Family Economics Review [1989, Volume 2, Number 1]

              Editor
Joan C. Courtless
Managing Editor
Sherry Lowe
Editorial Assistant
Francena A. Phillips
Family Economics Review is written and
published each quarter by the Family
Economics Research Group, Beltsville
Human Nutrition Research Center,
Agricultural Research Service, United
States Department of Agriculture,
Washington, DC.
The Secretary of Agriculture has deter­mined
that the publication of this peri­odical
is necessary in the transaction of
the public business required by law of
this Department.
Contents may be reprinted without per­mission,
but credit to Family Economics
~ would be appreciated. Use of
commercial or trade names does not
imply approval or constitute endorse­ment
by USDA
Family Economics Review is for sale by
the Superintendent of Documents, U.S.
Government Printing Office. Subscrip­tion
price is $5 per year ($6.25 for
foreign addresses). Single issues cost $2
each ($2.50 foreign). Send subscription
orders, change of address, and single
copy requests to Superintendent of
Documents, U.S. Government Printing
Office, Washington, DC 20402. (See
subscription form in back of this issue.)
Suggestions or comments concerning
this publication should be addressed to:
Joan C. Courtless, Editor, Ea.mi.ly
Economics Review, Family Economics
Research Group, USDA/ARS, Federal
Building, Room 439A, Hyattsville, MD
20782.
Fainil
Eccm
y .
OID.lCS
Review
Vol. 2 No.1
To Our Readers:
Frankie N. Schwenk is the new Research Leader for the Family
Economics Research Group. Readers of Family Economics Review
may recall that Dr. Schwenk was a member of our staff for 7 years
before accepting a position in the private sector in 1987. Dr. Schwenk
received B.S. and M.S. degrees from Iowa State University and her
Ph.D. from the University of Maryland. We are very glad to welcome
her back.
About our authors-
Mark Lino's first article for Family Economics Review, "Financial
Status of Single-Parent Households," is found on pages 2-7 of this
issue. Dr. Lino joined the Family Economics Research Group in
October 1987 after receiving his Ph.D. from Cornell University.
Jacquelyn McCray presented her talk on "Housing Affordability:
Concepts and Reality," pages 14-18, at the Outlook for Families
session of the Agricultural Outlook Conference held on November 30,
1988. Dr. McCray is the Assistant Administrator for 1890 Agricultural
Programs (research and extension) at the University of Arkansas at
Pine Bluff.
Joan C. Courtless
Editor
Sherry Lowe
Managing Editor
February 1989
1
Contents
Features
2 Financial Status of Single-Parent Households
MarkLino
8 Recent Trends in Clothing and Textiles
Joan C. Courtless
14 Housing Affordability: Concepts and Reality
Jacquelyn W. McCray
Research Summaries
19 The Declining Middle-Class Thesis
20 Money Income and Poverty Status of Families
22 Employment Characteristics of Older Women
24 Personal Bankruptcies
26 Revision of CPI Medical Care Services Component
28 Medicare Catastrophic Coverage Act
Regular Items
25 New Publications
29 Cost of Food at Home
30 Consumer Prices
Vol. 2 No. 1 Family Economics Review 1
Financial Status of
Single-Parent Households
ByMarkLino
Consumer Economist
Family Economics Research Group
Single-parent households are one of the
fastest growing segments of the population in
the United States and one of the most economi­cally
vulnerable. This article examines income
and income sources, and expenditures and ex­penditure
shares of these households for the
1984-85 period. Average annual before-tax
income for single-parent households was
$16,974. Lower incomes were reported for non­white
households ($10,455) and those with a
head below age 30 ($6,803). The largest share
of income was from salary or wages (78% ); this
held regardless of the sex, age, or race of the
single parent or household size. Average an­nual
expenditures for single-parent households
were $16,541. Housing composed the largest
share of total expenditures (35% ), followed by
transportation (20% ), for most subgroups of
single-parent households. Total expenditures
exceeded annual income for 42% of single­parent
households. These findings should give
family resource management professionals a
better understanding of the financial status of
single-parent households, an important seg­ment
of their clientele.
T he.number of single-parent
households in the United States has
increased from 3.2 million (11% of
all households with children) in 1970
to 6.9 million (22%) in 1985 (3).
These households are expected to
comprise an increasing share of all
households with children in the fu­ture
(3). Given this trend, family
resource management professionals
need to be aware of the fmancial
status of single-parent households, a
growing segment of their potential
clientele.
This article examines the income
and sources of income and expendi­tures
and allocation of expenditures
of single-parent households. Further
2
analysis of income and expenditures
by sex, age, and race of the single
parent and household size is
included.
Data and Sample
Data used in this study are from
the interview component of the
Consumer Expenditure Survey for
the 1984-85 period. The Survey
collects information on household
expenses and income and has been
conducted on a continuous basis
since 1980. Prior to 1980, surveys
were undertaken about every 10
years, most recently in 1960-61 and
1972-73. A national probability
sample of households designed to
represent the noninstitutionalized
population of the United States is
interviewed each quarter over a
1-year period. After the fmal inter­view,
the household is dropped from
the Survey and replaced by a new
unit. The data are regarded as the
most comprehensive source of
household expenditure information
available at the national level (2).
Included in the analysis were sur­vey
households that ( 1) were clas­sified
as male or female one-parent
families with at least one child under
age 18, (2) had completed income
records, and (3) had reported expen­ditures
for a 12-month period.
Single-parent households who reside
with other family members or
friends were not included in the
analysis because they could not be
identified in the data.
The fmal sample consisted of 224
single-parent households. These
households were analyzed overall
and by sex, age, and race of the
single parent and household size.
These four characteristics were
chosen to distinguish among dif­ferent
types of single-parent house­holds.
The sample was weighted
using Consumer Expenditure Survey
methods to represent the total
population of single-parent house­holds
in the United States during the
1984-85 period.
The majority of single-parent
households (84%) were headed by a
female. Average age of the single
parent was 38 years; 20% of single
parents were below age 30, 42%
between ages 30 and 40, and 38%
above age 40. Most single-parent
households (75%) were white. The
average household size of a single­parent
household was three
members (two children); 42% of
single-parent households had two
members, 33% had three members,
and 25% had four or more members.
Income and Income
Sources of Single-Parent
Households
During the 1984-85 period
(figure 1, p. 3), average annual
before-tax income reported by
single-parent households was
$16,974, and average annual after­tax
income reported was $15,623.1
Salary or wages, at 78% of annual in­come,
was the largest source of in-
. come for single-parent households.
Other sources of income (rents,
gifts, food stamps, etc.) accounted
for 7% of annual income. Alimony
and/or child support and public
assistance composed only a small
part of annual income, 5% and 4%
respectively (see box, p. 3).
1 The percentage of single-parent
households who received income from
various sources was as follows: Salary or
wages, 76%; alimony and/or child support,
34%; interest and/or dividends, 27%; public
assistance or welfare, 21 %; and Social
Security (also, government, veterans, and rail­road
retirement), unemployment compensa­tion,
and/or supplemental security income,
16%.
Vol. 2 No. 1 Family Economics Review
The small share of income from
alimony and/or child support is not
surprising. A study conducted in 1984 by
the Bureau of the Census, U.S. Depart­ment
of Commerce, and sponsored in
part by the Office of Child Suppport En­forcement,
U.S. Department of Health
and Human Services, found that 14% of
ever-divorced or currently separated
women had been awarded alimony pay­ments.
Of the 791,000 women due
alimony in 1983, n% received at least
somse portion of their award. This same
study also found that 58% of women
with children from an absent father had
been awarded child support. Of the
4 million women due such support in
1983, approximately 50% received the
full amount, 26% received less than the
full amount, and 24% did not receive any
child support (4).
The average annual income and
sources of income of single-parent
households in this study varied by
the sex, age, and race of the single
parent and household size (table 1).
Male-headed single-parent
households had a before-tax income
more than twice that of female­headed
single-parent households
($35,312 vs. $13,528). However, both
had an average household size of
three members. Salary or wages
composed the majority of before-tax
income for both groups but made up
a larger percentage for male-headed
households (92%) than female-
(Figure 1)
Income and Income Sources of Single-Parent Households, 1984-85
Interest/dividends
(1%)
Social Security/unemployment
compensation/supplemental
security income (5%)-------,,£--..
Alimony/
child support (5%)
Before·tax income: $16,974
After·tax income: $15,623
Household size: 3
headed households (72% ). Male
heads of single-parent households
participated in the labor force to a
greater degree than did female
heads; also, when employed, the
males were more likely to occupy
higher paying jobs. Of the male
heads, 86% were working, and 54%
of these workers held managerial or
professional jobs; among female
heads, 73% were working, and 30%
Salary/wages (78%)
of these workers held managerial or
professional jobs. Other forms of in­come
accounted for a very small
share of total income for male­headed
single-parent households.
These other forms of income were
generally more important for female­headed
single-parent households,
but they were still minor relative to
salary or wages.
Table 1. Income and income sources of single-parent households, by sex, age, and race of single parent, 1
and household size, 1984-85
Income and sources Sex Age (years) Race Household size
Male Female <30 30-40 >40 White Nonwhite 2 3 2::4
Before-tax income , . ......... $35,312 $13,528 $6,803 $15,764 $23,554 $19,161 $10,455 $13,763 $17,863 $21,261
After-tax income ...... ...... 30,049 12,912 6,470 14,770 21,284 17,558 9,856 12,709 17,310 18,337
Percent
Salary and wages 0 • • ••• • •••• 92 72 56 79 81 80 71 70 84 81
Alimony and/or child support .. 0 7 7 5 4 5 3 4 7 3
Public assistance ........... . 0 6 23 5 3 13 4 3 6
Social Security, unemployment
compensation, and/or
supplemental security income 3 7 2 5 6 5 6 10 3 4
Interest and/or dividends • 0 •• 0 1 1 1 1 0 1
Other sources • 0 0 •• • •• 0 0. 0 •• 4 7 12 5 6 6 7 11 2 5
1 Average household size was 3 for each sex, age, and race subgroup.
Source: U.S. Department of Labor, Bureau of Labor Statistics, 1984·85 Consumer Expendijure Survey.
Vol. 2 No. 1 Family Economics Review 3
As age of the single parent in­creased
so did household income;
average household size was three for
all age groups. Single-parent house­holds
headed by a parent below age
30 had an average before-tax income
of $6,803, compared with single­parent
households headed by a
parent above age 40 that had an
average before-tax income of
$23,554. Salary or wages accounted
for a smaller share (56%) of before­tax
income for single-parent house­holds
headed by a parent below age
30 and a larger share (81%) for
single-parent households headed by
a parent above age 40. This lower
salary or wage income of single­parent
households with a head
below age 30 is probably due to the
greater number of younger children
in these households, resulting in a
lower employment rate for the
single parent. Of single-parent
households with a head below age
30, 87% had a child below age 6 in
the household, and 39% of the heads
were not working; these figures were
13% and 24%, respectively, for
single-parent households with a
head above age 40. As a conse­quence,
public assistance accounted
for 23% of before-tax income for
single-parent households with a
head below age 30, compared with
1% for single-parent households
with a head above age 40. The higher
salary or wage income of single­parent
households with a head above
age 40 is probably due to their
higher employment rate, accumula­tion
of job skills and seniority, and
possible contributions by older
children.
White single-parent households
had a before-tax income nearly
double that of nonwhite single­parent
households ($19,161 vs.
$10,455). Both had an average
household size of three members.
Salary or wages comprised the
majority of before-tax income for
both groups but made up a larger
percentage for white households
(80%) than nonwhite households
(71%). White single parents were
4
working in the labor force to a
greater degree than were nonwhite
single parents (81 %, compared with
59%). Also, when working, white
single parents were more likely to
occupy higher paying jobs; 39% of
them, compared with 21% of non­white
single parents held managerial
or professional jobs. For white
single-parent households, other
sources of income (rents, gifts, food
stamps, etc.) were the second largest
income source, 6% of before-tax
income. Public assistance, 13% of
before-tax income, was the second
largest income source for nonwhite
single-parent households.
As household size increased so
did the income of the single-parent
household. However, per capita in­come
decreased. The before-tax per
capita income for a single-parent
household with two members (one
child) was $6,882, compared with
$4,252 for a single-parent household
with five members (four children).
Other sources of income, together
with Social Security, unemployment
compensation, and/or supplemental
security income accounted for a rela­tively
large percentage of income
(11% and 10%, respectively) for
single-parent households with two
members.
(Figure 2)
Expenditures and
Expenditure Shares of
Single-Parent Households
Average annual expenditures
reported by single-parent house­holds
was $16,541 during the 1984-85
period (figure 2).2 Housing
accounted for the largest share of
total expenditures by single-parent
households (35% ), followed by
transportation (20% ), and food at
home (13% ). A previous study by
thl( Family Economics Research
Group also found that housing,
transportation, and food accounted
for the bulk of single-parent house­hold
expenditures in 1972-73 (J).
Total expenditures by a house­hold
is considered to be under­estimated
by approximately 5% to
20% in the interview component of
the Consumer Expenditure Survey
(2). Some minor expenditures are
not covered by the interview com­ponent
of the Survey, and it is
2 The percentages of single-parent house­holds
reporting a particular expenditure were
as follows: Food at home, 100%; housing,
100%; clothing, 98%; transportation, 96%;
entertainment, 96%; food away from home,
92%; health care, 86%; education, 60%; and
child care, 34%.
Expenditures and Expenditure Shares of Single-Parent
Households, 1984-85
Health care (3%)
Food away (5%)
Total expenditures: $1.6,541
Household size: 3
Housing (35%)
Vol. 2 No. 1 Family Economics Review
unlikely that all expenditures of a
household in a given year are
reported. The housing and "other"
expenditure components are
believed to be the budgetary com­ponents
where underestimates are
more prevalent.
The average annual expenditures
and allocation of expenditures of
single-parent households in this
study varied by the sex, age, and race
of the single parent and household
size (table 2). Male-headed single­parent
households had average total
expenditures that were much higher
than single-parent households
headed by a female ($24,626 vs.
$15,022). However, the allocation of
expenditures between male- and
female-headed households was very
similar (within two percentage
points) except for food and enter­tainment.
