Poverty: Facts, Causes and Consequences
Joe Tiao Lecture, Kansas State University
Hilary Hoynes
University of California, Davis
April 2012
• In 2010, more than 1 in 5 children lived in poverty and 15.1 percent of all persons were poor.
• Government spending on anti-poverty programs includes $30 b. on TANF, $51 b. on the EITC, and $50 b. on Food Stamps.
• In this talk, I discuss what we know about the causes of poverty and its consequences for children and families.
2
Outline
• How do we define poverty?
• Facts: Poverty in the U.S.
• Impacts of poverty on children and families
• The causes of poverty and how government policies can help
3
• How do we define poverty?
• Facts: Poverty in the U.S.
• Impacts of poverty on children and families
• The causes of poverty and how government policies can help
4
What is the Official Poverty Measure?
• A family is poor if their family income is less than the federal poverty threshold
– Poverty lines vary by family size and are adjusted for changes in prices each year
– Based on the cost of food in the 1960s (mult by 3)
• Poverty is a family concept—all persons in the same family have the same poverty status
Poverty Thresholds by Family Type, 2010
1 parent, 1 child $15,030
1 parent, 2 children $17,568
2 parents, 2 children $22,1135
By comparison, 2010 median family income was $49,400.
Concerns about official poverty measure
• Income measure is pre-tax family income; includes only cash income
– Does not include Food Stamps (SNAP) or Earned Income Tax Credit
– Not adjusted for work-related expenses
• Not adjusted for regional variation in costs of living (e.g., housing)
• Definition of poverty has not changed since measure developed in early 1960s
• Recent Supplemental Poverty Measure released by Census; addresses these concerns
6
• How do we define poverty?
• Facts: Poverty in the U.S.
• Impacts of poverty on children and families
• The causes of poverty and how government policies can help
7
8
0
5
10
15
20
25
30
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Poverty Rate, All Persons
In 2010, 46 million persons or 15.1 percent of the population was poor
Children have the highest poverty rates
9
0%
10%
20%
30%
40%
50%
60%
Age < 18 Age 18-64 Age 65+
Poverty Rate
Share of Poor
10
0%
10%
20%
30%
40%
50%
60%
Age < 18 Age 18-64 Age 65+
Poverty Rate
Share of Poor
Note the differences between the poverty rate and the group’s share of all poor
U.S. “success” in improving poverty varies by age
11
0
10
20
30
40
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Poverty Rate, By Age
Children
Age 18-64
Age 65+
Latinos and African Americans have high poverty rates
12
0%
10%
20%
30%
40%
50%
White Black Asian Hispanic
Poverty Rate
Share of Poor
Female headed households have high poverty rates
13
0%
10%
20%
30%
40%
50%
60%
Married-Couple Families
Single with kids Single without kids
Poverty Rate
Share of Poor
Poverty dramatically declines with education
14
24%
12%
8%
4%
18%16%
12%
5%
0%
5%
10%
15%
20%
25%
30%
Less than high
school graduate
High school
graduate
(includes
equivalency)
Some college,
associate's
degree
Bachelor's degree
or higher
Poverty Rate
Share of Poor
Non-citizens have higher poverty rates
15
0%
10%
20%
30%
Native born Foreign born, Naturalized Citizen
Foreign born, Not a Citizen
Poverty Rate
• How do we define poverty?
• Facts: Poverty in the U.S.
• Impacts of poverty on children and families
• The causes of poverty and how government policies can help
16
• Poverty is measured and watched by virtually all developed countries.
• It is an important indicator of economic well-being
• In the U.S., poverty is associated with many adverse outcomes
17
Children who grow up poor are more likely to
• Not attend preschool
• Perform worse in school
• Drop out of high school, have lower educational attainment
• (Girls) Have a teen birth
• (Boys) Be incarcerated
• Live in poverty as adults
• Receive government assistance as adults
• Have connection to the child welfare system
• Have worse health and shorter life expectancy
18
The challenge for social science research is in identifying:
1. The role played by poverty in these correlations.
2. What policies can improve outcomes.
• How do we define poverty?
• Facts: Poverty in the U.S.
