Three Decades of Consumption and Income Poverty

This paper examines the measurement of poverty in the United States from 1972 through 2004. We investigate how poverty rates and poverty gaps have changed over time, explore how these trends differ across demographic groups, and contrast these trends for several different income and consumption based measures of poverty. We also examine how sensitive different measures of poverty are to assumptions about equivalence scales, price adjustments, and the definition of the resource sharing unit. We document sharp differences, particularly in recent years, between different income based poverty measures, and between income and consumption based poverty rates and gaps. We find that sensible changes from the official price index and resource sharing unit tend to lead to substantial declines in measured income poverty rates, but our equivalence scale changes have only a small impact. We show moving from the official pre-tax money income measure to a disposable income measure that incorporates transfers and fringe benefits has a substantial effect on poverty rate changes over the past two decades. Furthermore, consumption based poverty rates often indicate large declines, even in recent years when income based poverty rates have risen. The patterns are very different across demographic groups, with aggregation hiding generally larger differences between income and consumption poverty rate changes, especially for the elderly. 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 based deep poverty and poverty gaps falling. Although there are some practical limitations to an official, consumption based measure of poverty, we argue that consumption poverty is preferred for measuring changes in the well-being of the worst off. *This paper was prepared for the Consumption, Income, and the Well-Being of Families and Children conference which was sponsored by the National Poverty Center with funding from the Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services. We would like to thank the Annie E. Casey Foundation for timely financial support and Vladimir Sokolov for excellent research assistance. We have also benefitted from the comments of Steven Haider, Doug McKee and seminar participants at the Institute for Research on Poverty at the University of Wisconsin, the University of California, Los Angeles, the University of Chicago, and the University of Notre Dame. Meyer: Harris School of Public Policy Studies, University of Chicago, 1155 E. 60 Street, Chicago, IL 60637 bdmeyer@uchicago.edu Sullivan: University of Notre Dame, Department of Economics and Econometrics, 447 Flanner Hall, Notre Dame, IN 46556 sullivan.197@nd.edu 1 A pointed use of poverty statistics comes from former House Ways and Means Committee Chairman Bill Archer’s opening comments in the debate on the bill that became the 1996 welfare reform. He stated that “Government has spent $5.3 trillion on welfare since the war on poverty began, the most expensive war in the history of this country, and the Census Bureau tells us we 1