Five Decades of Consumption and Income Poverty

Abstract

This paper examines poverty in the United States from 1960 through 2005. We investigate how poverty rates and poverty gaps have changed over time, explore how these trends differ across family types, contrast these trends for several different income and consumption measures of poverty, and consider explanations for the differences in trends. We document sharp differences, particularly in recent years, between different income poverty measures, and between income and consumption poverty rates and gaps. Moving from the official pre-tax money income measure to a disposable income measure that incorporates taxes and transfers has a substantial effect on poverty rate changes over the past two decades. Furthermore, consumption poverty rates often indicate large declines, even in recent years when income poverty rates have risen. We show that bias in the CPI-U has a sizable effect on changes in poverty. Between the early 1960s and 2005, an income poverty measure that corrects for bias in this price index declines by 14 percentage points more than a comparable measure based on the CPI-U. The patterns are very different across family types, with consumption poverty falling much faster than income poverty for single parents and the elderly, but more slowly for married couples with children. Income and consumption measures of deep poverty and poverty gaps have generally moved sharply in opposite directions in the last two decades with income deep poverty and poverty gaps rising, but consumption deep poverty and poverty gaps falling. While relative poverty rose in the early 1980s, changes in relative poverty have been fairly small since 1990. We examine the role that demographics, taxes, and transfers play in explaining changes in poverty over the past three decades. We also consider whether measurement error, saving and dissaving, and other explanations can account for income and consumption differences.

The fading American dream: Trends in absolute income mobility since 1940

“…Several studies have noted that the CPI-U-RS may overstate inflation by failing to account Chetty adequately for improvements in product quality and the introduction of new goods (22,23). Prior work on the measurement of trends in poverty recommends subtracting 0.8 percentage points from the annual inflation rate implied by the CPI-U-RS to account for such biases (24,25). The series in squares in Fig.…”

Recent Trends in U.S. Income and Expenditure Poverty

“…When, instead of the official pretax money income measure, a more comprehensive income definition that reflects noncash food and housing transfers and direct taxes is employed, income‐poverty rates and trends over two decades have been shown to be similar to those produced with consumption measures (Bavier, ; Johnson, ). Between 2000 and 2008, however, consumption poverty appears to decline, while comprehensive income poverty appears to increase (Meyer & Sullivan, , ). These opposing trends raise the question of whether measurement error in one or the other was increasing over this period.…”

“…Meyer and Sullivan () note, “Meyer and Sullivan () show that similar patterns over some periods for income and consumption‐based measures of overall head count poverty mask important differences between these poverty measures” (p. 55). Also, “income‐based poverty differs from consumption poverty for substantial periods in the U.S. and … changes in poverty within groups differ sharply across these measures” (p. 53). Appendix Table of Meyer and Sullivan () presents overall poverty rates for 1980, 1990, 2000, and 2005 measured by after‐tax income plus noncash transfers from the U.S. CPS (column 2), the authors’ estimates of consumption based on the CE (column 4), and CE expenditures (column 6). Comparing 1980 to 1990, the change in income poverty is not statistically different from the changes in either consumption or expenditure poverty.…”

“…Meyer and Sullivan () note, “Meyer and Sullivan () show that similar patterns over some periods for income and consumption‐based measures of overall head count poverty mask important differences between these poverty measures” (p. 55). Also, “income‐based poverty differs from consumption poverty for substantial periods in the U.S. and … changes in poverty within groups differ sharply across these measures” (p. 53).…”

Identifying Income and Wealth-Poor Households in the Euro Area

“…(p. 52). 11 In an earlier paper, Meyer and Sullivan (2009) show that poverty measures based on income and those based on consumption have indicated developments in varying directions for the past decade in the US, with income poverty gaps rising and consumption poverty gaps falling. Insofar as this relationship between consumption and well-being exists, there is also a case for defining poverty taking households' wealth into account.…”