• Impacts of poverty on children and families
• The causes of poverty and how government policies can help
20
(1) The Labor Market
• Most poor families contain workers
• Poverty is very closely tied to the conditions of the labor market
– Availability of jobs
– Wages paid at those jobs
21
Poverty varies with job availability
22
0
5
10
15
20
25
30
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Poverty Rate, All Persons
15 percent poor in recessions: 1983, 1993, 2010
Poverty increased more in states that experienced larger increases in unemployment
23
AL
AK
AZ
AR
CA
CO
CT
DE
FL
GA
HI
ID
IL
IN
IA
KSKY
ME
MDMA
MI
MN
MS
MO
MT
NE NV
NH
NJNM
NY
NCND
OH
OK
OR
PA RI
SC
SD
TN
TX
UT
VT
VA
WAWV
WI
WY
-20
24
6
Cha
ng
e in
Po
vert
y R
ate
20
00
-20
08
-2 0 2 4 6Change in Unemployment Rate 2000-2008
Earnings is a large share of income for the poor
24
0
10
20
30
40
50
60
Earned income
Cash Welfare (AFDC, TANF)
Food Stamps
Unemp., Worker's Comp.,
Veteran's Payments
Child Support, Alimony
Cash Welfare for Disabled,
SSI
Official Poverty
Extreme Poverty
• Importance of wages paid at those jobs
– Wages and earnings for less skilled workers is a key determinant of poverty
• What has happened to earnings for less skilled workers?
25
Wages for lower education groups have been falling
Real Median Earnings by Education
26http://www.stanford.edu/group/scspi/cgi-bin/fact4.php
No growth in family income at the bottom of the distribution
(and significant growth at the top)
27
-40
-20
0
20
40
60
80
1969 1974 1979 1984 1989 1994 1999 2004
90th
75th
Median
25th
10th
Source: Debbie Reed, PPIC
How does this relate to the current attention to the 99% (and the 1%)?
28
0%
5%
10%
15%
20%
25%
191
3
191
8
192
3
192
8
193
3
193
8
194
3
194
8
195
3
195
8
196
3
196
8
197
3
197
8
198
3
198
8
199
3
199
8
200
3
200
8
Sh
are
of
tota
l in
co
me
acc
ruin
g t
o e
ac
h g
rou
p
Top 1% (incomes above $352,000 in 2010)
Top 1% (incomes above $352,000 in 2010)
The top 1%: Share of total US income
29Source: Emmanuel Saez, UC Berkeley
0%
5%
10%
15%
20%
25%
19
13
19
18
19
23
19
28
19
33
19
38
19
43
19
48
19
53
19
58
19
63
19
68
19
73
19
78
19
83
19
88
19
93
19
98
20
03
20
08
Sh
are
of
tota
l in
co
me
ac
cru
ing
to
ea
ch
gro
up
Top 1% (incomes above $352,000 in 2010)
Top 5-1% (incomes between $150,000 and $352,000)
Top 10-5% (incomes between $108,000 and $150,000)
Share of total income to top decile
30Source: Emmanuel Saez, UC Berkeley
31
(2) Economic Growth (?)
32
Poverty persists despite economic growth
0
5
10
15
20
25
30
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Poverty Rate, All Persons
15 percent poor in recessions: 1983, 1993, 2010
Poverty persists despite economic growth
0
5
10
15
20
25
30
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Poverty Rate, All Persons
15 percent poor in recessions: 1983, 1993, 2010
0
10
20
30
40
50
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
GDP per capita (thousands of 2005 $)
Strong GDP growth 1983-201063% increase
• These figures show that economic growth does not necessarily translate into reductions in poverty
35
Government policies that reduce povertyor don’t
(and why)
36
The U.S. Social Safety Net for Families
• TANF: cash welfare• Food Stamps (now SNAP): vouchers for food• Earned Income Tax Credit: tax-subsidy for low
earners • Medicaid: health insurance• Subsidized housing• WIC, free or reduced price lunch
• Unemployment insurance (not limited to low income families)
Recent changes in the U.S. Safety Net
• The U.S. safety net for low income families has dramatically changed:
– More assistance through the federal taxes (the Earned Income Tax Credit)
– More assistance through in-kind support (Food stamps, Medicaid/SCHIP)
– Less assistance through traditional cash welfare
• Much of my research focuses on estimating the effects of the safety net on low income families.
