A Century of Family Budgets

28 Monthly Labor Review May 2001

A Century of Family Budgets

A century of family budgets

in the United States

Throughout the past 100 years,

family budgets have been produced

using a variety of methodologies; these budgets

are compared with new budgets that have been derived

using actual expenditures of families

David S. Johnson,

John M. Rogers,

and

Lucilla Tan

David S. Johnson is a research economist in the

Division of Price and Index Number Research,

and John M. Rogers

and Lucilla Tan are

economists in the Division of Consumer Expenditure Surveys, Bureau of Labor Statistics.

The measurement of family budgets and

budget standards dates back to the late

19th century. Such budgets have been

used to develop cost-of-living estimates, to assess wage rates, and to examine the standard of

living. Early budget standards and family budgets were based on two different methodologies:

expert decisions were devised to ascertain how

much income a family might require to reach a

certain level of living, and estimates were obtained on the actual purchasing behavior of particular families. The first, prescriptive, method

was often used to determine the “sufficient”

amount needed to provide a “standard of health

and decency” or some other measure of the level

of living. The second, descriptive, method was

often used to describe consumer spending and

to determine cost-of-living indexes.1

Prescriptive and descriptive types of family

budgets were constructed at the Bureau of Labor Statistics throughout most of the 1900s. Prescriptive budgets attempt to determine a set of

goods and the expenditures for each of the goods

that might enable a family to attain a certain standard of living. These types of budgets were first

developed in 1908–09, and there have been

many subsequent estimates of fair, modest, adequate, and even minimally sufficient budgets.

The BLS family budget program produced budget standards (using a prescriptive method) from

1966 to 1981. Alternatively, descriptive budgets

represent observed expenditures for particular

families at some point in the distribution of income or expenditures. Each year, BLS produces

average expenditures for various family types,

which can be viewed as types of descriptive

budgets.

This article reviews the historical estimates

of these budgets and presents a descriptive budget that is constructed using expenditure data.

Inspiration came from results presented by Peter Saunders at the 1998 International Association for Research on Income and Wealth Conference, in which he compared the budget standards in Australia for 1920, 1941–43, and 1997.2

The article also examines the historical family

budgets produced at BLS in 1908–09, 1919, 1947,

1966, and 1979. These are compared with family budgets for 1984, 1989, 1994, and 1998 that

were constructed using the recommendations of

the Expert Committee on Family Budget Revisions (Expert Committee), which was charged

with reviewing and recommending revisions to

the BLS family budget program. The article also

presents a general description of family budgets

and budget standards, reviews the history of

family budgets and describes the latest family

budget methodology, presents a descriptive

family budget, and concludes with a review

of the issues associated with adjusting budgets

for different family types and locations, and

over time.
Monthly Labor Review May 2001 29

Although BLS has budgets that span 90 years, the budgets

for the last 50 years share the most similar methodology.

Research has found that, in 1998 dollars, the budget based

on BLS Consumer Expenditure data for family consumption

for a married couple with two children is about $36,550

compared with a budget of $18,210 in 1947 and $13,430

(for a family of five) in 1919. These budgets have increased

in real terms; however, they have not increased as much as

changes in per capita gross domestic product (GDP), compared with Saunders’ results for Australia. While he suggests that this increase represents a general increase in the

standard of living, some of the increase could be due to

changes in the relative definitions of the terms “modest” or

“sufficient.”3

The standard of living and budget standards

The standard of living can be viewed as the personal pleasure or utility one obtains4 or as a point on the relative income distribution.5 Amartya Sen has suggested that the standard of living is “in the living,” illustrating its subjective

and personal nature. This concept of the standard of living

suggests that it is a relative concept, that is, it depends upon

one’s position in the distribution.

Other researchers have described how these standards of

living are related to budget standards, stating: “A budget

standard represents what is needed, in a particular place at a

particular point in time in order to achieve a specific standard of living.”6 While at least one researcher has suggested

that the standard of living can be given by a function, r(x),

of the distribution, x,7 most budget standards have been calculated by building up a budget that would provide families

with a modest, fair, or sufficient income. These levels of

modest, fair, and sufficient can represent a variety of standards of living, or points on the distribution of income (or

well-being).

It has been suggested that there are three types of budget-based (or prescriptive) budget standards: a market basket approach (similar to that used in the former BLS family

budgets), a multiplier approach (similar to that used in the

official U.S. poverty thresholds), and a categorical approach.8 Other countries have also produced family budgets using a prescriptive approach.9 Still other economists

have constructed a budget using both prescriptive and descriptive methods and compare it with various State-level

estimates of similar family budgets.10

In 1978, BLS sponsored an Expert Committee on Family

Budget Revisions.11 The Committee recommended constructing a descriptive budget called the “prevailing family

standard” (PFS). This standard reflected “the level of living

achieved by the typical family” and was “set at the median

expenditure of two-parent families with two children.” This

was different than the original BLS family budget program in

that it “abandon[ed] the notion of a rigidly fixed list of things

that are interpretable as minimum needs in achieving a given

level of living.”

In addition, the Panel on Poverty of the National Research

Council did not recommend constructing a budget-based

poverty threshold.12 The Panel recommended a poverty

threshold based on a basic bundle of necessities (food, clothing, shelter, and utilities) that was set at a fixed percentage

of the median expenditures for these items (and it used a

multiplier to account for other items, for example, transportation and personal care).

The difference between the budget-based (or prescriptive) method and the descriptive method arises from the difference between choosing bundles of particular goods that

provide a selected standard of living for each of the components individually and choosing a point on the distribution

of utility, for example, the median (which could represent a

moderate standard of living). This difference can be illustrated by supposing that a moderate standard of living requires a specific bundle of goods. This bundle produces an

aggregate utility, and hence, cost. If each good yields the

moderate standard, then the aggregate budget also yields a

moderate standard. For example, the median of total expenditures might be similar to the sum of the medians for the

components. Hence, the aggregate budgets might be fairly

similar, while the components of the total budget might

differ. In fact, it has been claimed that the budget experts

always kept “one good eye on median patterns” in constructing their budgets.13 The differences between the components

for the prescriptive and descriptive approaches would be the

result of the norms used by the “experts” to determine the

“moderate” standard of living.

History of budgets in the United States

The first standard budgets that the BLS developed were part

of an exhaustive study of the conditions of cotton-mill workers in the South and in Fall River, Massachusetts in 1909.

The study was the result of a congressional investigation into

the condition of women and child workers. These were the

first BLS budgets to be expressed in terms of quantities of

goods and services to which prices were applied to determine the costs of the budgets (a market-basket approach).

These were also the first budgets to define two levels of living—a “minimum standard of living of bare essentials,” and

a “fair standard of living” that provided some allowances

for comfort. BLS Commissioner Charles P. Neill commented:

“These standards, it should be emphasized, are the standards

found to be actually prevailing among cotton-mill families
A Century of Family Budgets

30 Monthly Labor Review May 2001

Total family budget ........................................ $41,487 — —

 Food ............................................................ 6,657 16.0 17.5

 Food at home ............................................ 5,129 12.4 —

 Food away from home .............................. 1,528 3.7 —

 Alcoholic beverages ................................... 258 .6 1.2

 Housing ....................................................... 14,648 35.3 32.3

 Shelter ...................................................... 9,510 22.9 19.4

 Owned dwellings ................................... 7,849 18.9 15.2

 Rented dwellings ................................... 1,418 3.4 3.4

 Other lodgings ....................................... 244 .6 .8

 Utilities, fuels, and public services ............ 2,958 7.1 7.6

 Household operations ............................... 876 2.1 2.2

 Household furnishings and equipment ...... 1,305 3.1 3.5

 Apparel ....................................................... 1,639 4.0 5.2

 Transportation ............................................. 6,697 16.1 15.9

 Vehicles .................................................... 2,685 6.5 4.0

 Gasoline and motor oil ............................. 1,358 3.3 5.9

 Public transportation................................ 260 .6 .3

 Health care ................................................. 1,979 4.8 3.5

 Entertainment ............................................. 2,480 6.0 5.0

 Personal care .............................................. 357 .9 .9

 Reading ...................................................... 190 .5 .7

 Education .................................................... 470 1.1 .9

 Tobacco ....................................................... 383 .9 1.2

 Miscellaneous ............................................. 769 1.9 1.4

Total family consumption .............................. 36,528 88.1 86.3

 Personal insurance and pensions .............. 4,483 10.8 11.8

 Life and other personal insurance ........... 573 1.4 1.7

 Retirement, pension, Social Security ..... 3,910 9.4 10.1

 Cash contributions ...................................... 476 1.1 1.9

Expenditure category

1998 1998 1984

 Amount Percent share

Table 1. Family budget and components, 1998 and 1984

of the several communities studied, and are not standards

fixed by the judgment either of the investigators or of the

Bureau of Labor.”14

The next BLS budgets were developed at the request of

Congress in 1919. World War I brought rapid and sharp increases in price levels that prompted Congress to ask the

Bureau to prepare quantity and cost budgets for Government

employees in Washington, DC. BLS prepared such budgets

for a Government worker’s family of five persons and also

for single men and single women in Government service.

