Working to Make Ends Meet: Understanding the Income and Expenses of America's Low-Income Families

The Urban Institute2100 M Street, NWWashington, DC 20037Working to MakeEnds MeetUnderstanding the Incomeand Expenses of America’sLow-Income FamiliesGregory Acs and Austin NicholsLow-Income Working FamiliesPaper 2September 2005 Copyright © September 2005. The Urban Institute. All rights reserved. Except for short quotes, no part of this paper maybe reproduced in any form or used in any form by any means, electronic or mechanical, including photocopying, recording,or by information storage or retrieval system, without written permission from the Urban Institute.This report is part of the Urban Institute’s Assessing the New Federalismproject, a multiyear effort to monitor and assess thedevolution of social programs from the federal to the state and local levels. Olivia Golden is the project director. The projectanalyzes changes in income support, social services, and health programs. In collaboration with Child Trends, the projectstudies child and family well-being.TheAssessing the New Federalismproject is currently supported by The Annie E. Casey Foundation, The Robert WoodJohnson Foundation, the W. K. Kellogg Foundation, The John D. and Catherine T. MacArthur Foundation, and The FordFoundation.The authors thank Gina Adams, Olivia Golden, Pamela Loprest, Margery Turner, and Sheila Zedlewski for their helpfulcomments, Peter Tatian for providing information on housing, Jennifer Holland for production assistance, and Elaine Maagfor providing estimated federal taxes.The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. Theviews expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. iiiAbstractvBackground2Goal 1: What Is a Low-Income Working Family?4Goal 2: Documenting the Size and Characteristics of Low-Income Working Families6Differences among Low-Income Families by Work Status8Differences between High-Work, Low- and Middle-Income Families9Goal 3: Understanding the Income and Expenses of Low-Income Working Families12Income of Low-Income Working Families12Expenses of Low-Income Working Families15Making Ends Meet? Comparing the Income and Expenses of Low-Income Families19Income and Expenses of High-Work, Low-Income Families by Family Structure21Income and Expenses of High-Work, Low-Income Families for Key Subgroups24Conclusion28Notes31References33About the Authors35CONTENTS Recently, the policy community has focused on alleviating the strain on working families, particularlyfamilies with children. Research has examined the size and characteristics of low-income workingfamilies, the amounts and sources of income available to them, and, to a lesser extent, the expenses thesefamilies face, such as housing or medical expenses. Discussions of low-income working families,however, are hampered by the fact that there is no clear consensus on how much work a family must doto be considered a working family or the level and types of resources a family must fall below to beconsidered low-income. This report seeks to clarify the discussion and debate over what constitutes a low-income workingfamily. It then documents the size and characteristics of the low-income working population. Finally,it carefully examines their incomes and expenditures.We use data from the 2002 round of the National Survey of America’s Families (NSAF), representingthe income and expenses of all U.S. families with children in 2001. We find that low-income families(those with incomes below twice the federal poverty level) with at least one full-time, full-year worker(high-work families) have incomes that are roughly in line with their basic expenses.Gross income (before taxes and transfers) varies substantially by the level of work attachment and byother characteristics, and income after taxes and food stamps varies only slightly less. However, thereis surprisingly little variation in expenses. So families with lower work attachment have substantially lessincome left over for discretionary spending or saving, and may even find themselves running up debtsto cover basic needs. Single parents living alone are less likely to be high-work families than married-ABSTRACTv couple and other multiple-adult families, but single parents who work full time fare almost as well astheir married or cohabiting counterparts, with most of the gap explained by higher child care expenses.High-work families headed by immigrants as well as those with children under age 6 do not faresubstantially worse than the average high-work, low-income family, and they are actually more likely tobe high-work families.Overall, we find that low-income working families fare better than one might expect in 2001, thanks totheir work effort, earned income, and a generous refundable Earned Income Tax Credit. But low-income families without a full-time, full-year worker and poor families do not appear to have enoughincome to cover their basic expenses. In addition,