1

Demographic Programs

U.S. Census Bureau

U S C E N S U S B U R E A U

Helping You Make Informed Decisions

U.S. Department of Commerce

Economics and Statistics Administration

U.S. CENSUS BUREAU

P23-203

Poverty Among Working Families: Findings

From Experimental Poverty Measures

Special Studies

1998

Issued September 2000

Current

Population

Reports

By John Iceland

Highlights nondiscretionary expenses, such as

taxes and work-related costs. Including This report examines poverty among the value of noncash benefits would working families with children using experi- decrease the estimated incidence of mental measures of poverty that are based poverty among working families and on recommendations by the National individuals; including nondiscretionary Academy of Sciences (NAS) Panel on Poverty expenses would increase that estimate. and Family Assistance. These experimental

poverty measures take into account ele- This report uses experimental poverty ments not included in the current official measures to more accurately discern the measure of family income, such as noncash level of economic well-being among government benefits and job-related ex- people in working families with children. penses. This analysis indicates that accord- These measures are based on recommen- ing to these experimental measures, people dations by the National Academy of in full-time working families comprise a Sciences Panel on Poverty and Family higher proportion of those in poverty than Assistance (Citro and Michael, 1995; also previously estimated. This result occurs see Ruggles, 1990). Data from the 1991 because expenses, such as child care costs, to 1999 Current Population Surveys are social security taxes, and out-of-pocket used to estimate the effect of various medical expenses, tend to outweigh the expenses and noncash transfers on noncash benefits, such as food stamps, poverty rates. working families may receive. Without the

recent expansion of the Earned Income

Credit, poverty among people in full-time Analytic Strategy

working families would be even higher. Because poverty measurement is based

on family income, size, and composition,

Introduction and because everyone within a family is

designated the same poverty status Studies have shown that although median (regardless of one’s own work status), a family incomes rose in the 1990s, not family-based measure of work is con- everyone shared equally in the prosperity. structed. In this report, a “full-time The proportion of working families living working family” is defined as one where below the poverty line has remained rela- the aggregate number of hours worked tively stable since the late 1980s despite by family members is greater than or the longest continuous economic expansion equal to 1,750 hours over the previous in decades (Goings, 1999; Klein and Rones, year. The 1,750 figure is equivalent to a 1989). Families headed by women, young work effort of 35 hours a week for 50 adults, and minorities continue to be the weeks. This concept of year-round, full- worst off (Danziger and Gottschalk, 1995). time employment is consistent with its

use in other Census Bureau reports (e.g., However, it is difficult to describe just how Dalaker, 1999; U.S. Census Bureau, people in working families are faring 1992). A part-time working family is because the official poverty measure, on defined here as one where the aggregate which the poverty estimates are currently number of hours worked by family based, does not account for other sources members ranges from 50 to 1,749 hours of noncash income, such as food stamps in the previous year. and housing subsidies, nor for
2 U.S. Census Bureau

The experimental poverty mea- money from all sources, plus the

sures in this report were introduced value of near-money benefits that

in the Census Bureau’s report, are available to buy goods and

Experimental Poverty Measures, services covered by the new

1990-1997 (Short et al., 1999). thresholds, and minus

These measures are in turn based nondiscretionary expenses. Nearon recommendations by the NAS money benefits are defined as the

Panel (Citro and Michael, 1995). In following: food stamps, housing

general, the NAS panel recom- subsidies, school lunch subsidies,

mended that a poverty measure home energy assistance, and the

should consist of a set of poverty Earned Income Credit (EIC). Exthresholds representing the cost of penses subtracted are: income

a basic bundle of needs, and a taxes (including estimated capital

definition of family resources for gains or losses), social security

comparison to the thresholds, to payroll taxes, child care and other

determine who is poor. work-related expenses, and family

contributions toward the costs of

More specifically, the panel recom- medical care and health insurance

mended that a family’s resources premiums (that is, medical out-ofshould be defined as the value of pocket costs).

