Income Data for Policy Analysis: A Comparative Assessment of Eight Surveys. Contemporaneous versus Fixed Family Composition

12/23/2008

Estimates of the impact of fixing family composition at each of the 13 successive months relative to a contemporaneous measurement of income and family composition are reported in Table V.7 for the percentage of persons with annual family incomes below the poverty threshold. Both gross and net differences between each fixed measure and the contemporaneous measure are reported, along with the estimated poverty rate. We see first that fixing family composition at the end of the reference year adds nearly half a percentage point to the estimated poverty rate relative to contemporaneous measurement. Specifically, 0.64 percent of the population who are not identified as poor with contemporaneous measurement are classified as poor when family composition is fixed at December 2001 while 0.19 percent who are identified as poor with contemporaneous measurement are classified as nonpoor when family composition is fixed at December 2001. The net difference of 0.45 percent is reflected in the higher poverty rate with fixed versus contemporaneous measurement.

TABLE V.7: IMPACT OF FIXED FAMILY COMPOSITION ON ESTIMATED PERCENT POOR BASED ON CY 2001 INCOME:  SIPP SIMULATION
Simulated Timing of Family Composition Difference in Percentage Classified as Poor With Fixed Composition
Gross Addition1 Gross Reduction 2 Sum Difference Poverty Rate
Contemporaneous 0.00 0.00 0.00 0.00 10.64
Fixed at: Dec 2001 0.64 0.19 0.83 0.45 11.09
Fixed at: Jan 2002 0.72 0.23 0.95 0.49 11.13
Fixed at: Feb 2002 0.82 0.24 1.06 0.58 11.22
Fixed at: Mar 2002 0.93 0.29 1.22 0.64 11.27
Fixed at: Apr 2002 0.99 0.36 1.35 0.63 11.27
Fixed at: May 2002 1.08 0.41 1.49 0.68 11.32
Fixed at: Jun 2002 1.16 0.48 1.64 0.68 11.32
Fixed at: Jul 2002 1.24 0.55 1.79 0.69 11.33
Fixed at: Aug 2002 1.35 0.54 1.89 0.81 11.45
Fixed at: Sep 2002 1.43 0.57 2.00 0.87 11.51
Fixed at: Oct 2002 1.51 0.58 2.09 0.93 11.57
Fixed at: Nov 2002 1.52 0.59 2.11 0.93 11.57
Fixed at: Dec 2002 1.57 0.63 2.20 0.95 11.59
Avg. Jan-Dec 2002 1.19 0.46 1.65 0.74 11.38

Source:   Mathematica Policy Research, from 2001 SIPP panel. Note: See text for description of simulation.

1.Percentage of population classified as below 200% of poverty when family composition is fixed in time but not below 200% of poverty when family composition is contemporaneous with income.

2.Percentage of population classified as below 200% of poverty when family composition is contemporaneous with income but not below 200% of poverty when family composition is fixed in time.

Both the gross and net differences between the contemporary and fixed measures increase as the timing of family composition moves farther from the income reference period. Between December 2001 and December 2002 the gross additions (persons classified as poor by the fixed measure but not by the contemporaneous measure) increase from 0.64 percent to 1.57 percent of the population. The gross reductions (persons classified as poor by the contemporaneous measure but not the fixed measure) increase from 0.19 percent to 0.63 percent. The sum of the gross addition and gross reduction in each row is the percentage of persons who are classified differently with a fixed family composition versus contemporaneous measurement. This fraction grows from 0.83 percent to 2.20 percent between December 2001 and December 2002.

Because the gross difference grows in both directions, the net difference grows less rapidly. Nevertheless, the net difference doubles between December 2001 and December 2002, increasing from 0.45 percent to 0.95 percent. That is, fixing family composition at nearly a year after the end of the income reference period adds almost a full percentage point to the estimated poverty rate.