Cash and Near Cash Safety Net Spending per Capita, 2009$
0
50
100
150
200
250
1980 1985 1990 1995 2000 2005 2010
Per
Cap
ita
Rea
l Exp
end
itu
res
Contractions
AFDC/TANF Cash Grants Per Capita
Food Stamp Total Expenditures Per Capita
EITC Total Expenditures Per Capita
Federal welfare reform
Government policies can help
• Case Study: Contrast two policies aimed at reducing poverty
• The success story: Earned Income Tax Credit
• The contrasting program: Welfare
• The key explanation EITC targets those in-work and welfare targets those out-of-work
40
The Earned Income Tax Credit
• Refundable tax credit for working, low-income taxpayers with children (single and married)
• [Much smaller credit for childless]
• No credit if no family earnings
• EITC acts to supplement earnings.
• Maximum credit for 2010:
– $3050 for one-child families
– $5036 for families with two or more children
41
KEY: Maximum EITC credit helps families near poverty threshold!
42
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000
Earned Income 2006$
Cred
it A
mou
nt
(2006$)
One Child Two or more Children
Phase in
RegionPhase out
Region
Flat
Region
How the EITC reduces poverty
1. Key design feature of EITC (and what distinguishes it from traditional income support programs) is that eligibility requires earned income.
– The EITC transfers income to low income families with children WHILE encouraging work.
2. The generosity of the EITC increased substantially with tax reforms in 1986, 1990, and 1993.
43
Illustrating how EITC encourages work and reduces poverty
44
$0
$10,000
$20,000
$30,000
$40,000
$0 $10,000 $20,000 $30,000 $40,000
Poverty
Line, Family
of Three
Earnings
Family earnings
Fam
ily a
fter
-tax
and
tran
sfer
inco
me
Illustrating how EITC encourages work and reduces poverty
45
$0
$10,000
$20,000
$30,000
$40,000
$0 $10,000 $20,000 $30,000 $40,000
Poverty
Line, Family
of Three
Earnings +
EITC
Earnings
• So, the EITC has the potential to increase incomes and reduce poverty through two channels:– The EITC represents an increase in income for the
family
– The EITC provides incentives to enter work, and thus increase earnings which increases family income.
46
Out-of-work cash assistance: welfare programs
47
Cash Welfare Programs (TANF)
Income support (welfare) programs are unlikely to affect poverty rates for two reasons:
1. Benefit levels are low, unlikely to increase a household’s income over the poverty line.
2. Benefits are targeted on those out of work; thereby discouraging work rather than encouraging it.
[This does not mean the program is not important or useful. Rather that it simply should not affect poverty rates. Should affect “extreme poverty.”]
48
Illustrating why TANF is unlikely to affect poverty
49
$0
$10,000
$20,000
$30,000
$40,000
$0 $10,000 $20,000 $30,000 $40,000
Poverty
Line, Family
of Three
Earnings
Family earnings
Fam
ily a
fter
-tax
and
tran
sfer
inco
me
Illustrating why TANF is unlikely to affect poverty
50
$0
$10,000
$20,000
$30,000
$40,000
$0 $10,000 $20,000 $30,000 $40,000
Poverty
Line, Family
of Three
Earnings +
TANF
Earnings
One could use TANF to reduce poverty, but funding would
have to be about four times the current funding
51
$0
$10,000
$20,000
$30,000
$40,000
$0 $10,000 $20,000 $30,000 $40,000
Poverty
Line, Family
of Three
Earnings +
TANF
Earnings
• What we do know, however, is that the combination of welfare reform and the expansion of the EITC led to large increases in employment among female-headed families in the late 1990s.
• These increases in employment have the potential to reduce poverty.
52
53
60%
65%
70%
75%
80%
85%
90%
95%
100%
1983 1986 1989 1992 1995 1998 2001 2004
Percen
t em
plo
yed
at
all
la
st y
ea
r
Single, No Children
Married, No Children
Single, Children
Married, Children
On the eve of welfare reform and EITC increases, much attention is given to
the low employment rates of single mothers.
