IDENTIFYING THE POOR: POVERTY MEASUREMENT FOR THE U.S. FROM 1996 TO 2005

The poverty measure presented compares spending needs to resources available to meet those needs. The analysis is for the U.S.; however, lessons from other countries regarding desirable properties of a poverty measure are considered. A primary focus is internal consistency between thresholds and resources. This study is among the first for the U.S. to describe an internally consistent poverty measure, drawing from recommendations of the U.S. National Academy of Sciences (NAS). Thresholds reflect spending needs as “outflows.” Resources measure “inflows” available to meet spending needs. The U.S. Consumer Expenditure Survey is used for thresholds, and the Current Population Survey is the basis for resources. Trends are reported with comparisons to the official and a relative measure. An important finding is that increases in expenditures for shelter, captured in the NAS thresholds, suggest a greater increase in the number of families not able to meet basic needs than is reflected by official poverty statistics over this time period.     

HOW CERTAIN ARE DUTCH HOUSEHOLDS ABOUT FUTURE INCOME? AN EMPIRICAL ANALYSIS

The precautionary saving literature shows that income uncertainty increases savings and wealth. To estimate the magnitude of this effect, we need a measure of income uncertainty. This paper empirically analyzes subjective income uncertainty in The Netherlands. Data come from a large Dutch household survey. We measure income uncertainty by asking questions on expected household income in the next twelve months. First, we describe the data and investigate the relationship between the measure of income uncertainty and a number of household characteristics. Controlling for information on expected income changes, we find strong relationships between labor-market characteristics and the subjective income uncertainty as reported by the heads of the households. Second, we compare income uncertainty in The Netherlands with income uncertainty in the U.S. and Italy. It becomes evident that perceived income uncertainty is smaller in The Netherlands than it is in the U.S.     

HOUSEHOLD INCOME PLUS HOUSEHOLD PRODUCTION: THE DISTRIBUTION OF EXTENDED INCOME IN THE U.K.

This paper provides new estimates of the distribution of extended income amongst non-elderly, one-family households in the U.K. by combining household money income data and valuations of household production time. Extended income is substantially more equal than money income and extending the income definition changes income relativities significantly between families with and without earners and between married couple families and singles.     

A NEW LOOK AT THE WEALTH ADEQUACY OF OLDER U.S. HOUSEHOLDS

We examine the current wealth adequacy of older U.S. households using the 1998–2006 waves of the Health and Retirement Study (HRS). We find that the median older U.S. household is reasonably well situated, with a ratio of comprehensive net wealth to present value poverty‐line wealth of about 3.9 in 2006. About 18 percent of households, however, have less wealth than would be needed to generate 150 percent of poverty‐line income over their expected future lifetimes. We see similar patterns of wealth adequacy when we examine ratios of annualized comprehensive wealth to pre‐retirement earnings. Comparing the leading edge of the baby boomers in 2006 to households of the same age in 1998, we find that the baby boomers show slightly less wealth, in real terms, than their elders did, but still appear to have adequate resources at the median. Moreover, we find a rising age profile of annualized wealth, even within households over time and after controlling for other factors, suggesting that older households are not spending their wealth as quickly as their survival probabilities are falling.     

THE DISTRIBUTIONAL CONSEQUENCES OF GOVERNMENT SPENDING AND TAXATION IN THE U.S., 1989 AND 2000

We assess the effects of government expenditures and taxation on household economic well-being in the United States in 1989 and 2000. Net government expenditure is estimated as the difference between government expenditures incurred on behalf of the household sector—transfers and public consumption—and the taxes paid by that sector. We incorporate the estimates of net government expenditures into a wealth-adjusted measure of income. We find that overall inequality in our income measure is considerably reduced by net government expenditures. Results from decomposition analysis show that the inequality-reducing effect of net government expenditures owed more to expenditures than to taxes.     

