Poverty Threshold Alternatives / Choices
Thesia I. Garner Senior Research Economist Division of Price and Index Number Research
Brookings/Census Bureau Conference on Improved Poverty Measurement October 20, 2009 (revised October 21, 2009)
www.bls.gov The materials presented are based on research and do not reflect an official BLS position or the opinions of other BLS employees. This paper builds on research since 2009 JSM: Choices
Threshold and Assumptions/Choices/Alternatives Concepts Basic needs Multipliers Distribution Reference unit Updating Use of equivalence scales
JSM 2009 restricted to 2007 thresholds
Current research Trends over time Underlying reasons for movements – Prices – Impact of 2007 CE questionnaire and processing changes National Academy of Sciences Recommendations
2.1-2.4 A poverty threshold with which to initiate a new series of official U.S. poverty statistics should be derived from Consumer Expenditure Survey [CE] data for a reference family of four persons (two adults and two children).
Basic bundle Percentage of median expenditures Multiplier for other needs Updating Real growth in consumption
3.1 Adjustments
The NAS recommended a Procedure. 3 Concepts Used to Define Thresholds
Spending How much does it costs, or does one need to spend, to meet basic needs?
But … for some needs, such as housing, spending does not equal consumption (e.g., subsidized, own)
Consumption How much does it costs, or what is the consumption value, to meet basic needs? Thresholds Defined in Terms of…
Food, Clothing, Shelter, and Utilities FCSU
Spending Official poverty threshold FCSU without principal payments FCSU with principal payments
Alternative: Spending and Consumption Expenditures with adjusted for select consumption (e.g., rental equivalence for owner-occupants, market value of subsidized and rent-control housing) Caution….
For a more complete consumption based threshold, would also need data on …
Rent controlled or government subsidized housing School breakfast, school lunch, WIC, energy assistance, elder coupons Medical consumption not financed out-of-pocket Goods and services received as gifts (“net” value of gifts)
And values would be added to resources for consistency Threshold Equations
Have used in the past
(1.15*PLH * Median )+ (1.25* P * Median ) 2 Used the midpoints of the percentages and multipliers
Recent proposal 1.20*33rd percentile Three-parameter Equivalence Scale
one and two adults [adults]0.5
single parents [adults + 0.8*1st child + (0.5*children-1)]0.7
all other families [adults + 0.5*children]0.7 Basic Threshold and Alternatives
Basic Median FCSU expenditures – With principal payments Percentages of median – 0.78 and 0.83 Multipliers – 1.15 and 1.25 Alternatives Without principal payments Consumption - owners’ shelter Quarterly data independence Census family versus Consumer unit Median versus 33rd percentile Annual versus quarterly price adjustment
Housing payment status 9 2007 FCSU Thresholds: Basic Assumptions
$30,000
$25,804
$25,000 $23,569
$20,000
Difference=$2,235 $15,000
$10,000
$5,000
$0 CF-no pp CF BASE pp “CF” refers to Census family composed of 2 adults and 2 children 2007 FCSU Thresholds: Spending vs. Consumption
$30,000 $27,512 $27,956 $25,804 $25,000
$20,000
Difference;$1,718 $15,000
$10,000
$5,000
$0 CF BASE pp CF REQ fixed pc CF REQ vary PC 2007 FCSU Thresholds: Independent Quarters vs. 4 Complete Quarters
NOTE: difference due to summation $30,000 and price adjustment at micro level $26,878 $25,804 $26,183 $25,000
NOTE: difference due to summation $20,000 and price adjustment at micro level
$15,000
$10,000
$5,000
$0 CF BASE pp CF 4 comp ind CF 4 comp not ind NOTE: difference due to demographics 2007 Thresholds: Census Families vs. Consumer Units and Price Adjustment
$30,000
$25,804 $25,865 $25,151 $25,179 $25,000
$20,000
$15,000
$10,000
$5,000
$0 CF BASE pp CU 2+2, Median, CU 2+2, Median, CU 2+2, 33, QCPI ACPI QCPI
Difference: Census Family vs CU Difference: Median vs 33rd percentile 2007 Thresholds for Consumer Units by Housing Payment Status
$30,000
$26,732 $25,179 $25,000
$20,000
$14,833 $15,000
$10,000
$5,000
$0 CU 2+2, 33, QCPI with mort, rent pay no mort, no rent pay Percentage Increase in FCSU Expenditures (with principal payments, quarterly price adjusted) from Previous Year 8.00% 7.11% 7.23% 7.00%