Food at home accounted
for 10% of total expenditures for
single-parent households headed by
a male and 15% for single-parent
households headed by a female, yet
the actual dollar amount was similar
between the two groups. Food away
from home and entertainment expen­ditures
made up a larger share of
total expenditures for male-headed
(7% each) as opposed to female­headed
households ( 4% each). This
is not surprising since these two
items may be regarded as discretion­ary
components of the budget that
are more affordable to higher
income households.
As a single parent grew older and
income increased, so did total expen­ditures.
Single-parent households
with a head below age 30 had
average total expenditures of $9,565,
whereas those with a head above age
40 had average total expenditures of
$20,086. The greater dollar amount
spent on housing as age of the single
parent increases may indicate the
purchase of a home -12% of single
parents below age 30 were home­owners,
compared with 69% of those
above age 40. Similarly, the greater
dollar amount spent on transporta­tion
as the age of the single parent
increases may indicate the purchase
of an automobile-50% of single
parents below age 30 owned a car,
compared with 80% of those above
age 40. Child care expenses as a
share of total expenditures and in
actual dollar amount were highest
for single-parent_ households with a
head below age 30. The greater
presence of younger children in
these households probably accounts
for this.
White single-parent households
had average total expenditures near­ly
double those of nonwhite single­parent
households ($18,739 vs.
$9,991). Housing and food at home
made up a larger share of total ex­penditures
for nonwhite (39% and
19%) than for white households
(35% and 12%). However, the
actual dollar amount spent on hous­ing
was lower for nonwhite house­holds,
and the dollar amount spent
on food at home was about the same.
Expenditures on transportation were
very different between the two
groups. Transportation expenditures
accounted for 22% of total expendi­tt.
res for white single-parent
households and 11% for nonwhite
single-parent households. The low
automobile ownership rate among
nonwhite single-parent households
was probably a contributing factor-
56% of nonwhite single-parent
households did not own an auto­mobile,
compared with 18% of white
single-parent households.
As household size increased, per
capita total expenditures decreased.
Single-parent households with two
members (one child) had per capita
expenditures of $7,173, compared
with $3,358 for households with five
members (four children).
Table 2. Expenditures and expenditure shares of single-parent households, by sex, age, and race of single
parent, 1 and household size, 1984-85
Expenditure category Sex Age (years) Race Household size
Male Female <30 30-40 >40 White Nonwhite 2 3 ~4
Total expenditures ........... $24,626 $15,022 $9,565 $16,586 $20,086 $18,739 $9,991 $14,345 $19,158 $16,790
Percent
Housing . ..... .. . . ... ... .. 36 35 38 37 33 35 39 38 33 36
Transportation . . ..... . . .. .. 19 20 20 19 21 22 11 17 24 17
Food at home • ••••••••••• 0 10 15 17 14 12 12 19 12 13 16
Food away . ... ...... . .. ... 7 4 2 5 6 5 4 5 5 5
Clothing . ... . . ....... .. . . . 6 7 6 7 7 7 9 7 7 8
Health care 0 0 0 0 •• • •••••••• 3 3 2 3 3 3 2 4 3 3
Entertainment .... . ..... .. . 7 4 4 5 5 5 5 5 5 6
Education • ••• 0 0 •• •• ••••• • 3 1 1 1 3 2 1 2 3
Child care ••••••• • • •• • • •• 0 1 2 5 2 2 1 3 2 0
Other •••••••• 0 ••••••••••• 8 7 6 7 7 7 8 8 6 6
1 Average household size was 3 for each sex, age, and race subgroup.
Source: U.S. Department of Labor, Bureau of Labor Statistics, 1984·85 Consumer Expenditure Survey.
Vol. 2 No. 1 Family Economics Review 5
Income and Expenditures
of Single-Parent
Households Over Time
By comparing fmdings from this
study with those from previous
Consumer Expenditure Surveys
(1960-61 and 1972-73), 1 possible
trends in the income and expendi­tures
of single-parent households
may be identified. Based on these
trends, predictions for the future
maybe made.
Looking at the income of single­parent
households, their average
before-tax real income (in 1984-85
dollars) decreased by approxi­mately
8% from 1960-61 to 1984-
85 (table 3). Average household
size held constant at three mem­bers.
Per capita income has there­by
declined for single-parent
households over this time period.
Sources of income for single­parent
households have changed
considerably from 1972-73 to 1984-
85. (Sources of income were not
collected in 1960-61.) Salary or
wages comprised an increasing
share of before-tax income, from
1 Due to variations in income and expen­diture
classification among the three sur­veys,
adjustments were made to facilitate
data comparison by following procedures
suggested by the Bureau of Labor Statistics.
Specific exceptions are identified and
explained in the text.
As household size increased, food
at home expenditures generally in­creased
by a higher dollar amount
than housing or transportation ex­penditures.
Greater economies of
scale may be achieved with housing
and transportation than with food at
home. Child care expenditures
generally decreased as household
size increased. Older brothers and
sisters likely substitute for paid child
care in single-parent households
with more than one child.
6
58% in 1972-73 to 78% in 1984-85.
In contrast, a decreasing share of
before-tax income over this time
was derived from alimony and/or
child support (from 10% to 5%)
and public assistance (from 14%
to 4%).
Real total expenditures (in 1984-
85 dollars) of single-parent
households increased approxi­mately
13% from 1960-61 to
1984-85 (table 4). This is an ap­proximate
percentage because
total expenditures in the 1960-61
Survey did not include certain
expenditures such as personal
insurance, contributions, and so
forth. However, it is not likely that
these expenditures comprised a
large share of total expenditures
for single-parent households.
Housing comprised the largest
share of total expenditures over
this period. Housing also
increased as a share of total expen­ditures
from 1960-61 to 1984-85
(from 30% to 35%). Increases in
housing prices during this time, as
well as the increased percentage of
single-parent households owning a
home (from 40% in 1960-61 to
48% in 1984-85), were probably
major contributing factors affect­ing
this trend. Transportation
gradually replaced food at home
as the second largest expenditure
Conclusion
Although the income and expen­ditures
of single-parent households
denote financial status, the dif­ference
between after-tax income
and total expenditures for 1 year
may indicate relative fmancial
stability. After-tax income exceeding
expenditures represents possible
savings for a household, whereas ex­penditures
exceeding after-tax in­come
suggests the household faces a
debt. -
category for single-parent
households. The increase in
automobile ownership among
single-parent households (from
50% in 1960-61 to 72% in 1984-85)
probably influenced this changing
expenditure pattern.
Clothing and health care expen­ditures
of single-parent house­holds
declined as a share of total
expenditures and in real dollars
from 1960-61 to 1984-85. The
decline in health care expenditures
may be attributed to the greater
labor force participation of single
parents in 1984-85, with employer­provided
medical benefits.
The average difference between
after-tax income and total expendi­tures
for single-parent households
in real terms (1984-85 dollars) was
positive in 1960-61 and negative in
1984-85. Hence, it appears the
fmancial stability of single-parent
households has worsened over
time due to a decline in real in­come
coupled with an increase in
real expenditures. Given predicted
future rises in housing and
transportation costs, along with
smaller increases in salaries and
wages, it is expected that the fman­cial
stability of single-parent
households in the future can only
weaken.
A substantial minority of single­parent
households ( 42%) had total
expenditures that exceeded their
after-tax income during the 1984-85
period. On average, single-parent
households faced a debt of $900
(total expenditures of $16,541, com­pared
with after-tax income of
$15,623). A higher incidence of
expenditures exceeding income was
seen in single-parent households
that were headed by a female or by a
Vol. 2 No. 1 Family Economics Review
+
Table 3. Real income and income sources of single-parent
households over time 1
•
2
[1984-85 dollars]
Income and sources
Before-tax income ............... .
After-tax income ................ .
Salary and wages ........ .... ... .
Alimony and/or child support ...... .
Public assistance . . . ............. .
Social Security and unemployment
compensation and/or supplemental
security income ..... . ... .... .. . .
Interest and/or dividends ......... .
Other sources . ..... ....... ..... .
1960-61
$18,423
$16,876
(3)
(3)
(3)
(3)
(3)
(3)
1972-73
$14,498
$13,159
58
10
14
1984-85
$16,974
$15,623
78
5
4
5
7
~Annual average hourly earnings, published by the Bureau of Labor Statistics, were used to convert income data.
3
Average household size was 3 for each survey period.
Income breakdown was not collected in 1960-61.
4 1n 1972-73 supplemental security Income was included In 'other sources.•
Source: U.S. Department of Labor, Bureau of Labor Statistics, 1960-61, 1972-73, and 1984-85 Consumer Expenditure
Survey.
Table 4. Real expenditures and expenditure shares of single-parent
households over time 1 2
[1984-85 dollars]
Expenditure category 1960-61
Total expenditures .. .............. $14,670
Housing • •• •• 0 •••••••••••••••• 30
Transportation • 0 ••• ••••••• • • 0 •• 13
Food at home .. . ... ............ 20
Food away from home ... ........ 5
Clothing •• 0 0 0. 0 ••••••••••••••• 11
Entertainment .................. 4
Health care ••••• 0 •••••• •••• •• •• 6
Education •••• 0 •••••••••••••••• 1
Other4
0 ••••••••••••••••••••••• 10
1972-73
$16,095
Percent
37
15
17
5
10
4
4
1
7
1984-853
$16,541
35
20
13
5
7
5
3
10
1 Consumer Price Index annual averages, published by the Bureau of Labor Statistics, were used to convert expenditure
data.
2Average household size was 3 for each survey period.
3-rotal expenditures for 1984-85 includes some expenditures (personal insurance, contributions, etc.) not included in
total expenditures for the 1960-61 and 1972-73 Surveys.
4includes child care.
Source: U.S. Department of Labor, Bureau of Labor Statistics, 1960-61, 1972-73, and 1984-85 Consumer Expenditure
Survey.
Vol. 2 No. 1 Family Economics Review
single parent below age 30. Since
total expenditures are probably
underestimated, the percentage of
single-parent households with expen­ditures
exceeding income is likely to
be higher than reported here, and
the percentage having income ex­ceeding
expenditures is likely to be
lower.
Data used in this analysis were
only for a 1-year period. Future
income increases may have been
anticipated by some households. If
single-parent households whose total
expenditures exceeded their after­tax
income have future income that
would cover current expenditures,
then their tenuous fmancial situation
could be alleviated. Without addi­tional
income in the future, these
households face increasingly severe
fmancial problems.
References
1. Epstein, Marsha Freeman.1979.
Children living in one-parent
families. Family Economics Review,
Winter issue, pp. 21-23.
2. Garner, Thesia.1988. Consumer
Expenditure Survey: Methodological
issues for today and tomorrow.
Family Economics Review 1(3):2-5.
3. U.S. Department of Commerce,
Bureau of the Census. 1987. Statisti­cal
Abstract of the United States.
4. U.S. Department of Commerce,
Bureau of the Census. July 1985.
Child Support and Alimony. Series
P-23, No. 106. ~
7
Recent Trends In Clothing
And Textiles 1
outlays to services and durable
goods (3), with an absolute decline
in real spending for clothing and
shoes as the result. Throughout the
first 8 months of 1988, the apparel in­dustry
experienced increasing retail
By Joan C. Courtless inventories (3); by March the ratio
Family Economist
Family Economics Research Group
A major determinant of consumer expendi­tures
for clothing and textiles is price. Each year
prices are ultimately affected by economic,
agricultural, and technological factors such as
international trade, fiber supplies, Federal
regulations, and research developments. In
1988 annual spending for clothing and shoes is
expected to exceed that for 1987 by $15 per per­son;
all of this increase can be attributed to
higher prices. Per capita spending for clothing
and shoes in constant 1982 dollars is expected
to decline by $10 from the 19871evel. Although
the textile and apparel trade deficit declined
during the first 8 months of 1988, its share of
the total U.S. merchandise trade deficit grew
from 15.0% in 1987 to 17.9% in 1988. U.S. mill
consumption of total fibers is estimated to be
down by2.2% from 19871evels. Current USDA
research on fibers and fabrics, new develop­ments
from the apparel industry, and innova­tive
applications of computer technology to
marketing apparel are described to provide
professionals in clothing and textiles and re­lated
areas with an overall perspective on
trends in fibers, fabrics, and apparel.
Clothing Expenditures and
Prices
In 1988, prices for apparel com­modities,
as measured by the
Consumer Price Index (CPI), rose
5.7% over 1987 (table 1). This is the
fourth consecutive year in which the
rate of increase in clothing prices
was greater than that for the overall
CPl. Increases were moderate yet
widespread among the various cate­gories
of apparel and footwear, with
each apparel category increasing
betweens 2% and 9%.
Annual spending for clothing and
shoes in 1988 is estimated at $747
Lrbis article is adapted from a paper dis­tributed
at the Annual Agricultural Outlook
Conference in November 1988 in
Washington, DC.
8
per person, according to preliminary
figures for the first three quarters of
1988 (table 2). This amount exceeds
1987 spending by $15 per person, en­tirely
attributable to higher prices.
When the effect of inflation is
removed (indicated by constant dol­lars
in table 2), per capita expendi­tures
for clothing and shoes declined
for the first time since 1974. Also,
the percentage of personal consump­tion
expenditures for clothing and
shoes (in constant dollars) declined
for the first time since 1976. Con­sumers
were allocating more of their
of inventories to sales at apparel
specialty stores had reached a
record high (2). Consumers appear
to be resisting the higher prices for
clothing by buying less.
Surveys of the American
Apparel Consumer
Simmons Market Research
Bureau compared women's apparel
purchases made by working mothers
in 1987 with the average purchases
made by a national sample of women
in 1986. A higher percentage of
working mothers bought each item
of apparel, and a higher percentage
of working mothers bought multiple
purchases of each item. Only shoes
and pantyhose were purchased by
Table 1 Percent change in prices of apparel commodities, • 1
December 1987 to September 1988
Group and item
All items .. ... . . . . . . .... .. ..... . ... . ............... . .. . . .
Apparel commodities ................ . . ...... .... . . . .... .
Men's and boys' . ... . ............... . . . .............. .
Men's . . .. . . . ......................... . . . ...... . . .
Suit, sport coats, coats, and jackets_ . . . . . . ........ . . .
Furnishings and special clothing .................. .
Shirts . . ... . ... ... .. ... .. . . . . . ........ . . .. .... .
