TRUE HOUSEHOLD EQUIVALENCE SCALES AND CHARACTERISTICS OF THE POOR IN THE UNITED STATES

Authors


  • This is a revised version of a paper presented at the World Meeting of the Econometric Society, Aix-en-Provence, September 1980. We wish to thank Sheldon Danziger and Ephraim Sadka for helpful comments.

  • The research reported here was supported in part by funds granted to the Institute for Research on Poverty at the University of Wisconsin-Madison by the Department of Health and Human Services and the Bureau of Labor Statistics.

Abstract

In this paper we deal with the question of which measures of economic well-being are adequate to identify those groups of households in the U.S. whose economic conditions justify public concern and assistance. We derive a utility based measure of economic well-being from the estimation of a complete set of consumer demand equations. The demand system is Lluch's Extended Linear Expenditure System (Lluch, 1973). Household characteristics are incorporated using the scaling method proposed by Barten (1966). Using the welfare indicator derived, we study the composition of the poorest part of the population, using data from the 1972–73 Consumer Expenditure Survey. We compare our results with those obtained using various other welfare indicators, including the official U.S. poverty line. We show that using different family composition adjustments significantly and systematically affects just who are considered to be at the bottom of the welfare distribution. We finally suggest that program designers therefore can improve their target efficiency by carefully selecting from among the acceptable indices of welfare when defining program eligibility.

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