Interpretation Problem #2 · Income is before-tax. It ignores cash refunds from the Earned Income Tax Credit, which has grown dramatically in the last decade, and now amounts to more than $31 billion annually Ignoring this overstates poverty rates, and also affects the trends over time 16
16 Interpretation Problem #2 • Income is before-tax. – It ignores cash refunds from the Earned Income Tax Credit, which has grown dramatically in the last decade, and now amounts to more than $31 billion annually. – Ignoring this overstates poverty rates, and also affects the trends over time
Interpretation Problem #3 Income is measured annually Not obvious what the correct time frame should be Income does fluctuate from year-to-year Lifetime income considerations seem relevant Consider a"starving college student, for example Not really"poor in a lifetime sense 17
17 Interpretation Problem #3 • Income is measured annually. • Not obvious what the correct time frame should be. – Income does fluctuate from year-to-year. – Lifetime income considerations seem relevant. – Consider a “starving” college student, for example. Not really “poor” in a lifetime sense
Interpretation Problem #4 · Unit of observation Person, family, household? People often make decisions as an economic unit, and there are economies of scale in household production Classifications can matter for poverty numbers Bauman(1997)calculates that including the income of non-family members(such as nonmarried cohabitors) would reclassify 55% of people who are poor out of official definition 18
18 Interpretation Problem #4 • Unit of observation – Person, family, household? – People often make decisions as an economic unit, and there are economies of scale in household production. • Classifications can matter for poverty numbers – Bauman (1997) calculates that including the income of non-family members (such as nonmarried cohabitors) would reclassify 55% of people who are poor out of official definition