Estimating and Benchmarking the Trend in the Poverty Rate from the Panel Study of Income Dynamics

We describe how to accurately estimate poverty rates using the Panel Study of Income Dynamics (PSID) because changes in the PSID over its 40-year history have created confusion for researchers. We discuss a number of issues related to measuring poverty and benchmark a new PSID poverty estimate with published rates from the Current Population Surveys (CPS). We demonstrate that to produce a consistent time series over the entire time period covered by the PSID that is similar to the Census Bureau’s official approach, researchers should use the poverty thresholds presented in this paper. For example, the correlation between the PSID and CPS rates using one of the two currently available PSID thresholds is only 0.43 over the 1967-2002 period, whereas it is 0.82 using our new PSID threshold. The second of the two thresholds in the PSID archive is only available from 1989 onwards. For this period, poverty rates based on this second threshold have a correlation of 0.97 with CPS rates, which is similar to the new rates we propose here. Furthermore, as previously documented, the PSID yields poverty rates that are lower than the CPS rates, which is also the case with our new threshold.