Dungarees, jeans, and trousers .......... . ... . .... .
Boys' ........ ... ... .. .. . . . . ..... ..... .... ... .. .. .
Women's and girls' ..... .... ........... . . ... .. ..... . . .
Women's .... ....... . . . .......... . . ... . ... . ...... .
Coats and jackets . . .. ... ..... . ........... . ... . . .
Dresses ............ . .......................... .
Separates and sportswear ......... . . . . . . . .. . . .... .
Underwear, nightwear, hosiery, and accessories .. . ... .
Suits ................................... .. .... .
Girls' .......... . .. . .. . ....... . ................... .
Infants' and toddlers' . .... . ....... .. .... . ........... . . .
Other apparel commodities ... .. ...................... .
Sewing materials, notions, and luggage . . . . . .. . ...... . .
Watches and jewelry ..... . ............ . ............ .
Footwear . .......... . . . . ... ....... . .... . . ... . . . .... .
Men's .......................... . .... . ...... . .... .
Boys' and girls' ....... . ........................... .
Women's ...... . ......... . .. .. .... .. . ..... ...... . .
1 Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
Percent change
(annualized)
5.1
5.7
4.9
5.5
9.1
3.9
5.4
4.0
2.4
6.0
6.0
2.7
7.4
6.1
5.1
8.3
5.8
5.9
6.8
9.1
6.4
5.8
8.8
4.0
4.6
Source: Calculated from the CPI Detailed Beoort December 1987 and September 1988, U.S. Department of Labor,
Bureau of Labor S1atlstics.
Vol. 2 No. 1 Family Economics Review
over one-half of the national sample.
In contrast, these items plus
blouses/shirts were purchased by al­most
90% of working mothers. Over
half of working mothers in the survey
also purchased jeans (72%), dresses
(68%), sneakers (66%), sweaters
(64%), and sports clothes (52%).
The average amount spent on
women's apparel during the year by
working mothers was $686.
However, 43% of these women
spent less than $300.
Consumers looking for quality
and good workmanship in apparel
and home furnishings do look for the
"Made in U.S.A." label, according to
a study designed to measure the ef­fectiveness
of the Crafted With
Pride in U.S.A. Council's consumer­oriented
network television advertis­ing
campaign (17). A second study
to measure certification mark aware­ness,
conducted by R.H. Bruskin
Associates, found 52% of the adult
American population reported
seeing the "Made in U.S.A." label
(11). The Good Housekeeping
Institute's Consumer Research
Department interviewed 500 women
about the quality of American-made
clothing. Most of these women con­sidered
"Made in U.S.A." clothing to
be of better quality than clothing
imported from the Far East, specifi-cally
China, Hong Kong, and Taiwan
(11). R.H. Bruskin Associates also
studied American perceptions on
quality of clothing in interviews with
over 2,100 men and women. Results
showed that 71% ofthose inter­viewed
perceive U.S.-made clothing
better in overall quality than im­ported
clothing. Also, U.S.-made
clothing was believed to be longer
lasting by 70%; have better material,
69%; have better workmanship,
67%; be available in more sizes,
64%; offer a better value, 61 %; and
have better variety in material, 53%
(16).
Trade in Textiles and
Apparel
In 1988 the United States
recorded its 33rd consecutive annual
textile and apparel trade deficit. In
1987 this deficit reached $18.9 bil­lion,
15% higher than in 1986. The
combined textile and apparel trade
deficit for 1988 may fall short of this
record; for the first 8 months of 1988
it was 3% lower than during the
same period in 1987. Although the
textile and apparel trade deficit
declined during the first 8 months of
1988, its share of the total U.S. mer­chandise
trade deficit grew from
15.0% in 1987 to 17.9% in 1988. The
Table 2. Annual expenditures on clothing and shoes 1
trade deficit for textiles for the
January-August 1988 period was
down 18% from the same period in
1987; the trade deficit for apparel
was about the same in 1988 as in
1987.1
Volume of textile and apparel im­ports
(in square yards equive:Uent)
was down 9% for the first 8 months
of 1988 compared with the same
period in 1987. Cotton goods were
down 9%; wool yardage decreased
by 12%; manmade fiber volume was
down by 6%; and silk blends and
noncotton vegetable fiber textiles
and apparel decreased by 37%.
1Since 1979 the U.S. Department of Com­merce
has been required by law to report the
value of imported goods together with the
cost of insuring and transporting the goods.
Insurance and freight charges (services, not
goods) are not added to the value of exports.
This has made the difference between exports
and imports- the trade deficit -look about
$1.5 billion higher each month than it really
was. Before 1979 the Census Bureau simul­taneously
published figures for imports on a
customs-value basis and a cost +insurance
+freight basis. The provision requiring a 48-
hour delay in publishing cost-only figures was
repealed in August 1988. Both figures for July
1988, released in September 1988, were
published simultaneously. Beginning with
January's report, to be released in March
1989, only customs-value figures will be
shown (4.).
Per capita expenditures2 Percent of personal Aggregate expenditures
consumption expenditures
Year Constant Current Constant Current Billions of Billions
dollars dollars dollars dollars constant of current
{1982) {1982) dollars {1982) dollars
1982 ............................... . 536 536 6.1 6.1 124.4 124.4
1983 ............................... . 566 577 6.2 6.0 132.6 135.1
1984 ............................... . 601 620 6.3 6.0 142.2 146.7
1985 ............................... . 617 655 6.3 5.9 147.2 156.4
1986 ............................... . 654 693 6.4 5.9 157.6 167.0
1987 ............................... . 659 732 6.4 5.9 160.5 178.2
1~3······························· 649 747 6.2 5.7 159.5 183.4
1 Includes yard goods, but eMcludes services such as cleaning and repairing clothing and shoes.
2 Calculated by dividing aggregate e•panditures for each year by population figures for July of each year.
3 Preliminary figures-average of estimates for first 3 quarters of 1988 ~.e., seasonally adjusted quarterly totals at annual rates).
Sources: Calculated from U.S. Department of Commerce, Bureau of the Census, 1988, Population estimates and projections, Cyqent Popylatlon Beoorts Series P-25, and personal
communication; and U.S. Department of Commerce, Bureau of Economic Analysis, 1988, Syorey of Current Business 68(1):51 ~abies 2.2 and 2.3), and personal communication.
Vol. 2 No. 1 Family Economics Review 9
It is estimated that 50% of the ap­parel
in the U.S. marketplace is now
imported (31) and that the United
States receives almost 60% of the
apparel exported by developing
countries (10).
U.S. textile exports were up 22%
during the ftrst 6 months of 1988
compared with the same period in
1987, and apparel exports were up
36%. However, the majority of the
increase in apparel exports went to
Mexico and Caribbean Basin Initia­tive
(CBI) countries as cut pieces
that were then assembled and im­ported
back into the United States
as finished garments (3).
On September 28, 1988, President
Reagan vetoed the bill that would
restrict imports of textiles, apparel,
and shoes, stating that the bill
"would have disastrous effects on the
U.S. economy" and "impose needless
costs on American consumers,
threaten jobs in our export in­dustries,
jeopardize our overseas
farm sales and undermine our ef­forts
to obtain a more open trading
system for U.S. exports." (11) On
October 4, 1988, the U.S. House of
Representatives failed to override
the President's veto by the required
two-thirds majority with a 272 to 152
vote (18).
On January 1, 1989, the present
U.S. Tariff Schedules were replaced
by the Harmonized Tariff Schedules,
thus bringing the U.S. schedules into
conformity with those of the rest of
the world. Many changes concern
textile products, including classifying
and taxing imports of blends by chief
fiber weight instead of chief ftber
value and the elimination of descrip­tion
and tariffs for ornamental textile
and apparel products (3).
In 1987 China was the largest
foreign supplier of textiles and ap­parel.
A new 3-year bilateral textile
trade pact controlling virtually all
China's textile and apparel exports
to the United States was signed in
December 1987 (J). In 1988 the
United States and Brazil signed a
4-year bilateral trade pact covering
all cotton, wool, and manmade ftber
textiles and apparel. Bilateral agree­ments
were also renewed for 4 years
1b
with Jamaica, Sri Lanka, and the
Dominican Republic (2).
Asian clothing manufacturers are
establishing production facilities in
Caribbean countries such as Haiti,
Jamaica, Dominican Republic, and
Costa Rica. These Caribbean Basin
Initiative countries enjoy duty-free
and quota-free access to the
American market, provided the
clothing they make is from fabric
made in the United States (13).
Wool textile imports were mostly
apparel (58%) and floor coverings
(19% ). Nearly half of the wool ap­parel
imports were from Hong Kong
(19%), Korea (15%), and China
(11 %) (see table 3). Over half of
wool floor covering imports were
from India (20%), Belgium (17%),
and China (15%). In contrast, more
than half of the woolen fabric im­ports
were from Italy ( 41%) and the
United Kingdom (14%).
Supplies, Prices, and
Consumption of Fibers
The 1988 mill consumption of
total ftbers is estimated at 51.7
pounds per capita. This includes
14.3 pounds of cotton, 0.6 pound of
wool, and 36.8 pounds of manmade
ftbers. Per capita use in 1987 was
53.3 pounds, including 15.5 pounds
of cotton, 0.6 pound of wool, and
37.2 pounds of manmade ftbers.
Since 1982, a recession year, per
capita domestic consumption (mill
consumption plus imports less ex­ports)
of all fibers has grown from
46.8 to 69.1 pounds, a 48% increase
(23).
Cotton. The 1988 cotton crop is
estimated at 14.8 million bales, about
the same as in 1987. U.S. cotton ex­ports
are estimated at 4.7 million
bales for 1988/89, 29% below
1987/88. The United States is ex­pected
to have a 20% share of the
world cotton trade, compared with
27% in 1987/88. To make U.S. cot­ton
more competitive in world
markets, the Secretary of Agricul­ture
in August 1988 amended the
regulations for determining the
prevailing world market price, ad­justed
to U.S. quality and location.
The Secretary also announced
revisions in the price support loan
program that would reduce the cost
of redeeming cotton under loan with
cash.
In 1987 textile imports accounted
for over 40% of total domestic cot­ton
consumption, a record propor­tion.
An estimated 19% of the cotton
in U.S. textile imports originated in
the United States, down from
25-27% in recent years. As in pre­vious
years, most U.S. cotton textile
imports were shipped from countries
that bought little or no U.S. raw cot­ton.
About 36% of all cotton textile
imports were shipped from countries
that purchased less than 1% of total
U.S. raw cotton exports. Countries
using at least 50% U.S. cotton in
their U.S. textile imports include the
Philippines (83%), Korea (74%),
Ireland (68%), El Salvador (55%),
and Japan (50%).
Cotton's share of consumer
product consumption (16) is given in
table 4, p. 11.
Table 3. Major sources of U.S. imports in apparel, 1987
Country Wool Cotton Manmade Silk Unen, jute, ramie
~
Hong Kong ..... 19 20 11 33 25
Korea .......... 15 8 16 27 24
China .......... 11 13 11 21 37
Taiwan ......... 4 9 23 (1) 7
Italy ........... 7 (1) (1) 5 (1)
Other .......... 44 50 39 14 7
1 less than 1%
Vol. 2 No. 1 Family Economics Review
Wool. U.S. farm prices for wool
averaged 49% above 1987 levels for
the first 8 months of 1988. Mill con­sumption
of apparel wool during the
first 6 months of 1988 was 2% below
the 1987 level. Imports of raw wool
during this same period were about
3% above a year earlier.
Domestic consumption of virgin
wool has increased by 85% in the
period from 1980 to 1986. During
this same period, wool in apparel
products increased by 38%; in
sweaters, 70%; in women's wear ex­cluding
sweaters, 37%; and in men's
wear, 32% (21).
Manmade fibers. Shipments of
manmade fibers by U.S. producers
during the first 8 months of 1988
were 2% above shipments a year
earlier (24). About 69% of the raw
fiber used in U.S. goods in 1987 was
manmade, including 99% of carpet
fibers, 52% of apparel fibers, and
43% of fibers used in home fur­nishings.
Since 1983 apparel and
home furnishings have comprised
decreasing shares of manmade fiber
total use (24).
During the first week of Novem­ber
1988, Avtex Fibers Inc., a major
producer of rayon fiber, abruptly
shut down its textile mill in Front
Royal, VA. Factors blamed for the
closing included increases in raw
material costs (wood pulp), foreign
competition for the rayon used in
clothing and automobile parts, and
charges of damage to the environ­ment
and violations of State health
and safety laws (8). Because Avtex
was the exclusive producer of a
special rayon fiber used on the space
shuttle's solid fuel rocket booster,
NASA, the Defense Department,
and rocket-maker Morton Thiokol
Inc., signed purchase agreements
with Avtex, making it possible for
the mill to reopen within the week.
However, this special rayon yarn
only accounts for 6% to 8% of the
company's total sales, and the future
of the company remains uncertain
(9).
USDA Research on Fibers
and Fabrics
ARS scientists at the Southern
Regional Research Center (SRRC)
have developed a new process for
applying a flame retardant finish to
cellulosic fabrics. The new process
has two major advantages. By substi­tuting
urea for the gaseous ammonia
used commercially, no special equip­ment
is required to control for
fumes. Also, a wider range of colors
and types of dyes is possible because
of bonding that occurs between the
positive charge of the polymer and
the negative charge of the dye (26).
Fabrics of 100% cotton that can
be laundered over 65 times and still
dry smooth with no wrinkles can be
made with new chemical technology
developed at SRRC. Also, the
fabrics are about 20% stronger than
the permanent press fabrics now on
the market. By ironing the new
fabric, creases can be put in or taken
out - a real advantage for the con­sumer.
The new process uses
Table 4. Cotton's share of the apparel and home furnishings market
Item
Total apparel and home furnishings (excluding carpets) .. .
Total apparel ..................................... .
Women's ..... . . . ............................... .
Men's .............. . ........................... .
Girls' ............................. .. . . ....... . . .
Boys' ........................... ...... ......... .
Knitted apparel ...................... . ........... .
Total home furnishings ............................. .
