Project:
Income Volatility and Food Insufficiency in U.S. Low-Income Households, 1992-2003

Year: 2006

Investigator: Bania, Neil, and Laura Leete

Institution: University of Oregon

Project Contact:
Neil Bania
Department of Planning, Public Policy and Management
1209 University of Oregon
Eugene, OR 97403-1209
Phone: 541-346-3704
Fax: 541-346-2040
E-mail: bania@uoregon.edu

This study examines changes in monthly income volatility in low-income U.S. households in the since the early 1990s, as well as the relationship between income volatility and food insufficiency. Understanding the role of income volatility in determining food insufficiency is especially important in light of policy changes in the last decade, which may have contributed to changes in both factors or to changes in the relationship between them for low-income, welfare, or food stamp-eligible populations.

Welfare reforms are likely to have increased the volatility of income in the low-income population.

In the mid-1990s, State and Federal welfare reforms limited cash assistance as an entitlement, increased the work requirements for recipients of cash assistance, eliminated food stamp eligibility for some populations, and limited food stamp benefit levels for others (among other things). For many households, relatively stable income from Aid to Families with Dependent Children (AFDC)/Temporary Assistance for Needy Families (TANF) payments (and in-kind food stamp benefits) was replaced by potentially less stable earnings from employment. If hours of work per week or employment spell lengths were to vary, then income would have become more variable for these families following the implementation of welfare reform. Because mean income levels and material well-being of welfare leavers and recipients have increased little since welfare reform, there is little reason to expect that this population has either accumulated savings or has sufficiently high incomes to be able to weather this variability without consequence. However, the extensive literature that examines post-reform outcomes for welfare recipients and leavers appears to include little study to date of the potential role of income variability. Similarly, while there has been considerable investigation into the determinants of food insufficiency, few authors have considered income variability as a contributing factor.

This study employs data from the 1991, 1992, and 2001 panels of the Survey of Income and Program Participation (SIPP) to construct data on household income, food insufficiency, and characteristics spanning two12-month periods in 1991-92 and 2002-03. The sample is limited to households with two or more people, nonelderly (ages 18-59) household heads, and income levels up to 300 percent of the poverty line. Monthly income volatility for a household is measured as the coefficient of variation in that household's total income over a 12-month period. Monthly income shocks are measured as deviations in any given month from the 12-month average income. A variety of descriptive statistics are used to examine differences over the two periods for low-income households overall and for a variety of subsamples. Logistic regression is used to model the probability of food insufficiency as a function of average annual income and monthly income deviations, as well as a wide range of controls for other household characteristics.

Monthly income volatility is highest for lower income households and increased substantially between 1992 and 2003.

The findings show the greatest increases in income volatility in households with incomes below the poverty line, households in deep poverty (below 50 percent of the poverty line), and households “at-risk” of receiving welfare (households headed by single parents without a high school diploma). Decomposing income volatility reveals that these increases have their roots in the shift of household income away from relatively stable public assistance (AFDC/TANF) benefits toward earnings. The study shows that volatility is smoothed considerably by receiving food assistance benefits (food stamps and/or the Special Supplemental Nutrition Program for Woman, Infants, and Children), which narrows the income volatility gap between lower and relatively higher income households. Nevertheless, the inclusion of food assistance benefits does not eliminate the large increases in income volatility otherwise observed over the period.

Logistic regression models explaining food insufficiency show that both the level of income and monthly income shocks affect the predicted probability of food insufficiency. The results are consistent with theoretical models in which low-income households face either liquidity constraints or binding constraints in spending associated with contractual nonfood expenditures. Finally, the study finds some evidence to suggest that the probability of higher income households suffering food insufficiency is not related to income volatility; this is consistent with these households not facing liquidity constraints. Despite the clear rise in income volatility over time and the dependence of food insufficiency on income shocks, there has been little trend in the rate of food insufficiency in this sample over the same period.