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Our analysis uses data from the 1975 through 1997 waves of the Panel Study of Income Dynamics (PSID) as well as the 1988, 1990, and 1996 panels of the Survey of Income and Program Participation (SIPP). We supplement these data with state unemployment rates (not seasonally adjusted) from the U.S. Department of Labor (2001) and real gross domestic product (GDP) from the U.S. Department of Commerce (2001).(24) Both the PSID and SIPP are well-suited for research on the dynamics of poverty. The variables outlined in the empirical model can be obtained from both data sets. Each data set is discussed in turn below.
The PSID is a longitudinal data set with a single panel that begins in 1968 and extends through 1997. It contains annual data on roughly 4,800 families, for a total of roughly 18,000 family members. We use data from the 1975 through 1993 final release files, and from the 1994 through 1997 early release files.(25) Our unit of analysis for defining poverty status is the PSID family unit. A PSID family includes persons related by blood, marriage, adoption, as well as unrelated long-term cohabitors.(26) A PSID family can also be made up of a single person who lives alone or shares a household with a non-relative. The PSID family is broader than the U.S. Census Bureau's family unit definition, as it includes cohabitors, single person households, and persons related by blood.(27) Including persons related by blood allows, for example, an uncle or cousin to be included in the family unit. Since the PSID family includes several members of the U.S. Census Bureau's definition of a household, we refer to the “PSID family unit” as a “household.”
The most significant advantage of the PSID is that it contains over 20 years of data, making it possible to track long poverty spells and multiple transitions into and out of poverty. Another strength of the PSID is that it oversamples low-income families, providing relatively large sample sizes of people near the poverty line. Moreover, it collects detailed household income information each year.
It is well established that poverty rates in the PSID are lower than official poverty rates produced by the U.S. Census Bureau using the March Current Population Survey (CPS)—the data used to calculate official U.S. poverty statistics. Many studies using PSID data adjust the poverty rates upward to be comparable with the CPS. Bane and Ellwood (1986), Iceland (1997a), and Stevens (1994, 1999) multiply the government’s needs standard by 1.25 to make their figures comparable to those reported by the Office of Management and Budget and the Census Bureau. Other studies acknowledge the difference in incomes reported in the PSID when compared to the CPS and Census Bureau figures, but they do not mention any adjustments to their figures (Duncan and Rodgers 1988, 1991; Rank and Hirschl 1999a, 1999b).(28) Evidence suggests that the lower poverty rates in the PSID are due to more complete income reporting at the lower end of the income distribution in the PSID than in the CPS (Citro and Michael 1995, p. 403). As a result, we make no adjustments to the poverty calculations.
The longitudinal nature of the PSID is a strength of these data, but it creates a potential weakness—attrition bias. Research investigating the degree of attrition bias measurable in the PSID concludes that “PSID estimates of low-income families do not appear biased by differential attrition” (Citro and Michael 1995, p. 403). There are, however, weaknesses of the PSID. First, Gottschalk, McLanahan, and Sandefur (1994) highlight that the PSID provides only annual data, when monthly data may be preferable. Researchers using PSID data have no choice but to base their poverty estimate on these annual measures. A second drawback of the PSID is that it represents only the non-immigrant U.S. population (Rank and Hirschl 1999a). Corcoran and Chaudry (1997) remark that the PSID ignores the poverty experiences of Latinos and immigrants. Perhaps for lack of data, these groups are consistently not analyzed in studies using the PSID. Third, the latest publicly available income data are for 1996, making a post-federal welfare reform (TANF) poverty analysis impossible. Finally, income and household composition are measured at different points in time. While household structure is measured at the time of the interview, income is reported for the previous year—potentially mismatching poverty thresholds and making it difficult to pinpoint the timing of events leading to poverty. This analysis, however, compares income and household structure in the same calendar year using information provided in the PSID. The PSID data file contains a measure of family income that is adjusted for shifts in household structure during the two years. While the PSID does have some weaknesses it is a very powerful data set for analyzing poverty dynamics, and some of these weaknesses are offset by our use of the SIPP.
Each panel of the SIPP is a nationally representative (non-institutional) sample of households whose members are interviewed at four-month intervals over approximately a two- to four-year period. The sample sizes for each panel range from 14,000 to 36,700 households. At each interview, data are collected on income for each of the preceding four months.
