used to calculate each of the estimates.
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From page 274... ...
For the proposed measure, we used a $14,800 reference family threshold for 1992 and thresholds for the earlier years that reflect changes in spending on food, clothing, and shelter by two-adult/two-child families projected backwards from 1992; Con 16 The method of "bracketing" responses, that is, asking respondents who answer "don't know" whether the amount is above or below certain levels (e.g., $100, $500, $1,000, $5,000, $10,000) may improve the completeness of reporting of out-of-pocket medical care expenses in SIPP.
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From page 275... ...
Child support payments are also not accounted for because of the absence of data in the March CPS with which to make a reasonable imputation. Results With either a 0.75 or a 0.65 scale economy factor (alternative 1 or 2)
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From page 276... ...
0.75 scale economy factor+0.07 +0.44 -0.08 -0.42 0.65 scale economy factor+0.73 +0.99 +0.38 +0.12 Marginal Change Due to 0.75 scale economy factor-0.73 -0.69 -0.55 -0.62 0.65 scale economy factor-0.02 -0.16 -0.10 0.06 Addition of in-kind benefits-1.65 -1.76 -1.38 -2.21 Subtraction of taxes0.47 0.76 1.03 0.60 Subtraction of child care costs0.28 0.33 0.24 0.24 Subtraction of other work0.81 0.82 0.68 0.74 expenses NOTES: The reference (two-adult/two-child) family thresholds are as follows: 19921989 1983 1979 Current measure $14,228 $12,575 Proposed measure 14,800 12,986 $10,097 $7,355 10,038 7,565 The poverty rates are for individuals: They are determined on the basis of comparing the income of their family (or one's own income if an unrelated individual)
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From page 277... ...
The result is to reduce the 1992 poverty rate under the proposed measure from 18.1 to 17.2 percent (using a $14,800 reference family threshold and 0.75 scale economy factor)
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From page 278... ...
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)
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From page 279... ...
. 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)
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From page 280... ...
These results suggest that differences between the March CPS and SIPP would be similar under the proposed measure for most groups, with the March CPS rate exceeding the SIPP rate in every case. In the next section, we consider explicitly the role of SIPP in poverty measurement and the overall need for improved data.
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From page 281... ...
The SIPP design, questionnaire, and methodological research program should give priority to implementation of the poverty measure. To facilitate the transition to a new poverty measure with a new data source, the Census Bureau should produce concurrent series of poverty statistics from both SIPP and the March CPS.
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From page 282... ...
RECOMMENDATION 5.2. To facilitate the transition to SIPP, the Census Bureau should produce concurrent time series of poverty rates from both SIPP and the March CPS by using the proposed revised threshold concept and updating procedure and the proposed definition of family resources as disposable income.
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From page 283... ...
With regard to data quality, many income questions in the March CPS have high nonresponse rates: overall, 20 percent of estimated total income from the CPS represents imputed rather than reported values. There are other kinds of reporting errors as well.
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From page 284... ...
The CNSTAT Panel to Evaluate SIPP concluded that these changes would make it possible for SIPP to produce timely income statistics of high reliability. Noting the limited ability to make further improvements to the March CPS, the SIPP panel recommended that, over time, SIPP replace the March CPS for purposes of producing income, poverty, and related statistics.24 23 The CNSTAT SIPP panel believed that further expansion of sample size would be possible once planned improvements in data collection and processing are put into place.
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From page 285... ...
Orienting SIPP to Poverty Measurement A decision to use SIPP to produce the official poverty data means that all aspects of the survey should be reviewed to determine their suitability for providing the most accurate statistics possible under the proposed measure. A key aspect for review is the proposed redesign of the survey.
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From page 286... ...
or asked more frequently (e.g., child care expenses or child support payments) , while others may need to be modified.
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From page 287... ...
Admittedly, the construction of disposable income with the March CPS is complicated by the necessity for extensive imputations: in addition to imputation procedures for taxes and nonmedical in-kind benefits that already exist, the Census Bureau would need to develop imputation procedures for out-of-pocket medical expenditures, child care expenses, and child support payments.27 However, we believe that such procedures can be developed, using data from such sources as SIPP and NMES, and that it would be very useful for researchers and policy analysts to have concurrent series. Any imputations that are performed, whether on the March CPS or SIPP, should be evaluated as to their quality and the sensitivity of the resulting poverty rates to the form of the imputation.
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From page 288... ...
Given limited questionnaire space, we believe that it is more important to include questions that will permit estimating disposable income (e.g., questions on net pay, child care costs, and food stamp benefits) than it is to include questions to distinguish among a large number of components of gross money income (e.g., types of cash transfers or property income)
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From page 289... ...
Comparisons of poverty rates from SIPP based on a full implementation of the disposable income concept with rates based on a partial implementation (e.g., based on money income only, or money income, taxes, and nonmedical inkind benefits only) could form the basis for developing appropriate adjustment factors for other surveys.
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From page 290... ...
Again, the basis for such adjustments could be analysis of poverty rates with SIPP: for example, comparing rates estimated with a disposable money and near-money income definition to rates estimated with a gross money income definition for various groups. If key population groups (e.g., the elderly, minorities)
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From page 291... ...
A major expansion, from 5,000 households or consumer units (the number provided for analysis purposes by the Interview Survey component of the CEX) to 50,000-60,000 households (i.e., the sample size of SIPP or the March CPS)
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From page 292... ...
The review should consider ways to improve the CEX for the purpose of developing poverty thresholds, for making it possible at a future date to measure poverty on the basis of a consumption or expenditure concept of family resources, and for other analytic purposes related to the measurement of consumption, income, and savings.
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