Controlling for Prices when Estimating SPM Thresholds and the Impact on SPM Poverty Statistics
Abstract"The SPM thresholds produced by the BLS, subsequently used by the Census Bureau for poverty statistics, are based on a distribution of out-of-pocket expenditures for food, clothing, shelter and utilities (FCSU) by consumer units with two children. They are created using five years of Consumer Expenditure Interview Survey (CE) data and price adjusted using the All Items CPI U.S. City Average. Following this procedure, as outlined in Citro and Michael (1995), the assumption is that FCSU expenses increase or decrease within areas at the same rate; currently, the only over time adjustment has been to apply the all items CPI-U to FCSU expenditures. No one as yet has examined the impact on SPM poverty of varying prices within areas over time. Also, in none of the previous SPM research has a price adjustment in FCSU expenditures across areas been made. This lack of a spatial or inter-area price adjustment recently was highlighted in a paper by Bishop et al. (2017).
The purpose of this research is to produce SPM thresholds based on FCSU expenditures that are price adjusted within areas across time, and across areas. These adjustments are made before FCSU expenditures are ranked to derive SPM thresholds. Poverty rates are produced to examine the impact of both the within and across area price adjustments. For this study we construct FCSU commodity bundle specific CPI’s for 38 urban areas and four regions for rural areas using prices and weights from the internal BLS CPI database. The FCSU area specific CPIs are applied to consumer unit level FCSU expenditures to convert them to FCSU 2016 dollars. FCSU expenditures are further adjusted to account for differences in prices across geographic areas. We plan to test two different inter-area price adjustments. One is the same that is used by the Census Bureau to produce Area specific SPM thresholds. The other is based on BEA regional price parities for FCSU. To test the impact of FCSU commodity price adjustment and inter-area price adjustment to the thresholds, SPM poverty rates are produced.