Income Data for Policy Analysis: A Comparative Assessment of Eight Surveys. Family Composition Dynamics and Poverty Measurement

12/23/2008

In CPS, ACS, and MEPS, detailed income data are collected for each person, and annual family income is then constructed by summing these person-level amounts for all members of the family as defined at the time the data were collected (CPS and ACS) or the end of the previous calendar year (MEPS). This method of aggregating income over family members reflects the definition of family income used in the calculation of official poverty statistics, but it embodies a simplified view of family composition. In reality, the people living together as a family at the time the data were collected may not have lived together for the entire income reference year while other individuals, no longer present, may have lived with the family for some or all of the income reference year. For example, a married couple may have lived together during the income reference year, with the husband providing all of the family’s income, but divorced before the interview date in the next calendar year. A family consisting of the former wife would report no income for the reference period and be classified as poor. Conversely, a couple who married shortly before the survey date, with the wife having had very little income during the reference year while the husband earned a substantial amount, would be classified as well above poverty when the wife in fact lived in poverty during the reference year. If such cases balance out, the simplification of family composition used in the official definition of poverty will not introduce any bias into the estimates of persons in poverty, but if either type of case predominates, then there will be a bias.

If the fixed family composition used in the official definition of poverty does impart a bias, then the magnitude of the bias will depend on how much the family composition lags the income reference period.46 With a longer lag, more persons will experience changes in family composition. Both the ACS and MEPS fix family composition at the end of the income reference period while the CPS fixes family composition two-and-a-half months later. This suggests that any bias due to changing family composition will be greater in the CPS than in either of these other surveys. The NHIS collects family income for the prior calendar year from families interviewed over the course of the next calendar year, so family composition lags the end of the income reference period by one-half to 11-and-a-half months, or 6 months on average.

SIPP collects both income and family composition on a monthly basis, so with SIPP data it is possible to construct an annual poverty measure that takes account of changing family composition over the year and reflects the combined incomes of people when they were actually living together as a family. Below, we will explain how this can be done. However, the SIPP estimates of family income and poverty that were constructed for the cross-survey comparisons in the preceding chapter mimic the official concepts, with family composition fixed in the final month of the reference year and family income summed over these same family members.

The PSID collects income for all persons who lived with the sample family during the reference year, but only for the months that they did so. A poverty threshold is constructed to reflect the changing composition of the sample family over the reference year—just as it is possible to do with the SIPP. This yields estimates of income relative to poverty that reflect a contemporaneous measurement of income and family composition. Unlike the SIPP, however, which collects its data at four-month intervals, the PSID asks respondents to recall who was living with the family and how much income they contributed during the prior calendar year.

Neither the HRS nor the MCBS collects income from family members other than the sample member and spouse (or, for the HRS, partner). This limits the construction of poverty measures, so we do not address the timing of family composition relative to the income reference period for these two surveys.

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