Income Data for Policy Analysis: A Comparative Assessment of Eight Surveys. Family Income and Earnings

12/23/2008

In addition to their total family income, NHIS respondents are asked to report the annual earnings of every family member 18 and older. While earnings can include losses from a business, and the sum of earnings over family members is sometimes negative, the difference between total family income and family earnings should be positive in most cases and no less than zero. In fact, however, family earnings often exceed total family income in the 2003 NHIS internal file. This is true for an estimated 61.7 million persons or 21.7 percent of the population (Table IV.45).38 Over all families the excess of family earnings over total family income sums to $289 billion, with almost half this amount occurring among families with incomes at least four times the poverty threshold.39 Nevertheless, family earnings are somewhat more likely to exceed family income when the latter is below versus above poverty:  25.3 percent versus a little over 21 percent.

TABLE IV.45

NUMBERS OF PERSONS AND EXCESS OF FAMILY EARNINGS OVER FAMILY INCOME IN NHIS FAMILIES IN WHICH FAMILY EARNINGS EXCEED FAMILY INCOME
Poverty Relative and
Excess Earnings
Number of Persons
(1,000s)
Excess of Family Earnings
Over Family Income($Billions)
Percent of Persons by Poverty Relative Percent of PersonsWith Either of Family Incomes Allocated
Total Persons 61,673 289.4 21.7 71.5
Poverty Relative Based On Family Income
Under 100% 9,852 28.1 25.3 82.8
100% to under 200% 11,364 38.3 21.1 79.9
200% to under 400% 18,750 83.8 21.4 70.1
400% and over 21,707 139.1 21.0 63.0
Excess of Family Earnings Over Family Income
$1,000 or less 7,511 1.4 NA 43.1
$1,001 to $5,000 14,810 15.3 NA 60.4
$5,001 to $10,000 11,727 30.4 NA 68.9
$10,001 to $20,000 12,270 59.3 NA 84.3
$20,001 to $40,000 10,334 90.6 NA 89.0
$40,001 or more 5,021 92.3 NA 85.0

Source:  Mathematica Policy Research, from tabulations of calendar year 2002 income from the 2003 NHIS. Note: Estimates use family composition as reported in the survey (NHIS families).

In most cases, when family earnings exceed family income, the difference is not small. Nearly half the time the excess is $10,000 or more, and differences in excess of $20,000 account for nearly a quarter of the total instances.

Why does this phenomenon occur? In a number of cases that we reviewed we found that the excess earnings could be attributed to a family member whom the respondent had not included in the family income total—such as a child or an unmarried partner. Clearly, the respondent was defining the family more narrowly than the survey interviewer or simply omitting less salient or less central members. Such cases illustrate one limitation of asking respondents to report family income as a single amount rather than collecting income for each person.

Overall, however, reporting error accounted for less than a third of the instances of family earnings exceeding total family income. Allocation of family income, personal earnings, or both was responsible for 71.5 percent of all cases. Furthermore, allocation grew in importance as the magnitude of the excess of family earnings over family income increased. When the excess was $1,000 or less, allocation accounted for 43 percent of the occurrences. When the excess was greater than $10,000, allocation accounted for more than 84 percent of the instances.

If the family sum of personal earnings were substituted for total family income when the former exceeded the latter—one form of a consistency edit—then 16.3 million or 5.7 percent of all persons would be shifted to a higher poverty bracket (Table IV.46). The estimated number of persons with family incomes below poverty would be reduced by 4 million, and the poverty rate would be reduced by 1.4 percentage points. These effects on persons in poverty are true regardless of whether families are defined with the NHIS or CPS family concept. At the other end of the income distribution, the number of families with incomes above 400 percent of poverty would be increased by more than 7 million or about 2.5 percentage points. In addition, the ratio of per capita earnings between the top and bottom quintiles would drop from 8.34, which is highest among the five surveys, to 7.57 (data not shown), matching the CPS (compare Table IV.3). These are large impacts, but they also reflect the substantial role of allocation in producing excess earnings. An excess of family earnings over family income may suggest that family income is understated when both amounts were reported by respondents. When one or both amounts were imputed, the implications are more ambiguous. In part for this reason, the study did not make use of excess earnings in assigning incomes to simulated CPS families. Instead, the combined incomes of families that were created by dividing an NHIS family were constrained to equal the reported (or imputed) family income of the original NHIS family.

TABLE IV.46

IMPACT OF SUBSTITUTING FAMILY EARNINGS FOR FAMILY INCOME WHEN FAMILY EARNINGS ARE LARGER: NHIS AND CPS FAMILIES
  NHIS Families CPS Families
Population Millions of Persons Percent of Persons Millions of Persons Percent of Persons
Gross Change: Persons Moved
to a Higher Poverty Bracket
Total 16.31 5.74 1 1
Poverty Relative        
Based on Family Income        
Under 100% 3.98 1.40    
100% to under 200% 5.57 1.96    
200% to under 400% 6.76 2.38    
400% and over 0.00 0.00    
Net Change: Net Loss or
Additionto Poverty Bracket
Total 0.00 0.00 0.00 0.00
Poverty Relative        
Based on Family Income        
Under 100% -3.98 -1.40 -3.90 -1.38
100% to under 200% -2.48 -0.87 -2.57 -0.90
200% to under 400% -0.83 -0.29 -0.64 -0.23
400% and over 7.29 2.57 7.11 2.51

Source:  Mathematica Policy Research, from tabulations of poverty status in calendar year 2002 from the 2003 NHIS. 1.Gross change was estimated only for NHIS families.

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