Wednesday, September 03, 2008

5 Problems With Census Poverty and Income Data

A previous CD post pointed out one of the problems with historical median household income from the Census Bureau income data: It doesn't adjust the declining household size over time. After adjusting for household size, real median income is at an all-time high (see charts above).

Robert Samuelson points out three more problems with poverty and income data from the Census Bureau: a) comparing real household income or poverty rates in 2007 to the year 2000 is unfair because 2000 was an artificially high benchmark because of the "tech bubble," b) immigration distorts commonly cited statistics for both poverty and income, and c) Census figures understate income gains by not counting fringe benefits.

Greg Mankiw cites another problem today with Census income data, citing the NY Times, which reported that "The current poverty measure only counts cash as income, and doesn't include government assistance like food stamps, housing subsidies and tax credits. Such aid has been devised to help support the poor, but its impact is not calculated by the current measure."

HT: Greg Mankiw


At 9/03/2008 11:25 AM, Blogger David B Katague said...

I enjoy reading your article. This reminds me of my short blog about the projected overpopulation in the philippines and its relation to poverty and future economic disaster for the country. Have a good day..

At 9/03/2008 1:49 PM, Anonymous Anonymous said...

I presume the failure of the current poverty measure to count government transfer payments is intentional. That is, it overcounts poverty precisely because that will tend to reinforce calls for more government programs to eradicate it.

As for the Philippines, the Muslim civil war will do far more to cause poverty than population.

At 9/03/2008 4:30 PM, Blogger the buggy professor said...

Another revealing post, Mark.

1) There's a further problem with poverty measures besides the ones Samuelson and Mankiw mention: census bureau interviews with over a 2 million households yearly --- on a random basis --- find that those listed officially in poverty actually spend $2.40 or so per year on consumption for every dollar of reported income.

2) This is not a gap confined to the US. Similar gaps, slightly smaller, have been found in England and in Australia.

3) How do people officially on poverty spend far more than reported income?

* They are temporarily in it, maybe owing to a lost job while searching for a new one, and draw on savings.

* They get unreported financial support from family members who are working.

* They borrow money, say students in universities for their education, while using what funds they earn for consumption purposes.

* Or they are moon-lighting and not reporting the earned income. (Or, possibly too, resorting to crime for extra money. Or, alternatively, a single-mother with children gets unreported financial aid from the non-present father.)

4) Studies further show that about 50% of people in poverty --- remember, most are there temporarily and move out within a couple of years or so --- own their residences (vs. 69% or so for those in higher income categories who own them). Something like 70-75% own an auto. And most have color TVs, air-conditioners, and good working refrigerators.

5) Within a few years, the turnover in the poverty ranks thanks is fairly marked in the direction of higher income . . . even if a fair number still stay in the bottom quintile (most don't and move up in quintiles).

And some move way up: usually grad students originally, with families often, who upon graduation become doctors, lawyers, professors, teachers, bureaucrats, or what have you.

5) There are racial gaps here.

Broadening poverty to look at the bottom quintile of American income-earners, 54% of black kids born to parent in that category stay there in adulthood. The equivalent figure for white kids is 37% (a Brookings Institute study last year is the source.)


The same racial gap exists for middle-income kids.

68% of white kids born and raised in middle-income families earn more on an average than their parents, whereas only 31% of black kids do.

And though some of this may be due to discrimination, it appears that different educational achievement is the major cause here. An equally contributing cause is the virtual disappearance of the two-parent black family in the inner cities: a good 70% of black kids are now born to women out of wed-lock, and the absence of a working father-figure not only reduces family income, but adds to the social, educational, and psychological problems of especially boys growing up under motherly authority that they resent and associate with women in general as figures to rebel against.

5) Samuelson, in the article you cite, referred to 3.2 million more Hispanic poor immigrants in poverty compared to the early 1990s. Actually this is misleading.

The number of poor Hispanics has indeed risen since the early 1990s --- owing to immigration (legal and illegal) and higher birth rates --- but the number of Hispanics moving up and out of low income categories, never mind poverty, has grown even faster.

See the reply to Samuelson by Robert Greenstein:


6) Note, finally, to return to poverty measures, that though in-kind benefits like Medicaid, rent-subsidies, school lunches, and food stamps aren't counted in poverty assistance, there is in the other direction no effort for low-income earners in poverty to account for the loss in disposable income that derive from transportation costs to and from work, or single-parent payments for child care while the parent works, or out-of-pocket medical expenses for low-income families that do not get poverty assistance and lack health insurance.


So the picture is mixed, though the duration and penny-pinching nature of poverty are generally
overplayed and exaggerated by the media.


Michael Gordon, AKA, the buggy professor

At 9/04/2008 1:49 PM, Anonymous Anonymous said...

"Per household" is a tricky divisor. Over the period you're looking, the median household changed its labor participation from one worker to two. Thus, one might expect an almost-doubling in household wage.

At 9/05/2008 11:37 AM, Anonymous Anonymous said...

anon @ 1:49 - Except that as you increase the supply of workers you decrease the price (i.e. income). Right?


Question: Is it correct to compare average number of persons per household to median household income? Shouldn't we use median persons per household to get the situation that "most" people are in?


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