www.bea.gov

Consumer Income & Expenditures:

Integrating Micro & Macro Data

Clinton P. McCullyBEA Advisory Committee Meeting

November 16, 2012

www.bea.gov 2

Divergent Macro vs. Micro Income Trends

80

85

90

95

100

105

110

115

120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Real income2000 = 100

Per capita disposable personal income (BEA)

Median household income (CPS)

www.bea.gov 3

Why Has Macro Income Grown Faster?

▪ Rapid growth in non-cash income in National accounts--not captured in micro measures Supplements to wages and salaries:

Employer contributions for pensions and insurance

In-kind government social benefits▪ National accounts data fails to capture

changes in distribution of income National accounts use average (per

capita) measures Median & quintile data used in micro

measures

www.bea.gov 4

Wages & Salaries vs. Supplements

80

100

120

140

160

180

200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2000

= 1

00

NIPA wages & salaries

Money income wages & salariesEmployer contributions for employee pension and insurance funds

www.bea.gov 5

Cash vs. In-Kind Social Benefits

80

100

120

140

160

180

200

220

240

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2000

= 1

00

In-kind government social benefits NIPA cash government social benefits CPS cash social benefits

www.bea.gov 6

Integration Steps▪ Remove nonprofit institutions serving

households (NPISHs) from personal income & outlays

▪ Adjust scope of household income and outlays to match population coverage of household surveys

▪ Control micro income & consumption estimates to NIPA income and outlays Scale matched micro income and

consumption components Use indicators for macro components with

no micro counterparts▪ Integrated estimates reflect all NIPA

definitions and classifications

www.bea.gov 7

Order of Discussion▪Data sources▪Micro and macro income and

consumption measures▪Scope adjustments ▪Matched & non-matched values ▪Income and consumption

distributions▪Results▪Issues

www.bea.gov 8

Sources▪ Micro—Household surveys

Money income = Current Population Survey Annual Social and Economic Supplement (CPS-ASEC)

Consumer expenditures = Consumer Expenditure Survey (CE) Interview Survey Diary Survey

▪ Macro Household income and outlays = National

Income and Product Accounts (NIPAs) Excludes nonprofit institutions serving households

(NPISHs) from personal income and outlays

www.bea.gov 9

Household Income Measures CPS Money income

A measure of cash income Includes pension income (disbursements)

NIPA household income Includes employer pension contributions &

property income earned on pension assets—Pension assets owned by households Excludes pension disbursements—Intrasectoral

transfers Includes non-cash and imputed income

Employer insurance contributions In-kind government social benefits In-kind earnings Imputed income

Interest Owner-occupied housing—subtracts interest

& other expenses from rental value

www.bea.gov 10

Household Expenditure Measures▪ CE Consumer expenditures

Measures household out-of-pocket expenditures Purchases of goods & services Interest (including mortgage) Other owner-occupied housing expenses Pension contributions & life insurance premiums Money provided to other households

▪ NIPA household outlays Pension plan and life insurance company expenses =

service charges Imputed rental value of owner-occupied housing—expenses

included in rental value Imputed financial services Imputed employee food, clothing, lodging & farm food Securities services Services paid for by employers & gov’t

www.bea.gov 11

Scope Adjustments to NIPA Income & Outlays

▪ Institutional—Nursing homes, prisons, others

▪ Decedent—Those who died in reference year

▪ Residency—Exclude those not physically resident in U.S. and include those who are physically resident

▪ Domestic military on post—In noninstitutional group quarters; excluded from civilian population

www.bea.gov

0

50

100

150

200

250

300

350

400

450

0

2000

4000

6000

8000

10000

12000

Household Income Adjustments

12

2010

in b

illio

ns o

f do

llars

Household income

Scope adjustments

Value after scope adjustments

2010

in b

illio

ns o

f dol

lars

Decedents

Institutionalized

ResidencyDomestic military on post

www.bea.gov

0

100

200

300

400

500

13

Institutional & Decedent Adjustments

2010

in b

illio

ns o

f do

llars

Medicare & Medicaid• More than one-fourth of all Medicare

& Medicaid expenditures are for those in the last year of life

• Combined with (non-deceased) nursing home inhabitants, these expenditures accounted for nearly 30 % of all Medicare & Medicaid expenditures

All other institutional/decedent expenditures

www.bea.gov

0

0.2

0.4

0.6

0.8

1

14

Income Coverage Ratios Ratio of CPS-ASEC values to adjusted

NIPA monetary income values for selected estimates

Wag

es &

sa

lari

es

Soci

al

Secu

rity

Ren

ts &

ro

yalt

ies Proprietor

s’ incomeDividends

& interest

2010

www.bea.gov

0

100

200

300

400

500

600

1

15

Interest Comparison Household monetary interest in the NIPAs includes

monetary interest received by pension plans & other entities holding household assets Accounts for part of gap between NIPA & CPS

