A comparison of poverty trends and policy impacts for working families using different poverty indexes

Abstract

This study provides empirical evidence on recent trends in poverty among working families based on the headcount rate and a broader alternative that incorporates the headcount rate, the depth of poverty and income inequality among the poor. Estimates reveal that the different indexes produce significantly different trends. The headcount rate indicates a reduction in overall working poverty for the sample period, while the alternative index showed no statistically significant change. The same result was found for various population subgroups. Decompositions of the index changes show that tax changes contributed to lower values for both the headcount rate and the alternative index, largely due to recent expansions of the earned income tax credit. Changes in transfer payments added to measured poverty, mirroring the retrenchment of welfare and other transfer programs. Shifts in market-based income decreased both indexes.