Poverty thresholds under the

experimental poverty measures are

represented by a dollar amount for

food, clothing, shelter, utilities

(FCSU), as well as a small amount

for other needs (such as household

supplies, personal care, and nonwork-related transportation). As

the panel recommended, a threshold is developed for a reference

family type of two adults and two

children using data from the

Consumer Expenditure Survey. The

thresholds used here, as in the

previous Census Bureau report

(Short et al., 1999), are set at the

midpoint of the range recommended by the NAS panel. The

reference family threshold is then

adjusted for families of different

sizes and composition by using an

equivalence scale.1 Further adjustments account for geographic

differences in housing costs.

Thresholds are updated annually to

reflect changes in nominal growth

in FCSU expenditures.2

In the previous Census Bureau

report on experimental poverty

measures, six measures were

calculated. Three measures (NAS,

DES-DCM2, and NAS-NGA) are

highlighted in this report and

results from all six are available on

the Internet at: www.census.gov/

hhes/www/poverty.html.

1 The NAS panel recommended using a twoparameter equivalence scale, which takes

into account both economies of scale, because larger families tend to consume proportionally less than smaller families, and the

fact that children generally consume less

than adults.

2 Some of the NAS panel’s recommendations

could not be implemented here because necessary data (or model estimates) are not

available. In particular, the CPS contains no

data on child support payments made by the

payer, or the value of benefits received under

the Women, Infants, and Children nutritional

supplement (WIC) program and the school

breakfast program. In addition, data from the

CPS are used for all the poverty estimates

here, though the NAS panel recommended

that the Survey of Income and Program Participation (SIPP) should eventually become

the basis of official U.S. income and poverty

statistics. While the SIPP asks more relevant

questions and obtains income data of higher

quality, more research and development is

needed on the SIPP before it can become the

official source of poverty statistics. Much of

this research is currently underway, thus allowing comprehensive experimental poverty

rates using SIPP data to be released in the

near future.

The Six Experimental Poverty Measures

1. NAS: This measure most closely follows the recommendations of

the National Academy of Sciences Panel on Poverty and Family

Assistance.

2. DCM1 (different child care method 1): Identical to the NAS measure,

except a different method of valuing child care expenses is used in

the definition of family resources. In the NAS measure, statistical

models are used to estimate who incurred child care expenses and

the amounts paid. In contrast, in DCM1, a percentage of median child

care expenditures based on data from the Survey of Income and

Program Participation is subtracted from the income of all families

with working parents and children under 12 years of age.

3. DCM2 (different child care method 2): Again identical to the NAS

measure, except that another method of valuing child care expenses

is used, one based on deductions allowed for child care expenses

under the food stamp and former Aid to Families With Dependent

Children programs.

4. DES-DCM2 (different equivalence scale and different child care

method 2): In addition to having the different method of valuing

child care described in DCM2 above, this measure contains

a different equivalence scale, a three parameter one, rather than the

two-parameter scale used in the NAS measure. Basically, these

parameter scales represent different methods of adjusting the

threshold for the reference family of two adults and two children

for families of different sizes and composition.

5. NAS-NGA (no geographic adjustment): This measure is identical to

the NAS measure, except no adjustments are made to the thresholds

to account for differences in housing costs in different regions and

metropolitan areas of various sizes.

6. DES-DCM2-NGA: This measure contains a different equivalence scale

and child care cost estimation method, and no geographic adjustments to the thresholds, as described in the two measures DES-DCM2

and NAS-NGA above.
U.S. Census Bureau 3

The NAS measure is calculated by SIPP, while DCM2 uses amounts

very closely following the methods based on deductions for necessary

outlined in the NAS panel’s report, child care in the food stamp and

with only a few minor computa- former Aid to Families With Depentional differences. The second and dent Children (AFDC) programs.

third experimental measures— DCM2 is similar to the NAS panel’s

DCM1 (Different Child Care Method method in its effect on experimen1) and DCM2 (Different Child Care tal poverty estimates (see Short et

Method 2)—are identical to the NAS al., 1999) but is easier to implemeasure except that they use ment.

different methods of estimating

child care expenses in the calcula- The fourth experimental measure,

tion of family resources. DCM1 DES-DCM2, is constructed like

uses a percent of median child care DCM2, but a different equivalence

expenditures estimated from the scale is implemented.3

Finally, the NAS and DES-DCM2

measures without a geographic

adjustment are referred to as NASNGA and DES-DCM2-NGA, respectively. These two measures are

calculated exactly as the NAS and

the DES-DCM2 measures except

that the thresholds are not adjusted for differences in the cost of

housing in different parts of the

country. The geographic adjustment is excluded in these measures because, as the NAS panel

noted, this element requires more

research and better data sources.

