I n t h I s c h a p t e r y o u w I l L

G
ROUP
P
OVERTY
R
ATE
All persons
12.7%
White, not Hispanic
8.2
Black
26.1
Hispanic
25.6
Asian, Pacific Islander
12.5
Children (under age 18)
18.9
Elderly (over age 64)
10.5
Female household, no husband present
33.1
Source: U.S. Bureau of the Census. Data are for 1998.

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4 4 4
PA R T S I X
T H E E C O N O M I C S O F L A B O R M A R K E T S
annual incomes. What people care about, however, is not their incomes but their
ability to maintain a good standard of living. For various reasons, data on the in-
come distribution and the poverty rate give an incomplete picture of inequality in
living standards. We examine these reasons below.
I n - K i n d T r a n s f e r s
Measurements of the distribution of income and the
poverty rate are based on families’ money income. Through various government
programs, however, the poor receive many nonmonetary items, including food
stamps, housing vouchers, and medical services. Transfers to the poor given in the
form of goods and services rather than cash are called 
in-kind transfers.
Standard
measurements of the degree of inequality do not take account of these in-kind
transfers.
Because in-kind transfers are received mostly by the poorest members of soci-
ety, the failure to include in-kind transfers as part of income greatly affects the
measured poverty rate. According to a study by the Census Bureau, if in-kind
transfers were included in income at their market value, the number of families in
poverty would be about 10 percent lower than the standard data indicate.
The important role of in-kind transfers makes evaluating changes in poverty
more difficult. Over time, as public policies to help the poor evolve, the composi-
tion of assistance between cash and in-kind transfers changes. Some of the fluctu-
ations in the measured poverty rate, therefore, reflect the form of government
assistance rather than the true extent of economic deprivation.
T h e E c o n o m i c L i f e C y c l e
Incomes vary predictably over people’s lives.
A young worker, especially one in school, has a low income. Income rises as the
worker gains maturity and experience, peaks at around age 50, and then falls
sharply when the worker retires at around age 65. This regular pattern of income
variation is called the