Percent of Women Working (by Marital Status and Children)
Percent of Women Working (by Marital Status and Children)
54
60%
65%
70%
75%
80%
85%
90%
95%
100%
1983 1986 1989 1992 1995 1998 2001 2004
Percen
t em
plo
yed
at
all
la
st y
ea
r
Single, No Children
Married, No Children
Single, Children
Married, Children
Beginning in 1992—dramatic increases in employment for single
mothers, with little change for other women
Employment rates for the single moms have fallen since their peak in 2000 but are still historically high
55
50%
60%
70%
80%
90%
100%
1980 1985 1990 1995 2000 2005
Single no children
Single with children
Married with children
More on what the government policies can do
56
Food Stamps (SNAP) has become the fundamental safety net program
• Eligibility universal
• Reaches working poor and nonworking poor
• Program has been VERY responsive in the current recession
57
Food Stamps and TANF in the Great RecessionWhich is acting as the safety net?
58
0
50
100
150
200
250
1980 1985 1990 1995 2000 2005 2010
Per
Cap
ita
Rea
l Exp
end
itu
res
Contractions
AFDC/TANF Cash Grants Per Capita
Food Stamp Total Expenditures Per Capita
EITC Total Expenditures Per Capita
Federal welfare reform
Food Stamps and TANF in the Great RecessionWhich is acting as the safety net?
59
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2007:1 2007:7 2008:1 2008:7 2009:1 2009:7 2010:1
Mo
nth
ly U
nem
plo
yed
an
d P
rogr
am C
asel
oad
s
Unemployed Persons
TANF Cases
FSP Cases
Recession ends June 2009
Food Stamps and TANF in the Great RecessionWhich is acting as the safety net?
60
-20
02
04
06
08
0
Pe
rcen
t C
han
ge
in F
SP
Ca
selo
ad p
er
ca
pita
0 2 4 6 8Change in unemployment rate
Food Stamps and Unemployment RateChange between 2007 and 2009
-40
-20
02
04
0
Pe
rcen
t cha
ng
e in
AF
DC
/TA
NF
ca
selo
ad p
er
ca
pita
0 2 4 6 8Change in unemployment rate
Cash Welfare (TANF) and Unemployment RateChange between 2007 and 2009
• So the U.S. safety net can reduce poverty.
• How are we doing?
• But …
61
… The success of the EITC and SNAP is not measured by official poverty statistics
• Remember our definition of poverty?
• Poverty is based on PRE-TAX family income
• EITC operates through the tax system
• Poverty is based on CASH family income
• SNAP is “in kind” benefit
62
Therefore neither SNAP nor the EITC figures in to the official poverty statistics.
Supplemental Poverty Measure
• In November 2011, the U.S. Census released an alternative measure.
• Uses post-tax family income including inkindgovernment benefits
• Also accounts for out of pocket medical expenses and adds geographic dimension to poverty thresholds.
63
64
0%
5%
10%
15%
20%
25%
All Age < 18 Age 18-64 Age 65+
Official Poverty
Supplemental Poverty Measure
• Alternative census poverty measure shows much smaller increase in poverty during the U.S. recession.
• The safety net can make a difference!
10
12
14
16
18
20
2007 2008 2009 2010
Poverty Rate, All Persons
Poverty Rate, Official Poverty Rate, alternative
Alternative poverty measureshows much smaller increase
in the recession
Change in poverty due to safety net
66
-3
-2
-1
0
1
2
3
4
EITC SNAP Housing Subsidy
School Lunch
WIC LIHEAP Child Support
Paid
Federal Income
tax before
credits
FICA Work Expenses
Out of pocket
medical
Big differences for children and aged
67
-6
-4
-2
0
2
4
6
8
EITC SNAP Housing Subsidy
School Lunch
WIC LIHEAP Child Support
Paid
Federal Income
tax before
credits
FICA Work Expenses
Out of pocket
medical
Age < 18
Age 65+
Concluding remarks
• Reducing poverty takes a commitment of resources
• Improve opportunities– Invest in education from early childhood through
access to college
• Encourage work and supplement income:– Further expansions of the EITC ; continued support of
SNAP
– Provide the necessary supports for the mothers and families (child care)
68