In Recent Trends in Resource Sharing Among the Poor, Haider and McGarry examine empirically the significance of private transfers as a source of income for the poor. The evidence supports the fact that private transfers are an important source of income for many less-skilled households, the contribution of private transfers to total income has increased over time, and shared living arrangements are a common mechanism for providing assistance.
The term “transfers” is referring to the direct assistance provided to the poor in the form of cash or non-cash transfers, such as shared living arrangements or other resources. The impact of certain macroeconomic conditions on the amount of these private transfers received by low-income individuals has not been the topic of much research before this study. The authors’ initial hypothesis is that a steadily improving economy will lead to a decrease in private transfers, because the economic status of the poor is improving, and they are not as dependent on transfers. However, it is also presumed that an improving economy leads to a greater capacity to give for higher-income individuals. As a result the net effect an improving economy has on the amount of private transfers among the poor could be somewhat ambiguous as both the factors are impacting the total number in different ways.
The information used to study the effects of the economy on private transfers is drawn from the Current Population Surveys (CPS) for the years 1980 to 2004. These surveys provide details on living arrangements and components of income for a large sample across the US. The analysis focuses specifically on women between ages 18 and 54, with the sample again being divided into three different groups based on level of schooling in order to highlight patterns of resource sharing amongst the poor: less than high school, a high school degree, and schooling beyond high school. The focus is of course on the less than high school group with the higher educated groups being used for comparison.
When examining the data gathered on the amount of private cash transfers based on survey answers, it was found that they accounted for less than 1% of total income for each of the education levels. However, this doesn’t mean the poor aren’t heavily dependent upon private transfers, it only means the survey doesn’t do a good job of capturing all the different types of transfers apart from cash, and that shared living arrangements are probably more important than receiving transfers from outside the household. To support this argument, the data for each education level’s average total household income was examined, and it was found that in the least educated group only 85% of total income is accrued to the nuclear family, while in the highest educated group 92% went to the nuclear family, meaning the women with less education are relying more on other resources such as shared living arrangements than those with a greater education.
Haider and McGarry then look to examine the changes from 1979 to 2003 in the various components in household income. A significantly large change was observed in the amount of income attributable to the nuclear family, decreasing from about 94% in 1979 to about 85% in 2003. It is presumed that these changes could be due to two different sources: changes in the composition of living arrangements or changes in the importance of nuclear family income within current living arrangements, with the latter being found to provide a better explanation. More women are co-residing with someone other than their spouse today, than 20 years ago. And because cohabiting partners are not defined as part of the same nuclear family less women are dependent on the total income received by nuclear family members today.
Finally, a study of the relationship between the economy and the importance of various sources of income to low-income individuals is examined through a regression analysis. The results show that higher unemployment rates lead to increased funding from public transfers and private transfers and less reliance on nuclear family earnings. An increase in the unemployment rate of 1% was associated with a .5% decline in the share of total income coming from the labor earnings of the nuclear family.
Overall the authors conclude that private transfers are an important source of income for the poor, with shared living arrangements being the most important form of transfer. They realize their results are limited by the data in that the CPS does a poor job of accurately measuring the actual amount of resource sharing occurring amongst low-income individuals. They are aware that more recent surveys with more detailed information will be available in the near future and are prepared to re-examine their findings upon release of these surveys.
This is a very difficult topic to examine empirically, because as the authors said, it is very hard to get an accurate assessment of exactly how much resource sharing is actually going on based on just survey results. I felt the paper didn’t provide strong support for its conclusion that private transfers are in fact a key source of support for low-income individuals. Yes they gathered data on different sources of income and trends affecting these sources, but I felt much of it wasn’t contributing to support of the paper’s main claim. It was somewhat confusing how the authors were attributing some results to the claim that resource sharing is an important source of wealth for the poor. For example, I felt it was a big jump to assume that lower educated women are relying more on shared living arrangements just because less of their nuclear family income accrues to the nuclear family, they state later that the definition of nuclear family affects this number greatly. Maybe I am missing the point, but I had trouble believing the connection there. Overall, I found the topic interesting and hope that eventually more research will be better able to accurately assess the importance of private wealth transfers in the lives of low-income individuals.