THE DISTRIBUTION OF PUBLIC EXPENDITURES AND TAXES AMONG HOUSEHOLDS IN THE UNITED KINGDOM*

This paper presents an analysis of the distributive impact of public expenditures and taxes in the United Kingdom. The analysis uses household level microdata from the 1971 Family Expenditure Survey, with tax and expenditure aggregates drawn from the national accounts. The analysis is the first to allocate all taxes and public expenditures for the United Kingdom, and the results are compared to those from the more restricted analyses carried out by the U.K. Central Statistical Office. Results are presented for individual taxes and benefits as well as for overall net benefits and they describe distributional effects with respect to income class, household size, number of earners and housing tenure. A final section of the paper compares the results to those from a similar analysis for the United States which were reported in the previous issue of this review.     

WEALTH HOLDINGS AND POVERTY STATUS IN THE U.S.

Families below the poverty line are better off in terms of wealth than income. In 1962, the ratio of mean income between families below and above the poverty line is 0.19 and the ratio of mean wealth is 0.29. The corresponding ratios for 1983 are 0.16 and 0.19. On average, the elderly poor are better off in terms of wealth than the younger poor, particularly relative to their own income. However, the poor have become worse off in terms of wealth between 1962 and 1983, when their real income grew by 6 percent and their real wealth declined by 11 percent. The inclusion of pension and social security wealth in the household portfolio narrows the wealth gap between the poor and non-poor, particularly for families under 65 years of age. Alternative poverty rates are also calculated based on the inclusion of annuity flows from wealth in household income. The reduction in the poverty rate between 1962 and 1983, from 21 to 15 percent on the basis of the official rate, is considerably lower with these alternative definitions.     

TIME VS. GOODS: THE VALUE OF MEASURING HOUSEHOLD PRODUCTION TECHNOLOGIES

We take U.S. and Israeli household data on expenditures of time and goods, generate an exhaustive set of commodities that households produce/consume using them, and calculate their relative goods intensities. Leisure activities are uniformly relatively time intensive, health, travel and lodging relatively goods intensive. We demonstrate how education and age alter the goods intensity of household production. The results of this accounting can be used as guides to: understanding how goods and income taxation interact to affect welfare; expanding notions of the determinants of international flows of goods; generating models of business cycles and endogenous growth to include interactions of goods and time consumption; and obtaining better measures of the distribution of well being.     

THE DISTRIBUTION OF PUBLIC EXPENDITURE AMONG HOUSEHOLDS IN THE UNITED STATES*

This paper presents an analysis of the distributive impact of government expenditures in the United States. The analysis uses a household-level microdata file drawn from the 1970 U.S. Census of Population, with additional income and tax variables drawn from the Internal Revenue Service 1969—70 Tax File. The results are presented at both federal and local levels and include analyses of the distribution of individual benefits, as well as of overall taxes and net benefits. Since a microdata file was used, distributional effects are examined with respect not only to the “traditional” variables of income class and household size, but also with regard to the number of earners in the household and the sex and race of the household head. In a further paper in a subsequent issue of this review we will present the results of a similar analysis for the United Kingdom, and compare the results for the two countries.     

HOUSEHOLD NEEDS AND POVERTY: WITH APPLICATION TO SPAIN AND THE U.K.

We examine the sensitivity of U.K.-Spanish poverty comparisons to variations in the dependence of equivalence scales on household size and composition, using evidence from national household budget surveys. We sum up these comparisons using subjective confidence levels. Taking into account the dissimilarities in the distribution of incomes and needs across countries, we find, inter alia , that although the poor are typically more numerous in Spain than in Britain, the actual headcount differences may vary by up to 10 percent of the population when needs allowances are altered, even when kept the same across the two countries. Comparisons of poverty composition across the two countries are also very sensitive to the choice of equivalence scale parameters. Generally, however, the proportion of single adults among the poor is much less important in Spain than in Britain, the reverse being true for households with three or more adults.     

