The Devil's in the Definitions: How Income and Poverty Measurement Decisions Shape Our Understanding of Economic Well-Being, 2004-2024

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Working Paper Number: SEHSD-WP2026-06

Accurate measurement of economic well-being and inequality in the United States is of interest to both researchers and policymakers. The U.S. Census Bureau contributes to this discourse by producing annual estimates of median household income and poverty. This paper adds to the existing work at the Census Bureau by exploring how using different income definitions, poverty thresholds, and inflation adjustments affect measurement of economic wellbeing over the past two decades. We produce a historical series (2004-2024) of two new measures of income: market and disposable income. We present these new measures alongside the two measures currently used at Census, money income and post-tax income, and discuss differences in levels and changes in the four measures over time. In addition, the paper discusses poverty trends using the newly presented measures. We show that, according to each of the four definitions, income grew over the two-decade span. Money income, post-tax income, and disposable income grew more than market income. The results hold for poverty, as market income poverty fell 0.6 percentage points, 0.9 to 1.1 percentage points less than the other income measures. We also explore the implications of the choice of inflator, supporting existing evidence that shows that chained price inflators show larger increases in economic well-being. Taken together, these new estimates speak to how economic well-being has changed in the U.S. over the past two decades and highlight the importance of measurement decisions in understanding these trends. This work is consistent with recommendations from a recent National Academies report on improving estimates of income, consumption, and wealth in the United States (National Academies of Science, Engineering, and Medicine 2024) as it adds supplementary estimates of post-tax and transfer income to currently produced statistics.

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