Reducing Cost-of-Living Adjustment Would Make Poverty Line a Less Accurate Measure of Basic Needs
End Notes
[1]The authors thank Jennifer Beltrán for excellent research assistance.
[2] “Request for Comment on the Consumer Inflation Measures Produced by Federal Statistical Agencies,” Federal Register, May 7, 2019, https://www.federalregister.gov/documents/2019/05/07/2019-09106/request-for-comment-on-the-consumer-inflation-measures-produced-by-federal-statistical-agencies.
[3] Price changes for housing made up 42 percent of the overall CPI-U in December 2018; rent of one’s primary residence made up 8 percent.
[4] Jonathan Church, “The cost of ‘basic necessities’ has risen slightly more than inflation over the last 30 years,” Beyond the Numbers: Prices and Spending, Vol. 4, No. 10, June 2015, https://www.bls.gov/opub/btn/volume-4/the-cost-of-basic-necessities-has-risen-slightly-more-than-inflation-over-the-last-30-years.htm.
[5] Federal Reserve Bank of Chicago, “IBEX Inflation,” June 23, 2015, https://www.chicagofed.org/research/data/ibex/ibex-inflation, and CBPP calculations. Calculations reflect households ranked by size-adjusted income and inflation rates compounded over time.
[6] Greg Kaplan and Sam Schulhofer-Wohl, “Inflation at the Household Level,” Journal of Monetary Economics, 2017, https://gregkaplan.uchicago.edu/sites/gregkaplan.uchicago.edu/files/uploads/kaplan_schulhoferwohl_jme_2017.pdf. Figures are for the third quarter of each year. The differences between lower- and higher-income groups in other quarters are similar or even larger.
[7] David Argente and Munseob Lee, “Cost of Living Inequality during the Great Recession,” Kilts Center for Marketing at University of Chicago Booth School of Business, Nielsen datasets Joint Paper Series, March 1, 2017, https://ssrn.com/abstraSchct=2567357.
[8] Benjamin Faber and Thibault Fally, “Firm Heterogeneity in Consumption Baskets: Evidence from Home and Store Scanner Data,” National Bureau of Economic Research Working Paper No. 23101, August 2017, https://www.nber.org/papers/w23101.
[9] Xavier Jaravel, “The Unequal Gains from Product Innovations: Evidence from the US Retail Sector,” The Quarterly Journal of Economics, Vol. 134, Issue 2, May 2019, pp. 715–783, https://academic.oup.com/qje/article-abstract/134/2/715/5230867. An earlier version of this paper is available at https://equitablegrowth.org/working-papers/unequal-gains-from-product-innovations/.
[10] Robert Cage, Joshua Klick, and William Johnson, “Population Subgroup Price Indexes: Evidence of Heterogeneity or Measurement Error?” working draft, Bureau of Labor Statistics Office of Prices and Living Conditions, https://www.unece.org/fileadmin/DAM/stats/documents/ece/ces/ge.22/2018/United_States.pdf.
[11] The study examined the extent to which the CPI-U might overstate inflation due to “substitution bias” — that is, to the index not taking account of consumers’ changes in their spending patterns in response to relative changes in prices. Over the years 1984-1994, the study estimated that substitution bias caused a price index like the CPI-U to overstate inflation by a cumulative total of 1.99 percent for consumers overall. For poor consumers, substitution bias was quite similar (2.01 percent), slightly less (1.75 percent), or considerably less (0.25 percent), depending on how poor households were defined, although it was not possible to determine if these differences were statistically significant. Thesia I. Garner, David S. Johnson, and Mary F. Kokosi, “An Experimental Consumer Price Index for the Poor,” Monthly Labor Review, September 1996, https://www.bls.gov/opub/mlr/1996/09/art5full.pdf.
[12] For similar reasons, a 1995 National Academy of Sciences expert panel cautioned that, over the long run, the CPI-U could be a misleading guide to price changes for low-income families: “if the relative prices of necessities and luxuries change over time, as has happened in some periods in the past, the use of the CPI will not give an accurate picture of real adjustments for poor people.”
[13] Michael Karpman, Stephen Zuckerman, and Dulce Gonzalez, “Material Hardship among Nonelderly Adults and Their Families in 2017,” Urban Institute, 2018, https://www.urban.org/sites/default/files/publication/98918/material_hardship_among_nonelderly_adults_and_their_families_in_2017.pdf.
