An experimental Consumer Price Index for the poor

Monthly Labor Review

Volumn 119, Issue 9, 1996, Pages 32-42

  Garner, Thesia I ^a   Johnson, David S ^a   Kokoski, Mary F ^a  

^a BUREAU OF LABOR STATISTICS   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

ARTICLE; CLASSIFICATION; DEMOGRAPHY; ECONOMIC ASPECT; HUMAN; INCOME; INFORMATION PROCESSING; MEDICAID; POVERTY; RESEARCH; RURAL POPULATION; SOCIAL CARE; STATISTICAL MODEL; STATISTICS; UNITED STATES; URBAN POPULATION;

DATA COLLECTION; DEMOGRAPHY; HUMANS; INCOME; INFLATION, ECONOMIC; MEDICAID; MODELS, ECONOMIC; POVERTY; PUBLIC ASSISTANCE; RESEARCH; RURAL POPULATION; UNITED STATES; URBAN POPULATION;

EID: 0030238915     PISSN: 00981818     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (62)

1. Vee Burke, Cash and Noncash Benefits for Persons with Limited Income: Eligibility Rules. Recipient and Expenditure Data, FY 1992-1994, Congressional Research Service Report 96-159 EPW (Library of Congress, 1996).
2. See Burke, Cash and Noncash Benefits; and Gordon M. Fisher, "Poverty Guidelines for 1992," Social Security Bulletin, vol. 55, no. 1, Spring 1992.
3. See Burke, Cash and Noncash Benefits; and Gordon M. Fisher, "Poverty Guidelines for 1992," Social Security Bulletin, vol. 55, no. 1, Spring 1992.
4. The Health and Human Services poverty guidelines are a simplified version of the Federal Government's official statistical poverty thresholds and are updated at different times. (See Fisher, "Poverty Guidelines for 1992.")
5. Unless otherwise noted, the term CPI-U refers to the index for all items.
6. Constance F. Citro and Robert T. Michael (eds.), Measuring Poverty: A New Approach (Washington, DC, National Academy Press, 1995).
7. Kenneth J. Arrow, "The Measurement of Price Changes," in The Relationship of Prices to Economic Stability and Growth (Joint Economic Committee, U. S. Congress, Mar. 31, 1958).
8. Urban areas are defined by the Consumer Price Index program either to be within metropolitan statistical areas (MSA'S), including areas identified as rural nonfarm (but not rural farm), or to be urbanized areas outside MSA'S. An MSA is a geographic area consisting of a large population nucleus, together with adjacent communities which have a high degree of economic and social integration with that nucleus. (See Consumer Expenditure Survey, 1992-93, Bulletin 2462, Bureau of Labor Statistics, September 1995.)
9. Other definitions to identify the poor could have been chosen. See, for example, Citro and Michael, Measuring Poverty; Maya Federman, Thesia I. Garner, Kathleen Short, W Boman Cutter IV, John Kiely, David Levine, Duane McGough, and Marilyn McMillen, "What does it mean to be poor in America?" Monthly Labor Review, May 1996, pp. 3-17; Mark Lino, "Income and Spending of Poor Households with Children," Family Economics and Nutrition Review, vol. 9, no. 1, 1996; Susan Mayer and Christopher Jencks, "Has Poverty Really Increased among Children since 1970?" Working Paper 94-14, Center for Urban Affairs and Policy Research, Northwestern University, 1995; William D. Passero, "Spending Patterns of Families Receiving Welfare or Public Assistance, 1992-94," paper prepared for the 42nd Annual Conference of the American Council on Consumer Interests, Nashville, TN, March 27-30, 1996; and Patricia Ruggles, Drawing the Line: Alternative Poverty Measures and Their Implications for Public Policy (Washington, DC, The Urban Institute Press, 1990).
10. Other definitions to identify the poor could have been chosen. See, for example, Citro and Michael, Measuring Poverty; Maya Federman, Thesia I. Garner, Kathleen Short, W Boman Cutter IV, John Kiely, David Levine, Duane McGough, and Marilyn McMillen, "What does it mean to be poor in America?" Monthly Labor Review, May 1996, pp. 3-17; Mark Lino, "Income and Spending of Poor Households with Children," Family Economics and Nutrition Review, vol. 9, no. 1, 1996; Susan Mayer and Christopher Jencks, "Has Poverty Really Increased among Children since 1970?" Working Paper 94-14, Center for Urban Affairs and Policy Research, Northwestern University, 1995; William D. Passero, "Spending Patterns of Families Receiving Welfare or Public Assistance, 1992-94," paper prepared for the 42nd Annual Conference of the American Council on Consumer Interests, Nashville, TN, March 27-30, 1996; and Patricia Ruggles, Drawing the Line: Alternative Poverty Measures and Their Implications for Public Policy (Washington, DC, The Urban Institute Press, 1990).