While contemporaneous measurement of income and family composition is arguably more appropriate than fixing family composition at the end of the income reference period or even some months later, this is not the official approach to measuring poverty; nor is it feasible for most surveys. Moreover, in light of our use of the CPS as a baseline for income measurement, we are interested in how the timing of family composition in the alternative surveys affects their poverty estimates relative to the CPS. The results in Table V.7 suggest that the impact on the poverty rate for the population as a whole is rather small. Fixing family composition at the end of the reference year (SIPP and MEPS) lowers the poverty rate by 0.18 percentage points compared to fixing family composition three months later (or March, as done in the CPS, on average). Fixing family composition in the month following the income reference period, as the Census Bureau interprets the ACS as doing, reduces the poverty rate by 0.14 percent relative to the CPS (if the CPS also had a rolling sample). Defining family composition over the 12 months following the end of the income reference period, as the NHIS does, increases the poverty rate by 0.11 percentage points, on average, although the impact ranges from a reduction of 0.14 percentage points to an increase of 0.32 percentage points, depending on the survey month.

The timing of family composition in relation to the income reference period has a bigger impact on estimated poverty rates for selected subpopulations than for the population as a whole. Differences by gender are negligible, but racial and ethnic differentials are more pronounced. Timing has a greater effect on the poverty rates observed for black non-Hispanics than for white non-Hispanics, and the impact is even greater for Hispanics, although the pattern is surprising (Table V.8). We find no difference between the CPS and NHIS simulations for Hispanics despite an average lag of 3.5 months between family composition and the income reference year, yet the simulations that reflect the ACS and SIPP/MEPS timing yield poverty rates that are 0.58 to 0.71 percentage points lower than the CPS. Contemporaneous measurement produces an Hispanic poverty rate that is 1.64 percentage points below the CPS simulation. The elderly show negligible differences by timing, consistent with their low rates of change in family composition, whereas children show larger differences than nonelderly adults.

Differences in the impact of timing are most pronounced across subpopulations defined by family composition. Childless couples show essentially no variation in poverty rates by timing while single parents and children in single-parent families show exceedingly strong variation. Within both subgroups the poverty rates for the SIPP and MEPS simulations are a percentage point lower than for the CPS simulation while the poverty rates obtained with contemporaneous measurement are 2.54 to 2.70 percentage points lower than for the CPS. The magnitudes of the timing effects indicate that single parents and their children are substantially more likely than the other family types to have experienced recent changes in composition that affected their economic well-being. Husband-wife couples and children in two-parent families show timing effects that are more typical of all persons while singles show very modest effects across the fixed composition scenarios but more than a percentage point decline in poverty with contemporaneous measurement.

TABLE V.8: DIFFERENCE IN PERCENT POOR BY SIMULATED TIMING OF FAMILY COMPOSITION RELATIVE TO THE CY 2001 INCOME REFERENCE PERIOD, BY DEMOGRAPHIC CHARACTERISTICS: SIPP
Demographic Characteristic Percent Poor with Family Composition Fixed Mar 2002 (CPS)

Difference in Percent Poor with:

Contemporaneous Measurement (PSID)

Difference in Percent Poor with:

Family Composition Fixed Dec 2001 (SIPP/MEPS)

Difference in Percent Poor with:

Family Composition Fixed Jan 2002 (ACS)1

Difference in Percent Poor with:

Family Composition Fixed Jan - Dec2002 (NHIS)

Difference in Percent Poor with:

