In and Out of Poverty: Episodic Poverty and Income Volatility in the US Financial Diaries

We use data from the US Financial Diaries study to relate episodic poverty to intrayear income volatility and to the availability of government transfers. The US Financial Diaries data track a continuous year's worth of month-to-month income for 235 low- and moderate-income households, each with at least one employed member, in four regions in the United States. The data provide an unusually granular view of household financial transactions, allowing the documentation of episodic poverty and the attribution of a large share of it to fluctuations in earnings within jobs. For households with annual income greater than 150 percent of the poverty line, smoothing within-job income variability reduces the incidence of episodic poverty by roughly half. We decompose how month-to-month income volatility responds to the receipt of eight types of public or private transfers. The transfers assist households mainly by raising the mean of income rather than by dampening intrayear income variability.