We analyze the 1988, 1990, and 1996 SIPP panels. The 1988 panel interviews households from February 1988 through January 1990, enabling us to analyze poverty dynamics prior to welfare reform and during a strong economy.(29) The 1990 SIPP panel interviews households from February 1990 through September 1992, and brings the benefits of capturing poverty dynamics prior to welfare reform, during a weak economy—including the July 1990 to March 1991 recession (NBER 2001), and during a period of dramatic increases in the annual family poverty rate (from 10.7 percent in 1990 to 11.5 percent in 1991 and 11.9 percent in 1992).(30) The 1996 SIPP panel is the most recently available and interviews households from April 1996 through March 2000, allowing us to capture poverty dynamics post-welfare reform and during a strong economy.(31)
The unit of analysis for defining poverty status is the SIPP household, not the SIPP family. A SIPP household consists of all persons who occupy a housing unit (including all unrelated persons), whereas a SIPP family is a group of two or more persons related by birth, marriage, or adoption who reside together. There are three main reasons for choosing the SIPP household over the SIPP family: (1) the SIPP household is similar to the “family” definition used in the PSID, in that the SIPP household includes cohabitors, whereas the SIPP family does not; (2) the SIPP household will provide us with a better understanding of the economic status of single parents, because it includes the income of a cohabiting partner; and (3) the SIPP household includes single-person households, whereas the SIPP family excludes them. The downsides of choosing the SIPP household, rather than the SIPP family, to define poverty include: (1) the SIPP household differs from the PSID family in that the SIPP household includes unrelated persons who share the housing unit; and (2) the SIPP household deviates from the “official poverty” definition, which is based on families.(32) While there are drawbacks to using the household rather than the family in the SIPP, we think the benefits of using the household outweigh the drawbacks.
A primary strength of the SIPP lies in its monthly data on income and household composition. These monthly data allow for detailed analyses of short poverty spells and the events that cause them. The SIPP also does a better job of capturing the current Hispanic and immigrant populations than the PSID. These populations may be particularly important in measuring poverty. Another advantage of the SIPP is that it has more recent data than the PSID, allowing us to look at changes through 1999—in the post-welfare reform period. Still, in contrast to the long panel length of the PSID, the SIPP can only track households for two to four years, making it impossible to examine long poverty spells.
As with the PSID, the longitudinal nature of the SIPP creates a concern of attrition bias. Research suggests that poorer persons are more likely to leave the SIPP sample prior to the end of the panel (Citro and Michael 1995, pp. 414-15). However, even with this limitation, the NAS Panel recommends that the SIPP replace the March CPS to become the official source of U.S. poverty statistics (Citro and Michael 1995, p. 391).
The monthly SIPP data make it possible to measure monthly poverty rates, but researchers must make some adjustments to the annual poverty thresholds to create a monthly poverty measure. Eller (1996) and Naifeh (1998) adjust poverty thresholds each month according to changes in the consumer price index.(33) Ruggles (1990), using the 1984 SIPP panel, divides the government’s annual poverty thresholds by twelve and compares it to income each month. We adopt the approach used by Ruggles.
Studies of welfare program dynamics (i.e., AFDC/TANF and food stamps) using SIPP data have been concerned with the “seam phenomenon”—transitions are more likely to occur between interview waves than months within the same wave—and have used wavely data rather than monthly data. Researchers using the SIPP to study poverty, however, have used monthly data (Ruggles 1990, Eller 1996, and Naifeh 1998). The seam phenomenon is of less concern when studying poverty status then program dynamics, as indicated by the NAS panel’s recommendation that the SIPP be used to study poverty in part because of its monthly income data. To avoid capturing arbitrary one month changes in poverty, we smooth poverty in the SIPP so that a household must remain in or out of poverty for two months before we consider it a change in poverty status. Similarly, Eller (1996) avoids arbitrary changes in poverty by focusing on poverty spells of two months or more. Overall, using both SIPP and PSID data allows us to examine poverty on both a monthly and annual basis, over the past two and a half decades, and since welfare reform.
24. We use monthly unemployment rates and quarterly GDP for the SIPP analysis, since the SIPP provides monthly data, and yearly unemployment rates and yearly GDP for the PSID, since the PSID provides only yearly data.
25. The early release PSID data are preliminary and should be viewed as such. Also, the early release files do not include all information that is available in the final release files. For example, hours of work and state of residence are not available in the early release files. We impute values for these missing data using variable means from final release years and include a dummy variable for the early release years in our analysis. Similarly, we impute mean values for lagged variables where necessary.
26. A long-term cohabitor is an individual who has been observed in the PSID household for one or more consecutive years.
27. Citro and Michael (1995) p.397.
28. Rank and Hirschl (1999a) do, however, look at the “near-poor”—those at 125% of the poverty threshold, offering results comparable to those calculated by Bane and Ellwood and Stevens.
29. The economy was expanding from November 1982 to July 1990 (NBER 2001).
30. US Census Bureau 2000.
31. Due to the large size of the 1996 SIPP person-month entry sample, we limit the sample to the 1997-2000 time period (dropping observations for 1996 and the first quarter of 1997).
32. The National Research Council recommends that the official poverty measure continue to use families and unrelated individuals as the unit of analysis, but that the definition of “family” be broadened to include cohabiting couples (Citro and Michael 1995, p. 13).
33. Eller and Naifeh also examine annual poverty with the SIPP. They both calculate annual poverty by summing the family’s monthly income over the entire year and comparing it to the sum of the family’s monthly poverty thresholds. An advantage of this calculation is that it can account for changes in family composition throughout the year.
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