6.03% 6.00% 5.10% 5.00%
4.00%
3.00%
2.00%
1.00%
0.00% 2007 2008
FCSU median FCSU 33rd PC
NOTE: changes at the median less sensitive than changes at the 33rd percentile Trends Over Time
Trends 1996-2008 Changes related to Prices Overall Spending Income Changes related to CE questionnaire design and processing
16 CE Interview-Based FCSU Thresholds Using Medians with and without Principal Payments $35,000
$30,000 $27,043 $25,804
$24,069 $25,000 $22,769 $21,895 $24,755 $21,218 $20,757 $23,569 $19,935 $19,097 $21,902 $20,000 $18,196 $17,697 $20,776 $17,109 $19,782 $20,138 $16,749 $19,376 $18,765 $17,906 $17,044 $15,000 $16,544 $15,742 $16,018
$10,000
$5,000
$0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
FCSU (w pp) threshold FCSU (wo pp) threshold
NOTE: historically consistent series Percentage Changes in FCSU Median Expenditures from Previous Years 8.00% 7.61%
7.21% 7.00%
6.00% 5.71% 5.42%
5.06% 5.03% 4.96% 5.00% 4.80% 4.80%
4.39% 4.12% 3.99% 4.00%
3.44% 3.29% 3.25% 3.19% 3.17% 3.02% 3.00% 2.82%
2.22% 2.15% 2.10%
2.00% 1.75% 1.80%
1.00%
0.00% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
% increase in FCSU median expenditures with principal payments % increase FCSU median expenditures without principal payments Annual* CPIs
2.60
2.40
2.20
SHEL_CPI 2.00 CPI
1.80 FOOD_CPI
UTIL_CPI 1.60 APP_CPI
1.40
1.20
1.00 Census Family Mean Income, Expenditures, and FCSU (without principal payments) Thresholds within the 47th to 53rd Range of the FCSU Expenditure Distribution
$80,000
$70,000
Before Tax Money Income $60,000 Ztotal (range)
$50,000 FCSU Median (wo pp)
FCSU wo pp Threshold $40,000
Official Poverty Threshold
$30,000
$20,000
$10,000 2004 2005 2006 2007 2008 Changes in CE Interview Questionnaire in 2007Q2: Affect on Thresholds
Mortgage edits in processing
Change in question wording for food away from home expenditures 2007 Improvements to Mortgage Edits
Prior to 2007Q2 Before 2006, Field Representatives (FRs) could not report a mortgage as an “interest only” mortgage In 2006, FRs given the ability to report mortgage as “interest only”, but the information not used in processing Beginning with 2007Q2 Questionnaire revised to better collect interest only mortgages Mortgage edit processing began utilizing “interest only” designation 2007 Improvements to Food Away From Home Data Collection
Prior to 2007Q2 CE Interview survey collected usual monthly expenditures for food away from home Cognitive testing indicated collecting usual weekly amount results in more accurate data Beginning with 2007Q2 Questionnaire revised to collect usual weekly expenditures for food away from home Interview data for food away for 2007 more comparable with the Diary data for 2007 as compared to past years Census Family Median FCSU Expenditures (without principal payments) and in 47th to 53rd Percentiles of FCSU Expenditure Distribution (in 2007 dollars using 2008 qtr 1)
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0 2007 (2005Q2-2006Q1) 2007 (2006Q2-2007Q1) 2007 (2007Q2-2008Q1)
Median Total FCSU (wo) Mean Total FCSU (wo) Food Away from Home (wo) Mortgage Interest Payments (wo)
Reference Family Median FCSU Expenditures (without principal payments) and Mean of Expenditures in 47th to 53rd Percentiles of FCSU Expenditure Distribution (in 2008 dollars using 2009 qtr 1)
$30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 2008 (2006Q2-2007Q1) 2008 (2007Q2-2008Q1) 2008 (2008Q2-2009Q1) Median Total FCSU (wo) Mean Total FCSU (wo) Food Away from Home (wo) Mortgage Interest Payments (wo) Distribution of Census Reference Families within the 47th to 53rd FCSU Expenditure Distribution (without Principal Payments) by Threshold Year 80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Renter-Public Housing Renter-Govt Pays Own with Mortgage Own without Mortgage Rent
NOTE: in the 2007Q2-2008Q1 period reference families had different characteristics than in other periods: fewer owners with mortgages and more non-subsidized renters Reference Family FCSU Median Expenditures (with and without out principal payments) and Official Poverty Thresholds
$30,000 $30,000
$25,000 $25,000
$20,000 $20,000 in 2006$ in 2007$ in 2008$ $15,000 $15,000
$10,000 $10,000
$5,000 $5,000
$0 $0
Median FCSU (w pp) Median FCSU (wo pp) Official Poverty Threshold