These measures, then, adopt the

assumption that the cost of meeting basic needs does not vary by

geographic area. For more details

on these measures, see Short et al.,

1999.

Results

Figure 1 shows poverty rates by

the measure used and family

working status (see also Table 1 for

these results). For the total population, the experimental poverty

measures are all higher than the

official one—about 15 percent

(NAS: 14.6 (±0.4), DES-DCM2: 15.4

(±0.4), NAS-NGA: 14.9 (±0.4))

compared with 12.7 (±0.3) percent,

respectively, in 1998.4 The experimental poverty rates are higher in

large part because expenses

subtracted from family incomes

tend to outweigh noncash benefits

added to income.

A similar pattern is present when

only people in families with children are considered: experimental

poverty rates are higher than the

official one. When families with

children are tabulated by family

working status, results indicate

that experimental poverty rates are

3 A three-parameter equivalence scale is used in

the DES-DCM2 measure. This three-parameter

scale is arguably more refined than the twoparameter scale the NAS panel employed. See

Short et al., 1999, for a more detailed discussion of these equivalence scales.

4 Some statements in the report may contain

estimates followed by a number in parentheses. This number can be added to and subtracted from the estimate to calculate upper

and lower bounds of the 90-percent confidence

interval.

0

20

40

60

80

100

Figure 1.

Poverty Rates by Method of Measurement: 1998

(Percent)

Source: U.S. Census Bureau, Current Population Survey, March 1999.

Total population All people in

families with 

children

People in fulltime working 

families with 

children

People in parttime working 

families with 

children

People in nonworking families 

with children

Official

NAS

DES-DCM2

NAS-NGA

Table 1.

Poverty Rates by Method of Measurement and

Work Status: 1998

Official

measure

NAS

measure

DES-DCM2

measure

NAS-NGA

measure

Total population. . . . . . . . . . . . . . . .

All people in families with children. . . . .

People in full-time working families

with children . . . . . . . . . . . . . . . . . . . . . . .

People in part-time working families

with children . . . . . . . . . . . . . . . . . . . . . . .

People in nonworking families with

children . . . . . . . . . . . . . . . . . . . . . . . . . . .

12.7

15.2

7.8

59.9

80.8

14.6

16.2

9.7

54.4

74.2

15.4

17.0

10.3

57.3

76.7

14.9

16.6

10.1

54.6

74.3

Source: U.S. Census Bureau, Current Population Survey, March 1999.
4 U.S. Census Bureau

higher than the corresponding

official poverty rate among people

in full-time working families—about

10 percent (NAS: 9.7 (±0.4), DESDCM2: 10.3 (±0.4), NAS-NGA: 10.1

(±0.4)) compared with 7.8 (±0.4)

percent. In contrast, experimental

poverty rates are about the same

or lower than the official rate

among people in nonworking and

part-time working families, in large

part because these families have

relatively lower work-related

expenses and higher noncash

government benefits than other

families.

Figure 2 gives a clearer view of the

differential effect of moving from

the official measure to the experimental measures by showing the

distribution of the poverty population by family working status. The

estimated proportion of poor

people in full-time working families

increases substantially—from 45

percent to about 53 percent.

The figure also shows that another

26 percent of the poverty population in families with children live in

part-time working families, according to the experimental measures—

down from 30 percent under the

official measure. About a fifth of

the poor live in nonworking families according to the experimental

poverty measures, down from

about a fourth under the official

measure. Thus, regardless of the

measure used, the vast majority of

poor families have at least one

family member who worked at

some point during the year.

Table 2 sheds light on why the

experimental poverty rates are

higher among people in full-time

working families by displaying the

effect of each of various elements

of the experimental poverty

measures on estimated poverty

rates. For example, in row 1 of

column 1 of the table, the official

poverty rate for people in full-time

working families with children is

7.8 percent. Because none of the

additions or subtractions listed

here are included in the official

measure, ignoring them does not

change official poverty rates.

0

20

40

60

80

100

Figure 2.