11. Other definitions to identify the poor could have been chosen. See, for example, Citro and Michael, Measuring Poverty; Maya Federman, Thesia I. Garner, Kathleen Short, W Boman Cutter IV, John Kiely, David Levine, Duane McGough, and Marilyn McMillen, "What does it mean to be poor in America?" Monthly Labor Review, May 1996, pp. 3-17; Mark Lino, "Income and Spending of Poor Households with Children," Family Economics and Nutrition Review, vol. 9, no. 1, 1996; Susan Mayer and Christopher Jencks, "Has Poverty Really Increased among Children since 1970?" Working Paper 94-14, Center for Urban Affairs and Policy Research, Northwestern University, 1995; William D. Passero, "Spending Patterns of Families Receiving Welfare or Public Assistance, 1992-94," paper prepared for the 42nd Annual Conference of the American Council on Consumer Interests, Nashville, TN, March 27-30, 1996; and Patricia Ruggles, Drawing the Line: Alternative Poverty Measures and Their Implications for Public Policy (Washington, DC, The Urban Institute Press, 1990).
12. Other definitions to identify the poor could have been chosen. See, for example, Citro and Michael, Measuring Poverty; Maya Federman, Thesia I. Garner, Kathleen Short, W Boman Cutter IV, John Kiely, David Levine, Duane McGough, and Marilyn McMillen, "What does it mean to be poor in America?" Monthly Labor Review, May 1996, pp. 3-17; Mark Lino, "Income and Spending of Poor Households with Children," Family Economics and Nutrition Review, vol. 9, no. 1, 1996; Susan Mayer and Christopher Jencks, "Has Poverty Really Increased among Children since 1970?" Working Paper 94-14, Center for Urban Affairs and Policy Research, Northwestern University, 1995; William D. Passero, "Spending Patterns of Families Receiving Welfare or Public Assistance, 1992-94," paper prepared for the 42nd Annual Conference of the American Council on Consumer Interests, Nashville, TN, March 27-30, 1996; and Patricia Ruggles, Drawing the Line: Alternative Poverty Measures and Their Implications for Public Policy (Washington, DC, The Urban Institute Press, 1990).
13. Other definitions to identify the poor could have been chosen. See, for example, Citro and Michael, Measuring Poverty; Maya Federman, Thesia I. Garner, Kathleen Short, W Boman Cutter IV, John Kiely, David Levine, Duane McGough, and Marilyn McMillen, "What does it mean to be poor in America?" Monthly Labor Review, May 1996, pp. 3-17; Mark Lino, "Income and Spending of Poor Households with Children," Family Economics and Nutrition Review, vol. 9, no. 1, 1996; Susan Mayer and Christopher Jencks, "Has Poverty Really Increased among Children since 1970?" Working Paper 94-14, Center for Urban Affairs and Policy Research, Northwestern University, 1995; William D. Passero, "Spending Patterns of Families Receiving Welfare or Public Assistance, 1992-94," paper prepared for the 42nd Annual Conference of the American Council on Consumer Interests, Nashville, TN, March 27-30, 1996; and Patricia Ruggles, Drawing the Line: Alternative Poverty Measures and Their Implications for Public Policy (Washington, DC, The Urban Institute Press, 1990).
14. Other definitions to identify the poor could have been chosen. See, for example, Citro and Michael, Measuring Poverty; Maya Federman, Thesia I. Garner, Kathleen Short, W Boman Cutter IV, John Kiely, David Levine, Duane McGough, and Marilyn McMillen, "What does it mean to be poor in America?" Monthly Labor Review, May 1996, pp. 3-17; Mark Lino, "Income and Spending of Poor Households with Children," Family Economics and Nutrition Review, vol. 9, no. 1, 1996; Susan Mayer and Christopher Jencks, "Has Poverty Really Increased among Children since 1970?" Working Paper 94-14, Center for Urban Affairs and Policy Research, Northwestern University, 1995; William D. Passero, "Spending Patterns of Families Receiving Welfare or Public Assistance, 1992-94," paper prepared for the 42nd Annual Conference of the American Council on Consumer Interests, Nashville, TN, March 27-30, 1996; and Patricia Ruggles, Drawing the Line: Alternative Poverty Measures and Their Implications for Public Policy (Washington, DC, The Urban Institute Press, 1990).
