The relationship between income and material hardship

This paper examines the relationship between income and the extent of material hardship and explores other factors that might affect hardship. Using panel data from the Women Employment Study, we examine the incidence of material hardship from 1997 to 2003 among current and former welfare recipients. We then consider the extent to which income is associated with hardship. We show that hardship decreases monotonically across quintiles of the income distribution for several income measures. When we measure income as the average across the 6-year study period, a 10 percent increase in average income is associated with a 1.1 percentage point decrease in the likelihood of experiencing a hardship, a drop of about 3.4 percent. We also find that the relationship between transitory changes in income and hardship is weak. These results are consistent with findings based on a nationally representative sample of disadvantaged households from the Survey of Income and Program Participation. Our results indicate that observable factors, such as measures of mental health, are more strongly related to hardship than current income. (C) 2008 by the Association for Public Policy Analysis and Management.