We use data from the U.S. Financial Diaries study to relate episodic poverty to intra-year income volatility and to the availability of government transfers. The U.S. Financial Diaries data track a continuous year's worth of month-to-month income for 235 low-and moderate-income households, each with at least one employed member, in four regions in the United States. The data provide an unusually granular view of household financial transactions, allowing the documentation of episodic poverty, and the attribution of a large share of it to fluctuations in earnings within jobs. For households with annual income greater than 150 percent of the poverty line, smoothing within-job income variability reduces the incidence of episodic poverty by roughly half. We decompose how month-to-month income volatility responds to receipt of eight types of public or private transfers. The transfers assist households mainly by raising the mean of income rather than by dampening intra-year income variability.
Means-tested public programs and progressive tax incentives offer critical financial support to millions of low-income families and individuals. However, small changes in employment income can lead to an abrupt or gradual loss of benefits, creating a possible disincentive to enroll in training and obtain a higher-paying occupation. To help clients advance in their careers, caseworkers and other employment service providers must consider a complex set of benefits eligibility rules, support services to address barriers to employment, and labor market information to guide training and employment decisions.
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