COMPARING INCOMES WHEN NEEDS DIFFER: EQUIVALIZATION FOR THE EXTRA COSTS OF DISABILITY IN THE U.K.

Equivalization of incomes for household composition is accepted practice when measuring poverty but other variations in needs are rarely acknowledged. This paper uses data from two U.K. household surveys to quantify the extra costs of living associated with disability. The extra costs of disability are derived by comparing the "standard of living" of households with and without disabled members at a given income, having controlled for other sources of variation. Logit and ordered logit regressions are used to estimate the relationship between a range of standard of living indicators, income, and disability. The extra costs of disability derived are substantial and rise with severity of disability. Unadjusted incomes significantly understate the problem of low income amongst disabled people, and thereby in the population as a whole.     

IS POVERTY INCREASING IN THE DEVELOPING WORLD?

We assess the developing world's progress in reducing poverty during the late 1980s using new data on the distribution of household consumption or income per person for 44 countries. Local currencies are adjusted to purchasing power parity. To assess robustness, restricted dominance tests are applied to the poverty comparisons. An overall decrease in poverty incidence is indicated over a wide range of poverty lines and measures. However the change is small, and numbers of poor increased at roughly the rate of population growth. The experience was diverse across regions and countries; poverty fell in South and East Asia, while it rose in Latin America and Sub-Saharan Africa.     

COHABITATION AND THE MEASUREMENT OF CHILD POVERTY

We use 1990 U.S. Census of Population data to calculate what poverty rates would have been if cohabitors were treated in the same manner as married couples. We find that the official treatment of cohabiting partners as separate family units overstated the extent of poverty in 1989 among all children by about three percent. Only about 11 percent of the observed rise in child poverty between 1969 and 1989 would be eliminated if the Census Bureau made this change in its definition of the family. We estimate a logistic regression model of the likelihood that poor, cohabiting families with children would be reclassified as non-poor if the cohabitor's income were included in family income.     

Are Americans Really Less Happy with Their Incomes?

Recent economic research on international comparisons of subjective well‐being suffers from several important biases due to the potential incomparability of response scales within and across countries. In this paper we concentrate on self‐reported satisfaction with income in two countries: the Netherlands and the U.S. The comparability problem is addressed by using anchoring vignettes. We find that in the raw data, Americans appear decidedly less satisfied with their income than the Dutch. It turns out however that after response scale adjustment based on vignettes, the distribution of satisfaction in the two countries is essentially identical. In addition, we find that the within‐country cross‐sectional effect of income on satisfaction—a key parameter in the recent debate in the economic literature—is significantly underestimated, especially in the U.S., when differences in response scales are not taken into account.     

Food expenditures and household demographic composition in the US: a demand systems approach

Food expenditures and subsistence quantities of poverty status and non–poverty status US households are analysed within a Linear Expenditure System that postulates subsistence quantities to be linear combinations of demographic variables. Using the US Bureau of Labor Statistics' 1992 Consumer Expenditure Survey and Detailed Monthly Consumer Price Indices, this article obtains expenditure elasticities, own–price elasticities and subsistence quantities for each income group across nine broadly aggregated food commodity groups. Elasticity estimates and subsistence quantity estimates differ across income groups, supporting the premise that policies targeted at specific income groups should be based on the target group's elasticity estimates rather than average population elasticities. Parameter estimates are then used to simulate how subsistence quantities and own–price elasticities can be expected to vary according to the demographic composition of the household within a specific income group.     

The impact of natural disasters on household income,expenditure, poverty and inequality: evidence from Vietnam

Natural disasters are expected exacerbate poverty and inequality, but little evidence exists to support the impact at household level. This article examines the effect of natural disasters on household income, expenditure, poverty and inequality using the Vietnam Household Living Standard Survey in 2008. The effects of a natural disaster on household income and expenditure, corrected for fixed effects and potential endogeneity bias, are estimated at 6.9% and 7.1% declines in Vietnamese household per capita income and expenditure, respectively. Natural disasters demonstrably worsen expenditure poverty and inequality in Vietnam, and thus should be considered as a factor in designing poverty alleviation policies.     

