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Consumption and Income Poverty over the Business Cycle

  • Bruce D. Meyer
  • James X. Sullivan

We examine the relationship between the business cycle and poverty for the period from 1960 to 2008 using income data from the Current Population Survey and consumption data from the Consumer Expenditure Survey. This new evidence on the relationship between macroeconomic conditions and poverty is of particular interest given recent changes in anti-poverty policies that have placed greater emphasis on participation in the labor market and in-kind transfers. We look beyond official poverty, examining alternative income poverty and consumption poverty, which have conceptual and empirical advantages as measures of the well-being of the poor. We find that both income and consumption poverty are sensitive to macroeconomic conditions. A one percentage point increase in unemployment is associated with an increase in the after-tax income poverty rate of 0.9 to 1.1 percentage points in the long-run, and an increase in the consumption poverty rate of 0.3 to 1.2 percentage points in the long-run. The evidence on whether income is more responsive to the business cycle than consumption is mixed. Income poverty does appear to be more responsive using national level variation, but consumption poverty is often more responsive to unemployment when using regional variation. Low percentiles of both income and consumption are sensitive to macroeconomic conditions, and in most cases low percentiles of income appear to be more responsive than low percentiles of consumption.

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File URL: http://www.nber.org/papers/w16751.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16751.

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Date of creation: Jan 2011
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Publication status: published as “Consumption and Income Poverty Over the Business Cycle,” (with James X. Sullivan), Research in Labor Economics 32, 2011, 51-81. Outstanding Author Contribution Award Winner at the Literati Network Awards for Excellence 2012.
Handle: RePEc:nbr:nberwo:16751
Note: CH ED LS PE
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Bruce D. Meyer & James X. Sullivan, 2009. "Five Decades of Consumption and Income Poverty," NBER Working Papers 14827, National Bureau of Economic Research, Inc.
  2. Rebecca M. Blank & Alan S. Blinder, 1985. "Macroeconomics, Income Distribution, and Poverty," NBER Working Papers 1567, National Bureau of Economic Research, Inc.
  3. Bruce D. Meyer & Wallace K. C. Mok & James X. Sullivan, 2009. "The Under-Reporting of Transfers in Household Surveys: Its Nature and Consequences," Working Papers 0903, Harris School of Public Policy Studies, University of Chicago.
  4. Jon Bakija, 2006. "Documentation for a Comprehensive Historical U.S. Federal and State Income Tax Calculator Program," Department of Economics Working Papers 2006-02, Department of Economics, Williams College, revised Aug 2009.
  5. Hilary Hoynes & Marianne Page & Ann Stevens, 2005. "Poverty in America: Trends and Explanations," NBER Working Papers 11681, National Bureau of Economic Research, Inc.
  6. Bruce D. Meyer & James X. Sullivan, 2007. "Further Results on Measuring the Well-Being of the Poor Using Income and Consumption," Working Papers 0719, Harris School of Public Policy Studies, University of Chicago.
  7. 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.
  8. Rebecca M. Blank & David Card, 1993. "Poverty, Income Distribution, and Growth: Are They Still Connected," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 285-340.
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