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

Author

Listed:
  • 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.

Suggested Citation

  • Bruce D. Meyer & James X. Sullivan, 2006. "Consumption, Income, and Material Well-Being After Welfare Reform," NBER Working Papers 11976, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11976
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    References listed on IDEAS

    as
    1. Mark Aguiar & Erik Hurst, 2006. "Measuring trends in leisure," Proceedings, Federal Reserve Bank of San Francisco.
    2. 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, Oxford University Press, vol. 116(3), pages 1063-1114.
    3. Marianne P. Bitler & Jonah B. Gelbach & Hilary W. Hoynes, 2006. "What Mean Impacts Miss: Distributional Effects of Welfare Reform Experiments," American Economic Review, American Economic Association, vol. 96(4), pages 988-1012, September.
    4. Angus Deaton, 2005. "Measuring Poverty in a Growing World (or Measuring Growth in a Poor World)," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 1-19, February.
    5. Robert K. Triest, 1998. "Has Poverty Gotten Worse?," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 97-114, Winter.
    6. 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.
    7. Dirk Kreuger & Fabrizio Perri, 2002. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory," Working Papers 02-15, New York University, Leonard N. Stern School of Business, Department of Economics.
    8. 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).
    9. 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.
    10. repec:fth:prinin:468 is not listed on IDEAS
    11. Diane Whitmore, 2002. "What Are Food Stamps Worth?," Working Papers 847, Princeton University, Department of Economics, Industrial Relations Section..
    12. Jonathan Gruber, 1994. "The Consumption Smoothing Benefits of Unemployment Insurance," NBER Working Papers 4750, National Bureau of Economic Research, Inc.
    13. Richard Blundell & Ian Preston, 1998. "Consumption Inequality and Income Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 603-640.
    14. Mark Aguiar & Erik Hurst, 2004. "Consumption vs. Expenditure," NBER Working Papers 10307, National Bureau of Economic Research, Inc.
    15. 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.
    16. Diane Whitmore, 2002. "What Are Food Stamps Worth?," Working Papers 847, Princeton University, Department of Economics, Industrial Relations Section..
    17. 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.
    18. 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.
    19. Gruber, Jonathan, 1997. "The Consumption Smoothing Benefits of Unemployment Insurance," American Economic Review, American Economic Association, vol. 87(1), pages 192-205, March.
    20. 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.
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    Cited by:

    1. Jane Waldfogel, 2007. "Welfare Reforms and Child Well-Being in the US and UK," CASE Papers case126, Centre for Analysis of Social Exclusion, LSE.
    2. Bruce D. Meyer & James X. Sullivan, 2009. "Five Decades of Consumption and Income Poverty," NBER Working Papers 14827, National Bureau of Economic Research, Inc.
    3. 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.
    4. Waldfogel, Jane, 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.
    5. repec:cep:sticas:/126 is not listed on IDEAS

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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