The budgets were described as including “a sufficiency of

food, respectable clothing, sanitary housing, and a minimum

of essential sundries,” but not “many comforts which should

be included in a proper ‘American standard of living.’”15

Although BLS priced these budgets only in Washington, DC,

Professor William F. Ogburn of the University of Washington adapted the budgets for coal-mining families, and those

budgets were priced in a number of communities

at the request of the U.S. Bituminous Coal Commission.

In response to the hard times of the depression

period of the 1930s, the Works Progress Administration (WPA) proposed two budgets to help determine how much to pay workers in different

parts of the country. One budget was described as

a maintenance budget, above a minimum assistance level but which did not approach “the content of what may be considered a satisfactory

American standard of living.”16 The second budget was described as an emergency budget that

was an attempt to show how the maintenance budget could be cut in emergency conditions with the

least amount of harm. The budgets were for a family of four, consisting of a man (described as an

unskilled manual worker), his wife, a boy aged

13, and a girl aged 8. The budgets were priced in

59 cities. BLS updated the WPA budgets for price

increases through 1943.

By the end of World War II, the U.S. economy

had improved to the point where norms for maintenance and subsistence levels were no longer as

important. Members of Congress expressed some

apprehension that employers had, on occasion,

used the relief-type budgets as leverage against

wage adjustments for “average” workers. Also,

Federal income taxes were accounting for an increasing portion of lower level workers’ incomes,

which raised additional concern. These increases

had been implemented as a means of financing

the war effort. In the spring of 1945, Congress

was thus spurred to request that BLS determine the

cost of living for such a worker’s family in large U.S. cities.

In order to carry out the mandate set by Congress, BLS

appointed a Technical Advisory Committee composed of

specialists and technicians recognized as authorities on studies of living costs who would guide the development of standards and methods to be used in the project. The Committee

recommended using either scientific standards to derive

items and quantities for different components or, when such

standards were not available, actual spending patterns based

on consumer expenditure surveys. The surveys BLS used in

developing the family budget bundles of goods and services

dated from 1929 to 1941. BLS derived quantities for the

bundles of goods and services and obtained prices to estimate budget costs for 34 U.S. cities.17 The resultant City

Worker’s Family Budget for a family of four was described

as “modest, but adequate.” It applied to urban working families in general and not to a particular occupational group.
Monthly Labor Review May 2001 31

Cotton mill worker:

1908–09 Five person1 Fair $713 $11,077

District of Columbia Federal worker:

1919 Five person1 Health and decency 2,142 17,346

BLS family budgets:

1947 Five person2 Modest but adequate 3,329 20,874

1947 Four person2 Modest but adequate 2,904 18,209

1951 Four person3 Modest but adequate 3,750 20,107

1959 Four person3 Modest but adequate 5,180 24,873

1966 Four person3 Moderate/Intermediate 7,329 31,593

1973 Four person4 Intermediate 9,761 31,380

1979 Four person5 Intermediate 15,353 32,280

Revised Watts budget:

1979 Four person5 Median (PFS) 16,129 33,912

BLS family budget6:

1981 Four person6 Intermediate 18,240 31,545

Descriptive budget: Prevailing family standard (PFS)

1984 Four person7 Median 20,531 30,921

1989 Four person8 Median 27,143 34,723

1994 Four person8 Median 31,817 34,760

1998 Four person8 Median 36,528 36,528

1 Bureau of Labor Statistics, How American Buying Habits Change, 1959,

table 28.

2 Bureau of Labor Statistics (1948) Workers’ Budgets in the United States:

City Families and Single Persons, 1946 and 1947, Bulletin 927; 4-person budget for median city (St. Louis); 5-person budget calculated using equivalence scale.

3 Bureau of Labor Statistics, City Worker’s Family Budget for a Moderate

Living Standard, Bulletin 1570-1, autumn 1966.

4 USDL, autumn 1973, Urban Family Budgets.

5 Expert Committee on Family Budget Revisions, “New American Family

Budget Standards,” IRP Working paper, 1980, p. 62.

6 “Final report on family budgets, 1981,” Monthly Labor Review, July 1982,

pp. 44–46.

7

 John Rogers, “Estimating Family Budget Standards,” BLS manuscript, 1987.

8 Calculations using 1989, 1994, and 1998 CE data and share of total budget spent on family consumption items.

 Current dollars 1998 dollars

Budget amount

Table 2. Historical family budgets for family consumption, 1909–98

 Year Type of budget Level of living

Estimates of the costs of the four-person family budgets were

published for March 1946 and June 1947. The budgets were

then repriced each October, from 1949 through 1951. Further updating was ruled out because BLS believed that the

bundles of goods and services were out of date and no longer

represented the modest but adequate standard. It was anticipated that the 1950 Consumer Expenditure Survey would

provide more current information on spending patterns that

could be used to revise the budgets. Such a budget, termed

the “Interim City Worker’s Family Budget” was priced in

20 cities, but not until October 1959.

In 1963, BLS appointed another Advisory Committee to

review the family budget methodology and to make recommendations for developing new family budget standards.

The Committee was appointed in anticipation of more current expenditure data becoming available from the 1960–61

Consumer Expenditure Survey. The Committee made three

primary recommendations in the following order of priority18 :

1) Continue pricing a modest but adequate budget for

a four-person family and for a retired couple. As in earlier budget studies, the Committee recommended that

the standards of adequacy were to be based on scientific standards, such as nutrition standards for estimating food items and quantities, and on the judgment of

experts based on the analysis of data from expenditure

studies.

2) Estimate budget costs for the quantity budget for

the total urban population of the United States and for

selected cities.

3) Derive additional standard quantity budgets, both

below and above the modest but adequate standard.

In addition to the Advisory Committee recommendations,

the report included sections which discussed the basic concepts of family budgets and general comments on the meth-
A Century of Family Budgets

32 Monthly Labor Review May 2001

Table 3. Shares of family consumption (for an urban family with one

 wage earner) using actual expenditures

Food ................................. 41.1 32.5 26.0 22.6 19.4

Housing ............................ 26.8 26.0 29.2 29.3 33.7

Transportation .................. 3.1 13.8 15.1 24.1 25.7

Clothing ............................ 17.6 11.6 10.3 8.4 5.2

Health care ...................... 4.7 5.1 6.6 4.7 4.0

Other ................................ 6.7 11.0 12.8 10.9 12.0

 Component 1917–19 1950 1960–61 1972–73 1986–87

SOURCE: Eva Jacobs and Stephanie Shipp, “How family spending has changed in the U.S.,” Monthly

Labor Review, March 1990, pp. 20–27.

[In percent]

odology for arriving at estimates for some of the budget

components. The Committee acknowledged that developing lists of goods and services and specifying quantities that represented a “modest but adequate” standard

would require a great deal of subjective judgment as

scientific standards existed for only a few of the budget

components (primarily food and housing). Even for these

components, any number of alternative lists of quantities

of goods and services could be specified (and at varying

cost) that would meet the scientific standards. For the remaining components, budget makers relied heavily on

data from expenditure surveys that showed how budgettype families spent their money.

While the majority of the 1963 Advisory Committee

endorsed the idea of developing the lists of goods and

services using a mix of scientific standards and standards

derived from actual spending patterns, one committee

member offered a dissenting view. Dorothy Durand, a

private consultant on the development and use of standard budgets, suggested focusing on developing methods

for estimating the total cost of a budget, rather than trying

to arrive at a total by costing out a list of goods and services. She noted that scientific standards had been established for only a few of the many spending components,

primarily food and housing. Even for those few components, she argued that the findings were not definitive.

Her dissenting opinion, which broke with the long-established methodology for estimating budget costs, was a

precursor of the recommendations of the next advisory

committee, whose findings were summarized in a May

1980 report.

