Summary
Using Consumer Expenditure (CE) Interview Survey data for 1993–2003, Meyer and Sullivan document that income and consumption paint contradictory pictures of single mothers' material well-being after welfare reform. Bottom-decile income fell 16% while bottom-decile consumption rose ~7%. The paper argues consumption is the superior welfare measure for disadvantaged families — it captures permanent income, reflects in-kind transfers, and is less subject to the severe underreporting of government transfers in household surveys. The study traces the components of consumption change and calculates the implicit value of nonmarket time that would make single mothers indifferent between their pre- and post-reform bundles.
Key Claims
- Income/consumption divergence: 1993–95 to 1997–2000, reported income in the bottom decile falls −16%; reported consumption rises +7%. At higher deciles income rises faster than consumption. The divergence is unique to single mothers — other samples do not show this pattern.
- Consumption as the better welfare measure: (1) Consumption captures permanent income and income-smoothing; (2) government transfers are severely underreported in household surveys relative to administrative aggregates, and underreporting has increased over time (Meyer, Mok, and Sullivan 2007); (3) expenditures exceed reported income at low percentiles — consistent with income underreporting being worse than expenditure underreporting.
- What drove consumption growth: Housing is the dominant component (~46–50% of budget) and accounts for most of the bottom-quintile increase; evidence from CE Survey housing characteristics and American Housing Survey (AHS) data shows modestly improved housing quality. Transportation rose in the second quintile, partly reflecting work-related expenses. Food at home fell, consistent with declining food stamp receipt as welfare caseloads collapsed.
- The nonmarket time trap: Hours worked more than doubled for the bottom two consumption deciles. The implicit break-even valuation of nonmarket time is ~$1.82–$3.13/hour for the bottom five deciles (1993–95 to 1997–2000). If single mothers value nonmarket time at market wages, most of those in the bottom half are worse off after reform despite higher consumption. Time-use data confirm the shift was from food preparation, housework, and shopping to market work — not from leisure.
- Health insurance: Private coverage rose 7–13 percentage points (pp) in bottom four deciles, but Medicaid fell more → fraction uninsured increased in bottom three consumption deciles post-welfare reform.
- Welfare reform and "disappeared" income: The fraction of single mothers in surveys reporting neither earnings nor cash welfare grew noticeably after 1996. The paper argues this is better interpreted as measurement failure (transfer underreporting, informal income) than as actual deprivation — confirmed by the stable-to-rising consumption pattern.
- Conclusion: Consumption improved modestly for single mothers across the distribution; the claims of severe deprivation following welfare reform are not supported. But the gains are small (bottom-decile consumption ~$9,000/year in 2005 dollars), and welfare reform imposed real utility losses on those who value time.
Concepts Introduced or Extended
- Welfare Reform and Material Well-Being — core evidence for the consumption-income divergence among single mothers 1993–2003; housing consumption and nonmarket time as key dimensions of well-being; the transfer underreporting problem
Entities Mentioned
Quotes
"Trends in income and consumption can tell very different stories about changes in the well-being of disadvantaged families in recent years."
"If single mothers value this lost nonmarket time at more than $3 per hour, most of those in the bottom half of the consumption distribution are worse off after 1996 than they were before welfare reform."
My Take
The central methodological contribution — consumption > income for measuring well-being of the poor — is now mainstream, but this paper is the clearest AER-level statement of it with the 1990s welfare reform as the motivating episode. For this wiki's DI focus, the key implication is indirect: the fall in bottom-decile income with stable consumption suggests single mothers either found informal income sources or shifted to disability programs as Aid to Families with Dependent Children (AFDC) became inaccessible. The disability insurance (DI) application literature (Autor and Duggan 2003) documents the rising replacement rate channel; this paper documents the consumption side of what happened to those at the bottom. The nonmarket time calculation is an underused tool for welfare analysis of any reform that trades leisure for income — directly applicable to the DI work-incentive literature.