Family Composition Fixed Dec 2002

All Persons 11.27 -0.64 -0.18 -0.15 0.11 0.31
Gender
Male 9.60 -0.52 -0.20 -0.15 0.10 0.30
Female 12.84 -0.74 -0.17 -0.14 0.11 0.33
Race/Ethnicity
White, non-Hispanic 7.44 -0.46 -0.11 -0.07 0.14 0.37
Black, non-Hispanic 24.09 -0.75 -0.32 -0.32 0.12 0.31
Hispanic 20.34 -1.64 -0.71 -0.58 -0.04 0.07
Age
<18 16.75 -0.98 -0.46 -0.27 0.10 0.36
18-64 9.48 -0.61 -0.13 -0.15 0.16 0.44
65+ 9.38 -0.28 -0.08 0.00 0.13 0.31
Family composition
Singles (age 18 or older) 18.42 -1.13 0.11 -0.01 0.22 0.63
Childless couples 3.11 0.08 -0.03 -0.03 0.03 0.05
Single parents with children 31.05 -2.70 -1.03 -0.79 0.71 1.92
Children in single-parent families 36.21 -2.54 -1.12 -0.62 0.13 0.54
Husband-wife families with children 6.27 -0.46 -0.18 -0.14 0.11 0.16
Children in husband-wife families 8.48 -0.42 -0.25 -0.19 0.06 0.22
Current Program Participants Welfare or Food Stamps 51.06 -2.00 -0.75 -0.45 -0.04 0.19
Medicaid or SCHIP 47.14 -2.31 -1.16 -0.42 -0.58 -0.34

Source: Mathematica Policy Research, from 2001 SIPP panel. Note: See text for description of simulation.

1.We identify January 2002 as reflecting the ACS lag because, regardless of the interview month, the lag between the ACS family composition and the end of the income reference period is one month.  This treatment implicitly assumes real incomes and demographic composition of the population are unchanged.

Persons who received welfare or Food Stamps in the simulated survey month have poverty rates 2 percentage points lower with a contemporaneous measure than with family composition fixed in March, but fixing family composition later than March does not appear to increase the poverty rate relative to March. Persons enrolled in Medicaid or SCHIP in the simulated survey month show the same pattern, except that their poverty rates with family composition fixed later than March are, if anything, slightly lower than what we observe with composition fixed in March.

The timing of family composition in relation to the income reference period also affects the estimated percentage of the population below 200 percent of poverty—a population commonly defined as low-income. Fixing family composition at the end of the reference year produces a net increase of 0.64 percent in the fraction of the population classified as low income (Table V.9). The low-income population grows by only 0.08 additional percentage points when family composition is fixed in March. When family composition is distributed over 2002 the average increase in the estimated size of the low-income population is a full percentage point (1.03), but this is less than a third of a percentage point higher than fixing family composition in March. Over the 12 months the increase relative to contemporaneous measurement varies from 0.68 percent to 1.50 percent. Compared to fixing family composition in March, the impact on the estimated size of the low-income population ranges from a reduction of 0.04 percentage points to an increase of 0.78 percentage points.

TABLE V.9: IMPACT OF FIXED FAMILY COMPOSITION ON ESTIMATED PERCENT BELOW 200% OF POVERTY, BASED ON CY 2001 INCOME:  SIPP SIMULATION
Simulated Timing of Family Composition Difference in Percentage below 200% of Poverty with Fixed Composition
Gross Addition1 Gross Reduction 2 Sum Difference Pct. Below 200% of Poverty
Contemporaneous 0.00 0.00 0.00 0.00 29.86
Fixed at: Dec 2001 0.99 0.36 1.35 0.64 30.50
Fixed at: Jan 2002 1.13 0.45 1.58 0.68 30.54
Fixed at: Feb 2002 1.21 0.52 1.73 0.70 30.56
Fixed at: Mar 2002 1.32 0.59 1.91 0.72 30.58
Fixed at: Apr 2002 1.42 0.63 2.05 0.78 30.64
Fixed at: May 2002 1.54 0.66 2.20 0.88 30.74
Fixed at: Jun 2002 1.71 0.73 2.44 0.98 30.84
Fixed at: Jul 2002 1.83 0.79 2.62 1.03 30.89
Fixed at: Aug 2002 1.99 0.86 2.85 1.13 30.99
Fixed at: Sep 2002 2.18 0.91 3.09 1.27 31.13
Fixed at: Oct 2002 2.24 0.94 3.18 1.30 31.16
Fixed at: Nov 2002 2.31 0.97 3.28 1.34 31.20
Fixed at: Dec 2002 2.45 0.95 3.40 1.50 31.36
Avg. Jan-Dec 2002 1.78 0.75 2.53 1.03 30.89

Source: Mathematica Policy Research, from 2001 SIPP panel. Note: See text for description of simulation.