Guided by the criteria set forth by the 1963 Technical

Advisory Committee, BLS developed budgets for a fourperson family and for a retired couple. Budget estimates

for a “moderate” living standard were published for autumn 1966 and three standards of living—described simply as lower, intermediate, and higher budgets—were

published for spring 1967. The family was described as an employed husband, aged 38; a wife not employed

outside the home; and two children, a

boy aged 13 and a girl aged 8; it was

chosen to “represent a middle stage

in the typical family life cycle.” However, the report acknowledged the subjective nature of their budgets when

it stated: “In short, there is no single

answer to the question ‘How much

does it cost to live?,’ since family size,

age, and type have a significant effect

on spending patterns, manner of living and family needs.”19

Budget cost estimates were published for 40 urban areas,

four regional averages, and a U.S. urban average. As recommended by the Advisory Committee, BLS budget makers used a

mix of scientific standards, where available, and standards derived from actual spending patterns to specify lists of goods

and services as well as the quantities of those items. Prices

collected for the BLS Consumer Price Index, along with some

supplementary prices collected specifically for the family budgets, were used with the budget quantities to estimate the budget costs. The budgets were intended to measure equivalent

levels of living in the different budget areas. Identical budgets

were not priced in the 40 budget areas. The quantity weights

were adjusted to account for regional preference or geographical patterns in several categories: for food among regions, for

clothing and heating fuels among the cities to account for

differing climates, and for automobile ownership and usage;

differences were incorporated by city size, to account for availability and use of public transportation.

In 1968, BLS published an equivalence scale that allowed

users to apply scale values to the four-person family consumption costs to estimate costs for different family sizes and

types.20 The scale values were estimated using data on food

expenditures and income after taxes, for various family sizes

and types from the 1960–61 Consumer Expenditure Survey.

The last direct pricing of the budgets, that is, the last time that

CPI prices and supplementary prices collected specifically for

the family budgets were applied to the budget quantities in order to estimate budget costs, was in 1969. Subsequent to 1969,

the budget costs were updated annually through 1981, by applying changes in the Consumer Price Index for summary component indexes that were available for each urban area.

By the late 1960s, BLS was increasingly uncomfortable with

its role of making the normative judgments that were the basis

of the family budget cost estimates. In 1969, BLS Commissioner

Geoffrey Moore, wrote: “I do not think the BLS should set itself

up as an authority on what is adequate or inadequate, what is a
Monthly Labor Review May 2001 33

Food ..................... 36.1 36.4 29.2 32.9 22.6 20.2 18.2

Housing ................ 20.0 24.2 30.2 29.9 33.0 37.4 40.8

Transportation ...... 1 9.0 11.1 12.1 20.5 18.4 18.3

Clothing ................ 24.0 14.6 10.3 8.0 7.7 6.0 4.5

Health care .......... 3.7 5.5 6.4 7.7 6.0 4.1 5.4

Other .................... 116.2 10.3 12.7 9.5 10.3 13.9 12.8

Table 4. Historical shares of family consumption

19191 19472 19663 19794 19795 19846 19987

Component

1 Bureau of Labor Statistics, How American Buying Habits Change, 1959,

table 28; transportation included in “Other.”

2 Bureau of Labor Statistics (1948) Workers’ Budgets in the United States:

City Families and Single Persons, 1946 and 1947, Bulletin 927; 4-person

budget for median city (St. Louis).

3 Bureau of Labor Statistics, City Worker’s Family Budget for a Moderate

Living Standard, Bulletin 1570-1, autumn 1966.

4 Bureau of Labor Statistics, “Family Budgets,” Monthly Labor Review,

August, 1980, pp. 29 –30.

5 Expert Committee on Family Budget Revisions, “New American Family Budget Standards,”IRP Working paper, 1980, using shares for renters and owners.

6 John Rogers, “Estimating Family Budget Standards,” BLS manuscript, 1987.

7 Calculations using 1998 CE survey data.

[In percent]

luxury and what is not, etc., no matter how reasonable the

position may seem to us.”21 The belief was that such norms

should be developed by an operating agency, such as the

Department of Health, Education, and Welfare, rather than

by a statistical agency such as BLS. However, the Bureau had

a long history of developing and publishing family budgets,

and much legislation had been passed incorporating the budget estimates, so it continued updating and publishing the

series.

By the mid-1970s, the expenditure data used to derive

the quantities of goods and services were a decade and a

half old. BLS recognized that the budgets were increasingly

outdated and began considering alternative methods for estimating budget standards. In 1978, the Bureau contracted

with the Wisconsin Institute for Research on Poverty to do a

thorough review of the family budget methods and procedures, and to make recommendations for revising the budgets. The Expert Committee on Family Budget Revisions,

appointed by the Institute, presented its findings in a comprehensive report in May 1980. Its recommendations are

discussed below. However, there was a substantial program

reduction required during the fiscal 1981 budget cycle, and

BLS did not believe it possessed adequate funding to implement the Expert Committee recommendations nor could it

improve the budget estimates to meet the technical standards

of the Bureau. The final budget estimates published by BLS

were for autumn 1981.

Uses of budgets. Most of the important uses of the family

budgets were associated with the cost of attaining the levels

specified by the standards. Once the cost of the budgets was

determined, the number of people or the proportion of specific groups of people with or without sufficient resources

could be estimated. In its 1963 report, the Advisory Committee on Standard Budget Research cited three general

groups of uses for the standard budgets. They were:

1) Appraisal of the economic condition of groups or

of the total population.

2) Evaluation of the need for and the effect of specific

laws and programs.

3) Guidance of administrative determination of need.

BLS published a specific list of uses of the budget standard associated with the budget series between 1966 and

1981. In particular, the Department of Labor continues to

use the family budgets (from 1981) to update its guidelines

for employment training programs. The Department of Education currently uses the equivalence scales from the family

budgets in 1968 to adjust the income protection allowance in

its Federal Student Aid calculations.

The Expert Committee cited several factors of the family

budget estimates that allowed them to be “used for a wide

variety of analytic, administrative, and programmatic purposes. Four elements, in particular, make them conducive

to such uses: 1) an income norm or expenditure norm embodying a standard or level of living for a typical family

type, 2) a basis for making standardized comparisons among

different family types (the equivalence scale), 3) a basis for

making comparisons over time, and 4) a basis for making

comparisons among areas.”22 These uses are also the most

controversial issues in determining the appropriate family

budgets.

 BLS

family budgets

Descriptive method—

Prevailing Family Standard (PFS)
A Century of Family Budgets

34 Monthly Labor Review May 2001

Single adults ........................... 0.360 10.540 10.513 0.451 0.463

Two adults .............................. .600 1

.670 1.660 .708 .653

Two adults, one child .............. .820 .800 .794 .861 .880

Two adults, two children ......... 1.000 1.000 1.000 1.000 1.000

Two adults, three children ....... 1.116 1.200 1.177 1.129 1.114

One adult, one child ............... .570 .670 .680 .637 .699

One adult, two children ........... .760 .800 .794 .797 .830

Two

parameter

(F=0.65;

P=0.7)

Official

poverty

scales

Expert

Committee

BLS

family

budgets

Family type Three

parameter

Table 5. Alternative equivalence scales

1 Uses nonelderly scale.

BLS budget methodology. Throughout the period that the

Bureau estimated family budgets, the theoretical basis for

them hinged on the belief that scientific standards and expert judgment could be used to derive lists of goods and

services and their quantities that embody certain standards

of living. Costs of the budgets, and of the standards represented by the budgets, could then be estimated by applying

prices to those quantities of goods and services. However,

scientific standards existed for only two of the many budget

components—food at home and shelter—and even for these

components, the scientific standards affected the content but

not the actual cost levels in the budgets. For the many other

components, including transportation, medical care, clothing, recreation, and education, budget makers were forced

to rely on a combination of actual spending patterns and related information, and their own judgment. (See box, p. 10,

for a description of methodology used to derive these budget costs.)

Expert Committee recommendations. The Expert Committee on Family Budget Revisions met for a period of a year

and a half and presented its findings and recommendations

to BLS in a 1980 report. The Expert Committee recommendations called for a radical departure from past practices,

such as abandoning attempts to derive detailed lists of goods

and services that were intended to represent norms or standards in favor of estimating total budgets directly from

expenditure survey data. The Bureau was, at that time, preparing to implement an ongoing Consumer Expenditure Survey that would provide a continuous source of expenditure

survey data.

