Transition Events in the Dynamics of Poverty. V.1. Panel Study of Income Dynamics (PSID)

09/01/2002

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.

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