Other publicly available economic data that can help assess the financial wellbeing of typical households does not support the ALICE reports’ main finding that a large and growing portion of the population is unable to survive.
According to the reports on Michigan, the number of ALICE households increased by 13% from 2010 to 2017, rising from 26% of households to 29%. This would be remarkable, if true. That is because that period was marked by broad and steady economic growth in the state. This claim deserves scrutiny because the finding stands in contrast to most other measures of economic performance.
Michigan was not doing well economically in 2010. The state was at the tail end of a “lost decade,” which saw a 16% drop in household income, a peak unemployment rate of 14.6% with 725,000 people unemployed, and nearly two million people (20% of the state) receiving government food assistance.
But, coming out of the Great Recession, Michigan gained hundreds of thousands of jobs, saw household income growth 10.5% above inflation and ranked third nationally in per-capita real gross domestic product growth since 2009. Taken together, these trends indicate general economic growth.
State income tax data also implies something similar. While income brackets are not adjusted for inflation, they can still be indicative of whether the number of people earning low incomes has changed over time. The data indicate that the number of people earning low incomes has declined. From 2010 to 2018, the number of returns filed with less than $20,000 in adjusted gross income decreased 16.4%. The number of returns filed claiming less than $30,000 in adjusted gross income decreased 9.8%, and the number of returns filed claiming less than $45,000 in adjusted gross income also decreased by 7.2%. If earnings did not grow for low-income households since 2010, the population the ALICE reports try to identify, the numbers should have stayed the same or increased over the period.
Other data suggest that growth also positively affected lower income households. For instance, Michigan’s poverty rate increased from 2010 to 2011 but has gradually fallen since, declining from 16.8% in 2010 to 13.0% in 2019, representing 349,000 fewer people in poverty in Michigan.
The ALICE model, of course, tries to capture households that make more than the federal poverty threshold but still struggle to survive and finds that the portion of Michiganders this represents increased over this period. But because the model relies on hypothetical budgets based on average spending levels, increases to the number of ALICE households may actually represent overall positive economic changes.
This could happen due simply to the way the United Way report defines an ALICE household. Since these are households with income exceeding the federal poverty level but less than the hypothetical budgets constructed for the report, when a household raises its income above the federal poverty level, they likely now meet the ALICE definition. In other words, increased income for households below the federal poverty line results in more households being labeled ALICE. This would happen even if all households made real improvements to their financial situation. This suggests that the ALICE model is a poor measure for discerning trends in the number facing financial struggles.
Another reason the ALICE model could show worsening outcomes for Michigan households while the state experiences broad and sustained economic growth is by simply raising the ALICE income threshold. This has happened: the cost of “household basics” increased significantly from 2012 to 2019, according to the reports. The estimated income needed to survive increased by 27% for multiple-person households and nearly 40% for single households. That means that a single adult living alone with income matching the 2012 ALICE threshold had to boost their pay by 40% over seven years in order to continue surviving.
The findings of the ALICE reports generally run counter to trends that can be seen in different data sets. Considering this on top of the serious methodological concerns laid out earlier, the conclusions drawn from these reports are suspect and unlikely to provide an accurate reflection of economic trends.