interest

Received by pension plans

All other

Household Monetary Interest

2010

in b

illio

ns o

f do

llars

CPS

Hou

seho

ld In

tere

st

• Household monetary interest =

$515.5 billion• Excluding pension plans

=$338.8 billion

vs. $159.7 billion

for CPS interest

www.bea.gov

0

0.2

0.4

0.6

0.8

1

16

Consumption Coverage Ratios Ratio of CES values to adjusted NIPA household

consumption expenditures (HCE) for selected estimates

Ow

ner-

occu

pied

re

ntH

ouse

hold

fu

els

Purc

hase

s of

ve

hicl

esTe

nant

-occ

upie

d re

ntFo

od a

t hom

e

Clo

thin

g &

foot

wea

r

Res

taur

ants

/hot

els

Alc

ohol

/hom

e

Self-reported

Regular housing-related expenditures well

reported

Large irregular expenditures well-

reported

“Sin” expenditures not well-reported

Small frequently purchased items not well reported

2010

www.bea.gov 17

Unmatched Values▪ Macro values with no micro

counterparts Use indicators in these cases

Examples: Financial services furnished without

payment to depositors Use value of checking accounts & time

deposits from CES as indicator to distribute expenditures

Interest income received by private employees and by public employees on pension funds

Use wages & salaries of employees participating in employer-sponsored pension plans

www.bea.gov 18

Income & Consumption Breakdowns

▪ Income quintiles Uses equivalized household disposable

income Adjusts for differences in household size and

composition Uses Oxford (OECD) modified scale

Weights: 1.0 for household head 0.5 for each additional adult household

member 0.3 for each child

Reflects how households share resources & take advantage of economies of scale

Similar to three-parameter scale used to produce equivalence-adjusted income in CPS-ASEC

www.bea.gov 19

Income & Consumption Breakdowns (cont.)

Main source of income Employee compensation Self-employment income Property income

Rental income Interest Dividends

Transfers and other Government social benefits Transfers from

NPISHs Business Other households

Household type

Res

taur

ants

/hot

els

Alc

ohol

/hom

e

www.bea.gov 20

Income & Consumption Breakdowns (cont.)

▪ Household type Single up to 65 Single greater than 65 Single with children under 18 Two adults up to 65 Two adults with at least one greater than

65 Two adults with children under 18 Other household types

Includes children 18 or older living with parents

www.bea.gov 21

Income Distribution ComparisonShares of Aggregate Equivalence-Adjusted Income by

Quintile, 2010

CPS

-ASE

CH

ouse

hold

Inc

ome

Dis

posa

ble

hous

ehol

d In

com

e

www.bea.gov

Lowest 2nd Middle 4th Highest0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

Prop

erty

22

Shares of Household Income by Quintile

Gov

t So

cial

Ben

efits

2010

Earn

ed

Inco

me

Mid

dle

4th

4th

www.bea.gov

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

23

Real Mean Disposable Income by Quintile

Percent change from 2006 to 2010 in real mean household disposable income by quintile

2006 = $217,452Earned income: - $8,199Property income: -$3,355Gov’t social ben’s/other: +

$3,576(Minus) Taxes: -$4,857

2010 = $214,330

2006 = $21,807Earned income: - $1,903

Gov’t social ben’s/other: +$1,994

(Minus) Taxes: -$2,6962010 = $24,424

Lowest 2nd Middle 4th Highest Total

www.bea.gov 24

Integration Issues▪ Pension plans

Pension income not treated as income in national accounts

▪ Capital gains taxes Capital gains not part of income in

national accounts Capital gains taxes are included in

personal taxes▪ High income households

Scaling does not capture possible effects of high income nonparticipants in household surveys

www.bea.gov 25

Alternative Treatment of Pension Plans

▪ Pension plans Treat employer-sponsored pension plans as

social insurance Akin to treatment of Social Security Contributions & property income earned on

employer-sponsored pension plans excluded from household income

Disbursements (pension income) from employer-sponsored plans included in household income

Better alignment of income and consumption

www.bea.gov 26

Capital Gains Taxes▪ Identify cases (in micro data) where

income taxes are large relative to earned income and property income In some cases, taxes exceed income from

other sources, resulting in negative disposable income

▪ Estimate income tax payments on earned income and property income Might use NBER TAXSIM model

www.bea.gov 27

High Income Coverage

CPS

-ASE

CH

ouse

hold

Inco

me

Dis

posa

ble

hous

ehol

d In

com

e

0

10

20

30

40

50

60

70

Lowest quintile 2nd quintile Middle quintile 4th quintile Highest quintile

Perc

ent o

f tot

al

Money income (Census Bureau) IRS adjusted gross income less capital gains

2009 Shares of Income

Though there are differences in definition, this comparison suggests that CPS-ASEC estimates may not be fully capturing the high end of the income distribution.

www.bea.gov 28

High Income Coverage

0

50

100

150

200

250

300

Interest Dividends Non-farm self-employment(including S corporations)

Billi

ons o

f dol

lars

IRS-CPS Gap $1,000,000 and greater AGI

Interest, dividend and self-employment income of $1,000,000+ households is very similar to difference between CPS-ASEC & IRS totals.

2009

www.bea.gov 29

High Income Coverage 2009

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Number of returns Interest Dividends Self-employmentincomeLess than $1,000,000 AGI $1,000,000 + AGI

0.2 % of returns Looked at another way, the

shares of interest,

dividends, and self-employment

income accounted for by top 0.2% of tax filers are

quite substantial