Farm Household Economics and Well-Being:
Additional Measures

Farm Household Economics and Well-Being Briefing Room Income Forecast (2/12/2008) and Income in Perspective Assets, Debt, and Wealth Additional Measures Demographics and Labor Allocations Federal Taxes and Households

The basic indicators of household well-being—average (or median) income and wealth—do not adequately convey information about how financial well-being is distributed among the population or information about non-financial measures of well-being. Of special interest, for example, are farm households that are experiencing financial hardship. Indicators that contribute to our understanding in measuring the size of this population include:

• poverty rates and a
• joint income-wealth indicator.

Other indicators of well-being, besides income- and wealth-based indicators, include:

• access to health insurance,
• household living expenses,
• farm fatalities and injuries and
• satisfaction with residence.

Poverty

The U.S. Bureau of the Census establishes an annual poverty threshold to measure the share of the population with low incomes. One way in which the farm population was identified in the past was based on whether or not they resided on a farm. In 1959, about half of all farm residents were below the official poverty line, compared to 20 percent of nonfarm residents. The gap in the poverty rates narrowed considerably over time, so that by the late 1980s, poverty rates of farm residents were at or below the rates for nonfarm residents.

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The farm resident population gradually ceased to be representative of the farm operator household population (since not all operators live on their farm and others who are not operators live on farms) and so, more recently, poverty rates have been calculated for farm operator households. (For the years when data are available for both populations, farm residents have lower poverty rates than do farm operator households.) Based on the official poverty threshold, 8.4 percent of farm operator households were in poverty in 2006, compared to 12.3 percent of the general U.S. population. Poverty rates are higher in nonmetropolitan areas than they are in metropolitan areas for both the general population and the farm household population. However, it is important to keep in mind that poverty rates are incomplete indicators of well-being since they only look at income sources, not wealth.

Farm Households' Well-Being Includes Income and Wealth

In a variable-income/high-wealth sector such as farming, well-being measures based on both income and wealth can provide a better indication of a household’s capacity to maintain its standard of living than a measure of income taken in a single year. During downturns in income, farm households may be able to borrow against, or liquidate, assets. To jointly consider both income and wealth, farm households are divided into four groups, separated into low and high levels of income, and low and high levels of wealth, with the median levels of U.S. household income or wealth as the dividing lines between low and high. Median income (or wealth) is the level at which 50 percent of households have greater income (wealth) and 50 percent have less.

There is a difference between farm and other U.S. households in the pattern of wealth compared to income. In 2006, less than 5 percent of all farm households—in contrast to 50 percent of all U.S. households—had wealth less than U.S. median household level (see table). The 96 percent of farm households with high wealth are split into two groups, with 55 percent having income higher than the U.S. median and 41 percent having income lower than the U.S. median. The major difference appears to be that, on average, the low-income/high-wealth group tended to have incurred farm losses during the year, and their off-farm income was not sufficient to offset these losses.

So who is in the small group of low-wealth households? On average, the low-wealth group was younger (virtually none was retired), operated substantially fewer acres, and generated lower farm sales than the farm operator population as a whole. They reported substantial losses in the off-farm component of household income. Among low-wealth households, a major factor differentiating the high-income subgroup from their low-income counterparts is occupation: their primary occupation is disproportionately “other than farming/ranching,” whereas the low-income group was more evenly split between operators declaring farming/ranching or “other” as their primary occupation.

It is not surprising to find that farm operator households have more wealth than the average U.S. household because capital assets, like farm land and equipment, are generally necessary to operate a successful farm business. In general, all households with self-employed heads have greater wealth than the average U.S. household. Farm operator households have greater wealth than all U.S. households with a self-employed head.

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The distribution of farm households in each income/wealth group has been relatively consistent over time. However, there seems to be an increase in the share of farm operator households found in the most financially secure group of both higher income and higher wealth, and a slight decline in the share of farm households falling into the other groups.

Health Insurance Coverage

Health insurance provides individuals or groups with a contractual arrangement for personal medical expenses to be covered (usually, in part) in exchange for a fee paid to insurance companies. The terms and expense of health insurance plans vary widely. Because medical attention is relatively expensive and can significantly affect morbidity and mortality, the incidence of health insurance among populations is an important indicator of their well-being.

In 2006, 15.8 percent of the U.S. population had no form of health insurance. For members of farm operator households, the comparable figure was 13.8 percent. Having health insurance is closely associated with a person's age and income—coverage increase with both age and income. Virtually all U.S. citizens age 65 or older have some coverage through Medicare. Farm operator households, are more than three times as likely as other U.S. households to be headed by an individual over 65. Farm operator households also have higher incomes, on average, than the general U.S. population. Because health insurance is expensive, Americans with low incomes are less likely to have health insurance.