Distribution of People in Poor 

Families With Children, by 

Working Status and Poverty 

Measure: 1998

(Percent)

In full-time working families

In part-time working families

In nonworking families

Official measure NAS DES-DCM2 NAS-NGA

Source: U.S. Census Bureau, Current Population Survey, March 1999.

Table 2.

Effect of Various Elements on Poverty Rates of People

in Full-Time Working Families With Children by

Measure: 1998

Official

measure

NAS

measure

DES-DCM2

measure

NAS-NGA

measure

Poverty rate. . . . . . . . . . . . . . . . . . .

Poverty rate without the

following additions to

resources:

7.8 9.7 10.3 10.1

Food stamps. . . . . . . . . . . . . . . . . 7.8 10.6 11.0 10.7

School lunch subsidies. . . . . . . . 7.8 10.3 10.8 10.5

Housing subsidies . . . . . . . . . . . . 7.8 10.0 10.5 10.3

Energy assistance. . . . . . . . . . . . 7.8 9.7 10.3 10.1

Capital gains (or losses) . . . . . . 7.8 10.1 10.6 10.5

Without above additions. . . . . . .

Percent increase in poverty

7.8 11.7 12.1 11.7

rate without additions . . . . . .

Poverty rates without the

Earned Income Credit:

Without the Earned Income

0.0 19.7 17.8 15.8

Credit. . . . . . . . . . . . . . . . . . . . . .

Percent increase in poverty

rate without the Earned

7.8 12.5 13.0 12.5

Income Credit. . . . . . . . . . . . .

Poverty rates without the

following subtractions from

resources:

0.0 28.7 27.0 24.1

Child care expenses . . . . . . . . . . 7.8 8.7 9.0 9.1

Other work-related expenses . .

Medical out-of-pocket

7.8 8.2 8.6 8.4

expenses. . . . . . . . . . . . . . . . . . . 7.8 6.3 6.7 6.4

Federal income taxes . . . . . . . . . 7.8 9.5 10.0 9.9

State income taxes . . . . . . . . . . . 7.8 9.4 9.9 9.8

Social security taxes . . . . . . . . . . 7.8 7.8 8.1 8.1

Without all subtractions . . . . . . .

Percent decrease in poverty

7.8 3.8 3.7 3.5

rate without subtractions . . . 0.0 –61.4 –63.9 –65.1

Source: U.S. Census Bureau, Current Population Survey, March 1999.
U.S. Census Bureau 5

All people: DES-DCM2

All people: NAS-NGA

All people: NAS

All people: official

People in full-time working families with children: DES-DCM2

People in full-time working families with children: NAS-NGA

People in full-time working families with children: NAS

People in full-time working families with children: official

the overall NAS poverty rat

percent.

Table 3 shows that the pov

rates for people in full-time 

ing families vary considerab

In contrast, row 1 of column 2 family income under this measure,

indicates that the overall NAS if it is not added to family income

poverty rate is 9.7 percent (this (as shown in the second row in

represents the rate after all addi- column 2), the estimated poverty

tions and subtractions and other rate would be nearly a percentage

changes mentioned in the previous point higher, at 10.6 percent.

section are taken into account).

Thus, because food stamp income Overall, the top panel of Table 2

is included in the definition of indicates that programs such as

food stamps, school lunch subsidies, and housing and energy

assistance benefit full-time working

families. For example, without the

addition of all of these elements,

the NAS poverty rate would be 2

percentage points higher—which

represents about a 20 percent

increase. The middle panel also

shows that the EIC in particular has

a large impact on poverty.

The bottom panel of Table 2

indicates that many full-time

working families incur high expenses. The bottom row shows

that without subtracting all the

listed expenses from income, the

poverty rates among people in fulltime working families would be

roughly 65 percent lower, depending on the measure.

Of the expenses listed, medical

out-of-pocket costs have the

largest overall effect on experimental poverty rates, although workrelated expenses and social security taxes also have a substantial

impact.5 For example, if child care

expenses were not subtracted from

the measure of family income, the

estimated NAS poverty rate among

people in full-time working families

with children would be 8.7 percent,

one percentage point lower than

e of 9.7

erty

workly

5 As is discussed by Short et al., 1999, the measurement of medical expenses in the experimental poverty measure has generated more

controversy than any other element. Research

continues on how to best incorporate nondiscretionary medical expenses in a measure of

poverty.