1.Percentage of population classified as below 200% of poverty when family composition is fixed in time but not below 200% of poverty when family composition is contemporaneous with income.

2.Percentage of population classified as below 200% of poverty when family composition is contemporaneous with income but not below 200% of poverty when family composition is fixed in time.

Fixing family composition at a point in time does not have the same impact on the upper tail of the distribution that it does in the lower tail. That is, it does not yield more high-income families, which it would do if its overall impact were to move more people to the tails of the distribution. Instead, it produces a small reduction in the proportion of persons identified as high-income. Compared to contemporaneous measurement, fixing family composition at the end of the income reference year reduces the fraction of the population at or above 500 percent of poverty by a quarter of a percentage point (Table V.10). This effect grows to half a percentage point (0.53) as family composition is moved to 12 months later. The magnitudes of these effects are smaller than what we observed at the lower end of the income distribution, but in conjunction with what we saw earlier they indicate that the overall affect of fixed versus contemporaneous measurement of family composition and income is to produce a downward shift in the ratio of family income to the poverty threshold.

We stress that this is a purely methodological exercise, and as such it has limitations. In particular, it reflects the design features of SIPP, with extensive income questions and a recall period of one to four months prior to the interview month. If the CPS ASEC supplement, for example, were conducted in June instead of primarily March, we would not necessarily expect to see the estimated poverty rate rise by the amount that our simulations indicate. The actual impact might be larger, or it might be smaller. Nevertheless, these results are important in demonstrating that the simplification implied by a fixed family composition and the lag between the end of the income reference year and the timing of family composition do tend to bias poverty estimates in an upward direction.

TABLE V.10: IMPACT OF FIXED FAMILY COMPOSITION ON ESTIMATED PERCENT AT OR ABOVE 500% OF POVERTY, BASED ON CY 2001 INCOME:  SIPP SIMULATION
Simulated Timing of Family Composition Difference in Percentage at or above 500% Of Poverty with Fixed Composition Percent At or Above 500% of Poverty
Gross Addition1 Gross Reduction2 Sum Difference
Contemporaneous 0.00 0.00 0.00 0.00 22.39
Fixed at: Dec 2001 0.32 0.57 0.89 -0.25 22.14
Fixed at: Jan 2002 0.38 0.66 1.04 -0.27 22.12
Fixed at: Feb 2002 0.42 0.71 1.13 -0.29 22.10
Fixed at: Mar 2002 0.46 0.80 1.26 -0.34 22.05
Fixed at: Apr 2002 0.54 0.88 1.42 -0.34 22.05
Fixed at: May 2002 0.57 0.95 1.52 -0.38 22.01
Fixed at: Jun 2002 0.62 1.00 1.62 -0.38 22.01
Fixed at: Jul 2002 0.68 1.05 1.73 -0.36 22.03
Fixed at: Aug 2002 0.73 1.13 1.86 -0.40 21.99
Fixed at: Sep 2002 0.78 1.23 2.01 -0.44 21.95
Fixed at: Oct 2002 0.83 1.30 2.13 -0.47 21.92
Fixed at: Nov 2002 0.84 1.37 2.21 -0.52 21.87
Fixed at: Dec 2002 0.86 1.39 2.25 -0.53 21.86
Avg. Jan-Dec 2002 0.64 1.04 1.68 -0.39 22.00

Source: Mathematica Policy Research, from 2001 SIPP panel. Note: See text for description of simulation.

1.Percentage of population classified as at or above 500% of poverty when family composition is fixed in time, but below 500% of poverty when family composition is contemporaneous with income.

2.Percentage of population classified as below 500% of poverty when family composition is fixed in time but at or above 500% of poverty when family composition is contemporaneous with income.

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