The Role of Housing in Poverty
Thresholds: 1993-2003
Thesia I. Garner
Bureau of Labor Statistics
Annual Meeting of the Southern Economic Association
Washington, D.C.
November 19, 2005 (revised)
The views expressed are solely those of the author and do not necessarily reflect the official
positions or policies of the U.S. Bureau of Labor Statistics or the views of other staff members.
1
Key in Development of a
Poverty Measure
 Determine threshold
Calculate resources
Goal: Consistently measure thresholds
and resources
2
National Academy of Sciences
Recommendations (1995)
 2.1-2.4 A poverty threshold with which to initiate a new
series of official U.S. poverty statistics should be derived
from Consumer Expenditure Survey [CE] data for a
reference family of four persons (two adults and two
children).
 Basic bundle
 Percentage of median expenditures
 Multiplier for other needs
 Updating
 Real growth in consumption
 3.1 Adjustments
The NAS recommended a Procedure.
3
This paper…
builds on NAS Workshop 2004
 Threshold
Concept and measure
Definitions
Adjustments
 Data
 Results
Time series: 1993-2003
Relationship to other economic data
Price adjustment and number of years of
data for estimation
 Conclusions
4
Concept Underlying Threshold?
Input (e.g., housing)
Costs of inputs (dollars)
5
Costs Measures
Used to Define Thresholds
 Spending
Official poverty threshold
NAS threshold, basically
 Consumption
What people think about
For housing in particular, spending does not
equal consumption (e.g., subsidized housing,
owned housing)
Treat the shelter consumption needs of owners
and renters consistently – services valued as rent
Costs of inputs
6
Thresholds Defined in Terms of…
Food, Clothing, Shelter, Utilities, Medicare Care
FCSUM
using U.S. Consumer Expenditure Survey data
 Spending
Out-of-pocket (OOP) expenditures: FCSUM-OOP
 Spending and Consumption
Expenditures adjusted for select consumption/needs (e.g.,
housing): FCSUM-R
7
FCSUM-OOP (Out-of-Pocket
Spending) Threshold
 Out-of-pocket spending on
Food
Clothing
Utilities (includes telephone)
Medical care
For renters, shelter expenditures
 For homeowners, non-vacation shelter
expenditures that include
Principal repayments
Mortgage interest payments
Prepayment penalties
Property taxes
Maintenance, repairs, insurance and other related
expenditures
8
FCSUM-R (Shelter
Consumption) Threshold
 Out-of-pocket spending
Food
Clothing
Utilities (includes telephone)
Medical care
Rent of renters
 Value of consumption
Food as pay
Rent as pay
Rental equivalence of owners
 Expected spending
Adjustment for the medically uninsured using CE data
9
Caution….
 For a consumption based threshold, would also
need
Rent controlled or government subsidized housing
School breakfast, school lunch, WIC, energy assistance
Medical consumption not financed out-of-pocket
Goods and services received as gifts (“net” value of gifts)
 And implicit values of these would be added to
resources for consistency
10
Computing the Thresholds
 Use three years of quarterly CE data (update to
most recent year using CPI-U All Items)
 Determine median expenditures for bundle for
reference “family” (2 adults with 2 children)
 Apply three-parameter equivalence scale to
food, clothing, shelter, and utilities part and
medical spending equivalence scales to medical
part
 Update over time using change in median
expenditures of bundle
11
Equations for Thresholds
(1.15* PL * M ) + (1.25* PH * M )
+
(1 − smedical )
2
( PL * M ) + ( PH * M )
( smedical )
2
Used the midpoints of the percentages and multipliers
12
Three-Parameter Equivalence
Scale Applied to (1-smedical) Part
one and two adults
[adults]0.7
single parents
[adults + 0.8*1st child + (0.5*other children)]0.7
all other families
[adults + 0.5*children]0.7
13
Medical Expenditure
Equivalence Scale
Number of family members
Ages of family members
< 65 years of age
>=65 years of age
Health insurance status of family
members
No insurance
One private policy
One person covered by public insurance and
no private coverage
14
Data
 U.S. Consumer Expenditure Interview Survey
 Amount of data/time period
3 years of data
Threshold year minus one (t-1)
e.g., for 1993 threshold, t=1993 so last year of data used
in calculation of threshold would be primarily for 1992
1993 Threshold
• Collection quarters: 1990 Q2 – 1993 Q1
2003 Threshold
• Collection quarters: 2000 Q2 - 2003 Q1
 Assume quarters are independent
15
Experimental Thresholds
$26,000
$24,000
$22,000
$20,000
$18,000
$16,000
official
$14,000
FCSUM-OOP
$12,000
FCSUM-R
$10,000
$8,000
$6,000
$4,000
$2,000
$0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
16
Experimental Thresholds
$26,000
$24,000
Survey change
Market?