Table 3.

Official and Experimental Poverty Rates for Individuals in

Full-Time Working Families With Children: 1998

Official

measure

NAS

measure

DES-DCM2

measure

NAS-NGA

measure

Total. . . . . . . . . . . . . . . . . . . . . . . . . . .

Race/Ethnicity

7.8 9.7 10.3 10.1

White, total . . . . . . . . . . . . . . . . . . . . . . . 6.9 8.9 9.4 9.2

White, non-Hispanic . . . . . . . . . . . . . 4.3 5.6 5.9 6.3

Black, total . . . . . . . . . . . . . . . . . . . . . . . 13.6 14.5 15.3 15.7

Other races, total. . . . . . . . . . . . . . . . . . 7.7 11.6 12.4 10.9

Hispanic, total. . . . . . . . . . . . . . . . . . . . .

Family Type

19.2 24.9 26.1 23.1

Married-couple . . . . . . . . . . . . . . . . . . . . 5.9 8.1 8.2 8.4

Male householder (unmarried) . . . . . . 10.3 12.6 15.3 13.2

Female householder (unmarried) . . . .

Education of Household Head

17.8 18.7 20.8 19.1

Less than high school. . . . . . . . . . . . . . 23.6 27.3 27.8 27.1

High school graduate, no college. . . . 8.9 10.9 11.5 11.9

Some college . . . . . . . . . . . . . . . . . . . . . 5.0 7.1 7.6 7.4

College graduate . . . . . . . . . . . . . . . . . .

Age of Head

1.3 2.3 2.7 2.3

Less than 25 years old. . . . . . . . . . . . . 20.7 24.8 26.6 26.7

25-34 years old . . . . . . . . . . . . . . . . . . . 10.2 12.9 13.8 13.6

35-64 years old . . . . . . . . . . . . . . . . . . . 6.1 7.7 8.1 7.9

65+ years old . . . . . . . . . . . . . . . . . . . . . 8.4 11.5 11.7 11.0

Source: U.S. Census Bureau, Current Population Survey, March 1999.

Figure 3.

Poverty Rates by Family Working Status and 

Poverty Measure: 1990-98

Percent

0

2

4

6

8

10

12

14

16

18

20

22

1990 1991 1992 1993 1994 1995 1996 1997 1998

Source: U.S. Census Bureau, Current Population Surveys, March 1991-99.
6 U.S. Census Bureau

across demographic subgroups. counted for in the official poverty how accurately the answers are While only 5.6 percent of non- measure (see also Iceland et al., coded and classified. The Census

Hispanic Whites in full-time work- 2001; Short, Iceland, and Garner, Bureau employs quality control ing families with children are poor 1999; Short et al., 1999). procedures throughout the when using the NAS measure, production process—including the 14.5 percent of Blacks and a Among people in full-time working overall design of surveys, the quarter of Hispanics are poor.6 families, the official poverty rate wording of questions, review of the Results also show that people in shows less volatility, remaining work of interviewers and coders, working female-householder fairly stable over the period. Yet and statistical review of the

families have higher poverty rates the experimental measures show reports. than people in working married- an especially pronounced decline in

couple or male-householder poverty beginning in the early The Current Population Survey families, regardless of the poverty 1990s. The effect of the EIC is employs ratio estimation, whereby measure used. accentuated among people in sample estimates are adjusted to working families, mainly because independent estimates of the According to the experimental they are the target population of national population by age, race, poverty measures, about one this government program. sex, and Hispanic origin. This quarter of all people in full-time weighting partially corrects for bias working families with children and Conclusion due to undercoverage, but how it a family head with less than a high affects different variables in the school education are in poverty. People in full-time working families survey is not precisely known. Likewise, people in full-time comprise a higher proportion of Moreover, biases also may be working families with young those in poverty under the experi- present when people who are householders have high poverty mental measures than under the

rates, reflecting the importance of official measure because their missed in the survey differ from

work experience and the difficulties those interviewed in ways other expenses for items such as child than the categories used in young parents face in trying to care, social security taxes, and

make ends meet (Kim, 1999). medical expenses are higher. weighting (age, race, sex, and

Moreover, the effect of the expan- Hispanic origin). All of these

considerations affect comparisons sion Earned Income Credit in Time Trends across different surveys or data improving the economic situation

Figure 3 shows poverty rates for sources. Contact Martha Jones, of people in full-time working

the total population and for people Demographic Statistical Methods families in the 1990s is apparent

in full-time working families, by Division, dsmd_s&a@census.gov, under the experimental measures poverty measure, for the years for information on the source of but not the official one.

