Estimating Household Income and Expenditures

Data Team

June 27, 2017 17:38

OVERVIEW

Like other Institutions, households receive income and make expenditures. Household Income represents the income from all sources received by residents, including labor income net of payroll taxes, interest, dividends, and transfer payments from governments (such as social security, veterans’ benefits, and SNAP payments, among others), less personal income taxes. Household Expenditures represent the total expenditures of households, including expenditures for the consumption of goods and services as well as payments to federal and state and local governments and other households, as applicable.

IMPLAN has distinct spending patterns for nine household income categories, categorized by ranges of income. The U.S. Census Bureau's household count by income level estimates are used to define the number of households in each of the nine income categories at the state and county level. However, there are important differences in the way that the U.S. Census Bureau and IMPLAN and other data sources measure income.

HOUSEHOLD INCOME

DATA SOURCES

Estimates of household income and transfer payments come from several data sources, including the following:

IMPLAN Industry data
- Census Bureau’s Journey-to-Work Data
BEA Regional Economic Accounts (REA) tables CA35 (personal current transfer receipts) and SA50 (personal current taxes)
BEA National Income and Product Accounts (NIPA) Tables
BEA NIPA Personal Consumption Expenditures (PCE)
BLS Consumer Expenditure Survey (CES)
The Census Bureau's Journey-To-Work data
BEA NIPA Table 1.12 - National Income by Type of Income
BEA NIPA Table 2.1 - Personal Income and Its Disposition
BEA NIPA Table 3.2 - Federal Government Current Receipts and Expenditures
BEA NIPA Table 3.3 - State and Local Government Current Receipts and Expenditures
BEA NIPA Table 3.6 - Contributions for Government Social Insurance
BEA NIPA Table 3.13 - Subsidies
BEA NIPA Table 6.2D - Compensation of Employees by Industry
BEA NIPA Table 7.11 - Interest Paid and Received by Sector and Legal Form of Organization

Labor Income received from Industries is provided by IMPLAN Industry data. Employee Compensation is place-of-work income. In other words, household income generated by wage and salary employment is an establishment-based value because an industry pays wages and salaries to employees where the employees work, regardless of where those employees live. A residence adjustment, provided by the BEA REA, converts the Employee Compensation data to a place-of-residence value. This is in contrast to Proprietor Income, which is always assumed to be local. IMPLAN also incorporates the Census Bureau’s Journey-to-Work data. See Estimating Commuter Employee Compensation for more information on this topic.

Primarily coming from the BEA REA, income that is received outside of employment are place-of-residence values. Once the adjustment is made to Labor Income, the data elements are all balanced to the national SAM totals to ensure consistency across the regions. In this way, state and county totals are consistent with the BEA's National Income and Product Accounts.

PROCESS

At IMPLAN, we base household income on the Bureau of Economic Analysis (BEA)'s "Personal Income" numbers controlled to current BEA National Income and Product Accounts (NIPA) for the nation. Learn more about the various types of income and differences in how income is measured.

Household income is then distributed both geographically and among IMPLAN’s nine household income groups using data from the Bureau of Labor Statistics’ Consumer Expenditure Survey (BLS CES) and the U.S. Census Bureau. The BLS CES provides household income data by household income group and by type of income (wage and salary, other labor income, and proprietor’s income). IMPLAN then uses this data combined with the U.S. Census Bureau's household counts by income group at the state and county levels.

Income is distributed amongst the household income groups differently depending on the source and type of income. For example, other labor income (consisting of pensions and insurance funds among others) is distributed differently from the wage and salary income part of employee compensation to account for non-resident earners.

HOUSEHOLD EXPENDITURES

DATA SOURCES

Estimates of household expenditures come from several data sources, including the following:

BEA NIPA Personal Consumption Expenditures (PCE)
BLS Consumer Expenditure Survey (CES)
BEA NIPA Table 2.1 - Personal Income and Its Disposition
BEA NIPA Table 3.2 - Federal Government Current Receipts and Expenditures
BEA NIPA Table 3.3 - State and Local Government Current Receipts and Expenditures
BEA NIPA Table 3.4 - Personal Current Tax Receipts
BEA NIPA Table 2.1 - Personal Income and Its Disposition
Annual Survey of State and Local Government Finances
Census Bureau State and Local Government Tax Collections

Household personal consumption expenditures on locally-produced commodities are derived from the NIPA PCE data, with household income category detail obtained from the BLS Consumer Expenditures Survey (CES) data. The characteristics of these data are summarized below.

NIPA PCE Data

Annual and current
National level
Only one spending pattern (i.e., not separated by income group)
The NIPA table has 100 or so expenditure categories. The BEA benchmark I-O tables are used to distribute these expenditure categories among the IMPLAN Industries
The PCE data are in purchaser prices, so margining is necessary to obtain producer prices for use in IMPLAN

BLS CES Data

Annual but lagged
National level

Households also make payments to federal and state and local governments (in the form of taxes, fees, fines, etc.) and other households (in the form of interest payments). Tax data come from:

Annual Survey of State and Local Government Finances
Census Bureau’s State Government Tax Collections series

Details on household payments of taxes can be found in the Estimating Administrative Government Sales and Revenues article.

PROCESS

The U.S. control totals for the Household Personal Consumption Expenditures (PCE) come from the BEA's National Income and Product Accounts (NIPA) for the current year. Beginning with the 2017 IMPLAN data, we now also incorporate state-level PCE data from the BEA (which are lagged one year but controlled to the current NIPA totals). There are about 100 NIPA expenditure categories, which we distribute to the IMPLAN Industry Scheme using more detailed PCE data from the latest BEA Benchmark I-O.

The BEA data are for all household income groups combined. To break these out by household income group we turn to the Bureau of Labor Statistics' Consumer Expenditure Survey (CES) data, which are lagged but provide estimates of expenditures by various income categories.

CES is the source for splitting household commodity purchases and tax payments into nine income segments. As mentioned previously, the U.S. Census Bureau's household count by income level estimates are used to define the number of households in each of the nine income categories at the state and county level. However, the CES income estimation is based on money income as opposed to the REA personal income. To resolve the discrepancy, CES income is adjusted to REA income totals. Once the adjustment is made, the data elements are all balanced to the national SAM totals to ensure consistency across the regions. In this way, state and county totals are consistent with the BEA's National Income and Product Accounts.

These expenditure data are in terms of Purchaser Prices, so we must margin the data; that is, we must split the purchaser values among the Producer Price and any transportation, wholesale, and retail margins. This is done using data from the latest BEA Benchmark. These values are then matched to the appropriate producing, transportation, wholesale, and retail Industries, resulting in an allocation of PCE spending across IMPLAN Industries for each IMPLAN household income group.

For each household income category, these national spending values by IMPLAN Industry are converted to coefficients (proportions of total PCE). To get state-level and county-level PCE expenditures by IMPLAN Industry and household income category, these national coefficients are multiplied by each state and county's spending by household income category. Therefore, the spending pattern for each income class is constant across the U.S. While the CES data is reported by large region, analysis performed by IMPLAN showed no statistically significant difference between regions.

The national data are distributed to states and counties on the basis of the area's total household spending in each household income category. It is assumed that within a given income group, taxation and spending patterns are similar across the nation. While the CES data are available for six regions, analysis by IMPLAN did not show statistically significant differences in expenditure patterns across regions for a given household income category.

Understanding Types of Income

Income Data Sources: Personal Income vs. Money Income