POVERTY IN PRE-REFORM UZBEKISTAN: WHAT DO OFFICIAL DATA REALLY REVEAL?

Using 1989 household survey data, we investigate large differences in poverty measured with a conventional all-Union per capita income line between Uzbekistan, the largest Central Asian republic of the former U.S.S.R., and Ukraine as an example of a European republic. We show that (i) differences between the two countries in the distribution of household size is not the main explanation, (ii) undervaluation of agricultural income in kind understates the welfare of rural households, something of particular importance in Uzbekistan, and (iii) indicators of food consumption provide important additional information. Lessons are drawn for the measurement of poverty in post-Union Uzbekistan.     

THE WELFARE STATE AND POVERTY IN FINLAND AND SWEDEN FROM THE MID-1960s TO THE MID-1980s

Using poverty lines representing the fixed basket of goods and services, the development over time of poverty in Finland and Sweden are compared. In both countries, poverty decreased rapidly between the mid-1960s and the mid-1970s, after which changes have been less dramatic. During the first part of the 1980s poverty continued to decrease in Finland, but increased in Sweden. Comparisons for age-groups showed large reductions in poverty rates among the aged in both countries. Poverty has shifted from the permanent old age poverty towards a more temporary poverty in young adulthood.
International comparisons show that in the early 1980s both Finland and Sweden had poverty rates below the average of the affluent Western nations. Furthermore, these comparisons suggest that cross-national variations in poverty rates are partly explained by the size of the welfare state. Also, time series analysis shows that income transfers have taken an increasing number of people out of poverty in both countries.     

THE ECONOMIC STATUS OF THE ELDERLY: BEWARE OF THE MEAN*

Current discussion contains widely contradictory statements about the economic status of the elderly in the United States. One can read that poverty among the elderly has been eliminated, and that it remains one of the most serious problems facing the country today. This paper discusses different ways of measuring economic status, and attempts to show how authors can reach such divergent conclusions, and support them with readily available data. The U.S. Census data on personal income generally exclude in-kind benefits, and treat family size in a straightforward though unsophisticated manner. This paper shows that alternative treatments of these issues can have significant effects on indices of the economic status of the elderly. Whether or not in-kind benefits are included in the definition of income, which in-kind benefits are included and how they are valued change the conclusions dramatically. Even more important is whether the income data are presented by household or per capita (or with some intermediate divisor, using equivalency scales), since elderly households are the smallest of any age category. This paper makes 3 points. One is that there has been significant progress in the economic status of the elderly over the past several decades, although the extent of the improvement is subject to debate. But the second is that summary statistics about the elderly, such as the above, may conceal more than they reveal. The diversity of the elderly is key. Beware of the mean. Finally, there is no one correct way to measure well-being. Different methodological approaches can be chosen and justified, and the choices made alter the conclusions significantly.     

MEASURING POVERTY USING BOTH INCOME AND WEALTH: A CROSS‐COUNTRY COMPARISON BETWEEN THE U.S. AND SPAIN

We study the correspondence between a household's income and its vulnerability to income shocks in two developed countries: the U.S. and Spain. Vulnerability is measured by the availability of wealth to smooth consumption in a multidimensional approach to poverty, which allows us to identify three groups of households: the twice‐poor group, which includes income‐poor households who lack an adequate stock of wealth; the group of protected‐poor households, which are all those income‐poor families with a buffer stock of wealth they can rely on; and the vulnerable‐non‐poor group, including households above the income‐poverty line that do not hold any stock of wealth. Interestingly, the risk of belonging to these groups changes over the life‐cycle in both countries while the size of the groups differs significantly between Spain and the U.S., although this result is quite sensitive to whether the housing wealth component is included in the wealth measure or not.