Income Volatility Complicates Food Assistance
Income volatility is
especially high for poorer households, so targeted
food assistance programs must account for swings
in eligibility.
Constance
Newman
|
|
|
|
Income
fluctuations cause low-income families
to cycle in and out of eligibility for
food assistance. |
|
|
Twenty-eight
percent of U.S. households with children
experienced at least one monthly income
change in the late 1990s that put them
above or below the eligibility criteria
for many programs. |
|
|
Income
volatility helps explain why many school
lunch beneficiaries were found to be
ineligible during verification in past
years. |
|
| This
article is drawn from . . . |
| The
Income Volatility See-Saw: Implica-
cations for School Lunch, by Constance
Newman, ERR-23, USDA, Economic Research Service,
August 2006. |
| You
may also be interested in . . . |
| Income
Volatility and the Implications for Food Assistance
Programs: A Conference of IRP and the Economic
Research Service of USDA, May 2002.
The
Relationship of Earnings and Income to Food
Stamp Participation: A Longitudinal Analysis
by Mary Farrell, Michael Fishman, Matthew
Langley, and David Stapleton, E-FAN-03-011,
November 2003. |
USDA
food assistance programs aim to provide a safety
net for low-income families in times of need. Temporary
declines in family income—of 6 months or so—are
commonly thought to be the main problem that recipients
face. But many low-income families face more frequent
and larger income fluctuations than do higher income
families. Most often, a change in hours worked,
wages, or the number of household members working
is responsible for these fluctuations. Changes in
marital status can also cause large income swings.
This constant income volatility affects the targeting
of benefits in USDA food assistance programs. Just
which families are in need, and for how long?
Incomes of Poor Families
Are Volatile . . .
ERS investigated common sources
of short-term income volatility using data from
the 1996 panel of the Survey of Income and Program
Participation (SIPP). SIPP is a nationally representative
survey conducted by the U.S. Census Bureau to collect
monthly information from the same panel of households
for up to 4 years. The study used data from 1996
to 2000, looking at changes over the whole 48 months
and changes within the 3 school years during that
period.
Eligibility for food assistance
programs is usually determined by comparing household
income with the poverty level. (Federal poverty
guidelines are set each year by the Department of
Health and Human Services and vary by the number
of household members.) To be eligible for food stamps,
a household’s gross monthly income must not
exceed 130 percent of the poverty level. The Special
Supplemental Nutrition Program for Women, Infants,
and Children (WIC), the National School Lunch Program
(NSLP), and the School Breakfast Program use 185
percent of poverty as an upper limit on program
eligibility: if a family’s income exceeds
that limit, the family is not eligible for WIC benefits
or free or reduced-price school meals (unless they
participate in other associated programs).
The ERS study found that, within
1 year, 28 percent of all U.S. households with children
experienced at least one monthly income change that
put them above or below the 185-percent-of-poverty
threshold, moving them from eligibility to ineligibility
or vice versa. Among low-income families, the chances
of changing eligibility status were even higher.
For households with incomes below 185 percent of
poverty in at least 1 month of the year, almost
two-thirds had one or more changes in eligibility
status, and one-fifth had three or more changes
in a single year.
Not surprisingly, households closest
to the eligibility cutoff point (185 percent of
poverty) experienced the most eligibility changes.
Families whose average monthly incomes were between
130 and 240 percent of poverty crossed the eligibility
line five times per year, on average.
 |
To compare income volatility across
income groups, ERS measured a family’s monthly
income changes versus its usual monthly income—that
is, its relative income variation. (Income is measured
as a percent of the poverty threshold.) These relative
income changes were higher for poorer families than
for higher income families. For hourly workers,
a sick child can mean the loss of wages for a day
or two, while a seasonal slump in customers can
mean a smaller paycheck or even a layoff. In the
late 1990s and into the early 2000s, families with
the lowest incomes (below 75 percent of the Federal
poverty guideline) had relative income changes that
were double those of the highest income families
(incomes above 300 percent of poverty).
When families are ranked in order
of low to high volatility, the family at the median
of the poorest group had double the volatility of
the median family in the highest income group. The
median family in the poorest group experienced volatility
half the size of its usual income, while the median
family in the highest group experienced volatility
one-fifth as great as its usual income. Even for
families at lower levels of volatility, the poorest
families had roughly double the income volatility
of the highest income families.
. . . And Employment Shifts
Are the Main Cause
ERS tested a rich set of events
that might trigger an income change, while also
controlling for fixed demographic and labor market
participation characteristics. Labor market “trigger”
events—those changing from month to month—included
changes in: (1) the amount of employment, either
in the number of jobs held by different members
or in the number of hours worked by all household
members (total household hours worked); (2) pay
rates for different household members; and (3) the
percentage of household members working for pay
(versus dependents). Since a household’s poverty
status depends on the number of people in the household,
three household composition triggers were considered:
changes in the number of children in the household;
a marriage, divorce, separation, or death of a spouse;
and the addition or subtraction of other adults.
Many of these trigger events could
occur in the same month, and they could have opposite
effects on the family’s income. A household
member could lose one job but receive a raise in
another job. One member could lose a job, while
another chooses to work longer hours, perhaps in
response to the other’s job loss. A boyfriend
or girlfriend could join the household, or an older
child could move out.
The fixed characteristics and
trigger events most associated with an increase
in a household’s income (or “exit”
from program eligibility) were also the ones most
associated—albeit in the opposite direction—with
a decrease in a household’s income (or “entry”
into program eligibility). In both exits and entries,
the fixed characteristics had predictable effects.
