Thesia I. Garner

Reconciling user costs and rental equivalence: Evidence from the US consumer expenditure survey

Previous research [Verbrugge, Randal, 2008a. The puzzling divergence of aggregate rents and user costs, 1980-2004. The Review of Income and Wealth 54(4), 671-699] demonstrated that housing rents and ex ante user costs diverge markedly for extended periods of time, a finding with profound implications for income and inflation measurement. But the primary data sources in that study were various indexes, based upon largely disjoint data sources, constructed using different aggregation techniques, and each subject to various criticisms. This raised doubts about the quality of the comparison. The relationship between user costs and rents might well be much tighter at the micro level; after all, house prices and rents (and their growth rates) can vary dramatically within cities, and rents are notoriously sticky. Furthermore, the use of indexes precludes both cross-sectional and dollar cost comparisons. In this study, we use Consumer Expenditure Interview Survey (CE) data to examine the relationship between user costs and rents at the individual unit-level, in dollars, using unit-level information on house value, rent, taxes, and the like. This allows us to accurately estimate unit-specific user costs and to control for unobservables like structure and neighborhood quality. We also make the point that in theory, after-tax user costs should equal net rent, i.e., expected rental income, rather than gross rent. Our findings are striking. In keeping with most previous research, we find tremendous divergence between conventional measures of user costs and net rents, thus ruling out index construction errors as a possible explanation. This divergence does not result from a faulty rent measure: we find that reported rents are sensible, in that they move similarly to official rent indexes, and are not simply out-of-pocket expenses. Instead, and most perplexing, we find a surprisingly close correspondence between net rents and a particular estimate of user costs, one implicitly assuming zero transactions costs and constructed using an appreciation measure that is both theoretically suspect and empirically a poor predictor of actual appreciation.

Is the Consumer Expenditure Survey Representative by Income

Aggregate under-reporting of household spending in the Consumer Expenditure Survey (CE) can result from two fundamental types of measurement errors: higher-income households (who presumably spend more than average) are under-represented in the CE estimation sample, or there is systematic under-reporting of spending by at least some CE survey respondents. Using a new data set linking CE units to zip-code level average Adjusted Gross Income (AGI), we show that the very highest-income households are less likely to respond to the survey when they are sampled, but unit non-response rates are not associated with income over most of the income distribution. Although increasing representation at the high end of the income distribution could in principle significantly raise aggregate CE spending, the low reported average propensity to spend for higher-income respondent households could account for at least as much of the aggregate shortfall in total spending.

Income Sufficiency v. Poverty: Results from the United States and the Netherlands

The purpose of this paper is to further the understanding of subjective measures used to assess poverty and to add to the literature on poverty measurement methodology. In particular, the paper focuses on the minimum income question (MIQ) first proposed by Goedhart and colleagues (1977). Data from the U.S. Consumer Expenditure Survey and from a Dutch newspaper survey are used. The primary contribution of the paper is the inclusion of household expenditures as additional explanatory variables of minimally necessary income. Significant differences between the coefficients of several categories of expenditures, particularly for leisure, appear to reveal differences in the interpretation of the minimum income question by respondents. Thus, we question the underlying assumption of the MIQ that everyone adheres the same welfare meaning to the phrase “minimally necessary income,” and conclude that the resulting thresholds should not be used as to measure poverty before further research has been carried out to explore what respondents are thinking when they answer questions such as the MIQ.

Are Children Worse off?: Evaluating Well-Being Using a New (And Improved) Measure of Poverty

Although child poverty rates continue to surpass those of others, there is growing consensus that current official poverty measure has become outdated and flawed. Using data from the Current Population Survey and the Survey of Income and Program Participation, we implement an experimental poverty measure based on recommendations by a National Academy of Sciences panel. We find that while child poverty rates continue to surpass those of others, the gap between child and adult poverty rates is smaller under the experimental measure. Results highlight the impact of noncash government benefits and the Earned Income Tax Credit in reducing child poverty.:

Identifying the Poor: Poverty Measurement for the U.S. From 1996 to 2005

The poverty measure presented compares spending needs to resources available to meet those needs. The analysis is for the U.S.; however, lessons from other countries regarding desirable properties of a poverty measure are considered. A primary focus is internal consistency between thresholds and resources. This study is among the first for the U.S. to describe an internally consistent poverty measure, drawing from recommendations of the U.S. National Academy of Sciences (NAS). Thresholds reflect spending needs as “outflows.” Resources measure “inflows” available to meet spending needs. The U.S. Consumer Expenditure Survey is used for thresholds, and the Current Population Survey is the basis for resources. Trends are reported with comparisons to the official and a relative measure. An important finding is that increases in expenditures for shelter, captured in the NAS thresholds, suggest a greater increase in the number of families not able to meet basic needs than is reflected by official poverty statistics over this time period.

