European America: The Effect of Underreported Transfer Benefits and Cost-of-Living on Cross-National Poverty Analysis

Abstract

This study investigates the extent to which correcting for the underreporting of transfer benefits in the American Current Population Survey (CPS) complicates typical analyses comparing the effect of anti-poverty policy in the United States and Europe. Previous research suggests that up to one-half of social program spending by the American Federal government is not accounted for in CPS data harmonized for cross-national analysis by the Luxembourg Income Study and Organisation for Economic Development and Cooperation. Using a microsimulation model to align survey responses with administrative data at the federal and state level decreases the overall and child relative poverty rates by 16% and 21% respectively. This doubles the number of Americans living in states with ‘European’ poverty rates to 25%, from 42 to 79 million, and demonstrates that more Americans live in states with ‘social democratic’ levels of poverty than the populations of Denmark, Finland, Norway, the Netherlands, and Sweden combined. Adjusting the national American poverty line for cost-of-living further suggests that 38% of Americans live in states with poverty rates typical of European countries. If a relative poverty line calculated across the European Union is used instead to reflect variation in standard of living across the EU, correcting for underreporting increases the share of Americans living in states with poverty rates below the EU member state average from 66% of the population to 94%.. Ultimately, given the varying adoption of administrative income data across countries, growing rates of underreporting in the CPS with variation across American states, and the increasing devolution of American social policy, comparative analyses of poverty and policy that do not consider underreporting or subnational variation risk biased conclusions.