Five Decades of Consumption and Income Poverty
This paper examines poverty in the United States from 1960 through 2005. We investigate how poverty rates and poverty gaps have changed over time, explore how these trends differ across family types, contrast these trends for several different income and consumption measures of poverty, and consider explanations for the differences in trends. We document sharp differences, particularly in recent years, between different income poverty measures, and between income and consumption poverty rates and gaps. Moving from the official pre-tax money income measure to a disposable income measure that incorporates taxes and transfers has a substantial effect on poverty rate changes over the past two decades. Furthermore, consumption poverty rates often indicate large declines, even in recent years when income poverty rates have risen. We show that bias in the CPI-U has a sizable effect on changes in poverty. Between the early 1960s and 2005, an income poverty measure that corrects for bias in this price index declines by 14 percentage points more than a comparable measure based on the CPI-U. The patterns are very different across family types, with consumption poverty falling much faster than income poverty for single parents and the elderly, but more slowly for married couples with children. Income and consumption measures of deep poverty and poverty gaps have generally moved sharply in opposite directions in the last two decades with income deep poverty and poverty gaps rising, but consumption deep poverty and poverty gaps falling. While relative poverty rose in the early 1980s, changes in relative poverty have been fairly small since 1990. We examine the role that demographics, taxes, and transfers play in explaining changes in poverty over the past three decades. We also consider whether measurement error, saving and dissaving, and other explanations can account for income and consumption differences.
We would like to thank the Annie E. Casey Foundation, the Earhart Foundation, and the National Poverty Center for support and Cristobal Gacitua, Matt Gunden, Tom Murray, Vladimir Sokolov, Laura Wherry, and April Wu for excellent research assistance. We have also benefited from the comments of Steven Haider, Kathleen McGarry, Doug McKee, and seminar participants at Colby College, Harvard University, the Institute for Research on Poverty at the University of Wisconsin, the National Bureau of Economic Research, the University of California, Davis, the University of California, Los Angeles, the University of California, Santa Cruz, the University of Chicago, the University of Notre Dame, and the W.E. Upjohn Institute for Employment Research. A previous version of this paper circulated as "Three Decades of Consumption and Income Poverty". The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
- Consumption data show greater improvements in poverty rates and the depth of poverty than income data. Despite a range of public...
“Consumption and Income Poverty in the U.S.” (with James X. Sullivan) in The Oxford Handbook of the Economics of Poverty, edited by Philip N. Jefferson, 2012, 49-74.