15. A consumer unit comprises members of a household who are related or who share at least two out of three major expenditures - housing, food, and other living expenses.
16. See Current Population Reports, Series P60-185, Poverty in the United States: 1992 (Bureau of the Census, 1993).
17. Passero employs this definition to identify the poor, using CE Survey data; see William D. Passero, "Spending patterns of families receiving public assistance," Monthly Labor Review, April 1996, pp. 21-28.
18. Eleanor M. Snyder, "Staff Paper 7: Cost of Living Indexes for Special Classes of Consumers," in The Price Statistics of the Federal Government: Review, Appraisal, and Recommendations, a Report to the Office of Statistical Standards, Bureau of the Budget (National Bureau of Economic Research, 1961). This report is also known as the 1961 Stigler report.
19. Robert Michael, "Variation across Households in the Rate of Inflation," Journal of Money, Credit, and Banking, February 1979, pp. 32-46; and Robert Hagemann, "The Variability of Inflation Rates across Household Types," Journal of Money, Credit, and Banking, November 1982, pp. 494-510.
20. Robert Michael, "Variation across Households in the Rate of Inflation," Journal of Money, Credit, and Banking, February 1979, pp. 32-46; and Robert Hagemann, "The Variability of Inflation Rates across Household Types," Journal of Money, Credit, and Banking, November 1982, pp. 494-510.
21. Mary Kokoski, Consumer Price Indices by Demographic Group, Working Paper No. 167 (Bureau of Labor Statistics, April 1987).
22. Nathan Amble and Ken Stewart, "Experimental price index for elderly consumers," Monthly Labor Review, May 1994, pp. 11-16.
23. See also Michael Boskin and Michael Hurd, "Indexing Social Security Benefits: A Separate Price Index for the Elderly," Public Finance Quarterly, October 1985, pp. 436-49; and Dale Jorgenson and Dan Slesnick, "Individual and Social Cost-of-Living Indexes," in W. Erwin Diewert and Claude Montmarquette, eds., Price Level Measurement (Ottawa, Ont., Canada, Statistics Canada, 1983), pp. 241-323.
24. See also Michael Boskin and Michael Hurd, "Indexing Social Security Benefits: A Separate Price Index for the Elderly," Public Finance Quarterly, October 1985, pp. 436-49; and Dale Jorgenson and Dan Slesnick, "Individual and Social Cost-of-Living Indexes," in W. Erwin Diewert and Claude Montmarquette, eds., Price Level Measurement (Ottawa, Ont., Canada, Statistics Canada, 1983), pp. 241-323.
25. The MERGE file is a statistical match of responses from the Census Bureau's March 1971 Current Population Survey, a uniform sample of about 50,000 households, and the Internal Revenue Service's 1970 Individual Income Tax Model File, a stratified sample of 100,000 personal income tax returns, including a 100-percent sample of returns with adjusted gross income greater than $200,000. (Both samples are without individual identifying information.) The MERGE file has detailed demographic information, together with complete data on income and income taxes, permitting precise computation of the latter and accurate estimation of all other taxes. (See Joseph Minarik, "The Size Distribution of Income During Inflation," Review of Income and Wealth, vol. 25, 1979, pp. 377-392, for more details.
26. Minarik, "Size Distribution of Income," p. 389.
27. Joseph Minarik, "Inflation in the Necessities?" Brookings Bulletin, Spring 1980, pp. 8-10.
28. See Rebecca M. Blank and Alan S. Blinder, "Macroeconomics, Income Distribution, and Poverty," in Shelton Danzinger and Daniel Weinberg, eds., Fighting Poverty (Cambridge, MA, Harvard University Press, 1986); Robinson G. Hollister, Jr., and John L. Palmer, "The Impact of Inflation on the Poor," in K. E. Boulding and M. Pfaff, eds., Redistribution to the Rich and the Poor (Belmont, CA, Wadsworth, 1972); and Thad W. Mirer, "The Distributive Impact on Purchasing Power of Inflation during Price Controls, Quarterly Review of Economics and Business, vol. 15, 1975, pp. 93-96.