The reasoning behind the Expert Committee’s decision

to change the methods for estimating the budgets was included in the following excerpt from a December 1980

Monthly Labor Review article by Harold Watts (Committee

Chairperson):

The majority of the committee concluded that the main

claimed advantage of lists of quantities of goods and services—that such

lists assure the meeting of authoritatively established needs—was in fact

illusory. Any cost total derived from

lists of commodities has perforce been

based on a myriad of individual judgments. Consequently, the committee

majority, recognizing that a judgment

based on individual values and not on

scientific requirements must be made

at some stage whatever the method

used, decided to exercise that judgment

in the choice of an expenditure total

rather than in several hundred item

choices.23

The Expert Committee made a number of recommendations to revise the Bureau’s Family Budget estimates:

• Budget levels. Replace the lower, intermediate, and

higher family budgets with four budget levels. The

standard designed to reflect the level of living

achieved by the typical family would be set at the

median expenditure of two-parent families with two

children and be called the Prevailing Family Standard (PFS). Three additional standards are simply fixed

proportions of the PFS: the lower living standard is set

at two-thirds of the PFS and corresponds to the lower

family budget; the social minimum standard is set at

one-half the PFS and sets a level below which families

face issues of deficiency and deprivation; and the

social abundance standard is set fifty percent higher

than the PFS and measures a level that affords a higher

standard of living.

• Equivalence scales. The Expert Committee spent a

great deal of time on estimating equivalence scales

but found little success in developing new scales. The

equivalence scale estimates included in the summary

report were adapted from a set of proposed revised

poverty thresholds developed by Mollie Orshansky

and Carol Fendler. However, the Committee provided

only a weak endorsement of those scales and proposed further research into developing new equivalence scales.

• Interarea differentials. The Expert Committee recommended continuing research on cost-of-living differences among cities. It favored producing interarea

price indexes to provide price comparisons while recognizing that such indexes show neither the cost of

achieving equivalent levels of living in different areas,

nor observed expenditure patterns.

• Method of updating. The Expert Committee recommended estimating the standards directly from the on-
Monthly Labor Review May 2001 35

Food at home. The U.S. Department of Agriculture publishes four food plans: the thrifty food plan (TFP), the lowcost food plan (LCFP), the moderate-cost food plan (MCFP),

and the liberal food plan (LFP). The low-cost, moderatecost, and liberal food plans were incorporated in the

lower, intermediate, and higher family budgets. All four

plans represent a healthy diet, as represented by a food

market basket, at various costs for different age-gender

groups. All four food plans meet the same nutritional

standards for a healthy diet, including standards set in the

Dietary Guidelines for Americans. The plans differ by

types of foods to achieve a healthy diet and cost. The TFP

is a minimal cost diet. TFP foods represent the least expensive foods one can purchase to meet nutritional standards, deviating as little as possible from existing consumption patterns. For the other three food plans, costs

were set at approximately the midpoints of the second,

third, and fourth quartiles of the distribution of food costs

(based on a household food consumption survey). Based

on the same nutritional standards and deviating as little

as possible from existing consumption patterns at the various cost levels, these three food plans differ in the types

of food they contain. The higher cost plans contain more

expensive, but nutritionally similar foods.

Shelter. Standards for shelter were developed by the

American Public Health Association and the U.S. Public

Housing Administration. The standard described sleeping space requirements, essential household equipment

(including plumbing), adequate utilities and heat, structural conditions, and neighborhood location. BLS specified that rental and homeowner units included in the budgets had to meet those standards. However, these were

minimum standards, intended to prevent the erection or

occupancy of unsuitable structures, or to ensure proper

maintenance of existing structures, and to provide a guide

for contractual arrangements. They were not intended for

use in estimating the cost of adequate shelter, such as for

the family budgets. As was the case for food, the budget

makers relied on actual spending patterns to estimate the

budget standards. Rents and market values of homes

meeting the physical requirements were arrayed and divided into thirds and the mean values of each third were

used in the budgets. For homeowners, the middle and

upper thirds were used for the intermediate and higher

budgets, while for renters, the rental value for each third

was used in the corresponding budget. Total shelter costs

in the intermediate and higher budget were weighted averages of homeowner and renter costs, and actual consumption patterns were used in deriving those weights as

well. As a result of these estimation procedures, shelter

costs in the budgets were well above the level at which

the physical standards could be met.

Other components. For the many other components that

made up the family budget bundles of goods and services,

no scientifically based standards were available. To derive quantities for these other components, the budget

makers first relied on a statistical procedure termed the

quantity-income-elasticity (q-i-e) technique. For that

analysis, expenditure data for major consumption groups

were arrayed within family type by income class. The

hypothesis underlying the q-i-e technique was that, at the

lower end of the income scale, increased spending for

items (or groups of items) is a result of increasing the

quantity purchased of the item. At the higher end of the

income scale, increased spending for items is the result

of purchasing better quality of the item. In theory, the

technique would yield an S-shaped curve when quantities and incomes are plotted, with the inflection point

marking where families move from purchasing greater

quantities of items to purchasing better quality items. This

would mark the point at which incomes are sufficient to

permit spending on things other than necessities. The

quantities of items purchased at that level would be used

for the intermediate budget as a standard of adequacy. In

practice, the q-i-e technique proved acceptable for only a

few components. In many cases, no S-shaped curve with

a clear inflection point was found, while for others the

point was outside the general range of what were considered

acceptable expenditure patterns. Where no suitable estimate

could be derived based on the q-i-e technique, the budget

makers resorted to deriving the estimates based on prevailing consumption patterns of budget type families. In

summary, the methods used to derive the quantities of

items in the family budgets are based on a mix of scientifically based standards, actual expenditure patterns of budget

type families, and the budget makers own good judgment.

Components of family budgets

SOURCE: Expert Committee on Family Budget Revisions “New

American Family Budget Standards,” Institute for Research on Poverty (IRP) Working paper, 1980, pp. 25–34.
A Century of Family Budgets

36 Monthly Labor Review May 2001

Single adults ...................................... $14,935 $19,208 $18,376

Married couples ................................. 24,892 27,091 32,259

Married couple with two children ....... 41,487 41,487 41,487

Married couple with three children ..... 46,299 46,217 142,025

Single parent with one child ............... 23,648 28,999 2

21,453

Single parent with two children .......... 31,530 34,434 —

BLS

family

budgets

Three

parameter

Median,

by

type

Family type

1 Includes all married couples with four of more children.

2

 Includes single parents with one or two children.

Table 6. Comparison of total family budgets,

 medians vs. scales, 1998

going CE Survey on an annual basis. To guard against

short-run variation in median expenditures, however,

the norms or standards should be maintained at their

previous levels in real terms, should there be nominal

declines. This feature was termed a “ratchet.” The

Consumer Price Index would be used for estimating

real expenditures from the prior period and preventing declines in the real levels of the standards.

The Expert Committee also recommended estimating the

allocation of expenditures among components by using average allocations estimated from the CE Survey for six different types of families. The Expert Committee also was

enthusiastic about the possibility of determining normative

standards through a general public survey, such as by asking people how much it takes to just “get along,” or to live

comfortably. Finally, the Committee recommended that a

major report be published presenting the standards and related information, and that it should also include analytical

and methodological articles.

BLS recognized that the four-person urban family budgets

and retired couple’s budgets estimates were based on outdated information and did not represent standards of living

typical of the later years (1970s through 1981) during which

they were published. While the Bureau took into consideration the Expert Committee’s recommendation, this process

occurred during a period of tightening budget restrictions

that had been imposed on Federal agencies. Consequently,

the budget series was discontinued with the final budget estimates published for 1981. BLS has not published family

budget standards since then. Even so, the basic standards

recommended by the Expert Committee are relatively simple

to derive from the current, ongoing CE Survey and some preliminary estimates based on those recommendations are discussed below.

Estimates of descriptive family budgets

Consumer Expenditure Interview Data for 1989, 1994 and

1998 were used to estimate the median total expenditures

for the reference family. (They were also compared with estimates from 1984.) The reference family consists of a married couple with two children under the age of 18 living in

an urban area. This family is similar to the reference family

used by the NRC Panel on Poverty.24

The total budget levels for these reference families for

1989, 1994 and 1998 are shown below:

 Budget for:

 Family type 1989 1994 1998

Married couple, with two

related children under 18,

who are:

Living in an urban area

Total budget ............................ $31,562 $36,571 $41,487

 Family consumption only

 (excludes

 cash contribution) .............. 27,143 31,817 36,528

Living in either an urban

 or a rural area

Total budget .............................. 29,933 35,729 39,229

Living in an urban area and

 is a complete income reporter

Total budget .............................. 32,460 37,186 42,525

This budget represents the prevailing family standard25

and includes the total outlays for the family (including expenditures on nondurable goods and services and purchase

price for durable goods except when financed). For housing

and financed vehicles, the mortgage interest and principal

paid on an owned home or vehicle are included,26 as are

cash contributions, pension contributions, payroll and property taxes. Not included are income taxes and other forms of

savings. This represents the total amount of outlays that the

family spends for goods and services.

