Income Volatility and Food Assistance in the United States

The chapters in this volume were originally papers commissioned by the National Poverty Center at the University of Michigan and by the Economic Research Service (ERS) in the U.S. Department of Agriculture. They were presented at a conference titled " Income Volatility and Implications for Food Assistance Programs II, " held in November 2006 in Washington, D.C. The conference was the second in a series sponsored by ERS examining the role of income volatility on food assistance programs. As volatility continues to emerge as an important policy concern across a number of sectors of the macroeconomy—from labor markets to housing markets to fi nancial markets—the chapters in the present volume provide a much-needed focus on the issue and an in-depth examination of the effect of income volatility on the participation in and design of food assistance programs. The seminal paper from which this volume is derived was written by Peter Gottschalk and Robert Moffi tt (1994), who documented dramatic growth in earnings volatility among white men in the 1980s. Gottschalk and Moffi tt showed that rising volatility was due both to increases in the variance of so-called permanent factors, such as returns on human capital skills, and to increases in the variance of transitory factors, such as job loss from frictional unemployment. In the next chapter, Benjamin Keys updates the Gottschalk and Moffi tt analysis to include the 1990s and expands the scope of the earlier work by examining volatility among other demographic groups such as black men, white and black women, and female-headed families. Because food assistance programs such as food stamps, school lunch, and WIC serve a diverse array of individuals and families, it is important to establish 2 Jolliffe and Ziliak the basic patterns of volatility for a population that refl ects the diversity of program participants. Keys also examines consumption volatility in order to test whether volatile incomes translate into variable consumption patterns, or whether families are able to smooth consumption over time in response to income changes, as predicted by Friedman's permanent income hypothesis. Friedman's hypothesis states that families make consumption decisions based on permanent income, not temporary highs or lows. Keys fi nds a large increase in transitory earnings, income, and consumption over the past 30 years across all major demographic groups. Permanent volatility increased for all groups as well, except for female-headed families. Although there is evidence that families are able to smooth …