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Economic Well-Being at Older Ages: Income- and Consumption-Based Poverty Measures in the HRS

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Author Info
Michael Hurd
Susann Rohwedder

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Abstract

According to economic theory, well-being or utility depends on consumption. However, at the household level, total consumption is rarely measured because its collection requires a great deal of survey time. As a result income has been widely used to assess economic well-being and poverty rates. Yet, because households can use wealth to consume more than income, an income-based measure of well-being could yield misleading results for many households, especially at older ages. The authors use data from the Health and Retirement Study to find income-based poverty rates which they compare with poverty rates as measured in the Current Population Survey. They use HRS consumption data to calculate a consumption-based poverty rate and study the relationship between income-based and consumption-based poverty measures. They find that the poverty rate based on consumption is lower than the income-based poverty rate. Particularly noteworthy is the much lower rate among the oldest single persons such as widows. The explanation for the difference is the ability to consume out of wealth.

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Paper provided by RAND Corporation Publications Department in its series Working Papers with number 410.

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Length: 35 pages
Date of creation: Nov 2006
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Handle: RePEc:ran:wpaper:410

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Find related papers by JEL classification:
I32 - Health, Education, and Welfare - - Welfare and Poverty - - - Measurement and Analysis of Poverty
J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jesus Fernandez-Villaverde & Dirk Krueger, 2002. "Consumption over the Life Cycle: Some Facts from Consumer Expenditure Survey Data," Centro de Alti­simos Estudios Ri­os Pe©rez(CAERP) 7, Centro de Altisimos Estudios Rios Perez (CAERP). [Downloadable!]
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  2. Bruce D. Meyer & James X. Sullivan, 2003. "Measuring the Well-Being of the Poor Using Income and Consumption," NBER Working Papers 9760, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Slesnick, Daniel T, 1994. "Consumption, Needs and Inequality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 677-703, August. [Downloadable!] (restricted)
  4. Jesus Fernandez-Villaverde & Dirk Krueger, 2002. "Consumption over the Life Cycle: Facts from Consumer Expenditure Survey Data," NBER Working Papers 9382, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Thesia I. Garner & Kathleen Short, 2005. "Economic Well-Being Based on Income, Consumer Expenditures and Personal Assessments of Minimal Needs," Working Papers 381, U.S. Bureau of Labor Statistics. [Downloadable!]
  6. Peter Saunders, 1997. "Poverty, Choice and Legitimacy," Discussion Papers 0076, University of New South Wales, Social Policy Research Centre. [Downloadable!]
  7. Michael D. Hurd & Daniel McFadden & Harish Chand & Li Gan & Angela Menill & Michael Roberts, 1998. "Consumption and Savings Balances of the Elderly: Experimental Evidence on Survey Response Bias," NBER Chapters, in: Frontiers in the Economics of Aging, pages 353-392 National Bureau of Economic Research, Inc. [Downloadable!]
  8. Short, Kathleen, et al, 1998. "Poverty-Measurement Research Using the Consumer Expenditure Survey and the Survey of Income and Program Participation," American Economic Review, American Economic Association, vol. 88(2), pages 352-56, May. [Downloadable!] (restricted)
  9. 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(1991-2), pages 1-74. [Downloadable!]
  10. Jorgenson, Dale W, 1998. "Did We Lose the War on Poverty?," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 79-96, Winter. [Downloadable!] (restricted)
  11. Daniel H. Weinberg et al., 1999. "Fifty Years of U.S. Income Data from the Current Population Survey: Alternatives, Trends, and Quality," American Economic Review, American Economic Association, vol. 89(2), pages 18-22, May. [Downloadable!] (restricted)
  12. Jorgenson, Dale W & Slesnick, Daniel T, 1987. "Aggregate Consumer Behavior and Household Equivalence Scales," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(2), pages 219-32, April.
  13. Michael Hurd & F. Thomas Juster & James P. Smith, 2003. "Enhancing the Quality of Data on Income: Recent Innovations from the HRS," Journal of Human Resources, University of Wisconsin Press, vol. 38(3). [Downloadable!] (restricted)
  14. Krishna Pendakur, 2001. "Consumption Poverty in Canada, 1969 to 1998," Canadian Public Policy, University of Toronto Press, vol. 27(2), pages 125-149, June. [Downloadable!] (restricted)
  15. 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. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Cherchye, L. & Rock, B. de & Vermeulen, F.M.P., 2008. "Economic Well-Being and Poverty Among the Elderly: An Analysis Based on a Collective Consumption Model," Discussion Paper 2008-15, Tilburg University, Center for Economic Research. [Downloadable!]
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