1990 to 1998. Among the total the data, the accuracy of the

population, rates under the official Poverty rates for people in full-time estimates, the use of standard

and experimental measures behave working families are particularly errors, and the computation of

similarly, increasing over the 1990- high among certain demographic standard errors.

93 period and decreasing over the subgroups such as Hispanics and 1993-98 period. those where the head has less than References

a high school education or is under The official rate rose from 25 years old. Overall, full-time Citro, Constance F. and Robert T.

13.5 percent to 15.1 percent from working families fare less well Michael (eds.). 1995. Measuring

1990 to 1993 and fell to 12.7 according to the experimental Poverty: A New Approach. Washingpercent by 1998. The experimental measures than the official poverty ton, DC: National Academy Press.

poverty rates begin at a higher rate suggests. level than the official rate in 1990 Dalaker, Joseph. 1999. Poverty in

and remained at higher levels the United States: 1998. U.S.

subsequently.7 However, the Accuracy of Estimates Census Bureau, Current Population

experimental poverty measures Statistics from surveys are subject Reports, Series P60-207. Washingdeclined at a modestly faster rate to sampling and nonsampling error. ton, DC: U.S. Government Printing

than the official measure over the All comparisons presented in this Office.

1993-98 period. One important report have taken sampling error reason for the accelerated decline Danziger, Sheldon and Peter into account and meet Census was the effect of an expanded EIC, Gottschalk. 1995. America Un- Bureau standards for statistical a tax program that is not ac- equal. New York: Russell Sage significance. Nonsampling errors in Foundation. surveys may be attributed to a 6 People of Hispanic origin may be of any race. variety of sources, such as how the

7 survey was designed, how If an experimental measure was adopted to

replace the current official measure, it could be respondents interpret questions,

standardized to equal the official rate in a spe- how able and willing respondents cific year, or to have the same average value

over a specified time period. are to provide correct answers, and
U.S. Census Bureau 7

Goings, Gloria P. 1999. “A Profile of Ruggles, Patricia. 1990. Drawing U.S. Census Bureau. 1992. Workers

the Working Poor.” U.S. Department the Line: Alternative Poverty With Low Earnings: 1964 to 1990.

of Labor. Bureau of Labor Statistics, Measures and Their Implications for Current Population Reports, Series

Report 936. Public Policy. Washington, DC: The P60-178. Washington DC: U.S.

Urban Institute Press. Government Printing Office.

Iceland, John, Kathleen Short,

Thesia I. Garner, and David Short, Kathleen, Thesia I. Garner, Contact Johnson. 2001. “Are Children Worse David Johnson, and Patricia Doyle.

Off? Evaluating Child Well-Being 1999. Experimental Poverty Mea- John Iceland, Housing and HouseUsing a New (and Improved) sures: 1990 to 1997. U.S. Census hold Economics Statistics Division,

Measure of Poverty.” Forthcoming, Bureau, Current Population Report, 301-457-3242.

Journal of Human Resources. Consumer Income, P60-205.

Washington, DC: U.S. Government

Kim, Joshua. 1999. “Economic Printing Office.

Viability and Marriage: Life Course

Transitions Among Whites and Short, Kathleen, John Iceland, and

African Americans, 1967-1993.” Thesia I. Garner. 1999. “ExperimenUnpublished doctoral dissertation. tal Poverty Measures: 1998.” U.S.

UMI #9932432. Census Bureau web report, September, 1999, www.census.gov/hhes/

Klein, Bruce W. and Philip L. Rones. poverty/povmeas/exppov/

1989. “A Profile of the Working exppov.html.

Poor.” U.S. Department of Labor,

Monthly Labor Review, 112,

10:3-11.