1 Data are not available
Vol. 2 No. 1 Family Economics Review
1987
47
46
39
56
44
49
44
53
1986
44
43
35
53
41
46
(1)
50
1975
34
(1)
(1)
(1)
(1)
(1)
20
(1)
nontoxic chemicals called poly­carboxylic
acids, rather than formal­dehyde
used in today's permanent
press. ARS scientists have flled for a
patent on four groups of catalysts, or
curing agents, that bind the acids to
fibers in 15 to 90 seconds under high
temperature conditions. Previous
catalysts required up to an hour, and
at the high temperatures required,
the fabric would burn up. Also, there
is no vapor, odor, or yellowing. A fur­ther
advantage is the ability to dye
after the permanent press treatment.
Manufacturers can garment dye
after they determine best selling
colors (28).
Scientists at SRRC have
developed a new fiber derived from
cotton cellulose. The cotton cel­lulose
is treated with ammonia
vapors at a high temperature and
pressure until its crystalline struc­ture
changes. Interatomic distances
within the fiber are altered and can
be detected by X ray. This fiber,
named Cellulose III, is highly stable
and, when added to durable-press
cotton fabric, promises to improve
strength and resistance to wear.
Before Cellulosic III can be commer­cially
available, an alternative, less
costly method for producing the
crystalline substances must be found
(25).
Update on Vat-Grown Cotton
Scientists at Texas Tech Univer­sity
and the U.S. Department of
Agriculture have discovered a way to
grow cotton fibers in the laboratory.
The cotton plant is treated chemical­ly
to separate its cells, and the loose
cells are put in a vat of nutrients
(sugar and plant hormones). The
cells lose their specialized functions
(e.g., leaf cells no longer produce
chlorophyll) and pass through an un­differentiated
state, and then cel­lulose
polymerization begins.
Because each cell grows in opposite
directions at the same time, vat­grown
cotton fibers have rounded
growing tips. In contrast, field-grown
cotton is broken off the seed in the
ginning process, producing a rough
end. The rough end snags other
11
fibers and gathers them into a pill.
Also, because vat-grown cotton is
produced under sterile conditions,
there is no microbial contamination,
which is responsible for brown-lung
disease among textile workers (20).
Other research directed toward
reducing the risk from byssinosis, or
brown lung disease, has led to the
discovery that endotoxins (bacterial
substances causing the disease) can
be safely removed from raw cotton
before processing by using any of
three solvents that can deactivate the
endotoxin molecules. After treat­ment,
the solvent is extracted from
the cotton by flltration, centrifuga­tion,
or other means. Current
methods involve flltering for cotton
dust, and washing at high tempera­tures
and steaming to reduce en­dotoxins
in cotton lint. These current
procedures, though adequate,
adversely affect cotton quality (27).
Developments in Fibers and
Fabrics
A new acrylic fiber for athletic
socks has been developed by E.I.
DuPont de Nemours & Co. Called
Ultratech Orion, the fiber is credited
with transporting moisture 42%
faster than the next best fiber on the
market, and three times faster than
cotton (which absorbs water). The
fiber has a channel-T cross section
that helps move moisture along the
fiber surface and through the chan­nel
for faster evaporation, and a
spiral helix construction that works
like a spring. When spun into yarn,
this construction creates thousands
of air pockets that provide a natural
cushioning effect (19).
The DuPont Company has also in­troduced
AccuColor Orion, a fiber
dyed in the polymer form. Because a
dye bath is not needed, DuPont will
guarantee that there will be no shade
deviation between dye lots. In addi­tion
to color accuracy, dry spinning
offers more bulk and surface area,
better cover and wickability, and
hues that stay true with outstanding
fastness to washing (14).
A series of performance Dryline
fabrics using Hydrofll nylon to wick
12
moisture away from the skin of the
wearer have been developed.
Hydrofll nylon has a unique chemi­cal
structure that cannot be washed
out or worn off. Stretch Dryline (by
Allied, W. L. Gore, and Hind Perfor­mance)
combines Hydrofll nylon
with polyester and spandex for
winter weight outerwear. Hydrofll
nylon taffeta linings offer breatha­bility,
and freedom from clamminess
and wet cling. Other applications of
Hydrofll nylon include thermo­underwear
fabrics and socks (15).
Federal Rules and
Regulations Related to
Textiles and Apparel
The Federal Trade Commission
has issued amendments to the rules
and regulations implementing the
Textile Fiber Products Identification
Act, the Wool Products Labeling
Act, and the Fur Products Labeling
Act, effective September 19, 1988.
Under the amendments, the record­keeping
provisions in each of the
three regulations are simplified and
streamlined, and the Textile Act and
Wool Act regulations are clarified to
ensure that affected industry mem­bers
understand that required dis­closures
may be combined on a
single label. Information required by
the rules (name, fiber content,
country of origin, and care labeling)
may be combined with other infor­mation
on a single label as long as
the location and conspicuousness
requirements of the required infor­mation
are satisfied and the com­bination
of information is not
misleading. That is, nonrequired in­formation
should not interfere with,
minimize, detract from, or conflict
with required information. Hours
spent in labeling and recordkeeping
are expected to be reduced by about
18% under the new rules.
Effective January 9, 1989, the
Department of Labor (DOL) will lift
its 45-year ban on employees work­ing
at home in the jewelry, gloves
and mittens, button and buckle,
handkerchief, and embroideries in­dustries.
The ban on homework in
women's apparel will remain in ef-feet
(22). Also, DOL proposes,
under provisions of the Fair Labor
Standards Act, to expand the cer­tification
program for homework in
these six apparel-related industries.
The certification program would be
phased in on an industry by industry
basis. However, the DOL would not
issue certificates authorizing the
employment of home workers in any
State where the use of home workers
would conflict with State labor stan­dards
or health and safety laws.
DOL proposes to add a requirement
to the process of application for cer­tification
that the employer provide
assurances that all home workers
will be employed in compliance with
the provisions of the Fair Labor
Standards Act and all applicable
regulations with respect to the pay­ment
of wages, employment of
minors, and recordkeeping. A sim­plified
home-worker handbook will
be used to provide home workers
with the information necessary to ac­curately
record daily and weekly
hours worked; employers will ensure
that these handbooks are completed
accurately and in a timely fashion.
Uses for the Computer in
Marketing Apparel
Retail establishments customarily
maintain inventory control with com­puters.
Soon sales tags will be bar
coded so that electronic scanners
can be used to identify and record
sales, and automatic ordering or re­ordering
by computer will be avail­able
(12).
At least one store, Nordstrom's,
tracks hourly sales by department
with a computer. Sales by individual
employees are made available within
24 hours, and results are posted so
that employees can compare how
they are performing. Nordstrom's
has been using this procedure as a
motivational tool for 3 years in all its
48 stores (32).
A Rochester Institute of Tech­nology
professor has designed a
computer program that can help
consumers decide which product to
buy. The customer keys in answers
to questions about preferences,
Vol. 2 No. 1 Family Economics Review
personal characteristics, and price
ranges. Then the computer matches
the data with available products (5).
Researchers at Georgia Tech
have modified a 36-inch-wide Xerox
Corporation machine, normally used
for architects' blueprints, so it can
produce patterned bolts of cloth.
Xerographic printing is expected to
be much faster and less expensive
than conventional printing methods.
Patterns can be produced in days,
compared with the weeks now re­quired
to transfer designs onto metal
printing screens. Eventually, fabric
copiers could be available at the
retail level for custom printing of
wall coverings and sheets. Funded by
the U.S. Department of Energy,
xerography printing promises big
savings in water and energy. Com­mercial
application is several years
away (6).
In 1987 the average video shop­per
made six purchases totaling
$179. Shop-at-home cable TV shows
are becoming more specialized. The
Fashion Channel sells only clothing
and accessories. TelShop has seg­ments
limited to home electronics
("Electronic Entertainer"), sporting
goods ("Star Pro Shop"), and toys
and children's merchandise
("For Kids Only'') (7).
An electronic system named
"Prodigy" will allow consumers to
purchase from more than 70 stores
through a computer and a tele­phone.
Consumers also will be able
to do banking at home and buy air­line
tickets, stocks, and bonds. Soft­ware
for IBM and IBM-compatible
PC's is available, and consumers in
San Francisco, Atlanta, and
Hartford, CT, may currently sub­scribe
(33). The service is expected
to be offered in the Baltimore­Washington
area during the spring
of 1989 (34).
References
1. American Textile Manufacturers
Institute, Inc., Economic Informa­tion
Division. 1988. Textile
Hi-Lights. March issue.
2. .1988. Textik
Hi-Lights. June issue.
Vol. 2 No. 1 Family Economics Review
3. ____ . 1988. Textile
Hi-Lights. September issue; and
personal communication with
Michael Cartier.
4. Berry, John M.1988. Change set
in figuring trade deficit. The
Washington Post, September 9 issue.
5. Business Week. 1987. Develop­ments
to watch: This computer gives
shoppers custom-made advice.
December 7 issue.
6. . 1988. Develop-ments
to watch: The latest fashions,
fresh off the- copy machine? May
16 issue.
7. Changing Times. 1988. Viewers
are sold on video shopping. May
ISSUe.
8. Gladwell, Malcolm. 1988. Avtex
to reopen mill in Front Royal. The
Washington Post, November l(J issue.
9. .1988. Reopened
Avtex fibers must still raise $20 mil­lion.
The Washington Post,
November 11 issue.
10. Horton, Congressman Frank.
1988. The importance of a
reasonable textile policy. Knitting
Times 57(9):23.
11. Hume, Ellen. 1988. Reagan
vetoes bill to limit textile imports.
The Wall Street Journal, September
29 issue.
12. Kiplinger Washington Letter.
1988. Vol. 65, No.2, January 15 issue.
13. . 1988. Vol. 65,
No. 35, September 2 issue.
14. Knitting Times.1988. Vol. 57,
No.l,p.39.
15. .1988. Vol. 57,
No. 2, pp. 48-49.
16. .1988. Vol. 57,
No. 4, pp. 51, 64, 66.
17. .1988. Vol. 57,
No.9, p. 94.
18. Langley, Monica. 1988. Textile­bill
veto survives override attempt in
house. The Wall Street Journal,
October 5 issue.
19. Lettich, Jill. 1988. Lycra, cotton
lead in hosiery fibers. Knitting Times
57(1):40-41.
20. Rensburger, Boyce. 1988. Trick­ing
cotton to think lab is home sweet
home. The Washington Post, May 29
issue.
21. Southward, Grant B. 1988.
Wool-content sweaters increase,
NEKASA speakers report. Knitting
Times 57(1):62.
22. Swoboda, Frank. 1988. Labor
Dept. lifts 45-year ban on industrial
work at home. The Washington Post,
November 11 issue.
23. Textile Organon.1988. Vol. 59,
No.5,p.85.
24. . 1988. Vol. 59, No.
9, pp. 200, 216.
25. U.S. Department of Agricul­ture,
Agricultural Research Service.
1988. Cellulose III cotton fiber
resists abrasive wear. Agricultural
Research 36(2):16.
26. . 1988. Dyeing
flame-retardant fabrics. Agricultural
Research 36(4):16.
27. .1988. Removing
endotoxin from cotton. Agricultural
Research 36(5):16.
28. . 1988. New perma-nent
press cotton fabric treatment.
Agricultural Research 36(7):19.
29. Economic Re-search
Service. 1988. Cotton and
Wool Situation and Outlook Report.
CWS-52.
30. . 1988. Cotton and
Wool Situation and Outlook
Yearbook. CWS-53; and personal
communication with John Lawler
and Bob Skinner.
31. Vargish, George.1988. Eco­nomic
power: will America recap­ture
it? Knitting Times 57(9):27.
32. The Washington Post. 1988.
Washbiz: Nordstom's computerized
motivation, May 23 issue.
33. . 1988. January 24
issue.
34. Wright, Rob. 1988. Sovran to
offer customers at-home banking ser­vice.
The Washington Post, October
26 issue. lEI
13
Housing Affordability: Concept
and Reality1
By Jacquelyn W. McCray
Assistant Administrator 1890 Agricultural Programs
Agricultural Experiment Station
University of Arkansas at Pine Bluff
The outlook for affordable housing is in­fluenced
by interactions among consumer
characteristics that limit household income and
the level of public and private sector involve­ment
in providing low-cost housing. Whereas
younger households are finding it difficult to
purchase their first home, older households are
benefiting from sizeable home equity ac­cumulations.
The home ownership rate among
younger households (under 35 years old) has
been decreasing since 1974. Rates for older
households ( 60 years and older) are expected to
continue to increase. Projected increases in
mortgage interest rates will contribute to a
decline in the overall home ownership rate. In
1985 there was a nationwide deficit in afford­able
rental housing of almost 4 million units.
The construction and management of low­income
rental housing is not cost-effective
without government support in the form of tax
incentives, rental subsidies, and insured
mortgages. Increased local and State involve­ment
in housing programs via bond financing,
use of Community Development Block Grant
funds for housing, and local initiatives in
providing assistance and shelter for the home­less
will help compensate for reduced Federal
support. Professionals in family resource
management need to know what affordable
housing options are available in their
communities.
Several interrelated and inter­dependent
variables generally
influence the outlook for housing.
Major factors include the prospect
for economic growth, the availability
and cost of mortgage financing, hous­ing
costs as compared with con­sumer
income, and the balance
between the supply and the demand
for housing. Demand for housing is
tied closely to demographic trends
1 This article is adapted from a paper
presented at the Annual Agricultural
Outlook ConferenCe in November 1988 in
Washington, DC.
14
such as residential mobility, family
size and composition, and household
formation; whereas housing supply is
a function of the participation of
both public and private sectors in
the production and distribution of
housing.
Although closely associated with
these basic variables, housing afford­ability
is a more complex phenome­non.
The term "affordable" implies a
match between consumer income
and housing costs. For a young
father of two with a working spouse
and an annual family income of
$35,000, a means of providing afford­able
housing may be to purchase a
single-family detached home in the
suburbs with three bedrooms, two
baths, a carport, and some play
space for the children. For a young
father of two who has lost his job, a
means of providing affordable hous­ing
may be to abandon his family
and sleep in the park so that his wife
and children can qualify for a bunk
in one of the shelters for the home­less.
In both of these examples,
fulfilling the desire for affordable
housing requires matching family
and, sometimes, community
resources to available housing.
