December, 2000, Vol. 123, No. 12
To the editor:
I have read with a great deal of interest Lucilla Tan’s article, "Spending patterns of public-assisted families" (Monthly Labor Review, May 2000). I had not seen similar data before. I believe your approach to understanding the economic circumstances of those families that take advantage of various assistance programs leads to some very informative results.
One aspect of your results that I found interesting was that for the assisted families there was, at most, a small discrepancy between average total expenditure and income before taxes. However, for the very low income groups in the Consumer Expenditure Survey, the discrepancy is enormous (as I am sure you well know) for the group classified with incomes less than $5,000, the reported income averaged $1,888 (before taxes) and expenditures averaged $17,502. It is not obvious how this large difference was financed—the data on changes in net assets and liabilities are far too small, as are gifts or other financial receipts.
Also, I hope you can help me with a question that I have
concerning our poverty measures. The current poverty measure is based on income.
I believe that consumption expenditures is clearly a much better indicator of
the economic well-being of a household. So my question is: do you know of data
on the consumption expenditures of households or families that are defined as
being in poverty? Based on an inquiry that I made last summer, I believe that
such data are available. If so, I would very much like to have a reference to
I would greatly appreciate any help that you can give me.
[signed] Dr. D. Gale Johnson
Eliakim Hastings Moore
Distinguished Professor of Economics
University of Chicago
and former President
of the American Economic Association
The authors reply:
Dear Dr. Johnson:
Your observation about the large discrepancies between income and average expenditures of low-income groups is frequently noted by users of Consumer Expenditure (CE) Survey data. The primary reason for the discrepancies is under-reporting or non-reporting of income by respondents. The average incomes shown in the tables published from CE are derived from complete income reporters (that is, consumer units that provide information for at least one of the major sources of their income, such as wages and salaries, self-employment income, or retirement income). However, even complete income reporters may not provide a full accounting of all income from all sources. Research has shown that some consumer units in the lower income classification have expenditure levels that are more typical of upper income consumer units. Their expenditures raise the average expenditure levels of the income group in which they are classified. Other possible explanations are:
· Consumer units whose members experience a spell of unemployment may draw on their savings to maintain their expenditures.
· Self-employed consumers may experience business losses that result in low or even negative incomes, but they are able to maintain their expenditures by borrowing or relying on savings.
· Students may get by on loans while they are in school, and retirees may rely on savings and investments.
My article does not use income as a classifying variable; instead, it uses the receipt of public assistance. To avoid the measurement issue associated with income (described above), I did not consider the characteristics and spending patterns of poor consumer units. Instead, I examined the characteristics and spending patterns of consumer units that receive public assistance. The underlying assumption was that there would be a high correlation between the poor and those who receive public assistance.
You asked about the availability of data on the consumption expenditures of households or families that are defined as being in poverty. Currently, there are no published CE tables that use poverty as a classifying variable. However, assuming you are defining poverty as those consumer units below the poverty threshold, there are variables on the CE public use micro-data that would allow you to identify consumer units who are below the poverty threshold. Note that the issues of income under-reporting and non-reporting by respondents still remain. Information on ordering the micro-data can be obtained from /cex/. There is a current project underway to impute missing income values for the CE.
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