The total budgets are shown for the reference family and,

for comparison to earlier years, the budget for family consumption (excluding cash contributions, pensions, and insurance). Also shown is the budget obtained by using both

urban and rural families and the budget constructed from a

sample restricted to only complete income reporters, which

are those households that provide values for at least one major source of income such as wages and salary, self-employment income, and Social Security.27

These reference families are predominantly non-black (92

percent) with a reference person who is 38 years old and has

more than a high school education (64 percent). These families are predominantly homeowners (79 percent) that have
Monthly Labor Review May 2001 37

Food ........................................ 16.0 15.6 17.3 19.0 16.0

Housing ................................... 35.3 35.5 39.9 41.5 39.2

 Owned dwellings ................ 18.9 15.6 22.6 8.8 7.8

 Rented dwellings ................ 3.4 5.4 4.2 16.0 20.0

 Utilities ................................ 7.1 8.1 7.1 11.2 7.7

 Other housing ..................... 5.8 6.3 6.0 5.5 3.7

Apparel ................................... 4.0 3.7 4.6 5.0 4.0

Transportation ......................... 16.1 15.9 15.3 13.5 14.6

Health care ............................. 4.8 8.2 4.2 4.0 3.4

Entertainment ......................... 6.0 4.8 4.6 3.9 4.7

Other1 ...................................... 5.8 5.4 4.5 5.3 8.8

Personal insurance

 and pensions ...................... 10.8 9.0 9.7 7.0 8.6

Cash contributions .................. 1.1 2.0 .1 .8 .7

[In percent]

Table 7. Shares of total budgets for various families, 1998

1 Includes alcohol, tobacco, personal care, reading, education, and miscellaneous.

Married

with two

children

Component

Married

without

children

Single

nonelderly

person

Married

with four

or more

children

Single

parents with

one or two

children

an average of 2.4 vehicles.

The reference family was originally chosen because it is

the modal family type weighted by persons, that is, more

people lived in these types of families than in any other types.

In today’s society, however, there may be many unmarried

couples with children. Hence, the modal family type may

consist simply of two adults and two children.28 Using this

more general reference family (consisting of two adults and

two children) yields a total budget of $39,870 in 1998, which

is slightly lower than that for the married couple reference

family.

The components of the budget for 1998 are shown in table 1.

These components are calculated by using the expenditure

shares of reference families in the middle quintile of total

expenditures (outlays) and applying these shares to the median budget shown in the above tabulation.29 The budget

shares in 1998 are compared with those in 1984. In both 1998

and 1984, housing, transportation, and food were the top

three expenditure items, accounting for 67.4 percent and 65.7

percent, respectively, of total expenditures, but the budget

share of food in 1998 was lower than in 1984.

Among the aggregate expenditure categories, housing

registered the largest change in budget allocation, increasing from 32.3 percent in 1984 to 35.3 percent in 1998. The

increase in housing expenditures is attributable to the increase

of the budget shares of owned dwellings (up by 3.5 percentage points). The next largest increase in the budget share of

aggregate expenditure categories was in health care, increasing from 3.5 percent in 1984 to 4.8 percent in 1998.

The largest decrease in aggregate expenditure categories

occurred in apparel, falling from 5.2

percent in 1984 to 4.0 percent in 1998.

The budget share of tobacco fell from

1.4 percent in 1984 to 0.9 percent in

1998. The budget share of alcoholic

beverages fell from 1.2 percent in 1984

to 0.6 percent in 1998.

Historical comparison. The total budgets (in constant and current dollars)

are shown for family consumption for

various years between 1909 and 1998

(family consumption includes spending on food, clothing, housing, entertainment, transportation, health care

and miscellaneous, but does not include spending on contributions, life

insurance or pensions). (See table 2,

p. 31.) As discussed above, the 1908–

09 cotton mill budgets were the first

ones developed by BLS and represented

a “fair” budget. The 1919 Washington, DC Federal worker

budgets represented the budget level for a Federal worker to

obtain a “standard of health and decency.” The budgets for

1947 and 1951 represent the “modest but adequate” budgets, the budget for 1959 is an updated version of the 1951

budgets, and the BLS family budgets for 1966, 1973, 1979, and

1981 represent the “moderate” or “intermediate” budgets,

which are updated for price changes. The revised budgets

for 1984, 1989, 1994, and 1998 represent the Prevailing Family

Standard (PFS), which is the actual median family consumption for a family of four.

As shown in earlier research results, the 1979 level of the

intermediate budget is similar to that of the 1979 prevailing

family standard.30 (Future research proposed should include

a reconstruction of these median budgets for 1917–19, 1934–

35, 1950–51, 1960–61, 1972–73, and 1980–81.) Similar to

the results of the Expert Committee in 1980, the 1973 PFS

levels are only slightly higher than the 1973 BLS intermediate family budgets. In addition, the 1961 PFS levels are only

slightly higher than the 1959 intermediate budgets adjusted

for inflation. Hence, it may be seen that the total budgets

obtained by either method yield similar estimates. The components, however, are different.

Using expenditure data from historical CE surveys, researchers have shown that the components of family expenditures have changed dramatically during this century.31

(See table 3, p. 32). The share of family spending on food

and clothing has dropped substantially (the share for both

goods fell from 61 percent in 1901 to 25 percent in 1986–

87), while the share of spending on transportation and hous-
A Century of Family Budgets

38 Monthly Labor Review May 2001

New York City .............................. 109 134 122 119

Philadelphia ................................ 102 106 103 119

Boston ......................................... 112 122 114 121

Pittsburgh .................................... 97 95 94 97

Buffalo ......................................... 101 99 96 97

N.Y.C. – Connecticut suburbs ..... 109 128 119 119

N.Y.C. – New Jersey suburbs ..... 109 118 113 119

Chicago ....................................... 102 108 105 106

Detroit ......................................... 99 97 98 106

St. Louis ...................................... 98 94 94 103

Cleveland .................................... 102 95 95 106

Minneapolis ................................. 97 100 99 103

Milwaukee ................................... 102 98 102 99

Cincinnati .................................... 100 97 96 99

Kansas City ................................ 98 93 94 103

Washington ................................. 103 114 104 112

Dallas .......................................... 95 97 94 100

Baltimore ..................................... 97 104 100 112

Houston ...................................... 98 97 93 100

Atlanta ......................................... 93 105 97 112

Miami .......................................... — 99 101 112

Tampa ......................................... — 92 93 104

New Orleans ............................... — 104 92 96

San Francisco ............................. 107 125 114 122

Seattle ......................................... 106 108 105 122

San Diego ................................... 99 112 108 122

Portland ...................................... — 92 101 110

Honolulu ...................................... 118 116 118 103

Anchorage .................................. 127 114 111 102

Denver ........................................ 99 99 100 100

Greater Los Angeles ................... 100 117 104 122

Los Angeles County ................... 100 117 113 122

Table 8. Comparison of interarea indexes (using total family

 consumption)

BLS

family budget

program, fall

1981

BLS

experimental

interarea

index, 1989

BLS

experimental

index shelter,

1995

NRC

housing

index,

19901

Area

1 Connie F. Citro and Robert T. Michael, eds., Measuring Poverty: A New Approach (Washington,

National Academy Press, 1995), 194–97.

ing has increased (the housing share increased from 24 percent in

1901 to 34 percent in 1986–87).

Similar results are revealed for the expenditure shares of family consumption (which excludes insurance, pensions and contributions) for various years. (See table 4, p. 33.) There has been

a shift away from food and clothing toward housing and transportation. (Since 1984, the increase in the share of housing is

mostly due to the increased share of homeowners’ shelter costs).

Issues

Family budgets can be used to make comparisons among different family types, among areas, and over time.32 These uses,

though, rely on some of the more controversial assumptions or

choices of the family budgets. These issues are similar to those

addressed in the literature on measuring poverty thresholds33 ; they include:

• Choosing an equivalence

scale to adjust the threshold

or budget for differences in

household sizes and types.

• Determining a geographical

index for differences in prices

across geographical areas.

• Updating the thresholds or

budgets over time.

Equivalence scales. An equivalence

scale is used to adjust the thresholds

for differences in household size and

composition. There are three approaches to choosing the equivalence

scale34 :

• The analysis of behavior, using the consumption patterns

of families to “compute” the

scale economies.

• Arbitrary but transparent formulas, using the square root

of family size.

• Asking people; using subjective responses related by family size.

All of these methods have problems and there is no consensus on the

approach or the actual scale economies. The Watts Commission recommended using a refined version of the revised Orshansky scales. They concluded that no others were demonstrably superior to the

originals; despite that, they also claimed their choice

merited scant weight.