The outlook for affordable
housing, therefore, is influenced by
interactions among consumer char­acteristics
that limit household in­come
(e.g., education, employment,
household size and composition,
etc.) and the level of public and
private sector involvement in provid­ing
low-cost housing. An adequate
supply of affordable housing can be
defmed as "a number of shelter
options available to consumers that
require less than 30% of the house­hold
income for occupancy." Al­though
home ownership is the
desired tenure status in the United
States, it is not an alternative for
many low- and moderate-income
consumers. The outlook for housing
affordability- housing options­must
be considered separately for
persons seeking to buy or rent
housing units.
Outlook for Affordable
Housing-Buyer's Market
Since World War II, the dream of
home ownership has been a reality
for a majority of American house­holds.
Young families enjoyed the
prosperity of the times and eagerly
anticipated home ownership. Until
the eighties the country experienced
uninterrupted growth in the home­ownership
rate (from 44.0% in 1938
to an all-time high of 68.1% in 1981).
However, an unparalleled increase
in the cost of new and existing hous­ing
in recent years has made home
ownership less available to first-time
home buyers.
Of the new single-family homes
sold in 1987, the median price rose
approximately 14.1 %, up from the
5.5% increase in 1985, and the 9.1%
increase in 1986. Overall, new home
prices rose from $35,900 in 1974 to a
projected $105,000 at the end of
1987 (table 1).
Although the cost of existing hous­ing
has traditionally been lower than
the cost of new housing, concomitant
cost increases in existing housing
also have occurred. The median
price of existing homes rose by 6.4%
in 1986 and by 6.7% in 1987, com­pared
with only 4.3% in 1985
(table 1). Overall, existing home
prices rose from $32,000 in 1974 to
an estimated $85,700 in 1987. The
approximate $20,000 difference in
the 1987 cost of new and existing
houses indicates that many first-time
Vol. 2 No. 1 Family Economics Review
..
Table 1. Median prices for single-family homes, 1974-87
New homes Existing homes
Year Dollar cost Percent Dollar cost Percent
increase increase
1974 ••••••••••• • 0 0 ••• 35,900 32,000
1975 •••••• 0 0 0 0. 0 0 •••• 39,300 9.5 35,300 10.3
1976 ••• 0 •• 0 •••••••••• 44,200 12.5 38,100 7.9
1977 0. 0 ••••••• 0 •••••• 48,800 10.4 42,900 12.6
1978 ................. 55,700 14.1 48,700 11.9
1979 . .............. .. 62,900 12.9 55,700 14.4
1980 . ' ....... .... .... 64,500 0.3 62,200 11.7
1981 ••••• 0 ••••••• ••• 0 68,900 6.8 66,400 6.7
1982 ••••••••• • ••• •• 0. 69,300 0.05 67,800 2.1
1983 0 ••••••••••• 0 ••• • 75,300 8.7 70,300 3.7
1984 .. . .... .. .. ...... 79,900 6.1 72,400 3.0
1985 ••••••••••• 0 ••••• 84,300 5.5 75,500 4.3
1986 •• • ••••• 0 0. 0 ••••• 92,000 9.1 80,300 6.4
1987 ................. 1105,000 14.1 185,700 6.7
1 NAHB forecast.
Source: National Association of Home Builders, HotJsjog BackgrotJoder January 1988 (2).
home buyers fmd existing housing
more affordable.
Aside from initial cost factors,
interest rate projections and family
income also impact housing afford­ability.
An analysis of housing afford­ability
data reported by the National
Association of Home Builders
reveals the major impact of interest
rates on a family's ability to purchase
housing (table 2, p. 16). As the
interest rate decreases, so do total
monthly expenses and annual in­come
requirements. At the same
time, the number of families able to
afford the lower costs also increases.
Assuming that expenses equal 28%
of income, approximately $2,500 in
additional annual income is required
to purchase the same house for each
percentage increase in the interest
rate. Concurrently, the total number
of families with enough income to
purchase a house is reduced by 2.0%
to 4.0% for each percentage
increase in interest rate.
As of November 1, 1988, interest
on fixed-rate mortgages ranged from
10.0% to 10.5%; variable and adjus­table
rate mortgages were about 1.75
Vol. 2 No. 1 Family Economics Review
to 2.00 percentage points lower.
Slight increases in interest rates on
both types of mortgages have been
observed and are predicted to con­tinue
signaling more difficulty for
would-be home buyers. Increases in
interest rates and housing costs
severely hamper first-time home
buyers in securing affordable hous­ing
because they lack the equity ac­cumulations
available to previous
homeowners.
Decreases in the home-ownership
rate among younger households
have been seen for the past 12 to 15
years (table 3, p. 16). However, they
will continue to increase for
households in higher age brackets
who purchased housing in past years
and are now beneficiaries of sizeable
home equity accumulations. Without
major decreases in housing costs,
home-ownership rates among
younger households will continue to
decline. Projected increases in
mortgage interest rates will also con­tribute
to a decline in the overall
home-ownership rate.
Outlook for Affordable
Housing- Renter's Market
Although some individuals and
families choose to rent housing for
numerous life-style, economic, and
convenience factors, the large
majority of low- and moderate­income
families rent because they
have no other viable alternative. Of
the 241 million people who lived in
the United States in 1986, one in
seven (over 32 million people) lived
below the poverty line (3). This num­ber
is equal to the total population
of the States of Alaska, Wyoming,
Vermont, Delaware, North Dakota,
South Dakota, Montana, Nevada,
New Hampshire, Kansas, Arkansas,
Oklahoma, Mississippi, and 10 other
States in the Nation. Almost one in
every three people live in a house­hold
whose income is less than
$15,000. The primary fmancial
problem for most of these house­holds
is paying for housing. A criti­cal
concern for low-to-moderate
income households is that the
demand for affordable rental hous­ing
is rapidly increasing while the
supply of affordable units is dwin­dling.
In 1987, 4.7 million renter
households had incomes under
$5,000 (an increase of more than
2 million households from 1974).
The Rental Housing Crisis Index
for 1985 (5) reported a nationwide
deficit of 3,942,936 units. The per­centage
deficit by State ranged from
a high of 267.7 in California to a low
of 12.6 in Mississippi. Three States
(California, New Jersey, and
Nevada) and the District of
Columbia had deficits in excess of
200% of the number of units needed
to house its low-income population.
Stated another way, in these States,
for the total number of low-income
households living in affordable hous­ing,
twice as many other households
could not find suitable housing that
matched their income. A quick com­parison
of the rental vacancy rate,
with increases in median asking
rents from 1978 to 1986, reveals that
15
the vacancy rate in rental units is
highly sensitive to increases in
median asking rents.
For many years it was believed
that the private housing market
could meet the needs oflow-income
renters. However, for the past
several decades the housing needs of
the "poor" have been facilitated by
Government intervention in (1) the
actual construction of public housing
units (the primary housing assistance
program from the late thirties
through the midsixties); or
(2) providing incentives to private
and nonprofit developers to build
low- and moderate-income rental
units (the primary Federal approach
of the "War on Poverty" legislation).
Specifically, the construction and
management oflow-income rental
housing is not cost-effective in the
absence of government support such
as tax incentives, rental subsidies, in­sured
mortgages, and so forth. In
fact, the last two major Federal
efforts2 directed toward providing
rental housing for low- and
moderate-income families were
based solely on private sector
involvement in housing development
and delivery. These two programs
alone added more than 355,390 units
of multifamily rental housing to the
Nation's housing stock.
2 Through amendments to the 1949
National Housing Act-Section 22ld-3
(1961) and Section 236 (1968).
Table 2. Affordability of housing, based on a 30-year fixed-rate mortgage
Interest rate
9% ............ .. ......... .
11%
13%
15%
17%
Monthly principal
and interest
payment
$616
729
849
972
1,094
Property
taxes and
insurance
$125
125
125
125
125
Total Annual income
monthly needed to afford
expenses
$76,500 mortgage ($85,000 purchase) 1
$741 $31,744
854 36,586
974 41 ,726
1,097 46,995
1,219 52,222
Families having income
needed
Number
(millions)
21.8
16.8
12.7
9.4
7.1
Percent
35.2
27.1
20.5
15.1
11.4
$90,000 mortgage ($100,000 purchase) 1
9% .............. . ....... ..
11%
13%
15%
17%
1 10%downpayment
725
858
999
1,143
1,287
145 870
145 1,008
145 1,144
145 1,288
145 1,432
Source: National Association of Home Builders, Public Affairs Division, Housjng Backgrounder January 1988 (Z).
Table 3. Average home ownership rates, by age of household head, 1974-87
37,271
42,969
49,009
55,178
61,347
Age of household head (years)
Year
25-29 30-34 35-39 40-49 50-59 60-69
1974-78 ..... 0 ••• 0 0 0 0 ••• • 43.1 62.2 69.3 75.4 77.5 75.2
1979-81 ... 0 • • 0 0 0 0 •• ••• 0 0 43.0 60.5 70.0 75.4 78.8 77.8
1982-85 0 0 0 0 0 0 0 0 0 • ••• 0 0 0 0 38.0 55.0 66.1 73.5 78.9 79.2
1986-87 1
0 0 0 0 • • 0 •••• 0. 0 0 0 36.6 53.6 64.5 72.4 79.0 79.7
1 3rd quarter.
Source: Calculated from National Association of Home Builders,~ Backgrounder January 1988 (Z).
16.1 26.0
11 .8 19.1
8.3 13.4
6.1 9.8
4.3 6.9
70 and over 25 and over
68.9 67.4
70.9 68.1
73.3 66.3
73.7 65.6
16 Vol. 2 No. 1 Family Economics Review
Primary among incentives offered Table 4. Number of Section 221d-3 and Section 236 units eligible for
by the legislation was a "sunset" prepayment, by year
clause that allowed prepayment of
Year Number of Number of Percent of Government-backed mortgages in 20 projects units total
years. Following prepayment, the
units can be converted to whatever 1982-88 ••• ••• 0. 0 0 • ••• • • 0 130 17,276 5.0
use the owner desires. As legislation 1989-91 ••• • •• •• 0 0 •• • •• •• 781 92,754 26.1
establishing both Section 221d-3 and 1992-94 ••••••••• 0 ••• •• • • 1,679 173,217 48.7
Section 236 was passed more than 20 1995-97 • •• •• • • 0 0 0 •• • •••• 462 55,334 15.6
years ago, approximately 17,276 1998-2000 .. . . . ....... . 0. 76 11 '188 3.1
2001-2006 ••••• 0. 0 0 0 0 • ••• 49 4,774 1.3
units are currently eligible for pre- Undetermined .... . .. . . .. . 8 852 .2
payment, with another 265,971 units Total ...... . ...... ... . 3,185 355,395 100.0
eligible for conversion between 1989
and 1994 (table 4). Of the total num- Source: U.S. Department of Housing and Urban Development (6).
her of units available under both
programs, only 20% will be available
after 1994. Table 5. Units eligible for prepayment 1989-94 and Rental Housing
Although it is difficult to estimate Crisis Index for 1985, by HUD region and State
the exact number of units that will
Region Eligible actually be converted, a crisis in the Rental Region Eligible Rental
units 1 Housing units 1 Housing
rental market for low- to moderate- Crisis Crisis
income multifamily housing is likely Index 2 Index 2
to occur. Observation of the Hous-ing
Crises Index by HUD region and Region 1 Region fl
State suggests that some regions and Connecticut 8,852 180.3 Arkansas 3,909 19.9
States are more vulnerable to the Massachusetts 11 ,566 136.7 Louisiana 6,793 45.4
possible loss of units than others Maine 1,179 71.8 New Mexico 931 41 .7
(table 5). Generally, States with the New Hampshire 1,924 97.4 Oklahoma 3,798 51.5
highest crisis index could possibly Rhode Island 3,713 106.4 Texas 21 ,858 75.9
Vermont 634 95.2
lose the highest number of units. Region 7
(Initially, these States had the Region 2 Iowa 3,404 63.0
highest number of units built.) Also, New Jersey 3,825 229.7 Kansas 1,262 47.5
the crisis index only measures unit New York 8,073 137.6 Missouri 6,360 57.6
cost to renters; it does not consider Nebraska 1,332 50.3
the physical condition of the units. Begion ;3
As expected, States in Regions 4 and Delaware 259 123.7 RegiQn 6
6 (primarily southern rural States) Washington, DC 1,212 213.1 Colorado 2,470 125.6
generally had lower housing crisis Maryland 10,603 180.3 Montana 1,190 32.4
indices, but the physical quality of Pennsylvania 10,354 73.6 North Dakota 316 46.6
housing in the rural South is lower
Virginia 7,489 88.6 South Dakota 1,639 29.1
West Virginia 129 11.4 Utah 955 99.3
than in any other section of the Wyoming 444 55.5
country. Region 4
;t In the past, demolitions, conver- Alabama 2,816 29.7 Region 9
\ sions, renovations, and rent in- Florida 8,228 126.2 Arizona 3,493 90.3
creases have played a major role in Georgia 9,186 54.4 California 27,295 267.7
the declining number of affordable Kentucky 5,026 32.7 Hawaii 1,693 51.1
private-market rental units. Con- Mississippi 2,258 12.6 Nevada 221 264.1
dominium conversions and rent North Carolina 5,240 35.3
South Carolina 4,606 24.2 Region 1Q
increases likely will continue to be Tennessee 5,609 48.4 Alaska 564 15.7
attractive alternatives for private sec- Idaho 979 58.3
tor holders oflow-income units be- Begion Q Oregon 4,114 141.1
cause these two options offer greater Illinois 11,740 79.1 Washington 8,683 116.7
potential for maximizing profits. Indiana 10,924 59.7
In summary, the outlook for Minnesota 5,431 110.5
affordable housing for low- to Michigan 11 ,723 110.0 NATION 265,971 93.7
moderate-income households may Ohio 4,191 92.3
appear to be bleak in the absence of
Wisconsin 5,478 97.0
1 Data provided by the U.S. Department of Housing and Urban Development (6) .
2 Data provided by the Center on Budget and Policy Priorities, Holes In the Safety Net April1988 ~-
Vol. 2 No. 1 Family Economics Review 17
major Government interventions. In
March 1988, The National Housing
Task Force (3) reported that in 1983
more than 6 million low-income
families paid more than half of their
incomes for rent. Of the total12.9
million low-income renter house­holds,
only 28% benefited from
Federal housing programs. Addition­ally,
for the past 10 years, Govern­ment
support for low- and
moderate-income housing has been
drastically reduced. The HUD
budget has been slashed from 7.4%
of the Federal budget in 1978 to less
than 1% in 1988 (1). However, be­cause
of wide media coverage of the
growing number of homeless in the
Nation (estimates range from
250,000 to 3 million persons), the
political environment once again
appears receptive to some housing
support for the poor, as well as for
young first-time home buyers.
