AMERICAN POVERTY

AND

INEQUALITY

K E Y TR E N D S

I. WELFARE PROGRAMS ARE BASED ON ECONOMIC SELF-SUFFICIENCY

In the United States, employment is the primary pathway out of poverty for most-non-elderly adults. Most of the American poor are in households headed by working age adults. This approach is challenged by an economy in recession.Stagnating wages and high rates of unemployment and sub-employment have held back progress against poverty and contributed to rising income inequality, greatly reducing the share of aggregate income received by the bottom 40% of households.

THE CHANGING LABOR MARKET

The labor market for the poorly skilled has become more challenging at the same time that welfare has been transformed from modest income guarantees to a package of services and benefits designed to support the employment efforts of low-skill workers.

The volatility and instability of low-wage work, particularly with the current economic downturn, seriously challenges the work-based approach.

LACK OF SAVING AND SAVING DISINCENTIVESIncome instability might be less of a problem if the poor and

low-income workers were able to save sufficient assets to weather economic shocks.

Unfortunately, the poor and many low-income adults tend to barely get by in good times, and they may also suffer from low financial literacy.

At the same time, most antipoverty programs including TANF, SNAP and Medicaid have asset tests that discourage savings.

PROMOTING SUSTAINED LABOR MARKET PARTICIPATION AND WAGE GROWTH AMONG

LOW-SKILLED WORKERS

Employment challenges are both cyclical and structural.Changes in the economy have reduced the role of manufacturing

jobs and the housing slump has eliminated millions of jobs in construction.

Globalization, skill-based technical change, and changes in union influence have also diminished the employment and wage-growth opportunities for low-skill workers.

THE LIMITATIONS OF JOB GROWTH

Job growth for the unskilled is now concentrated in the low-wage personal service sector.

These changes have resulted in stagnant earnings for low-skilled workers, as well as an increase in long-term joblessness, especially for younger male workers, many of whom may lack the skills to do these jobs or may have no interest in doing this type of work

IMPACT OF JOBLESSNESS

Between 1990 and 2005, poverty was characterized more by low wages than by joblessness, but the picture has changed since then.

Although low wages are still an important issue, joblessness is now the main cause of non-elderly poverty.

UNEMPLOYMENT

During the last five years, the percentage of the adult population working has fallen to 58% from 63%, a decline of 10 million workers.

In April 2011, 20% of 25 to 54-year-old male workers were not employed, the highest fraction since 1948.

Between 2000 and 2009, rates of employment declined 11% for men 25 to 29 and by 17% for black men and high school dropouts males of that age.

THE UNEMPLOYED

A large proportion of these young men are disconnected not only from the labor market, but also from school and training programs.

The economic vulnerability of both adult men and women has profound implications for their ability to fulfill their roles as breadwinners and caregivers for their children and other family members.

HOW EFFECTIVE IS THE WORK-BASED SAFETY NET AT REDUCING POVERTY AND

INCREASING ECONOMIC SELF-SUFFICIENCY?

The major change in the welfare system has been the reduction in mothers’ access to welfare cash support by introducing time limits, and conditioning benefits on work efforts.

SUPPORT PROGRAMSAt the same time, funding for work supports, such as child

care subsidies, subsidized health insurance, nutrition assistance, and wage supplements (EITC) has grown extensively.

But, in inflation-adjusted terms, these expenditures (excepting EITC) are shrinking.

Income support programs now function as complements to, rather than substitutes for, formal employment.

IMPACT OF CHANGESMandatory work requirements have reduced welfare use and

increased employment. Family caps, sanctions, and time limits also appear to

reduce welfare and increase employment. More generous child care subsidies also promote maternal

employment. These reforms have generally raised earnings, although not

by amounts that raise many poor families out of poverty.

PATTERNS OF WELFARE USE AND EXPENDITURES

Welfare expenditures today are very different than they were 15 years ago.

The largest expenditures today are for means-tested entitlements including Medicaid and SNAP, as well as the EITC.

In 2011, the EITC and SNAP programs will pay out over $65 billion each (maybe as much as $70 billion), compared to $28 billion for TANF (federal and state expenditures)and its related child care components.

CHANGES IN CLIENTELEThe type of family receiving the most assistance has changed.

In the past, the most economically disadvantaged families received the largest amount of support.

Now, families cannot get much help unless they work. Families with earning near or just above the poverty line

receive substantially larger transfers than in the past.

II. FAMILY CHANGE AND POVERTYSince the declaration of the War on Poverty more than 50

years ago, family life in the United States has changed dramatically.

There has been a huge increase in family complexity, owing to high rates of cohabitation, nonmarital childbearing, divorce and repartnering.

Notable is an increase in multi-partner fertility—adults

having children with more than one partner.

CHANGES IN FAMILIES

These changes in family life are not likely to be temporary and they pose challenges to the effective design of antipoverty programs and policies.

THE RELATIONSHIP BETWEEN FAMILY COMPLEXITY AND POVERTY

Marriage has become less central to the life course, both because Americans are marrying later and divorcing more often.

Unmarried cohabitation has arisen as a precursor to—or a substitute for—legal marriage.

Over 60 percent of marriages are now preceded by cohabitation, and nearly half of all women have cohabitated at some point by their late 30s.

OUT-OF-WEDLOCK BIRTHS

Concurrent with the changes in marriage practices has been a sharp increase in childbearing outside of marriage.

In 1940 only 4% of births occurred outside of marriage.

