Has consumption grown fastest among the poorest single-mother families?
Core argument: Over the 25 years after welfare reform, consumption growth for the lowest decile of single mother headed families outpaced that of families higher in the consumption distribution.
Over the past 25 years, the consumption growth of the lowest decile of single mother headed families has notably outpaced those higher up the consumption distribution. This trend highlights a significant shift in economic well-being among the most economically disadvantaged single mother families. Data indicates that while overall consumption levels have risen, the bottom decile experienced a more pronounced increase, suggesting targeted welfare reforms may have contributed to this improvement. The implications of this trend are critical for policymakers aiming to address income inequality and enhance support for vulnerable populations. As these families' consumption capacity grows, it reflects broader economic changes and potential shifts in social safety net effectiveness.
Ben Comment: Housing is a huge part of the growth in consumption for households but it seems like the measure of housing consumption is tightly linked to real estate value. With a long down trend in interest rates (and there for a long up trend in real estate prices), it seems like this measure of well being mechanically increases without actually changing someone’s well being. It would be nice to see consumption ex housing. Also interesting that the next category in which there’s the most consumption increase is food - which has notoriously volatile prices (this is why it’s stripped out of the core measure of inflation).
Bruce Meyer builds off his previous work on consumption inequality, his (consumption) results suggest, "...provide strong evidence that the material circumstances of single mothers improved in the decades following welfare reform..."
Bottom line, "... While some mothers undoubtedly fared poorly after welfare reform, the distribution shifted in favorable ways. The consumption of the lowest decile of single mother headed families has risen noticeably over time and at a faster rate than those higher up in the consumption distribution.Indications of improved well-being are evident in measures of expenditures on housing, food, transportation and utilities as well as in housing characteristics and health insurance coverage. The material circumstances of single mothers especially affected by welfare reform have also improved relative to plausible comparison groups. Median consumption of low-educated single mothers has risen relative to that of low-educated childless women and married mothers and relative to high-educated single mothers. This evidence during the period of the policy changes of the 1990s suggests that a combination of a reduction in unconditional aid and an expansion of aid conditional on work (with exceptions for those who could not work) was successful in raising material well-being for single mothers....It is important to note that although we find strong evidence that the material circumstances of single mothers improved in the decades following welfare reform, other components of well-being may have followed a different pattern. For example, these policy changes may have adversely, or positively, affected time spent with children, health, educational investments, outcomes for children, or other important outcomes.... It is also important to note that our evidence of improved economic circumstances does not imply that the level of economic well being for single mothers is high. In fact, the families that are the focus of this study have very few resources; average total annual consumption for a single mother with two kids in the bottom decile of the consumption distribution is about $14,000 in 2019...."
Premise, "...In this paper, we analyze changes in material well-being between 1984 and 2019, focusing on the period starting in 1993 with the welfare waivers that preceded PRWORA. We study single mother headed families—the primary group affected by the changes in tax and welfare policy. For these families, we analyze changes in income and consumption and other measures of well-being. We focus on consumption, particularly its most well-measured components, given its conceptual advantages over income as a measure of economic well-being as well as the pronounced underreporting of income in surveys..."
Income
"...Our results for income, which do not correct for underreporting,show that while income grew for single mothers, particularly during the years shortly after welfare reform, the pattern is quite different for the lowest income single mothers. For those in the bottom income decile, income falls sharply after welfare reform. We argue that these reported changes reflect the growing underreporting of income. The trends in consumption, on the other hand, show steady increases over a long period from at least the early 1990s up until 2007, with the largest increases apparent for the lowest decile, providing little evidence that the most disadvantaged families became worse off after welfare reform.Consumption has grown more slowly, if at all, for most deciles since the start of the Great Recession, although we continue to see a rise in consumption at the very bottom...."
Consumption
"... we find that all of the components of (well-measured) consumption have risen since the early 1990s—although food at home is flat at the bottom of the distribution of consumption—and that much of the rise in consumption is accounted for by increased consumption of housing, utilities, and gasoline and motor oil.Although homeownership rates have not increased, we do find increases in out-of-pocket rent for those who are renting, and this rise is accompanied with noticeable improvements in the characteristics of the living unit—more rooms, more amenities, and fewer housing problems. In previous work we had shown that health insurance coverage declined somewhat in the years immediately after welfare reform (Meyer and Sullivan, 2008). Since then, health insurance coverage for single mothers has expanded due to later expansions in coverage under the ACA...."
Reminder of what the consumption data is,
"...Our analyses primarily use consumption data from the Consumer Expenditure (CE) Interview Survey. The CE is a quarterly survey that provides comprehensive information on family spending for about 7,000 families each quarter (or about 5,000 prior to 1999). We use the surveys from the first quarter of 1984 through the first quarter of 2020. Surveys are administered throughout the three months of a quarter, and questions about expenditures typically have a reference period of the three months preceding the interview month. For each observation we specify the reference year as the year in which the majority of reference months fall. Our main analysis sample from the CE includes families headed by a single woman aged 18-54 who lives with her own children only and at least one child is under the age of 18, which excludes single mother headed families where other related or unrelated adults are present. We include observations with reference years for spending from 1984 to 2019, a period that spans many years prior to and after the implementation of the major reforms to the social safety net during the 1990s that we highlight...."Note they use PCE.