Two questions remain un­answered:
(1) What is the most cost­effective
approach that will serve the
housing needs of all sectors? and
(2) How will support for housing
(especially housing for the poor)
fare in competition with other
critical political issues such as the
solvency of Social Security and
Medicare, the rising national debt,
and increases in health care costs?
In response to the former
question, increased local and State
involvement in housing programs via
bond financing, use of Community
Development Block Grant funds for
housing, and local initiatives in
providing assistance and shelter for
the homeless have recently emerged
as a result of reduced Federal sup­port.
Continued expansion of these
efforts should improve the future
availability of affordable housing.
Employer-assisted housing is also
a new phenomenon that improves
the outlook for affordable housing in
18
the future ( 4). Benefits for em­ployees
are increasingly being
directed to housing. Ownership assis­tance
through mortgage guarantee
and insurance programs, interest
rate subsidies, down-payment loans,
and shared-equity loans are
frequently included in employee
fringe-benefit packages. Corporate
construction subsidies and/or
corporate donations to community
housing programs are being used to
provide assistance to renter house­holds.
Because these programs
currently enjoy the support of labor
and management, they are expected
to expand.
In response to the latter question,
support for housing probably will
not fare very well in competition
with other critical needs. Ideally,
housing production and delivery are
viewed as functions of the private
market, whereas Social Security and
Medicare benefits have been placed
in the public trust. This difference
alone suggests that support for these
programs will take precedence over
support for housing. The need to
reduce the national debt is unques­tionable.
Although Federal efforts at
debt reduction may, in the short
term, limit Federal initiatives in hous­ing,
the long-term benefits of such
action (economic growth and a
stable economy) should have a
positive impact on housing.
References
1. Daly, Margaret. 1988. Has
America lost its commitment to
housing? Better Homes and Gardens.
February issue, pp. 39-42.
2. National Association of Home
Builders, Public Affairs Division.
1988. Housing Backgrounder.
3. Report of The National Housing
Task Force. 1988.A Decent Place to
Live. National Housing Task Force.
·4. Schwartz, David C. 1988.
Employer-assisted housing: a grow­ing
phenomenon. Housing
Economics 36(11):7-8.
5. Shapiro, Isaac and Greenstein,
Robert. 1988. Holes in the Safety Net:
Poverty Programs and Policies in the
States. Center on Budget and Policy
Priorities, Washington, DC.
6. U.S. Department of Housing and
Urban Development. 1988. Unpub­lished
listing of projects and units
eligible for prepayment by HUD
region and year. ~
Vol. 2 No. 1 Family Economics Review
Research Summaries
The Declining
Middle-Oass Thesis
In recent years, a number of
studies have indicated that increas­ing
proportions of the U.S. popula­tion
lie in the lower and upper in­come
classes, creating a decline in
the size of the middle class. Findings
from these studies differ as to the
extent to which the middle class has
declined and how this decline has
been divided between the lower and
upper classes. This lack of agree­ment
among fmdings can be attri­buted
to variations in both the defmi­tion
and measurement of the middle
class.
The Bureau of Labor Statistics
examined data on family income
from the March Current Population
Survey1 to track changes in the
proportions of families in the lower,
middle, and upper income classes
over the 1969-86 period. The sen­sitivity
of the findings was assessed
by choosing alternative income inter­vals
for defming the three classes,
evaluating different methods for
measuring changes in class size over
time, and examining these changes
from both a secular and cyclical
perspective.
Determining the Middle Class
Family income (total money in­come)
was chosen to defme middle
class, based on both economic and
cultural considerations. Individuals
in families experience significant
economies of scale in consumption
that do not exist for single indivi-
1The Current Population Survey is a
monthly household survey, conducted for the
Bureau of Labor Statistics, U.S. Department
of Labor, by the Bureau of the Census,
U.S. Department of Commerce.
Vol. 2 No. 1 Family Economics Review
duals, and about four-fifths of
Americans lived in families in 1987.
In addition, the cultural view of the
middle class regards the family as
the typical income unit. Two criteria
were selected to determine a range
of middle-class income intervals for
use in this study. First, the lower end
point of the 1986 middle-class in­come
interval had to be between
60% and 90% of median family in­come
in that year ($29,460). This
would ensure that the lower end
point of the middle class represents
an income significantly above the
poverty level, which was about one­third
of median family income in
1986. Second, in any given year, a
middle-class interval would be ac­ceptable
only if it yields a middle
class containing between 40% and
60% of families. Also, the upper end
of each middle-class income interval
was restricted so that the upper class
would always have at least 5% of
families.
Two techniques were used to
make comparisons of the three
classes over time. The interval
deflator approach, in which a price
index is used to deflate income inter­vals,
maintains the purchasing power
of the middle class over time. The
second technique defmes the middle
class in each year as consisting of
those families whose incomes are
within given percentages of median
family income for that year. This
rtxed percentage of median income
approach preserves the relative posi­tion
of the middle class in the overall
distribution of incomes over time.
To eliminate the sensitivity of the
fmdings to the choice of years,
regression analysis was used with
each technique to determine the
secular nature of changes in size of
each income class over the 1969-86
period. Trend lines were estimated
for each of the lower, middle, and
upper class income intervals
selected for this study by isolating
cyclical movements (the peaks and
troughs in business cycles) and then
estimating the remaining secular
trend.
Findings
When the interval deflator
approach was used, the results
supported the declining middle-class
thesis. Three price indexes were
used to test the sensitivity of the
findings to the choice of an index.
There was a consistent decline in
the middle class across a substantial
range of alternative income
intervals. However, the choice of
price index affected the relative size
of the lower income class. When
the Consumer Price Index for All
Urban Consumers ( CPI-U) was
used, the decline in the middle­income
class was accompanied by an
increase in the proportion of the
lower income class. In contrast, the
decline in the middle associated with
the Consumer Price Index for All
Urban Consumers, Experimental
Measure 1 (CPI-U-X1) was accom­panied
by a decline in the proportion
of families in the lower income class.
The Fixed Weight Personal Con­sumption
Expenditure Index (FW­PCE)
showed a substantial decline in
the relative size of both the middle
and lower classes. It was concluded
that any examination of the declining
middle-class thesis using an interval
deflator approach would be quite
sensitive to the choice of a price
index. The percent distribution of
families in the lower, middle, and
upper income classes using alterna­tive
price indexes for the years 1969
and 1986 is shown in table 1, p. 21.
19
Table 1. Percent distribution of families in the lower, middle, and
upper classes, using alternative price indexes, 1969 and 1986
Price index and year Middle-class Lower Middle Upper
income interval class class class
~
CPI-U-X1: 1
1986.0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $20,000- 55,999 31.7 53.0 15.3
1969 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 7,180-20,104 33.7 58.8 7.5
CPI-U: 2
1986 0 0 0 0 0 0 0 0 0 0 0 0. 0 0 0 0 20,000 - 55,999 31.7 53.0 15.3
1969 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6,680- 18,704 30.4 60.0 9.7
FW-PCE: 3
1986 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 20,000 - 55,999 31.7 53.0 15.3
1969 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 7,440-20,832 35.6 57.8 6.7
1 Consumer Price Index for All Urban Consumers, Experimental Measure 1.
2 Consumer Price Index for All Urban Consumers.
3 Fixed Weight Personal Consumption Expenditure Index.
Source: Horrigan, Michael W., and Steven E. Haugen, 1988, The declining mlddle·class thesis: a sensitivity analysis,
Monthljl I abor Review 111 (5):3-13.
Table 2. Percent distribution of families in the lower, middle, and
upper classes, using fixed percentage interval of median income, 1
1969 and 1986
Year Middle-class Lower Middle Upper
income interval class class class
1986 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $20,000- $55,999 31.7 53.0 15.3
1969 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $6,404-$17,931 28.7 60.2 11.1
1The percentage of median family Income used to define the end points of the middle class are roughly 68 and 190.
Source: Horrigan, Michael W., and Steven E. Haugen, 1988, The declining middle-class thesis: a sensijlvity analysis,
Monthl)l L.abor Review 111 (5):3-13.
When the riXed percentage of
median income approach was used,
the results also supported the declin­ing
middle-class thesis. The middle
class declined from 1%9 to 1986 for
an even broader range of income in­tervals
than was seen using the inter­val
deflator technique. Both lower
and upper classes experienced in­creases
in relative size. The propor­tions
of families in the upper,
middle, and lower income classes
using the fiXed percentage approach
for the years 1%9 and 1986 are
shown in table 2.
Although these fmdings suggest
that the lower income class has in-
20
creased in relative size over the 1%9-
86 period, the share of aggregate in­come
held by this group has either
remained the same or declined.
Despite differences between the
fiXed percentage and interval defla­tor
methods in measured effects,
both point to a decline in per-family
share of total aggregate income for
families in the lower class. This fmd­ing
is consistent with those in other
studies that indicate an increase in
income inequality over the past two
decades.
Proportions of families in the
lower, middle, and upper income
classes are cyclically sensitive.
Consequently, if year-to-year com-parisons
are made, it is inap-propriate
to choose years at cyclical-ly
dissimilar points in business
cycles. A comparison of each reces-sion
with its subsequent recovery
period shows a definite cyclical pat-tern
in the shift in distribution of
family income, with the lower class
growing during recessions but then
recovering to its prerecession share
in the subsequent economic expan-sion.
Source: Horrigan, Michael W., and Steven
E. Haugen, 1988, The declining middle-class
thesis: a sensitivity analysis, Monthly I ,abor
~ 111(5.):3-13.
Money Income and
Poverty Status of
Families
Money Income
For the fifth consecutive year,
real median family income 1 in­creased
between 1986 and 1987,
bringing it to a level comparable to
that of 1973, an earlier all-time high.
Median family income in 1987 was
1% higher than in 1986 (see table,
p. 21). Real per capita income for
1987 was at an all-time high,
increasing 1.6% over its 1986 level.
In March 1988, nearly 80% of all
families were married couples with a
1987 median family income of
$34,700 (a 2% increase from 1986 in
real terms). This is the filth consecu­tive
year real income for married
couples has increased. For families
with a female householder, no
husband present, median income
($14,620) increased 3.4% from 1986.
For these families, this increase is
the first significant annual increase
1 Changes in real income refer to com­parisons
after adjusting for inflation. The per­centage
change in prices between 1986 and
1987 was computed by dividing the annual
average Consumer Price Index for all urban
consumers for 1987 by the annual average for
1986.
Vol. 2 No. 1 Family Economics Review
Comparison of median family income in 1987 and 1986 [1987 dollars]
Characteristsic
All families .. . . ............ . .. .. ... .. . ....... . . . .. .
Type of family:
Married couples ... . .... . .. . . ......... .. . ...... .
Female householder, no husband present . ......... .
Race:
White ... .. .. . .... . . . . .... . . ... ... ... .. . .. .... .
Black .. ...... . . .. ... .... . . .. .. ... ............ .
Hispanic1
• • •••••• • •• •• •• • . ••••••• •••....••••••
Education:2
Less than 8 years . . . ............ ............... .
8 years . ... . ... . . . ....... ....... .........•....
High school, 4 years .. . . . ... . .. .. . . ............ .
College:
1 to 3 years . ..... . . ..... . ... ....... ... . . . .
4 years .... . . ........... . . . ...... ........ .
Number of earners3
None . ...... . .. . ...... . ....... . . ..... ........ .
1 .... ......... ..... .. .. ..... . . . . ......... .. . .
2 . .. .. .. ...... . . ........ ... . .. . . . . ....... . .. .
3 .. .... . . ....... . . ......... . . .. . ........ ... . .
4 or more .. ........ . .. .... . .... ... . ..... ..... .
Region:
Northeast .. .. . .... ......... ..... ............. .
Midwest . ........ . . .• .......... . .. .. . . .... . ...
South .. ....... . ....... . . .. ............. . . . .. .
West .......... . . . ....... ....... ............. .
Earnings of year-round, full-time workers:
Male . ...... ........ . .. . .. ..... .............. .
Female ... . .. . . ............... . . ... .. .. ..... . .
• Sign~icant at the 90% confidence level.
1987
$30,853
34,700
14,620
32,274
18,098
20,306
14,547
18,102
29,937
36,392
46,533
12,849
23,192
36,990
46,961
59,445
33,938
30,991
28,250
32,026
26,008
16,909
1986 Percent change
$30,534 *1 .0
34,004 *2.0
14,146 *3.4
31,935 *1.1
18,247 -0.8
20,726 -2.0
14,616 -0.5
19,192 *-5.7
29,765 0.6
35,455 *2.6
47,269 -1 .6
12,963 -0.9
23,125 0.3
36,391 *1.6
45,925 *2.3
57,689 *3.0
33,335 1.8
30,665 1.1
27,684 *2.0
32,096 -0.2
26,179 -0.7
16,825 0.5
1
Persons of Hispanic origin may be of any race. 2Restricted to families with householder 25 years old and over. 3Exciudes families with Armed Forces members.
Source: U.S. Department of Commerce, Bureau of the Census, 1988, Money Income and Poverty Stahl$ jn the lJnijed States 1987 (Advance data from the March 1988 Current
Population Survey), Current Population Reports, Consumer Income, Series P-60, No. 161.
since 1984 and only the second sig­nificant
annual increase since 1979.
Between 1986 and 1987, the median
income of white families ($32,274)
increased by 1.1 %, whereas the
median family incomes of black
($18,098) and Hispanic-origin
families ($20,306) did not change
significantly.
There were considerable differen­ces
in 1987 median family income by
level of education of the house­holder.
Median income ranged from
$14,547 for families in which the
householder had less than 8 years
education, to $54,491 for families in
which the householder had 5 or
more years of college education.
Between 1986 and 1987, families
showing a significant change in
income were those where the house­holder
had 8 years of education
(5.7% decline) or 1 to 3 years of
college education (2.6% increase).
Vol. 2 No. 1 Family Economics Review
Real increases occurred in all
families with two or more earners,
but 1987 median family income was
not statistically different from 1986
levels in one-earner families.
