Ruth P. Mack

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Research Papers in Economics

This PDF is a selection from an out-of-print volume from the National Bureau
of Economic Research
Volume Title: Factors Influencing Consumption: An Experimental Analysis
of Shoe Buying
Volume Author/Editor: Ruth P. Mack
Volume Publisher: NBER
Volume ISBN: 0-87014-416-2
Volume URL: http://www.nber.org/books/mack54-1
Publication Date: 1954
Chapter Title: The Direction of Change in Income
Chapter Author: Ruth P. Mack
Chapter URL: http://www.nber.org/chapters/c9374
Chapter pages in book: (p. 20 - 21)THE DIRECTIONOF CHANGEIN INCOME
Many times inthe foregoingdiscussion wehave paid lipservice to thethought that first andlast reactionsto change inincome maydiffer. Thesupposition that they dois onereason why we needbe verycautious inassuming thata response of buyingto change inincome can bemeasured alongthe interfamily buying-incomeregression. Canwe obtain anyevidenceconcerning theresponse to change inincome per se?
There are,as far as I know,no empiricalexplorations ofhow shoebuying iiffers, dependingupon the directionand extentof recentchanges inincome, other thingsthe same. Ireviewed suchmaterialas could beassembledon the buying ofthirteen majorcommoditygroups in anarticle in theReview of Economics andStatistics, November1948. Thepurchase of allclothing seemed to show (onthe basis ofvery slim evidence)a more or lessneutral reaction o the recentdirection ofchange inincome. Unlikethe bigmajority ofcate-
gories ofpurchases, it didnot seem toshow "negative"income-changeelasticity:
it wasnot higherwhen incomewas falling (orstable) thanwhen itwas rising, other things,including thelevel ofincome, thesame. Thecommoditiesthat
show astrong negativeelasticity "seem,for themost part,to fall inone of two categories:items, suchas education,fuel andlight, andhousing, which
involvelong-termcommitments;or items suchas reading,personalcare,
tobacco, whichtypically involvehighly prizedgoods of smallunit value."1The commoditieshaving thereverse characteristic- a tendency for
fallen-income
families tospend lessthanrisen-incomefamilies- were autos,furniture, and equipment.These sharethe characteristicof fairlylarge unitexpenditure and
durability,so that theselection of thetime whenthe article isbought is both important andsubject to realoption. Shoesare less durablethan a largepropor-
tion of itemsof clothingand ofsmaller unitvalue thansome andmore than
others. Thiswouldsuggest, thoughit is atouchy andmarginaljudgment, that
shoes wouldnot havea higher
income-changeelasticity thanclothing asa
whole andmight wellhave a slightlylower- that is, negative- one. In other words, frmiliesof a givenincome levelwhose incomehad recentlyfallen might
be expectedto spendslightlymore on shoesthan otherfamilies havingthe same
current income.One wouldnot expectthe differenceto be largeor sure, except perhaps forfarm families.2But becauseof theimportanttheoreticalimplications
1Ruth P. Mack,
"The Directionof Changein Incomeand theConsumptionFunction," Review
of Economicsand S:atlnics,November1948, p. 250.The termincrementalincome-elasticity"
was used in thearticle to referto what I here
call "income-change
elasticity."
'For farmfamilies,negative
income-changeelasticity fortotal spendingappears very strong
tndeei (SeeWillard W.Cochrane, "FarmFamily Hudgets- A Moving Picture,"
Review of
Economks andS1#lstzcs,August 1947,and discussionof this andan earlier studyby Cochranein the study of business fluctuations of the possibleinfluence on consumer buying
of change in income per se, we shall want to test for its presencein time series.
and Mary Grigg by Mack, op. cit.; see also, Margaret Reid, "Effect of IncomeConcept upon
Expenditure Curves of Farm Families," Conference on Research in Incomeand Wealth,
Studies iIncome and Wealth, Volume Fl/teen (National Bureau of EconomicResearch, 1952).
Although we have no information for each class of expenditure there is no reason to suppose
that shoes would be one for which expenses would be especially easilycurtailed when income
dropped - quite the contrary. For farm income, consequently, the income-changeelasticity of
shoe buying might be clearly negative, so that last year's income mightinfluence current shoe
expenditure quite strongly.
21
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Factors Influencing Consumption: An Experimental Analysis of Shoe Buying

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