The NRC panel also concluded that any choice of

equivalence scales might be rather arbitrary. It reported

that standard methods for using expenditure data to estimate various types of equivalence scales yield many

different scales depending on the assumptions made

about the measure of well-being, the estimation method,

the types of households, and data used in the analyses.35

The NRC panel recommended an arbitrary, but transparent formula: the thresholds for household types other

than the reference type should be determined using an
Monthly Labor Review May 2001 39

equivalence scale that would adjust for the number of adults

and children in the household. This two-parameter scale is

given by (A + PK)F, where A represents the number of adults

and K represents the number of children. The Panel recommended that the scale economy factor, F, be set at either

0.65 or 0.75 and that the parameter P be set at 0.7.

The NRC panel’s choice of a two-parameter scale was an

attempt to be consistent with the cost-of-children literature

and to remove the irregular increases in the scale for larger

family sizes. This scale, however, may be inappropriate for

childless families. The three-parameter scale attempts to reconcile the differences between singles and childless couples,

single-parent and two-parent families, and the cost-of-children literature.36 Compared with the NRC panel’s recommendation, the three-parameter scale assumes more economies

of scale between singles and childless couples and more similarity between the scales for families with one parent and

two children and two-parent families with one child.

The most recent BLS family budgets used equivalence

scales that were derived from differences in food expenditure patterns among different family types. These original

scales are compared with three alternative equivalence scales:

the one recommended by the Expert Committee, the official

poverty scales, a two-parameter scale,37 and an alternative

three-parameter scale.38 The scales are shown normalized,

so that the scale for the reference family is 1.0. (See table 5,

p. 34.) The three-parameter scales are flatter than those used

in the BLS family budget program. That is, there are more

economies of scale between families of different sizes.

The Expert Committee also recommended against using

the median family consumption for a wider variety of family types to determine their respective budgets. They believed

that some family types—citing elderly singles or couples—

do not necessarily enjoy the same high standards as the reference family and that using actual expenditures to estimate

standards would merely “validate the status quo.” Recently,

as an example, researchers have demonstrated that the economic well-being of single parents is much lower than that

of married couples.

To show these differences, the median budget for various family types is compared with family budgets obtained

using the family budget scales and the three-parameter scales.

(See table 6, p. 36.) The first two columns are calculated by

multiplying the respective scale shown in table 5 by the total

budget of the reference family, whose figure is $41,487. The

last column shows the actual median expenditures for the

various family types. The median expenditures for single

nonelderly families lie between the budgets determined using the scales. The data confirm the observation that single

parent families do not enjoy the same standard of living as

the reference families. Also illustrated is the reason that the

Expert Committee did not recommend using this method.

Because single parent families tend to have access to fewer

economic resources, their expenditures will be lower than

those of other families. Hence, use of the actual expenditures of families may not provide a true estimate of the expenditures required to achieve similar levels of living.

While the total budget levels should not be calculated

separately for each family type, the data can be used to compare the shares of the components for each family type. The

shares for various components for select family types are

shown. (See table 7, p. 37.) Housing and food expenditures

amount to 51 percent for the reference family and for the

married couple family without children, but 61 percent of

total expenditures for single parents with one or two children.

As do other household types, single nonelderly and single

parents with one or two children allocate the largest portion

of their budget to housing. Unlike the other household types,

however, more than 60 percent of their housing expenditures go toward rent and utilities.

Geographic indexes: adjusting for interarea price differences. The Watts Commission agreed that the budgets ought

to be different for different geographic areas, but, as with

the equivalence scale findings, their empirical attempts did

not produce “consistent and robust findings.” The NRC Panel

also noted: “there is wide agreement that it is desirable to adjust

poverty thresholds for differences in prices...[however]...there

are no geographic area cost-of-living indexes that correspond

to the CPI.”39 Determining interarea adjustments is one of the

Philadelphia .................. $43,679 $29,265 $27,540

Boston ........................... 49,523 33,180 29,730

Chicago ......................... 44,409 29,754 27,440

St. Louis ........................ 39,295 26,328 25,270

Minneapolis ................... 41,487 27,796 25,550

Washington ................... 46,601 31,223 29,810

Atlanta ........................... 43,313 29,020 24,870

San Francisco ............... 50,619 33,915 28,800

Anchorage .................... 46,601 31,223 35,430

Los Angeles County ..... 47,697 31,957 28,200

1The budget levels are calculated by applying the indexes in table 8

to family consumption ($36,528) and then adding the amount of pensions, life insurance and contributions ($4,959).

Table 9. Comparison of family budgets and

 lower living standard income levels

 for select cities

City

1998 PFS

(using 1989

BLS experimental

indexes)

Lower level

(67 percent

of 1998 PFS)1

DOL lower

living

standard

income

levels, 1998
A Century of Family Budgets

40 Monthly Labor Review May 2001

Chart 1. Index values for CPI-Experimental and family budgets, 1909–98

NOTE: The CPI-Experimental (CPI-EXP) is calculated using the historical CPI until 1928, the CPI between 1929 and 1947, the

CPI-U-XI between 1947 and 1968, and the CPI-U-RS after 1978.

1909 1919 1947 1951 1959 1966 1973 1979 1984 1989 1994 1998

0

1,000

2,000

3,000

4,000

5,000

6,000

0

1,000

2,000

3,000

4,000

5,000

6,000

Family budgets

 Index

(1909 = 100)

 Index

(1909 = 100)

CPI-Experimental

more controversial components of the experimental poverty

measure.40 The following is a comparison of some of these

alternative approaches.41

BLS family budget program. Budget cost estimates were published for 40 urban areas, four regional averages, and a U.S.

urban average. The budgets were intended to measure equivalent levels of living in the different budget areas; however,

identical budgets were not priced in the 40 budget areas.

The quantity weights were adjusted to account for regional

preference or geographical patterns: for food among regions,

for clothing and heating fuels among the cities to account

for differing climates, and for automobile ownership and

usage; differences were incorporated by city size, to account

for availability and use of public transportation.

BLS experimental interarea indexes. In this article, interarea

price indexes are constructed using preliminary research

conducted at BLS.

42 Researchers used an hedonic methodology and monthly CPI-U price data for July 1988 through June

1989 to produce experimental interarea price indexes; indexes were computed for the 44 CPI publication geographic

areas.43 These experimental interarea price indexes were created at the lowest level of CPI price data available and were

aggregated to form index factors for 11 major expenditure

categories. The resulting 11 expenditure categories total about

90 percent of the total family consumption budget. Although

the interarea price indexes are preliminary and of experimental

status, no other suitable data currently are available that can be

utilized to estimate interarea price differences.

BLS revised experimental interarea indexes for shelter. In

1995, the shelter indexes were updated.44 Using similar methods and more recent data, new indexes were created. These

new interarea indexes were very similar to the original indexes for shelter (correlation coefficient of 0.98).

NRC Panel on Poverty. The Panel developed an interarea

price index for shelter. This index focused on shelter because housing expenditures were the largest component of

the Panel’s budget and because variations in housing costs

are significant across regions and by population size. Using

the 1990 decennial census, the Panel used methods similar

to those used to produce the fair market rents and computed

index values for each of the 341 metropolitan areas. The

index values were based on the cost of housing at the 45th

percentile of the distribution for each area. The data were

then grouped into six population size categories within each

of the nine census regions, which produced a final set of 41

index values.
Monthly Labor Review May 2001 41

Chart 2. Index values for family budgets, CPI-Experimental, median family income,

 and per capita GDP, 1947–98

1947 1951 1959 1966 1973 1979 1984 1989 1994 1998

0

500

1,000

1,500

2,000

Family budget

CPI-Experimental

Median income

Per capita GDP

0

500

1,000

1,500

2,000

 Index

(1947 = 100)

 Index

(1947 = 100)

These various indexes are shown for the major CPI cities.

(See table 8, p. 38.) The indexes are calculated by adjusting

the particular expenditure items included in the index and

then adding the other components included in total family

consumption. For example, the NRC index values were further adjusted for the estimated fraction of the budget accounted for by housing (including utilities), which was set

at 44 percent. The NRC indexes are for specific area-size regions, and they are similar for similar sized cities in the same

region (such as Los Angeles and San Francisco).

The indexes for many areas are similar across methods.

(See table 8, p. 38.) For example, Boston is consistently high

for all methods, while Minneapolis is consistently average

(around 100). In fact, the rank correlation between the family budget index and the experimental index is fairly high.

The correlation between the overall experimental and revised

shelter indexes is the highest (at 91 percent).

Budgets are compared for particular cities with the budgets used by the Department of Labor in the implementation

of the Workforce Investment Act. (See table 9, p. 39.) This

act continues to use updated figures from the 1981 BLS family budget program for selected cities to determine the lower

living standard income level (LLSIL). These LLSILs are used

to determine whether an individual qualifies for job training

assistance.