For the second year, the South
made gains on the rest of the country
in real median family income, with a
2% increase from 1986. Also, the
South was the only region to show
significant change. Regional changes
by race, however, were somewhat dif­ferent
from the data for all races
combined. White families posted sig­nificant
gains in the Northeast and
Midwest, whereas no significant
changes were noted for black or
Hispanic families in any region of
the country.
Poverty
In 1987, 13.5% of the Nation's
population (32.5 million) were below
the official Government poverty
level, not significantly different from
1986. Both the number of poor and
the poverty rate have declined since
1983 (the recent peak for these
figures) but remain above their 1978
levels (the recent low point). Be­tween
1986 and 1987, the poverty
rate among whites decreased by 0.5
percentage points, while the rate
among black persons increased by
2.0 percentage points; 10.5% of
whites and 33.1% of blacks were in
poverty. Among persons living on
farms, the poverty rate declined to
12.6% in 1987,7.0 percentage points
below the 1986 level.
Source: U.S. Department of Commerce,
Bureau of the Census, 1988, Money Income
and Poyerty Status jn the Unjted States 1987
(Advance data from the March 1988 Current
Population Survey), Current Population
Reports, Consumer Income, Series P~,
No. 161.
21
Employment
Characteristics of
Older Women
In 1950, only 2 of 10 workers age
55 and over were women. Since then
early retirement by men and in­creased
labor force participation by
women in their mid-fifties have ex­panded
that proportion rapidly.
While labor force participation rates
for older men have declined, those
for older women have remained
remarkably stable over the last 20
years (see table 1). According to the
Current Population Survey (CPS), 1
4 in 10 older workers are female. In
1987, 6.2 million, or 20% of all
women age 55 or older were in the
labor force. Understanding who
older workers are and why they con­tinue
to work or leave the labor
market is important in helping them
maintain their employment.
Women born at different time
periods have different worklife pat­terns.
Many of today's older women
reached employment age at a time
when women were not usually ex­pected
or encouraged to work. Sub­sequent
changes in attitudes towards
women's work force participation
have had a lasting effect. Not only
have participation rates risen with
each successive cohort, but there
have been fundamental changes in
worklife patterns as well. Fewer than
one-half of today's older women
were in the work force when they
were in their early twenties. Their
participation rates dropped even
further during childbearing years,
and then rose to a peak in their late
forties or early fifties. Participation
rates for today's younger women,
however, started high and continued
to rise with no dropoff during child­bearing
years. Their labor force pat­terns
more closely resemble those of
their fathers than their mothers.
1 The Current Population Survey is a
monthly household survey (including 59,500
households in 1987) conducted for the
Bureau of Labor Statistics by the Bureau of
the Census.
22
Women continue to be employed
in female-dominated occupations
(see table 2). In 1987, two-thirds of
those age 55 and over and one-half
of those age 25 to 34 were employed
in the traditionally female job
categories of sales, administrative
support (including clerical work),
and services. Opportunities in non­traditional
categories (such as medi­cine,
accounting, engineering, and
management) have occurred almost
exclusively for young women.
According to the CPS, work pat­tern
differences can be found within
the group of women 55 years and
over. Those in their late fifties usual­ly
work full time, year round and are
evenly represented across most job
categories, whereas older women in
the 65-and-over group work part-time
and are over represented in
some jobs (such as sales and service)
and under represented in others
(such as executive, administrative,
and managerial positions).
The Social Security Newly En­titled
Beneficiary Survey (NBS) as­sessed
retired worker benefits in
1982. Results showed that women
without pensions were three times
more likely to be employed than
women with pensions. The NBS also
found that health status played a
role in determining whether older
women worked, but was of less im­portance
than the receipt of pension
benefits. Respondents who were
physically limited and without pen­sions
were twice as likely to be
employed as healthy persons with
pensions.
Table 1. Labor force participation rates, by age and sex, 1967 and 1987
Age (years) Women Men
1967 1987 1967 1987
Percent
25to 54 •• 0 •• •• •••••• •••••••••••••• 0 47.3 71.9 96.6 93.7
55 to 64 • 0 •••••••••••• •• •••••••••• 0 0 42.4 42.7 84.4 67.6
55 to 59 ........................... 48.4 52.2 90.1 79.7
60to 64 ........................... 35.5 33.2 n.5 54.9
65 and over •••••• 0 •••• 0 ••••••••••••• 9.6 7.4 27.2 16.3
65to 69 ........................... 17.0 14.3 43.5 25.8
70 and over 0 ••••••••• 0 ••••••• 0 ••• • 5.8 4.1 17.6 10.5
Source: Herz, Diane E., 1988, Employment characteristics of older women, 1987. Monthly Labor Beyiew 111 (S):3-12,
U.S. Department of Labor, Bureau of Labor Statistics.
Table 2. Percent distribution of employed women, by occupation of
women and age, 1987
Occupation
Executive, administrative, and managerial .... .•.•
Professional (teachers and health care) .......... .
Technicians and related support ............... .
Sales ...... ..... ........................... .
Administrative support (including clerical) ........ .
Services ......................... .......... .
Precision production, craft, and repair ......•.....
Operators, fabricators, and laborers ............. .
Farming, forestry, and fishing .................. .
25to 34
11.3
16.4
4.5
10.9
29.2
15.5
2.3
9.0
.9
Age (years)
55 to 64 65 and over
Percent
9.8
11.7
1.7
12.6
29.6
19.6
2.5
10.6
1.8
8.2
10.2
1.1
14.9
24.1
29.1
2.7
6.8
2.9
Source: Herz, Diane E., 1988, Employment characteristics of older women, 1987. Monthly I abor Beyiew 111 (S) :3-12,
U.S. Department of Labor, Bureau of Labor Statistics.
Vol. 2 No. 1 Family Economics Review
Education is an excellent predic­tor
of labor force patterns. It affects
whether older women will work,
their likelihood of fmding a job,
whether they will work full or part
time, the type of position they will
hold, and the amount of pay they will
receive (see table 3). Completion of
high school dramatically increases
the likelihood that older women will
be in the labor force. In 1987 almost
one-half of women age 55 to 64 with
4 years of high school were working,
compared to less than one-third of
those of the same age group with
less education. Of older women who
were employed in 1986, those with
the most education worked the
fullest schedules.
Marital status is another factor
affecting working patterns. Because
labor force participation by women
age 55 and over is partially based on
their retirement resources, married
women with the benefit of a hus­band's
income as well as their own
were less likely to be employed. In
contrast, a large number of never­married
and divorced women con­tinue
working beyond normal
retirement age. In 1987,70% of
divorced women age 55 to 59, com­pared
to 45% of women with hus­bands,
were working. After age 65,
divorced women were three times
more likely to be in the labor force
than were married women. The
labor force participation rate for
divorced women far exceeds that of
never-married or widowed women.
Divorced women often rely primarily
on their own income for support;
they may have started their careers
late, and thus have accumulated
limited pension resources.
According to the CPS, older
black women have a greater attach­ment
to the labor market than older
white women. The NBS reported
that black men and women were less
likely than whites to receive pen­sions,
own homes, or hold other valu­able
assets, and that older black
women were less likely to be married
than older white women. As a result,
black women have fewer resources
for retirement and are more likely to
continue working to support them-
Vol. 2 No. 1 Family Economics Review
Table 3. Annual median earnings of full-time, year-round workers,
by sex, age, and education, 1986
Education
Age (years) Total 8 years or High school, College,
less 4 years 4years
or more
Women
25to 34 ••• 0 ••• 0 •••• 0 0 0 0 0 0. $16,813 $10,269 $14,424 $21,883
35to 44 •••••••••• 0. 0 ••••• 0 18,179 10,358 15,761 25,326
45to 54 0. 0. 0 0 •• 0 0 0 0 ••••••• 17,450 10,314 16,206 25,861
55 to 64 0. 0 •••••• 0 0 •••••• 0. 16,066 10,616 16,085 24,211
65 and over . . . ............. 13,217 8,239 13,601 21,403
Men
25to 34 ................... 22,607 12,101 20,540 27,693
35to 44 ................... 27,991 15,714 25,633 34,189
45to 54 •••••••••••••• 0 •••• 28,955 18,989 26,969 39,932
55 to 64 • • 0 •••••••• 0 ••••••• 27,326 17,881 26,957 39,366
65 and over •••••• 0 ••••••••• 23,922 15,843 24,488 38,976
Source: Herz, Diane E •• 1988, Employment characteristics of older women, 1987, Monthly I abor Review 111 (Sl:3-12,
U.S. Department of Labor, Bureau of Labor Statistics.
selves. Also, due to lower levels of
education and limited employment
opportunities, older black women
were concentrated in a narrow range
oflow-payingjobs. For example, in
1987 those age 55 and over were
three times more likely to be
employed in service occupations
than older white women.
Vast differences in both educa­tional
and employment opportunties
between older and younger black
women have resulted in very dif­ferent
occupational employment pat­terns
between the two groups. The
most noteable is in the percentage
working in private households. In
1987, 33% of black working women
age 65 and over worked as cooks,
servants, or cleaners, compared with
only 1% of those age 25 to 34.
The CPS reported that earnings
was a critical source of income for
older women who continued to
work. In 1986, median earnings was
$11,141 annually for women in their
late fifties and early sixties and
$5,348 for those age 65 and over.
The lower earnings for the oldest
women reflects their more marginal
work schedules. Full-time, year­round
earnings were substantially
higher for women age 55 to 64
($16,066) than for those 65 and over
($13,217) (see table 3). Although
earnings depended on a number of
factors, the best predictor was educa­tion.
Older women with 4 or more
years of college earned between 2
and 3 times as much as those with 8
years of school or less. Annual
median earnings for black and white
women age 55 to 64 were $13,801
and $16,370, respectively. Sex dif­ferences
in earnings proved to be of
greater importance than race dif­ferences,
however, as both groups of
women earned less than older black
men ($17,556) and older white men
($28,165).
Many of the the labor force pat­terns
displayed by older women in
1987 may never be repeated. In the
future, older women will have sub­stantially
more work experience than
their mothers and grandmothers.
Differences in work history depen­dent
on race and marital status will
lessen, and women's retirement
decisions will be similar to those of
men.
Source: Herz, Diane E., 1988, Employment
characteristics of older women, 1987, ~
Labor Review 111(2):3-12, U.S. Department
of Labor, Bureau of Labor Statistics.
23
Personal
Bankruptcies
Personal bankruptcies have risen
sharply over the past 3112 years, even
though employment and aggregate
personal income have registered
solid growth. In 1984, approximately
300,000 personal bankruptcy cases
were flied. In 1987 this number in­creased
to nearly 500,000 cases. This
unusual countercyclical upswing in
personal bankruptcies has generated
considerable puzzlement and some
concern.
Although the number of bank­ruptcies
has risen most rapidly in
the major oil-producing States
(Oklahoma, Texas, Louisiana,
Colorado, and Wyoming), subtract­ing
these States from the total
reduces the rate of increase between
the second quarters of 1985 and
1986 by only 6% (from 36% to 30% ).
Thus, the recent surge in personal
bankruptcies does not appear at­tributable
in any significant way to
special problems in specific regions.
The rapid growth in consumer
debt is probably a key factor under­lying
the increase in personal
bankruptcies. The aggregate debt-to­income
ratio climbed sharply be­tween
1984 and 1988, from a level of
around 14% (that had held during
most of the previous decade) to a
The U.S. Bankruptcy Code
record 19% bymid-1987. Therefore,
during the current business expan­sion,
a rapid rise in bankruptcies and
a strong upsurge in debt burden
have occurred together. With un­employment
trending downward and
household wealth and incomes grow­ing
substantially during the period,
the growth of debt appears to be the
one major macroeconomic force.
that moves in a direction consistent
with increases in bankruptcies.
Aggregate figures on debt can
obscure important distributional fea­tures
that may affect bankruptcy
rates. Between 1983 and 1986, a
large increase in debt was acquired
by people considered to be high­debt
households (those·with a debt­to-
income ratio of 40% or higher),
thereby making their fmancial situa­tion
more precarious. As a result,
only about half of high-debt house­holds
in 1986 had asset holdings
(including home equity) large
enough to fully cover their debts,
compared with about 80% in 1983.
Changing attitudes toward
bankruptcy may be another factor
that helps to account for the ac­celerated
pace of bankruptcy fllings.
Several societal developments have
seemed to diminish the stigma once
attached to bankruptcy. Widespread
use of consumer credit has made
bankruptcy less rare and, therefore,
has rendered the bankrupt indivi-
In its current fonn, the U.S. bankrnptcy code contains five operative chap­ters
(7, 9, 11, 12, and 13) under which bankrnptcy petitions may be filed.
Chapter 9 applies exclusively to municipalities and chapter 11 primarily to
business reorganizations. Individuals most commonly file under Chapters 7
or 13. Chapter 7 provides for liquidation of assets and discharge of debt and
may be used by business or nonbusiness petitioners. It accounts for about
70% of all bankrnptcies, and of these, about 85% are classified as
nonbusiness. Chapter 13 provides for wage-earner plans that involve the full
or partial repayment of debts while assets are shielded from creditor action.
It is limited to individuals; but insofar as an individual may be a sole
proprietor with mostly business-related debts, Chapter 13 also embraces both
business and nonbusiness cases. About 95% of Chapter 13 cases involve
nonbusiness petitioners. Chapter 12, added to the statute in 1986, is the
newest operative section of the bankrnptcy code. It makes available to
family fanners the equivalent of a Chapter 13 repayment program. Chapter
12 cases are classified as business bankrnptcies.
24
dual a less conspicuous figure. The
many revisions in the laws and regu­lations
concerning debtor rights may
reflect changing attitudes. The
Truth-in-Lending Act, restrictions
on collection tactics of creditors, and
the Bankruptcy Reform Act of 1978
seem to suggest that bankruptcy is
not a shameful process resulting
from personal failings but a respect­able
means of handling a situation
for which the debtor may be largely
blameless.