29. See Rebecca M. Blank and Alan S. Blinder, "Macroeconomics, Income Distribution, and Poverty," in Shelton Danzinger and Daniel Weinberg, eds., Fighting Poverty (Cambridge, MA, Harvard University Press, 1986); Robinson G. Hollister, Jr., and John L. Palmer, "The Impact of Inflation on the Poor," in K. E. Boulding and M. Pfaff, eds., Redistribution to the Rich and the Poor (Belmont, CA, Wadsworth, 1972); and Thad W. Mirer, "The Distributive Impact on Purchasing Power of Inflation during Price Controls, Quarterly Review of Economics and Business, vol. 15, 1975, pp. 93-96.
30. See Rebecca M. Blank and Alan S. Blinder, "Macroeconomics, Income Distribution, and Poverty," in Shelton Danzinger and Daniel Weinberg, eds., Fighting Poverty (Cambridge, MA, Harvard University Press, 1986); Robinson G. Hollister, Jr., and John L. Palmer, "The Impact of Inflation on the Poor," in K. E. Boulding and M. Pfaff, eds., Redistribution to the Rich and the Poor (Belmont, CA, Wadsworth, 1972); and Thad W. Mirer, "The Distributive Impact on Purchasing Power of Inflation during Price Controls, Quarterly Review of Economics and Business, vol. 15, 1975, pp. 93-96.
31. Daniel H. Weinberg, Implications of Mismeasuring the Consumer Price Index for Poverty Statistics, Technical Analysis Paper No, 34 (Department of Health and Human Services, 1987); and John C. Weicher, "Mismeasuring Poverty and Progress," American Enterprise Institute, mimeo., 1986.
32. Daniel H. Weinberg, Implications of Mismeasuring the Consumer Price Index for Poverty Statistics, Technical Analysis Paper No, 34 (Department of Health and Human Services, 1987); and John C. Weicher, "Mismeasuring Poverty and Progress," American Enterprise Institute, mimeo., 1986.
33. See Citro and Michael, Measuring Poverty.
34. The authors thank John Greenlees for pointing out the distinction between the CPI-U prior to 1983 and the CPI-U-XI.
35. Weinberg, Implications of Mismeasuring, p. 4.
36. We used relative prices for total food for our analysis; the official CPI-U is based on detailed information about food from the Diary portion of the CE Survey. This difference in methodology seems to make very little difference in the expenditure share used for this study compared with the official index.
37. The sociodemographic characteristics and population weights of consumer units are also from the fifth interview.
38. For a definition of "complete income reporter," see Consumer Expenditure Survey, 1992-93.
39. For the actual poverty thresholds in those years, see Poverty in the United States: 1984, Series P-60 (Bureau of the Census, 1985), table A-2.
40. The CE Survey publication definition of total expenditures is used in this article. According to the definition, these expenditures consist of the transaction costs, including excise and sales taxes, of goods and services acquired during the period covered by the interview. They include expenditures for gifts, but exclude purchases or portions of purchases directly assignable to business purposes. Also excluded are periodic credit or installment payments on goods or services already acquired, with the exception of payments for housing that has been purchased. For such housing, all expenses, including mortgage interest repayments, but not mortgage principal repayments, are included in the total. (See Consumer Expenditure Survey, 1992-93.)
41. See Passero, "Families receiving public assistance," for a more complete definition of "program participants."
42. See the three Census Bureau publications titled "Characteristics of the Population Below the Poverty Level," for the years 1982, 1983, and 1984. The publications are from series P-60 and are numbered 144, 147, and 152.
43. The figures in table 1 are similar to those in Passero, "Families receiving public assistance."
44. This rate is calculated from tables published in the Census Bureau's Poverty in the United States: 1984; data for 1984 are not comparable.
45. John M. Rogers and Maureen B. Gray, "CE data: quintiles of income versus quintiles of outlays," Monthly Labor Review, December 1994, pp. 32-37; outlays are simply total expenditures plus principal payments on home mortgages and financed vehicles, minus the purchase price of financed vehicles.