Some Explanations for Changes in the Distribution of Household Income in Slovakia: 1988 and 1996

This paper measures the change in overall net monetary income inequality during the first seven years of transition and considers the relative importance of two possible explanations for the increase in inequality: a) changes in the sources of household income, and b) changes in the household composition. Changes in the sources of household income reflect the role of the government and market during the transition period, while changes in household composition reflect social reactions to the changing economic environment. We find that the increase in inequality in labor income drove the large increase in inequality (i.e., the Gini index of household per capita income rose from 0.195 in 1988 to 0.263 in 1996). Changes in the distribution of pensions and other social payments mitigated the rise in earnings inequality, with the latter playing a more role in reducing changes overall income inequality over time. We show there are large shifts in the demographic composition of households over this period: far fewer households with children, far more households headed by pensioners, increases in the number of one-person households and decreases in large (five person) households. Although we find that these shifts in the demographic composition of households are increasing overall inequality, by increasing between group inequality, most of the change in inequality over time is accounted for by increase in within group inequality. We conclude that over the first seven years of the transition labor market forces are driving changes in overall inequality in Slovakia to a much greater extent than changes in the Governments social safety net or in individuals decisions about household formation.

Income Sufficiency, Expenditures and Subjective Poverty: Results from the United States and the Netherlands

In recent years there has been a renewed interest among social science researchers and policymakers concerning the definition, measurement, and incidence of poverty. With government agencies producing statistics for quite some time concerning the incidence of poverty and the characteristics of poor individuals and households, there have also been parallel activities to improve the identification and measurement of poverty. This has been particularly true within the United States (U.S.), countries in Europe, Canada and Australia.

Measurement of Poverty, Deprivation, and Economic Mobility

The papers in Measurement of Poverty, Deprivation, and Social Exclusion represent the most current research on poverty, deprivation, and income mobility. They illustrate the multidimensionality of poverty that is difficult to capture in any one measure. The volume presents state-of-the-art research that is relevant to poverty academics globally.The papers use a variety of methods that measure the persistence of poverty over time and cover numerous countries and circumstances. A selection of papers focus on single countries while others include comparisons of countries.The volume begins with a set of papers that examine particular groups that are most vulnerable to poverty and deprivation in a variety of places. These include measuring the persistence of poverty of immigrant children in Scandinavian countries. Finally the volume concludes with papers that analyze the relationships of two or more measures together to further elucidate what we know if we have only one measure of poverty.

A Comparison of Income, Expenditures, and Home Market Value Distributions using Luxembourg Income Study Data from the 1990's (Augmented with Select Data from the U.S. Consumer Expenditure Survey)

The purpose of this paper is to review recent data made available through the Luxembourg Income Study (LIS) that include expenditures and asset valuations. The LIS data are augmented with comparable data from the U.S. Consumer Expenditure Survey. The surveys with expenditure data are reviewed in terms of collection units and variable definitions. Inequality statistics are produced and compared using income, expenditures, and market value of owned home. Rankings of countries by income and expenditure inequality are similar but not the same across the countries studied. Suggestions are made for the LIS to improve the expenditure data available following the COICOPS framework.

Consumer Expenditures In The United States: Survey Description And Distributional Analyses

Household expenditure survey data can be used to provide information concerning the economic status and material well-being of families within and across countries. The purpose of this paper is two-fold: first, to describe the survey which is conducted in the United States (U.S.) to collect these data, and second, to present results from recent studies in which these data have been used to examine the distribution of household expenditures. We hope this paper will stimulate greater interest among researchers internationally to examine household expenditure data when addressing distributional issues. The paper is divided into four sections. Section one provides a description of the U.S. Consumer Expenditure Survey (CEX) and procedures. Section two includes results from analyses of the distribution of expenditures across households and the inequality in these expenditures. Section three discusses limitations of the CEX data. Section four is the summary and conclusions.