$22,000
official
$20,000
FCSUM-OOP
FCSUM-R
$18,000
$16,000
$14,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
17
Average Annual CPS Household income, CE
Expenditures, and Thresholds
$60,000
$50,000
BTM income
$40,000
CE total
$30,000
Official
$20,000
FCSUM-OOP
$10,000
FCSUM-R
$0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Sources: CPS and CE websites, author’s calculations
18
Reference Family Annualized Spending in the
30th-35th Percentile for FCSUM-OOP
$9,000
$8,000
$7,000
$6,000
Food
$5,000
Shelter
Utilities
$4,000
Medical
Clothing
$3,000
$2,000
$1,000
$0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
19
Reference Family Annualized
Spending/Owner Consumption in the 30th-35th
Percentile for FCSUM-R
$9,000
$8,000
$7,000
$6,000
Shelter
$5,000
Food
Utilities
$4,000
Clothing
Medical
$3,000
$2,000
$1,000
$0
1993 1994
1995 1996 1997
1998 1999 2000 2001
2002 2003
20
$9,000
FCSUM
-OOP
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
1993
FCSUM
-R
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
$9,000
$8,000
$7,000
$6,000
Shelter
$5,000
Food
Utilities
$4,000
Clothing
Medical
$3,000
$2,000
$1,000
$0
1993 1994
1995 1996 1997
1998 1999 2000 2001
2002 2003
CPI-U for All Items and
Selected Categories
3.50
3.00
CPI_U
FOOD_CPI
2.50
APP_CPI
UTIL_CPI
2.00
SHEL_CPI
MED_CPI
1.50
1.00
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
22
Threshold Shares and CPI-U
Relative Importances: 2003
FCSUM-OOP Threshold
CPI-U
16%
15%
26%
8%
4%
38%
6%
14%
30%
6%
30%
7%
Food
Clothing
Shelter
Food
Clothing
Shelter
Utilities
Medical
Other
Utilities
Medical
Other
23
Threshold Shares and CPI-U
Relative Importances: 2003
FCSUM-R Threshold
CPI-U
16%
15%
25%
7%
4%
38%
5%
13%
30%
6%
34%
7%
Food
Clothing
Shelter
Food
Clothing
Shelter
Utilities
Medical
Other
Utilities
Medical
Other
24
Price Adjustment and Years
of Data
Which CPI-U?
CPI-U All Items to update sum of
FCSUM
CPI-U for each item (i.e., food,
clothing, shelter, utilities, medical care)
Which years of data?
3 years, t-1
2 years, t-1
2 years, t
25
Price Adjustment and Years
of Data: Threshold 2004
$27,000
$26,500
$26,000
$25,500
$25,000
$24,500
$24,000
$23,500
$23,000
3 years t-1
FCSUM-OOP
Reference Families
n=8,280
2 years t-1
FCSUM-OOP(COM)
n=5,576
2 years t
FCSUM-R
n=5,410
26
Conclusions
 Thresholds that account for
 Medical care expenditures
 Shelter consumption
 Trends
 Updates to reflect
 Whose experience?
“Average” urban consumer
Reference family
 Which goods and services?
 Time period
 More research
 Equivalence scales
 Data collection
Medical care
Consumption-based measures
27
Contact
Thesia I. Garner, Research Economist
Division of Price and Index Number Research
Bureau of Labor Statistics
U.S. Department of Labor
2 Mass. Ave., NE
Washington, DC. 20003
[email protected]
(202) 691-6576
28
Food Shares as a
Percentage of Total Using 2003 CE Data
0.35
0.30
0.25
!
0.20
0.15
0.10
0.05
0.00
single
couple
BT Money Income
Source: CE data 2003 Q1-2004Q1
Ztotal exp
couple (2a+1c)
Ztotal consump
couple (2a+2c)
Official
Food Share Multipliers Using 2003
CE Data
10
9
8
7
6
5
4
3
2
1
0
!
single
couple
BT Money Income
Source: CE data 2003 Q1-2004Q1
couple (2a+1c) couple (2a+2c)
Ztotal exp
Ztotal consump
Official
Poverty Thresholds Based on Food
Share and Thrifty Food Plan for 2003
$50,000
$45,000
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
single
couple
BT Money Income
Source: CE data 2003 Q1-2004Q1
Ztotal exp
couple (2a+1c)
Ztotal consump
couple (2a+2c)
Official