Comp shift in single mother population
"... There have been substantial changes in the composition of the single mother population over the last four decades. For example, single mothers in the 2010s were more likely to be Hispanic and more likely to attend college than those in1980s...Because our analysis focuses on the effects of tax and welfare reform on consumption growth, we exclude the influence of changes in the demographic composition of the single mother population by holding observable characteristics—age, education, and race/ethnicity of head— constant over time by re-weighting the samples from 1987-2019. Specifically, we first divide our sample from the first period (1984-1986) into 24 demographic cells defined by three variables: age (18-34, 35-54), education (high school dropout, high school degree, some college, College degree or above), and race/ethnicity (non-Hispanic White, non-Hispanic other race, Hispanic). These cells are defined broadly enough to ensure that none of the periods contain empty cells. We then use the share of the population in each of the 24 demographic cells to adjust the weights to hold constant demographic characteristics....
Changes in Income and Consumption of the Worst Off
"....Before we present our main results for consumption, we consider how income has changed for single mother headed families at different parts of income distribution from 1984 to 2019. Figure 3 shows the percent changes in after-tax income plus food stamps and housing subsidies relative to 1990-92 by income decile using the CPS ASEC. Because small annual samples can result in somewhat noisy estimates, we pool the annual data into 3-year intervals. These results indicate that in the 25 years following welfare reform income for single mothers above the bottom decile rose by 6 to 20 percent, but for those in the bottom decile it fell by 13 percent. Although these analyses use the CPS, in Appendix Figures 1a and 1b, we demonstrate that the results using the CE are broadly consistent with those from the CPS when we use pre-taxincome plus food stamps/SNAP as an income measure, which is defined compatibly in the two surveys..."
"... Figure 4 and Panel A of Table 1 show how consumption has changed for single mothers between 1984 and 2019 relative to the early 1990s for each of the bottom five deciles and the top half of the consumption distribution. These results differ sharply from those for income in two ways. First, unlike the income data indicating declines for single mothers in the bottom decile, consumption data indicate improvements at all deciles. Second, single mothers in the bottom income decile see the greatest decline in income, whereas single mothers in the bottom consumption decile experience the greatest rise in consumption. In particular, consumption for single mothers in the bottom decile rises by 39% between 1990-92 and 2017-19. The degree of consumption growth during this period declines monotonically as we move up the consumption distribution, with consumption in the top half of the distribution rising only by 19%...."
'... Between the early 1990s and 2005- 07, consumption increased by 31% for single mothers in the bottom decile and it increased by 25% for those in the top half. After 2005-07, consumption rose only modestly (by 1-6%) for those in the bottom five deciles, while consumption declined by 5% for those in the top half. In the following section, we consider the extent to which the improved material well-being is due to policy changes, as opposed to changes in macroeconomic conditions, by comparing the patterns of consumption for single mothers to those of other groups that are less likely to be affected by the policies. We verify that these patterns of rising consumption are robust to alternative approaches. For example, we find similar patterns when looking at a measure of total consumption (that includes components that are not well-measured). These results, which are reported in Appendix Figure 2, indicate that consumption for those in the bottom decile rose by 35% between the early 1990s and 2019, as compared to 39% growth for well-measured consumption. For the top half of the distribution, the growth in total consumption during this period is less pronounced (14%) than the growth in well-measured consumption (19%).In results not reported, we also verify that these patterns are not sensitive to how we account for the changing demographic composition of the single mother population over time..."
"... We report changes in median consumption for all three groups of low-educated women and by education for just single mothers (Figure 5). For the low-educated, median consumption rises noticeably for all three groups, but the rise is most pronounced for single mothers (Figure 5a). We also see that consumption rises more for low-educated single mothers than for high educated single mothers (Figure 5b). Between 1990-92 and 2017-19, median consumption rose by 33 percent for low-educated single mothers, while it rose by 17 percent and 24 percent for low-educated single women without children and married mothers, respectively, and by 18 percent for high-educated single mothers.For changes since 1990-92, the rise in consumption for low-educated single mothers is almost always greater than or equal to the rise for the comparison groups in every period. The relative rise in consumption for low-educated single mothers is more muted further down the distribution. At the 25th percentile, consumption rose more for low-educated single mothers than for low-educated single women without children or married mothers (Appendix Figure 3a) or for high educated single mothers (Appendix Figure 3b) over the full period, but for most of the period following welfare reform, growth in consumption is comparable across these groups. Nevertheless, even for this very disadvantaged group of low-educated single mothers, we do not find evidence that changes in welfare policies resulted in a decline in economic wellbeing relative to other groups that were not the target of the reforms. If one looks at total consumption (rather than its well-measured components, which is reported in Figure 5) the rise in relative consumption for single mothers is even more pronounced at the median(Appendix Figure 4) and 25th percentile (Appendix Figure 5)….”