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Most Americans receive health insurance through their employers. Although farm operators are largely self-employed, the majority of farm operator households have the operator or spouse employed off the farm. As with the general population, the most common source of health insurance for members of farm households is employment-based. In fact, farmers are almost as likely as the general U.S. population to receive their health insurance through an outside employer. Only about 6 percent of farmers receive their health insurance through the farm businesses they operate. Farmers are more likely than the general population to directly purchase their health insurance from an insurance company, and less likely to receive health insurance from a Government-sponsored program, such as Medicare, Medicaid, or the Veterans Administration.

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Household Living Expenses

Farm household income varies over time, but living expenses are more constant over time. (Included in our measure of household expenditures are food, housing, education, transportation, medical expenses, insurance and retirement plan contributions, entertainment, charitable contributions, and other household expenses.)

Farm households are likely to save from current income to maintain a certain level of household expenditures and/or to alter their spending when they expect income changes to be permanent. Thus, living expenses can provide a less erratic indicator of the well-being of households over time, compared to income. Expenses also tend to be more equally distributed across farm households than are income and wealth.

Farm earnings are not closely tied to household expenditures for a variety of reasons. First and foremost, most farm households receive most of their income from off-farm sources. In addition, expenditures are driven in part by the household’s expectation of usual income, rather than the current year’s farm income which is more variable. Unlike farm earnings, household expenditures are not closely associated with farm size because many small farms have considerable off-farm income and net worth.

The household expenditures of farm operator households generally increase as the income (from both farm and off-farm sources) increases. This is true for all U.S. households as well. At lower income levels, farm households have higher average expenditures than the general population. As income levels increase, the general U.S. population has proportionately higher expenditure levels than the farm operator household population. At the highest income category of $70,000 and above, for example, average expenditures of the general U.S. population are more than 50 percent greater than farm households. Perhaps, this is evidence that farm households tend to save in high-income years in anticipation of possible future low-income years.

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The average farm operator household has historically had household expenditures less than the average for all U.S. households, although the gap has been narrowing over time. Part of the reason for the lower expenditures of farm households is that most farm households live on the farms they operate and their farm business provides them with a farm dwelling. In the case where the farm business provides the housing to the household, the cost of housing is not included in household living expenditures. The average U.S. household spends nearly one-third of its consumption expenditures on housing.

Farm Fatalities and Injuries

The farming environment has some unique features that place workers and their households at greater risk for injuries and illnesses than many other work environments. Home and worksite are the same location for most farm operations, exposing farm family members to hazards associated with animals, machinery, tools, and chemicals. Farming activities are dictated by weather, season, and climate. During planting and harvesting periods, farmers, their family members, and hired workers tend to work long hours while operating equipment and handling livestock. Farmers and farm workers often work alone and far from medical assistance should an injury occur. Measures of fatalities and injuries, especially relative to other occupations, provide a good indication of the safety of the farming occupation.

Farming has one of the highest fatality rates of all occupations, according to the U.S. Department of Labor, which reports fatality rates for workers based on their major occupation. While the overall fatality rate in the United States in 2006 was 3.9 per 100,000 workers, the rate for those with farming or ranching as a major occupation was more than nine times that rate—37.1 per 100,000. Nearly three-quarters of the fatalities in farm operator households occur in households where farming is the operator’s major occupation.

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Between 1992 and 2006, the Department of Labor reported that fatal injuries, as a rate per 100,000 workers, were generally increasing for farmers and ranchers, while the much lower fatality rate for all U.S. workers had declined further. The number of farmers and ranchers with a major occupation of farming or ranching has declined over this period, while the number of fatal injuries has not declined as much. The fatality rate is greater for crop production than it is for animal production. Looking at all workers with a major occupation in these industries, including operators, the fatality rate in crop production has averaged more than twice that of the animal production industry.

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Farm Operators' Perceptions About Satisfaction With Their Place of Residence

A subjective indicator of the well-being of farm households is self-reported satisfaction with aspects of quality of life. In a 2005 national survey of farm operators, respondents were asked to identify their views about their place of residence. In particular, they were asked to report whether 10 characteristics about their place of residence were a major problem for them and their households. These characteristics covered employment, health, education, geographic access and the social environment of their place of residence.

More farmers identified access to airports as a major problem with their place of residence than any other characteristic—nearly one-third did. A close second characteristic that was identified as a major problem was crime and vandalism (30 percent). In contrast, only 6 percent indicated that access to schools was a major concern.