For example, when the head of the household had
higher levels of education, the household was more
likely to exit program eligibility, and when the
head of the household had lower levels of education,
the household was more likely to enter
program eligibility.
Of the trigger events, changes
in labor market participation were the most likely
to lead to both exit and entry. Changing from a
married household to a female-headed one (after
becoming divorced, separated, or widowed), although
one of the most infrequent changes that occurred
across the study group, was the event most likely
to lead to entry into eligibility.
The following trigger events were
positively associated with exit from eligibility
and are shown in order of their statistical significance
(their frequency of occurrence over the study’s
48 months is shown in parentheses):
- An increase in total household hours worked
(27.3 percent);
- An increase in the percentage of working adults
in the household
(5 percent);
- An increase in wages for a spouse’s primary
job (8.3 percent).
And the following trigger events were positively
associated with entry into eligibility:
- A change from married to female-headed household
(0.3 percent);
- A reduction in total household hours worked
(33.4 percent);
- A reduction in the percentage of working adults
in the household (3 percent);
- Reductions in the wages of the spouse (1.9 percent),
other adults (7 percent), and the household head
(15 percent).
Overall, the results point to
the importance of the total labor market participation
of the household as a source of short-term income
volatility. The total number of hours worked was
found to change most frequently of all events and
when it did, it often affected eligibility. The
importance of a marital status change, the percentage
of working household members, and the pay rates
of spouses and other adults in the household also
suggests that having multiple household members
in the labor force is critical for avoiding poverty-level
incomes.
Income Volatility Helps
Explain School Lunch Certification Errors
When a family applies for benefits
from a food assistance program, program staff assess
eligibility based on whether the family’s
current income—often monthly—is below
the program’s limit. If so, the family is
then “certified” to receive program
benefits for some number of months. To target benefits
to the needy more precisely, the certification period
could be shortened—from, say, 6 months to
3 months. But shorter certification periods are
more costly to administer, and they may deter eligible
households from applying because of the need to
re-apply more often.
In 2004, Congress passed legislation
that changed the eligibility period for free and
reduced-price lunches under the NSLP from 1 month
to the full school year. Previously, families were
required to report monthly income increases during
the school year that could have made them ineligible.
Such changes were rarely reported, and thus schools
rarely changed the eligibility status of students
due to changes in household circumstances. At the
same time, administrators, through the verification
process, sought to reduce the number of students
receiving meal benefits for which they were not
eligible, estimated in most studies to be around
15 to 20 percent of students. Evidence now suggests
that this problem of “overcertification”
found at the time of verification was affected by
the 1-month eligibility period.
The NSLP provides free lunches
to students from households with incomes at or below
130 percent of poverty and reduced-price lunches
to students from households with incomes between
131 and 185 percent of poverty. Every year, schools
are required by law to request income documentation
by mid-November (before 2004, it was by mid-December)
from a small sample of households whose children
receive free or reduced-price meals. Such verification
can result in adjusted or terminated benefits.
In the past few years, USDA’s
Food and Nutrition Service (FNS) has sponsored several
studies to measure possible sources of error in
the application, certification, and verification
processes. They investigated, among other things,
the extent to which households misreported their
incomes or to which schools made administrative
errors. ERS examined another potential source of
error: income boosts that would have caused households
eligible at the start of the school year to become
ineligible by the time their incomes were verified
by schools later in the year.
For each of three school years
in SIPP (1996-97, 1997-98, and 1998-99), ERS tracked
the month-by-month eligibility of households that
were income eligible in August. By December—when
a sample of incomes would have been verified by
the school—27 percent of households had become
ineligible. Most (57 to 60 percent) of those that
had become ineligible for either benefit by December
were households that had been eligible for reduced-price
meals in August.
So, estimated overcertification
due to income volatility (27 percent) is higher
than most estimates of total overcertification (15
to 20 percent) from verification samples. Other
overcertification studies estimated two other sources
of error—administrative and household error—to
be around 10 to 12 percent. By itself, monthly income
volatility could have accounted for all of estimated
NSLP overcertification identified at the time of
verification. However, since the ERS analysis counted
all eligible households—not those that actually
applied in the years examined—ERS’s
estimate of error due to income volatility may be
thought of as an upper bound estimate. The other
sources of error remain, and FNS continues to measure
their contributions to total errors. With the extension
of the NSLP certification period from 1 month to
the full school year, the problem of income volatility,
which is extreme for some households, has been resolved.
Income Volatility Invites
a Rethinking of Food Assistance
The high and persistent income
volatility among potential food assistance recipients
has implications for how these programs are run.
If a program’s certification period is short—say
1 month, requiring recipients to reapply each month—potential
applicants may choose not to apply even though they
may be eligible. It is also more expensive to administer
shorter periods. On the other hand, a long certification
period increases the chances that a recipient household’s
income will rise above the eligibility threshold.
This income “creep” challenges many
people’s notion of the integrity and purpose
of a food assistance program. Program administrators
attempt to balance program access and integrity,
and income volatility is a complicating factor.
With welfare reform, an increasing
proportion of the target population for food assistance
is working rather than relying strictly on public
assistance. Among food stamp recipients, 29 percent
had labor market earnings in 2004, up from 19 percent
in 2000. And it is the vicissitudes of the labor
market that underpin most short-term income volatility.
So, is being needy defined only to the extent that
income falls below a certain fixed amount? Or should
neediness include being buffeted by low, fluctuating,
and uncertain income? These findings invite reflection
on the way we think about the concepts of “needy”
and “eligible.”
|
Download PDF version