Working Paper: NBER ID: w25907
Authors: Bruce D. Meyer; Derek Wu; Victoria R. Mooers; Carla Medalia
Abstract: Recent research suggests that rates of extreme poverty, commonly defined as living on less than $2/person/day, are high and rising in the United States. We re-examine the rate of extreme poverty by linking 2011 data from the Survey of Income and Program Participation and Current Population Survey, the sources of recent extreme poverty estimates, to administrative tax and program data. Of the 3.6 million non-homeless households with survey-reported cash income below $2/person/day, we find that more than 90% are not in extreme poverty once we include in-kind transfers, replace survey reports of earnings and transfer receipt with administrative records, and account for the ownership of substantial assets. More than half of all misclassified households have incomes from the administrative data above the poverty line, and several of the largest misclassified groups appear to be at least middle class based on measures of material well-being. In contrast, the households kept from extreme poverty by in-kind transfers appear to be among the most materially deprived Americans. Nearly 80% of all misclassified households are initially categorized as extreme poor due to errors or omissions in reports of cash income. Of the households remaining in extreme poverty, 90% consist of a single individual. An implication of the low recent extreme poverty rate is that it cannot be substantially higher now due to welfare reform, as many commentators have claimed.
Keywords: Extreme Poverty; Income Data; Welfare Reform; Poverty Measurement
JEL Codes: C42; C81; I32; I38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| in-kind transfers (H49) | poverty classification (I32) |
| misreporting (C59) | inflated poverty rates (I32) |
| administrative income data (J30) | poverty classification (I32) |
| adjustments for misreporting (E01) | understanding of poverty metrics (I32) |
| households classified as extreme poor (I32) | true poverty rate (I32) |