NOTE: microdata adjusted by CPI Changes in FCSU Median Expenditures from Previous Years Using Different Updating 8.00% 2006Q-2007Q1 12 quarters 7.00% data updated to threshold year of data updated to threshold year 6.00% CPI price adjustment to 2006 5.00% threshold
4.00%
3.00%
2.00%
1.00%
0.00%
% increase in FCSU median expenditures with principal payments % increase in FCSU median expenditures without principal payments
Note: expenditures were on the rise during the 2006 period even before Changes in CE design and processing. Summary and Conclusions
Endogenous choices that affect thresholds
Exogenous factors affecting thresholds
What can be done Choices and Impact on Thresholds
Higher Lower With mortgage principal Without mortgage principal payments payments Consumption Spending Median 33rd percentile Annual updating of Quarterly updating of quarterly data quarterly data Census family Consumer unit Quarterly CE data not Quarterly CE data independent independent Owners with mortgages Owners without mortgages and rents with payments Exogenous Factors
Underlying spending patterns Underlying prices CE questionnaire design and processing
RESULT: using 3 years of data smoothes impact of exogenous factors
30 Contact Information
Thesia I. Garner Senior Research Economist Division of Price and Index Number Research/OPLC
202-691-6576 [email protected]
www.bls.gov Extra Information
www.bls.gov32 FCSU Threshold: Out-of- pocket Spending
Food (includes Food Stamps value) Clothing Utilities (includes telephone) For renters, shelter expenditures For homeowners, non-vacation shelter expenditures that include – Mortgage interest payments – Mortgage principal repayments (“pp”) – Prepayment penalties – Property taxes – Maintenance, repairs, insurance and other related expenditures FCSU Threshold Accounting for Consumption
Out-of-pocket spending on – Food – Clothing – Utilities (includes telephone) – Rent of renters Food as pay Rent as pay Rental equivalence of owners 2007 FCSU Thresholds Based on Alternative Assumptions
$29,000 Based on Medians Based on $28,000 33rd percentile $27,000
$26,000
$25,000
$24,000
$23,000
$22,000
$21,000
$20,000 no pp pp no - CF 1.20 CF 2005 CF 2006 CF 2007 CF equiv CF CF CF vary pc CF BASE CF BASE pp CU 2+2, CU 2+2, ACPI CU 2+2, CU 2+2, QCPI CF 4 4 CF comp indp CF REQ PC vary CF CF REQ fixed pc fixed REQ CF CU 2+2, 33, QCPI2+2, CU CF 4 4 not ind comp CF
Census Family Consumer unit 33, QCPI,2+2, 2005 CU 33, QCPI,2+2, 2006 CU 33, QCPI,2+2, 2007 CU
NOTE: from 2009 JSM Average Food Away from Home and Mortgage Interest Payment Expenditures in the 47 to 53 Percentile Range of FCSU Expenditures (without Principal Payments) $7,000
$6,000
$5,000 Mortgage Interest $4,000 2008 Payments (wo) 2006 2007 $3,000 Food Away from $2,000 Home (wo)
$1,000
$0
Average Food Away from Home, Mortgage Interest and Principal Payment Expenditures in the 47th to 53 Percentiles of FCSU Expenditures (with mortgage Principal Payments)
$7,000
$6,000 Mortgage $5,000 Interest Payments (wpp) $4,000 2008 2006 2007 Food Away from $3,000 Home (wpp)
$2,000 Mortgage Principal $1,000 Payments $0 Weighted Percentage Distributions of Reference Families in the 47th to 53rd Percentile Distributions of FCSU Expenditures by threshold Year (without principal payments) by Demographic Characteristics Data collection period Own Food Renter-Public Renter-Govt Own with without Other Welfare Stamps Housing Pays Mortgage Mortgage Own Other Rent Tenure 2006 (2004Q2- 2005Q1) 0.00% 0.00% 3.34% 0.00% 76.94% 4.00% 0.00% 19.06% 0.00% 2006 (2005Q2- 2006Q1) 0.00% 0.00% 3.83% 0.00% 79.80% 4.34% 0.00% 15.86% 0.00% 2006 (2006Q2- 2007Q1) 0.00% 0.00% 0.00% 4.41% 80.56% 3.94% 0.00% 15.50% 0.00%
2007 (2005Q2- 2006Q1) 0.00% 0.00% 3.83% 0.00% 79.80% 4.34% 0.00% 15.86% 0.00% 2007 (2006Q2- 2007Q1) 0.53% 2.34% 0.00% 3.85% 78.96% 3.19% 0.00% 17.86% 0.00% 2007 (2007Q2- 2008Q1) 0.63% 0.63% 0.00% 5.28% 66.45% 2.70% 0.00% 30.85% 0.00%
2008 (2006Q2- 2007Q1) 0.00% 0.00% 0.00% 3.85% 78.96% 3.19% 0.00% 17.86% 0.00% 2008 (2007Q2- 2008Q1) 0.00% 0.00% 0.00% 3.37% 66.63% 2.72% 0.00% 30.65% 0.00% 2008 (2008Q2- 2009Q1) 0.00% 0.00% 0.00% 0.00% 76.27% 2.41% 0.00% 21.31% 0.00%
2006 (2004Q2- 2007Q1) 0.00% 0.00% 2.33% 1.33% 77.62% 4.74% 0.00% 17.64% 0.00% 2007 (2005Q2- 2008Q1) 0.87% 2.50% 1.85% 1.24% 78.24% 2.71% 0.00% 19.05% 0.00% 2008 (2006Q2- 2009Q1) 0.00% 0.00% 0.00% 0.92% 77.51% 2.26% 0.00% 19.90% 0.33%