46. See also Patrick McGregor and Vani K. Borooah, "Is Low Spending or Low Income a Better Indicator of Whether or Not a Household is Poor Some Results From the 1985 Family Expenditure Survey," Journal of Social Policy, vol. 21, no. 1, 1992, pp. 53-69. Using data from the United Kingdom, these authors, too, suggest that low spending is a better indicator of poverty than low income is.
47. BLS Handbook of Methods, Bulletin 2414 (Bureau of Labor Statistics, September 1992), p. 176.
48. See Bert M. Balk, "On Calculating Cost-of-Living Index Numbers for Arbitrary Income Levels," Econometrica, vol. 58, January 1990, pp. 75-92.
49. See W. Erwin Diewert, "The Theory of the Cost-of-Living Index and the Measurement of Welfare Change," in W. Erwin Diewert and Claude Montmarquette, ed., Price Level Measurement (Ottawa, Ont., Statistics Canada, 1983), pp. 163-233.
50. Substitution bias is inherent in fixed-weight index number formulas when elasticities of substitution between goods are not zero. As relative prices change, consumers will substitute relatively cheaper goods for those which become more expensive. Because the Laspeyres index continues to evaluate price changes with respect to a fixed market basket, ignoring this substitution behavior, it overstates the true changes in the cost of living experienced by households. Index formulas, such as Fisher's, are closer to the true cost- of-living measure because they weight each good's price change in terms of both the reference- and comparison-period market basket.
51. Categories were aggregated because only the Interview portion of the survey was used for this study, whereas the official CPI uses the detailed information on expenditures from the Diary portion of the survey as well. For a detailed list of the categories used in our study, see footnotes 2-8 of table 4. Note that, in contrast to the measure of expenditures for shelter used in the CE Survey publication definition, rental equivalence is used for the CPI-U.
52. For a derivation of these weights, see J. L. Marcoot and R. C. Bahr, "The revised Consumer Price Index: changes in definitions and availability, Monthly Labor Review, July 1986, pp. 15-23.
53. Although the Laspeyres and Paasche indexes are not, strictly speaking, upper and lower bounds, respectively, on the same true cost-of-living index, it is usually expected that the Laspeyres index will overstate, and the Paasche index will understate, the true change in the cost of living. For a detailed discussion of the properties of the Laspeyres and Paasche indexes, see Diewert, "Cost-of-Living Index and Welfare Change."
54. Michael, "Variation in the Rate of Inflation."
55. See P. J. Lloyd, "Substitution Effects and Biases in Nontrue Price Indices," American Economic Review, June 1975, pp. 301-13.
56. See Kokoski, Consumer Price Indices.
57. Balk, "Cost-of-Living Index Numbers," p. 76.
58. With income as the measure of resources, the poverty rate for the metropolitan population over the 1992-94 period, using the Census Bureau figures, is 14.3 percent.
59. According to the Bureau of the Census, approximately 20 percent of the total U.S. population lived in nonmetropolitan areas in 1994 (see www.census.gov, PPL-27, table 2: "Resident Population and Change for Metropolitan Areas in the United States, April 1, 1990 to July 1, 1994"), and 16 percent of the poor lived in nonmetropolitan areas that year (see table 8, "Poverty of Persons, by Residence," from www.census.gov). "Metropolitan" and "urban" are defined slightly differently by the Bureau of Labor Statistics and the Census Bureau.
60. See Citro and Michael, Measuring Poverty; Ruggles, Drawing the Line; and Mary Kokoski, Patrick Cardiff, and Brent Moulton, "Interarea Price Indices for Consumer Goods and Services: An Hedonic Approach Using CPI Data," BLS Working Paper 256 (Bureau of Labor Statistics, July 1994).
61. See Citro and Michael, Measuring Poverty; Ruggles, Drawing the Line; and Mary Kokoski, Patrick Cardiff, and Brent Moulton, "Interarea Price Indices for Consumer Goods and Services: An Hedonic Approach Using CPI Data," BLS Working Paper 256 (Bureau of Labor Statistics, July 1994).
62. See Citro and Michael, Measuring Poverty; Ruggles, Drawing the Line; and Mary Kokoski, Patrick Cardiff, and Brent Moulton, "Interarea Price Indices for Consumer Goods and Services: An Hedonic Approach Using CPI Data," BLS Working Paper 256 (Bureau of Labor Statistics, July 1994).