The second half of the table compares these LLSILs with

the lower living level, recommended by the Expert Committee, of 67 percent of the PFS. Again, it is shown that either

method yields similar budgets for many areas (for example,

Philadelphia). In fact, the average LLSILs for the major cities

differ by only $300 from the average lower level budget using 67 percent of the median budget.

Updating the budgets over time. The Expert Committee recommended that the standards be updated using the change

in the median budget for the reference family as estimated

annually using the CE survey data. They intended to use an

adjustment factor that increases more than inflation and that

would be a more “relative” updating mechanism. Specifically, they proposed that the budgets be updated annually

by re-computing the median expenditure of the reference

family each year from CE survey data. They also recommended a “ratchet” method, such that, if the change in the

median were less than the inflation rate, then the inflation

rate would be used to update the budget.

This method is similar to that recommended by the NRC

Panel for updating the poverty thresholds. The NRC Panel

recommended that the poverty thresholds, once determined,

should be updated over time using the change in median

expenditures for the basic bundle of goods.45 The NRC Panel
A Century of Family Budgets

42 Monthly Labor Review May 2001

1947–98 1947–51 1951–59 1959–66 1966–79 1979–84 1984–98

Budget

Income

–2

–1

0

1

2

3

4

–2

–1

0

1

2

3

4

Percent Percent

GDP

Chart 3. Real average annual percent changes in family budgets, CPI-Experimental,

 median family income, and per capita GDP, selected periods, 1947–98

1 1979 represents the BLS family budget. 2 1979 represents the prevailing family budget (PFS).

1 2

expected that this updating method would produce thresholds that would increase by more than the inflation rate but

by less than the change in per capita Personal Consumption

Expenditures. The Panel’s motivation came from the observation that the poverty threshold had not increased in real

terms, while real median income had increased since the

1960s. The Panel’s report showed that the poverty threshold

rose less than the change in after-tax median income mainly

during the 1960s and early 1970s.46 The NRC Panel estimated

that the elasticity of the basic bundle to total consumption

minus health care was 0.65. Others have estimated various

elasticities of poverty lines with respect to changes in income.47

The key issue is which components of the measure are

relative and which are fixed over time. James Foster has

claimed that “the key distinction between absolute and relative thresholds is not seen in the specific values at a given

date, but in how the values change as the distribution

changes.”48 The difference between the changes in the budgets and the changes in the consumer price indexes can be

seen. (See table 3, p. 32.) The budget increased much more

than the inflation rate and for almost all time periods. The

trends in these two series between 1909 and 1998 are shown.

(See chart 1, p. 40.) Here, the CPI-Exp is constructed using

the CPI-U-RS49 for 1978–1998, the CPI-U-X1 for 1947–77, the

CPI (base 1982–84) for 1929–1947 and the CPI (base 1967)50

for 1909–1928. This shows that the budget increased 56 fold

between 1909 and 1998,51while the CPI increased only 16

times (for a real increase of 230 percent). Even during the

post-war period of 1947–1998, the budget increased 12 times

compared with 6.3 times for the CPI (note this CPI-Exp is lower

than the CPI-U; the CPI-U increased 7.3 times during this postwar period.)

To further examine these differences, changes are compared in alternative indexes for 1947–98. The trends in the

family budgets, CPI-Exp, median income for a family of four,

and the per capita gross domestic product (GDP) are compared. (See chart 2, p. 41.) While the family budgets increased

much more rapidly than the inflation rate during this period,

they did not increase as much as median income or per capita

GDP.

To determine the “true” increase in the standard of living, it must be determined how much of the increase is due

to changes in the definition of the “standard” (for example,

the difference between a “modest” budget and a “fair” budget) and how much is due to actual changes in the level of a

consistent “standard.” For the earlier periods, it could be that

the fair standard used in 1909 implied a lower standard of

living than the “modest but adequate” level used in 1947.

For the post-war period, however, it seems reasonable that
Monthly Labor Review May 2001 43

the “modest but adequate,” “moderate,” and “intermediate”

levels should have represented similar standards. In fact, the

1966 report (City worker’s family budget) claimed that “almost all of the improvement in the real level of living [between 1951 and 1966]...has been reflected in the standard.”52

By showing that the change in the after-tax income for these

reference families increased by the same amount as the

change in the budget, the report notes that the budget “continues to represent the same relative position on the scale of

consumption over the past two decades.”

These are still relatively subjective concepts, and their

translation into actual dollar figures might be highly variable.

Research on subjective measures shows that the interpretations of measures such as “sufficient” and “good” produce

dollar amounts that are widely separated.53 Still other research has revealed an estimate that the average cost level

required to obtain a “good” income was higher than that for

a “sufficient” income.54

The average annual percent changes in real dollars for

selected periods between 1947 and 1998 are shown. (See

chart 3.) Overall, the budgets increased in real terms during

this period. Between 1947 and 1979, the composition of the

budgets changed twice (a modest change in 1959, and a more

dramatic change in 1966). The composition of the budget

changes each year using the PFS method. It may be seen that

the real average annual change in the budget between 1947

and 1966 was similar to the change in median income (as

suggested above), with a smaller real change between 1947

and 1951. This occurs because the budgets between these

years were updated using price changes. Similarly, no real

change occurred in the budget between 1966 and 1979; this is

because the budgets were simply updated with price changes.

Between 1979 and 1984, the budgets fell in real terms,

while median income remained almost unchanged. Some of

this may be due to the slightly different methodologies used

in calculating the budgets. Finally, between 1984 and 1998

the average annual increase in the budgets was similar to the

increases in median income. The elasticity with respect to

changes in real income can be calculated.55 For the entire

period between 1947 and 1998, the elasticity of the budget

is 0.59. The elasticity is higher for the prescriptive period

between 1947 and 1979, with an elasticity of 0.68. Using

the descriptive methods presented in this paper, the most

recent period (1984–98) yields an elasticity of 0.92.

THE PRODUCTION OF FAMILY BUDGETS and budget standards,

which occurred at BLS throughout the last century, has provided a vital, dynamic source of data for numerous studies

and research activities. This article has reviewed this history

and has used actual expenditure data to construct a descriptive family budget using the methodology as recommended

by the Expert Committee in 1980. These budgets are relatively simple to derive from the current, ongoing Consumer

Expenditure Survey; they are calculated for 1989, 1994, and

1998 and compared with earlier estimates of 1984. These

estimates are also compared with earlier budget standards

that were constructed using an alternative budget-based

method. These budgets have not increased as much as per

capita GDP or median family income.56 They have, however,

increased more than inflation. Over the past 50 years, the

increase in real family budgets has an elasticity of about 0.60

with respect to median family income.

Similarly to earlier work, the descriptive budgets derived

from the median total expenditures are close to the “expert”

budgets that are constructed to provide a “moderate” or

“intermediate” standard of living. While it would be inappropriate for a statistical agency such as BLS to make the

necessary subjective determinations of the initial level of

the family budget (as Commissioner Moore and others have

stated), this article has constructed a descriptive family budget without specifying a subjective standard of living. The

Expert Committee suggested that these family budgets could

be used to compare the level of living among different

family types and areas. The results of these comparisons,

however, depend on the method used to determine the equivalence scales or interarea indexes.

ACKNOWLEDGMENT: This article was first presented as a paper at the 26th

General Conference of the International Association for Research in Income and Wealth in Cracow, Poland, August 2000. The authors thank

Joel Popkin, Gordon Fisher, Mark Lino, and Jared Bernstein for their

comments.

1

 Gordon Fisher, “From Hunter to Orshansky: An Overview of (Unofficial) Poverty Lines in the United States from 1904 to 1965,” Poverty

Measurement Working paper (Department of Commerce, Bureau of the

Census, 1997); and “Poverty Lines and Measures of Income Inadequacy

in the United States since 1870,” paper presented at the meeting of the

Social Science History Association, October 1997.

2

 Peter Saunders, “Household Budgets and Income Distribution Over

the Longer-term: Evidence for Australia,” paper presented at the 25th

General Conference of The International Association for Research on Income and Wealth, August 1998.

3 Ibid.

4

 Amartya Sen, The Standard of Living (Cambridge, Cambridge University Press, 1988).

5

 James E. Foster, “Absolute Versus Relative Poverty,” American Economic Review (May 1998), pp. 335–41.

6

 Peter Saunders, Jenny Chalmers, Marilyn McHugh, Collete Murray,

Michael Bittman and Bruce Bradbury, “Development of Indicative BudNotes
A Century of Family Budgets

44 Monthly Labor Review May 2001

get Standards for Australia,” Policy Research paper No. 74, Department

of Social Security, Canberra, Australia, 1998.

