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Consumption, Income, and Material Well-Being After Welfare Reform

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  • Bruce D. Meyer
  • James X. Sullivan

Abstract

This paper investigates how material well-being has changed over time for those at the bottom of the distributions of income and consumption. We document the sharp differences between recent trends in measured income and consumption, focusing on families headed by a single mother. Since the early 1990s, income in the bottom decile has fallen by nearly 30 percent, while income has risen by more than 15 percent for the fourth and fifth deciles. The trends for consumption, on the other hand, show neither a sharp decline at low percentiles nor a large increase at higher percentiles. These patterns are evident in two income and two consumption data sources. We then examine several explanations for these differences. We argue that it is unlikely that reported income provides a consistent measuring stick in recent years due to large changes in both the sources of income and the reporting rates of the main income sources for single mothers during this period. Accounting for changes in the characteristics of single mothers can reconcile most of the income consumption difference above the bottom decile. For the bottom decile, simulations accounting for transfer under- reporting can account for much of the reported income decline. Finally, we consider how these trends translate into changes in well-being by investigating changes in disaggregated consumption and time use. Increases in spending on housing account for much of the increase in consumption in the bottom quintile, while increases in transportation spending account for much of the rise in the second quintile. Two datasets indicate modest improvement in housing quality, but the evidence is less strong at the very bottom. Although expenditures on food away from home and child care also rise, these categories are small, on average. The consumption of non-market time for those in the bottom half of the consumption distribution falls sharply indicating a loss in utility for those families if non-market time is valued above $3/hour. Evidence from time-use surveys suggests that the lost non-market time reflects a shift away from shopping, food production, and housework.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11976.

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Date of creation: Jan 2006
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Handle: RePEc:nbr:nberwo:11976

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References

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  1. Angus Deaton, 2005. "ERRATUM: Measuring Poverty in a Growing World (or Measuring Growth in a Poor World)," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 395-395, May.
  2. Dirk Krueger & Fabrizio Perri, 2005. "Does income inequality lead to consumption equality? evidence and theory," Staff Report 363, Federal Reserve Bank of Minneapolis.
  3. Robert A. Moffitt, 2003. "The Temporary Assistance for Needy Families Program," NBER Chapters, in: Means-Tested Transfer Programs in the United States, pages 291-364 National Bureau of Economic Research, Inc.
  4. Marianne Bitler & Jonah Gelbach & Hilary Hoynes, 2003. "What Mean Impacts Miss: Distributional Effects of Welfare Reform Experiments," NBER Working Papers 10121, National Bureau of Economic Research, Inc.
  5. Angus Deaton, 2003. "Measuring Poverty in a Growing World (or Measuring Growth in a Poor World)," NBER Working Papers 9822, National Bureau of Economic Research, Inc.
  6. Jonathan Gruber, 1994. "The Consumption Smoothing Benefits of Unemployment Insurance," NBER Working Papers 4750, National Bureau of Economic Research, Inc.
  7. James X. Sullivan, 2006. "Welfare Reform, Saving, and Vehicle Ownership: Do Asset Limits and Vehicle Exemptions Matter?," Journal of Human Resources, University of Wisconsin Press, vol. 41(1).
  8. David M. Cutler & Lawrence F. Katz, 1991. "Macroeconomic Performance and the Disadvantaged," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 1-74.
  9. Slesnick, Daniel T, 1993. "Gaining Ground: Poverty in the Postwar United States," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 1-38, February.
  10. Mark Aguiar & Erik Hurst, 2006. "Measuring trends in leisure," Proceedings, Federal Reserve Bank of San Francisco.
  11. Bruce D. Meyer & Dan T. Rosenbaum, 2001. "Welfare, The Earned Income Tax Credit, And The Labor Supply Of Single Mothers," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 1063-1114, August.
  12. Mark Aguiar & Erik Hurst, 2004. "Consumption vs. Expenditure," NBER Working Papers 10307, National Bureau of Economic Research, Inc.
  13. Robert K. Triest, 1998. "Has Poverty Gotten Worse?," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 97-114, Winter.
  14. Orazio Attanasio & Erich Battistin & Hidehiko Ichimura, 2004. "What Really Happened to Consumption Inequality in the US?," NBER Working Papers 10338, National Bureau of Economic Research, Inc.
  15. Richard Blundell & Ian Preston, 1997. "Consumption, inequality and income uncertainty," IFS Working Papers W97/15, Institute for Fiscal Studies.
  16. repec:fth:prinin:468 is not listed on IDEAS
  17. Gruber, Jonathan, 1997. "The Consumption Smoothing Benefits of Unemployment Insurance," American Economic Review, American Economic Association, vol. 87(1), pages 192-205, March.
  18. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
  19. Diane Whitmore, 2002. "What Are Food Stamps Worth?," Working Papers 847, Princeton University, Department of Economics, Industrial Relations Section..
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Cited by:
  1. Jane Waldfogel, 2007. "Welfare Reforms and Child Well-Being in the US and UK," CASE Papers /126, Centre for Analysis of Social Exclusion, LSE.
  2. Jane Waldfogel, 2007. "Welfare reforms and child well-being in the US and UK," LSE Research Online Documents on Economics 6208, London School of Economics and Political Science, LSE Library.
  3. Bruce D. Meyer & James X. Sullivan, 2009. "Five Decades of Consumption and Income Poverty," Working Papers 0907, Harris School of Public Policy Studies, University of Chicago.
  4. Bruce Meyer & Robert Goerge, 2011. "Errors in Survey Reporting and Imputation and Their Effects on Estimates of Food Stamp Program Participation," Working Papers 11-14, Center for Economic Studies, U.S. Census Bureau.

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