Advertising by lawyers (legally
permissible since 1977) also may
stimulate bankruptcies by creating a
climate in which bankruptcy is more
readily seen as a legitimate response
to fmancial distress. Other social fac­tors
that could be contributing to the
rise in bankruptcies include the
divorce rate and the trend toward
dual-earner families. Although the
divorce rate rose steadily in the
sixties and seventies, stability in the
overall divorce rate since 1980 seems
to contradict any notion that a sud­den
worsening of marital relations
might account for the bankruptcy
activity in recent years. The trend
toward two-earner families might
affect bankruptcy rates if couples
base the levels of their spending and
borrowing on the total amount of
their dual incomes. Interruption of
either income could jeopardize a
family's financial stability.
Although bankruptcy rates have
made a small impact on profit mar­gins
of creditors, there is no
evidence to date that creditors have
tightened loan standards. The
stability of the debt-to-income ratio
since its peak in early 1987 provides
some hope of moderation in bank­ruptcy
increases. Nevertheless, rising
numbers of personal bankruptcies
could begin to affect lending or
spending patterns, particularly if the
current strength in employment and
household net worth should weaken.
Source: Luckett, Charles, A. 1988, Personal
bankruptcies, Federal Reserve Bulletin
74(2):591-603, Board of Governors of the
Federal ReseiVe System, Division of Re­search
and Statistics.
Vol. 2 No. 1 Family Economics Review
New Publications
The following publications are for
sale from the Superintendent of
Documents, U.S. Government Print­ing
Office, Washington, DC 20402,
(202) 783-3238:
• 1988 Yearbook of Agriculture­Markekting
U.S. Agriculture.
SN001-000-04517-2. July 1988.
$9.50 (327 pp.)
• Fact Book of United States
Agriculture, 1988.
SN001-000-04520-2. August 1988.
$4.25. (167 pp.)
Interesting agricultural information is
provided in this fact book, which can
be used as a handy reference guide for
students, farm organization leaders,
and agribusiness leaders.
• The Nonmetro Elderly: Economic
and Demographic Status.
SN001-019-00570-0. June 1988.
$2.00. (35 pp.)
This report from the Economic
Research Service examines the
demographics of the nonmetro
elderly and compares the social,
demographic, and economic charac­teristics
of older people living in metro
areas with those living in nonmetro
areas.
• County and City Data Book.
SN003-024-06709-9. November
1988. $36.00. (958 pp.)
Almost 1,000 pages of statistics on
3,139 counties and almost 11,000 cities
or places in the United States are in­cluded
in the 11th edition of County
and City Data Book. Local and
demographic data are given, including
a table showing the top-ranking coun­ty
in each State according to 24 vari­ables.
(The statistics also are available
Vol. 2 No. 1 Family Economics Review
on diskettes. For more information
call Customer Services, Data User
Services Division, Bureau of the Cen­sus
(301) 763-4100.)
• Trends in Family Income: 1970-
1986.
SN052-070-06417 -0. February
1988. $6.00. (119 pp.)
What demographic and economic fac­tors
have influenced the trends in
family incomes? A study from the
Congressional Budget Office ex­amines
what has happened to the in­comes
of different types of families
since 1970. Figures and tables are
used throughout to present the data.
Single copies of the following are
available from the Consumer Infor­mation
Center. Write to R. Woods,
Consumer Information Center-F,
P.O. Box 100, Pueblo, CO 81002:
• A Consumer's Guide to Mortgage
Refinancing.
427V. 1988. $0.50. (7 pp.)
The cost of refmancing a home and the
right time to refmance are discussed in
this pamphlet from the Federal
Reserve Board.
• The Consumer's Guide to Long­term
Care Insurance.
460T. 1988. $0.50 (12 pp.)
By 1990, nearly 7.7 million Americans
over 65 years of age will need some
form of long-term care. The Depart­ment
of Health and Human Services,
with the assistance of the American
Association of Retired Persons and
the Health Insurance Association of
America, examines all aspects oflong­term
care coverage and cost.
25
Revision of CPI
Medical Care
Senices Component
The medical care services com­ponent
of the Consumer Price Index
( CPI) underwent several changes
when the revised CPI was intro­duced
in January 1987. Revised CPI
expenditure weights for the CPI-U
(all urban consumers) and CPI-W
(urban wage earners and clerical
workers) are based on Consumer
Expenditure Survey ( CEX) data
(see box) for 1982-84. (Data from
the 1972-73 CEX were used for the
CPI from 1978 through 1986.)
The 1982-84 CEX data showed
that as a proportion of total con­sumption,
the medical care services
component was smaller than that of
the 1972-73 CEX. This decline
results from the changing ways in
which consumers pay for medical
care. Because the CPI reflects only
consumer expenditures, employer­and
government-provided benefits
are not included. In the decade be­tween
the two expenditure surveys,
the number of these third-party­provided
benefits increased. Thus,
while medical care prices have risen
at a rapid rate over the past decade,
average consumer unit expenditures
on medical care rose less rapidly due
to employer- and government­provided
benefits.
The CEX is composed of two
separate surveys- an interview
survey and a diary survey- both
conducted by the Bureau of the
Census for the Bureau of Labor
Statistics. Expenditure weights for
all of the medical care services
categories were calculated from the
interview survey. These expendi­tures
reflect both out-of-pocket ex­penses
not covered by insurance
and health insurance premiums
paid by survey households.
26
Health Insurance
A number of definitional changes
related to medical care services have
been introduced in the revised CPl.
(see table, p. 27). The most sig­nificant
of these is how health
insurance premiums 1 in the CPI are
represented in the expenditure
weights. Insurance premiums may be
viewed as purchasing ( 1 ) the
services of the insurance carrier in
administering the policy, and (2) the
medical care for which benefits are
paid. Previously, the entire insurance
premium was classified as health
insurance. In the revision, the CPI
item labeled health insurance is
defmed as the portion of premium
payments retained by the insurer in
the form of operating expenses and
profit, and represents the weightitig
together of the retained earnings of
Commercial Carriers, Blue Cross/
Blue Shield, health maintenance
organizations, and Medicare Part B2
and Medicare supplement policies.
The expenditure weight for each
medical care item is the combination
of direct (out-of-pocket) and in­direct
(paid from health insurance)
expenses.
Four basic factors affect changes
in the cost of health insurance pre­miums:
( 1) Increased or decreased
medical care costs; (2) changes in
health insurance provider adminis­trative
costs, surplus requirements,
and profit (for commercial carriers);
(3) changes in the benefits covered
by health insurance policies; and
( 4) utilization (the frequency of
claims made under a health in­surance
policy) changes. Changes in
costs should be reflected in the
index; changes in covered benefits
and utilization are changes in quality
or quantity and should not be
reflected.
1 Health insurance represents only expendi­tures
by consumers for premiums. Employer
contributions are not included.
2 Medicare Part A (hospitalization) is not
relevant to the CPI because it is an entitle­ment
program paid through payroll deduction
as opposed to insurance or a prepayment plan
that consumers purchase by paying
premiums, that is, Medicare-Part B­Medical
Insurance.
In pricing premiums directly, BLS
found it impossible to account for
quality differences. This led to a
switch to the current indirect
method of pricing health insurance.
This indirect approach enables the
Bureau to reflect in the CPI an es­timate
of the impact on premium
levels of changes in the prices of
medical care services covered by
health insurance policies, as well as
changes in the costs of administering
the policies and maintaining reserves
and, as appropriate, profits.
Pricing Medical Services
A sample of 91 urban areas was
selected to represent all urban areas
in the country. Within each of these
areas, the Census Bureau conducts a
Point of Purchase Survey for BLS to
identify not only how much con­sumer
units spend for each category
of consumption, but also where they
make the purchase.
For pricing medical services, BLS
field representatives start with a
general entry-level category, such as
physicians' services, and successively
narrow the defmition stage by stage
using probability selection methods
based on revenues and volume infor­mation
supplied by the respondents.
This process yields a representative
sample of the variety of services
provided, and the resulting price
index is, thus, an accurate reflection
of price change for the entry-level
category. This direct pricing method
is called disaggregation.
Prior to the 1987 revision, the col­lected
medical care service prices
represented the rate patients paid
for professional services and the
published charges for hospitals.
However, because professional and
hospital-related services were used
to move the index weights for both
out-of-pocket expenses not covered
by insurance and insurance benefit
payments, the Bureau decided to
determine if alternative fees were
available for such priced services.
BLS conducted a survey in 1985 to
identify the prevalence of medical
care service providers charging dif­ferent
rates to patients covered by
health insurance. Physicians were
Vol. 2 No. 1 Family Economics Review
Definition of published medical care service Indexes
Item
MEDICAL CARE
SERVICES
Professional
Medical Services
(old title: Profes­sional
Services)
Physicians'
services
Dental services
Other professional
services
Eye care
Services by other
medical
professionals
Other medical care
services
Hospital and
Related Medical
~(old title:
Hospital and Other
Medical Services)
Hospital room
Other hospital and
medical care
services
Other inpatient
services
Outpatient services
Old series
Professional and hospital services; health insurance im­putation.
Physicians; dentists; other professionals, such as op­tometrists,
ophthalmologists, podiatrists, chiropractors.
Includes all services by medical physicians in private
practice, other than dental and eyecare, that are billed by
the physician. Includes house, office, clinic, and hospital
visits by general practitioners, internists, osteopaths, and
other specialists. Excludes podiatrists and other medical
practitioners who are not MD's. Ophthalmologists are
included in other professional services.
Includes dental services performed by dentists, oral or
maxillofacial surgeons, orthodontists, periodontists, or
other dental specialists in group or individual practice.
Some of the specific services included are cleanings,
extractions, fillings, orthodontic work, periodontal treat­ment,
bonding , dental sealants, treatment for tem­poromandibular
joint problems, root canal therapy, den­tures,
bridges, crowns, and orthognathic surgery. Treat­ment
can be provided in the office or in the hospital.
All services performed by other medical professionals,
such as podiatrists, chiropractors, psychologists; eye care
provided by optometrists and opthalmologists.
New index.
New index.
Hospital services, nursing homes, and health insurance
imputation.
Hospital services that include hospital room and board, in­patient
services, emergency room visits, and nursing
home care.
Room and board for any type of hospital room, such as
private, semiprivate, routine nursery, ward, intensive care,
or coronary care that is billed by the hospital.
Inpatient hospital services such as laboratory tests, radiol­ogy,
operating room, pharmacy, and emergency room
that are billed by the hospital and nursing home care.
New index.
New index.
New series
Professional and hospital services; health insurance im­putation
and dispensing of eyeglasses and outpatient
services at hospitals.
Physicians; dentists; other professionals, such as op­tometrists,
opthalmologists, opticians, psychologists,
and therapists.
Includes all serviqes by medical physicians in private
practice, other than dental and eye care, that are billed
by the physician. Includes house, office, clinic, and
hospital visits by general practitioners, internists,
osteopaths, and other specialists. Excludes podiatrists
and other medical practitioners who are not MD's.
Ophthalmologists are included in Eye Care.
Includes dental services performed by dentists, oral or
maxillofacial surgeons, orthodontists, periodontists, or
other dental specialists in group or individual practice.
Some of the specific services included are cleanings,
extractions, fillings, orthodontic work, periodontal treat­ment,
bonding, dental sealants, treatment for tem­poromandibular
joint problems, root canal therapy, den­tures,
bridges, crowns and orthognathic surgery. Treat­ment
can be provided in the office or in the hospital.
Discontinued.
Services provided by optometrists, opthalmologists, and
opticians. Includes dispensing of eyeglasses and surgi­cal
procedures performed by opthalmologists in or out
of the office.
Includes services performed by other professionals such
as psychologists, chiropractors, therapists, and nurse
practioners in or out of the office.
Discontinued.
Hospital services that include hospital room and board,
inpatient services, and outpatient services that include
emergency room, and nursing home care.
Room and board for any type of hospital room, such as
private, semiprivate, routine nursery, ward, intensive
care, or coronary care that is billed by the hospital.
Discontinued.
Hospital services for inpatients, such as pharmacy,
laboratory tests, radiology, and operating room that are
billed by the hospital and nursing home care.
Hospital services for outpatients, such as laboratory
tests, radiology, short stay units, ambulatory surgery,
physical therapy, and emergency room that are billed by
the hospital.
Note: 1>3 part of the CPI revision, BLS has created new inde•es under medical care services by separating previously combined ~ems: Eye Care from other professional services; Other
Inpatient Services, from other hospital and medical care services; and Outpatient Services, from other hospital and medical care services. lnde•es for other professional services, other
medical care services, and other hospital and medical care services have been discontinued.
Source: Ford, Ina Kay, and Philip Sturm, 1988, CPI revision provides more accuracy in the medical care component, Monthly! abor Review 111 W:17-26, U.S. Department of Labor,
Bureau of Labor Statistics.
Vol. 1 No. 2 Family Economics Review 27
the only respondents that reported
available alternate fees for selected
services with enough frequency to be
useful in the disaggregation process.
One of the most difficult concep­tual
problems faced in compiling the
CPI is to identify accurately and fac­tor
out of price measurement any
changes in the quality of priced
items. The Bureau attempts to iden­tify
the quality level of an item by
including all of the relevant quality­determining
attributes in the descrip­tion
of each unique item priced. To
determine if a quality change has oc­curred,
BLS obtains the current
specifications for the item and com­pares
them to the previous specifica­tions.
Those surveyed in the Point of
Purchase Survey may identify the
change as ( 1) a pure price change,
(2) a change in the characteristics of
the currently priced procedure or
service, or (3) a combination of the
two. Some quality changes may be
counted as price changes inadver­tently;
improved technologies and
procedures can lead to quality chan­ges
that cannot be measured by the
BLS in every instance (e.g., a change
in the ratio of nurses to patients).
Source: Ford, Ina Kay, and Philip Stunn,
1988, CPI Revision provides more accuracy in
the medical care component, Monthly l,abor
~ 111(~):17-26, U.S. Department of
Labor, Bureau of Labor Statistics.
Medicare
Catastrophic
Coverage Act 1988
On July 1, 1988, President
Reagan signed into law the
"Medicare Catastrophic Coverage
Act," considered the most extensive
overhaul of the Medicare program
since its enactment in 1965.
Medicare1 has two separate,
1Medicare is the Federal health insurance
program available to most persons aged 65 or
older who worked under the Social Security
or Railroad Retirement systems, their
spouses, and some disabled persons.
Vol. 2 No. 1 Family Economics Review
complementary parts: Hospital
Insurance (HI), Part A, and Sup­plemental
Medi