7

 Foster, “Absolute Versus Relative Poverty,” p. 335–41.

8

 Harold W. Watts, “A review of budget-based expenditure norms,”

comments presented to the NRC Panel of Poverty, Spring 1993. Also see

Trudy J. Renwick and Barbara R. Bergmann, “A budget-based definition

of poverty with an application to single-parent families,” Journal of Human Resources, 1993, Winter 1993, pp. 1–24, for a presentation of budget-based standards.

9

 Saunders, et al., “Development of Indicative Budget Standards for

Australia,” 1998.

10 Jared Bernstein, Chauna Brocht and Maggie Spade-Aguilar, How

Much is Enough? Basic family budgets for working families (Washington, Economic Policy Institute, 2000).

11 See Harold W. Watts, “Special panel suggests changes in BLS Family

Budget Program,” Monthly Labor Review, December 1980, pp. 3–10.

12 Connie F. Citro and Robert T. Michael, eds., Measuring Poverty: A

New Approach (Washington, National Academy Press, 1995).

13 Harold W. Watts, “A review of budget-based expenditure norms,”

comments presented to the NRC Panel of Poverty, spring 1993.

14 Report on Conditions of Woman and Child Wage-Earners in the

United States, Vol. XVI, Family Budgets of Typical Cotton-Mill Workers

(Bureau of Labor, 1911), p. 9.

15 “Tentative Quantity-Cost Budget Necessary to Maintain Family of

Five in Washington, D.C.,” Monthly Labor Review (December 1919),

pp. 22–25.

16 Intercity Differences in Cost of Living in March 1935, 59 cities,

Research Monograph XII (Washington, Works Progress Administration,

1937), p. xiv.

17 Workers’ Budgets in the United States: City Families and Single

Persons, 1946 and 1947, Bulletin 927 (Bureau of Labor Statistics, 1948).

18 Report of the Advisory Committee on Standard Budget Research

(Bureau of Labor Statistics, 1963).

19 City Worker’s Family Budget for a Moderate Living Standard, Bulletin 1570-1 (Bureau of Labor Statistics, Autumn 1966), p. v.

20 Revised Equivalence Scale for Estimating Equivalent Incomes or

Budget Costs by Family Type, Bulletin No. 1570-2 (Bureau of Labor Statistics, 1968). BLS also included equivalence scale adjustments for the

1947 City Worker’s budgets; see Workers’ Budgets in the United States:

City Families and Single Persons, 1946 and 1947, Bulletin 927 (Bureau

of Labor Statistics, 1947).

21 Joseph P. Goldberg and William T. Moye, The First Hundred Years

of the Bureau of Labor Statistics (Bureau of Labor Statistics, 1985), p.

233.

22 See Expert Committee on Family Budget Revisions “New American

Family Budget Standards,” Institute for Research on Poverty (IRP) Working paper, 1980, p. 9.

23 Watts, “Special panel,” p. 8.

24 Citro and Michael, Measuring Poverty.

25 This is the standard as recommended by Harold W. Watts, “Special panel suggests changes ...,” Monthly Labor Review, December

1980, pp. 3–10.

26 The total outlays are used instead of the total expenditures for

the consumer unit (see John M. Rogers and Maureen B. Gray, “CE

data: quintiles of income versus quintiles of outlays,” Monthly Labor

Review, December 1994, pp. 32–37). The main difference between

this measure and the one recommended by the Expert Committee is

that the purchase price of vehicle is replaced with the principal payments.

27 See Expert Committee on Family Budget Revisions, “New American Family Budget Standards,” IRP Working paper, 1980. This restriction was used by the Expert Committee and in the budgets constructed

by Rogers (1994).

28 David Johnson, Stephanie Shipp, and Thesia Garner, “Developing Poverty Thresholds Using Expenditure Data,” Proceedings of the

Government and Social Statistics Section (Alexandria, VA, American

Statistical Association, August 1997), pp. 28–37.

29 To compare with earlier studies, the mean personal income taxes

also are calculated for reference families in the middle income quintile

using the Current Population Survey; the figure is $6,177.

30 Expert Committee, “New American Family Budget Standards,” IRP

Working paper, 1980.

31 Eva Jacobs and Stephanie Shipp, “How family spending has changed

in the U.S.,” Monthly Labor Review, March 1990, pp. 20–27.

32 Watts, “Special panel suggests changes ...,” Monthly Labor Review,

December 1980, pp. 3–10.

33 See Citro and Michael, Measuring Poverty, p. ?; and Johnson, et al.,

“Developing Poverty Thresholds ...,” Proceedings of the Government

and Social Statistics Section, pp. 28–37.

34 Angus Deaton, “Frontiers of Poverty Measurement in Economics,”

talk given at the Consultation on Values, Norms and Poverty,

Johannesburg, South Africa, January 1999.

35 David Johnson, “The Two-Parameter Equivalence Scale and Inequality Between and Within Households,” paper presented at the 1996 General Conference of the International Association for Research in Income

and Wealth, August 1996.

36 David Betson, “Is Everything Relative? The Role of Equivalence

Scales in Poverty Measurement,” University of Notre Dame, March

1996; and K. Short, Thesia Garner, David Johnson, and Pat Doyle,

Experimental Poverty Measures, 1990–1997, P60–205 (U.S. Department of Commerce, Bureau of the Census, 1999).

37 Citro and Michael, Measuring Poverty.

38 Kathleen Short, et al., Experimental Poverty Measures, 1990–

1997, P60-205.

39 Citro and Michael, Measuring Poverty, pp. 182–83.

40 Thomas Corbett, “Poverty: Improving the Measure After Thirty

Years, A Conference,” Focus (Spring 1999); and, also, Gary Burtless,

“The Political Consequences of a New Poverty Measure,” presented to a

conference “Poverty: Improving the Definition after Thirty Years,” April

1998.

41 See also Stephen Malpezzi, “Remarks on Geographic Variation in

Housing Prices and the Measurement of Poverty,” presented to a conference “Poverty: Improving the Definition after Thirty Years,” April 1999,

for other possible methods.

42 Mary F. Kokoski, Patrick Cardiff, and Brent Moulton, “Interarea

Price Indices for Consumer Goods and Services: An Hedonic Approach

Using CPI Data,” Working paper 256 (Bureau of Labor Statistics, 1994.

See also Johnson for a similar approach used to adjust poverty thresholds.

43 The BLS interarea index research is still in progress and the current

indexes are of experimental status. They do not reflect official BLS published data.

44 “Interarea comparisons of compensation and prices,” Report on the

American Workforce (Bureau of Labor Statistics, 1997.)

45 Citro and Michael, Measuring Poverty.

46 Citro and Michael, Measuring Poverty, p. 35.

47 See the literature review in Gordon Fisher, “Is There Such a Thing

as an Absolute Poverty Line Over Time? Evidence from the United States,

Britain, Canada, and Australia on the Income Elasticity of the Poverty

Line” Poverty Measurement Working paper, U.S. Bureau of the Census,
Monthly Labor Review May 2001 45

1995.

48 Foster, “Absolute Versus Relative Poverty,” American Economic

Review, pp. 335–41.

49 See Kenneth J. Stewart and Stephen B. Reed, “CPI research series

using current methods, 1978–98,” Monthly Labor Review, (June 1999),

pp. 29–38.

50 Handbook of Labor Statistics, Bulletin 1865 (Bureau of Labor

Statistics, 1975) p. 3l3.

51 The percent changes between 1909–1947 are calculated using

the 5 person family budgets, the changes between 1947–1979 are

calculated using the BLS family budgets for 4 persons, and the changes

between 1979 and 1998 are calculated using the changes in the PFS

budgets.

52 City Worker’s Family Budget for a Moderate Living Standard,

Bulletin 1570-1 (Bureau of Labor Statistics, Autumn 1966).

53 Citro and Michael, Measuring Poverty; and, also, Bernard M. S.

Van Praag and Nico L. Van der Sar, “Household Cost Functions and

Equivalence Scales,” Journal of Human Resources, Spring 1988, 193–

210.

54 Ibid.

55 The approach used here follows that outlined in Gordon Fisher,

“Is There Such a Thing as an Absolute Poverty Line Over Time?

Evidence from the United States, Britain, Canada, and Australia on

the Income Elasticity of the Poverty Line” Poverty Measurement

Working paper, U.S. Bureau of the Census, 1995.

56 See, for example, Peter Saunders, et al., “Development of Indicative Budget Standards for Australia,” Policy Research paper No.

74, Department of Social Security, Canberra, Australia, 1998.

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