[14] Steven Brown and Breno Braga, “Financial Distress among American Families: Evidence from the Well-Being and Basic Needs Survey,” Urban Institute, February 19, 2019, https://www.urban.org/research/publication/financial-distress-among-american-families-evidence-well-being-and-basic-needs-survey/view/full_report.
[15] Alisha Coleman-Jensen et al., “Household Food Security in the United States in 2017,” Department of Agriculture, 2018, and CBPP calculations.
[16] $1,109 a month, which is HUD’s “fair market rent” for 2018. CBPP analysis of HUD Fair Market Rent data at https://www.huduser.gov/portal/datasets/fmr.html#2018.
[17] $642 a month, which is the cost of USDA’s Thrifty Food Plan for a married couple with children ages 6-8 and 9-11 in June 2018. Thrifty Food Plan, https://fns-prod.azureedge.net/sites/default/files/CostofFoodJun2018.pdf.
[18] Governor’s Workforce Investment Division and Center for Women’s Welfare, The Self-Sufficiency Standard for West Virginia, 2005, http://selfsufficiencystandard.org/sites/default/files/selfsuff/docs/WV2005.pdf.
[19] Carey Anne Nadeau and Amy Glassmeier, “Calculation of the Living Wage,” January 24, 2019, http://livingwage.mit.edu/articles/37-new-data-up-calculation-of-the-living-wage.
[20] Measuring Poverty: A New Approach, Washington, DC: The National Academies Press, 1995. The panel recommended raising the poverty line between 14 percent and 33 percent compared with the “comparable current level.”
[21] The SPM poverty threshold averages 12 percent higher than the official poverty line (not counting the relatively small number of cases where the SPM defines the family differently than the official poverty measure) and is above the official poverty-line threshold for two-thirds of people. Source: unpublished CBPP analysis of the Census Bureau’s public use files for the March 2018 Current Population Survey and 2017 SPM.
[22] Robert Doar, Karlyn Bowman, and Eleanor O’Neil, “2016 Poverty Survey: Attitudes Toward the Poor, Poverty, and Welfare in the United States,” American Enterprise Institute and Los Angeles Times, August 18, 2016, http://www.aei.org/publication/2016-poverty-survey/.
[23] The weekly response, multiplied by 52 weeks and inflated to 1989 dollars, was $15,646 a year, or 23 percent above the comparable poverty line ($12,675). More frequently, pollsters have asked Americans a related question about the minimum income needed to “get along” in their communities; the response to this question in 1989 was even higher: $21,788 annualized. See Denton R. Vaughan, “Exploring the Views of the Public to Set Income Poverty Thresholds and Adjust Them Over Time,” updated February 2004, https://www.census.gov/content/dam/Census/library/working-papers/2004/demo/wkppov20-cen.pdf.
[24] Thesia I. Garner and Kathleen S. Short, “Creating a Consistent Poverty Measure Over Time Using NAS Procedures: 1996-2005,” BLS Working Paper 417, April 2008, https://www.bls.gov/osmr/pdf/ec080030.pdf.
[25] “Consumer Price Index Frequently Asked Questions,” Bureau of Labor Statistics, question 9, https://www.bls.gov/cpi/questions-and-answers.htm#Question_9 .
[26] Price indices will capture rising prices for each hour of child care or each package of prepared food, but not the rising impact on the family’s needs if they must purchase a greater quantity of child care or prepared food whether or not the price per unit rises.
[27] Gordon M. Fisher, “Is There Such a Thing as an Absolute Poverty Line Over Time? Evidence from the United States, Britain, Canada, and Australia on the Income Elasticity of the Poverty Line,” August 1995, https://www.census.gov/content/dam/Census/library/working-papers/1995/demo/fisher3.pdf.
[28] From 1967 to 1987, the “get along” level rose about as much as the CPI-U (it rose 0.9 percent more). From 1987 to 2007, it rose about 3.9 percent faster. Jeffrey M. Jones, “Public: Family of Four Needs to Earn Average of $52,000 to Get By,” Gallup News Service, February 9, 2007, https://news.gallup.com/poll/26467/public-family-four-needs-earn-average-52000-get.aspx; and CBPP calculations.
[29] David S. Johnson, John M. Rogers, and Lucilla Tan, “A Century of Family Budgets in the United States,” Monthly Labor Review, May 2001, https://www.bls.gov/opub/mlr/2001/05/art3full.pdf.