In 2009, 41% of births occurred outside of marriage.

UNSTABLE UNIONS

Much of the increase can be attributed to births to cohabiting couples, who tend to form unstable unions.

Only a minority of unmarried couples who have a child subsequently marry—17% by five years after the child’s birth.

IMPACT OF RACE, ETHNICITY AND EDUCATION

Whereas 29% of white children in 2009 were born to unmarried parents, the numbers for black and Hispanic children are 73% and 53%, respectively.

Women in the bottom two-thirds of the educational distribution have experienced large increases in nonmarital childbearing since 1970, whereas women in the top third experienced virtually no increase.

MULTI-PARTNER FERTILITY

On average, high school dropouts have 2.5 children per woman by age 40, compared to 1.6 children for college graduates.

Also, college graduates are much less likely to divorce than their less-educated counterparts.

Multi-partner fertility is particularly likely to occur to unmarried parents.

It is estimated that three-fifths of unmarried couples who had a child together in the late 1990s, either the mother or father (or both) already had a previous child by another partner.

This was true for less than a quarter of the married couples.

THE INVOLVEMENT OF UNWED FATHERS IN THE LIVES OF THEIR CHILDREN

Low-income fathers are much more likely to live away from their children.

The children are denied both economic support and relational support.

Living in poverty has potentially wide-ranging adverse effects on child development and well-being.

Only about 40% of poor mothers receive the full amount of child support that the courts have ordered, and 32% receive nothing.

CHILD MALTREATMENT

Maltreatment of children, CPS involvement, and child removal occur at substantial rates in the United States.

About 4.3% of children are reported to CPS each year and just over 1% are formally found to be victims of abuse or neglect.

About 1.7% of all children have been harmed by abuse or neglect and low SES children are five times as likely to experience maltreatment as their higher SES counterparts.

Additionally, more than 400,000 children currently reside in foster care.

RISK FACTORS FOR CHILDREN

Both family complexity and low income are risk factors for maltreatment and CPS involvement.

In turn, experiencing abuse, neglect, or CPS involvement during childhood has been linked to adverse economic consequences later in life.

III. INTERGENERATIONAL TRANSMISSION OF POVERTY

Children’s life chances, and perhaps those of their future children, are constrained by their parents’ economic fortunes.

Most low-skill and low-wage workers are also parents.

Thus diminished labor market opportunities create economic hardship not only for individual workers, but also for their children.

POVERTY ACROSS GENERATIONS

Poverty and economic inequality is transmitted across generations by social institutions: families, schools, communities, and labor markets.

Only a handful of policies and programs have been proven to improve the long-term well-being of low-income children.

While in any given year about one in five children are poor, roughly one in three children will spend at least one year living in a poor household.

THE IMPACT OF POVERTY ON LIFE CHANCESYoung children, children of single mothers, children of

immigrants, and children of color are disproportionately likely to experience poverty.

Poverty early in a child’s life may be particularly harmful.Deep and early poverty is particularly associated with lower

levels of educational achievement.Not only does the astonishingly rapid development of young

children’s brains leave children sensitive (and vulnerable) to environmental conditions, but the family context dominates their everyday lives.

NON-COGNITIVE SKILLS

Increasingly scholars have recognized the importance of “non-cognitive skills” learned and shaped by home environments such as appropriate behavior, self-regulation, and mental and emotional health in determining labor market and other adult outcomes, such as criminal activities.

Low-income children demonstrate lower levels of self-regulation and mental and emotional health and higher levels of problem behaviors in childhood and throughout adolescence.

NON-COGNITIVE FACTORS

These non-cognitive factors, as manifest, for example, in criminal activity, compound low-income children’s modest levels of education and job skills, thus limiting their later labor market prospects.

FAMILY RESOURCES

Families with greater resources are better able to purchase or produce important inputs into their children’s development such as books and educational materials, high quality child care and schools, and safe neighborhoods.

Economically disadvantaged parents may also have less time to invest in children, owing to higher rates of single-parent families, nonstandard work hours, and less flexible work schedules.

FAMILIAL AND ENVIRONMENTAL STRESS

Psychologist point to the quality of family relationships and stress to explain poverty’s detrimental effects on children’s educational outcomes and their “non-cognitive” skills.

A considerable body of research has found that low-income parents are more punitive, harsh, inconsistent, and detached, as well as less nurturing, stimulating, and responsive.

Poverty and economic insecurity take a toll on a parent’s mental health, which may be the cause of their less-supportive parenting.

PROGRAMS TO REDUCE THE INTERGENERATIONAL TRANSMISSION OF POVERTY

The child tax credit and the EITC have both proven their ability to boost family incomes, promote employment, and improve home life.

Children in families with improved economic circumstances show improvements in achievement and behavior.

Means-tested work supports and welfare benefits such as SNAP; Women, Infants, and Children Nutrition Assistance; housing assistance; and children’s health insurance also provide poor families with valuable in-kind support.

Both SNAP and WIC have been found to improve birth outcomes and the long-term health of both mothers and children.

NEED FOR FOCUS ON EARLY, NON-TRADITIONAL EDUCATION

Enriched educational programs have been shown to be effective at boosting children’s academic achievement and long-run fortunes.

As human capital development and enriched educational programs have proved to offer a route out of poverty for youth in low-income families, the continued general failure of the public K-12 education system to adequately prepare low-income youth for life and the labor market or postsecondary training constitutes a serious failure of American social policy.