Poverty: Facts, Causes and Consequences

Transcription

1 Poverty: Facts, Causes and Consequences Joe Tiao Lecture, Kansas State University Hilary Hoynes University of California, Davis April 2012

2 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

3 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

4 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

5 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, parent, 1 child $15,030 1 parent, 2 children $17,568 By comparison, 2010 median family income was $49, parents, 2 children $22,113 5

6 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

7 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 Poverty Rate, All Persons In 2010, 46 million persons or 15.1 percent of the population was poor

9 Children have the highest poverty rates 60% 50% 40% 30% Poverty Rate Share of Poor 20% 10% 0% Age < 18 Age Age 65+ 9

10 60% 50% 40% Note the differences between the poverty rate and the group s share of all poor 30% Poverty Rate Share of Poor 20% 10% 0% Age < 18 Age Age

11 U.S. success in improving poverty varies by age Poverty Rate, By Age Children Age Age

12 Latinos and African Americans have high poverty rates 50% 40% Poverty Rate Share of Poor 30% 20% 10% 0% White Black Asian Hispanic 12

13 Female headed households have high poverty rates 60% 50% Poverty Rate Share of Poor 40% 30% 20% 10% 0% Married-Couple Families Single with kids Single without kids 13

14 Poverty dramatically declines with education 30% 25% 24% 20% 18% 16% Poverty Rate Share of Poor 15% 12% 12% 10% 8% 5% 4% 5% 0% Less than high school graduate High school graduate (includes equivalency) Some college, associate's degree Bachelor's degree or higher 14

15 Non-citizens have higher poverty rates 30% Poverty Rate 20% 10% 0% Native born Foreign born, Naturalized Citizen Foreign born, Not a Citizen 15

16 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

17 Poverty is measured and watched by virtually all developed countries. It is an important indicator of economic wellbeing In the U.S., poverty is associated with many adverse outcomes 17

18 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

19 The challenge for social science research is in identifying: 1. The role played by poverty in these correlations. 2. What policies can improve outcomes.

20 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

21 (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

22 30 25 Poverty varies with job availability Poverty Rate, All Persons 15 percent poor in recessions: 1983, 1993,

23 Poverty increased more in states that experienced larger increases in unemployment AZ WV NM WY IN KS KY MN MO OH GA MS SD NH PA NE VA FL NJ ME NV CA IL ND TNMA MD NC IADE CO HI AL AK TX WI NY UT ID WA OR VT MT OKAR SC RI CT MI Change in Unemployment Rate

24 Earnings is a large share of income for the poor Official Poverty Extreme Poverty Earned income Cash Welfare (AFDC, TANF) Food Stamps Unemp., Worker's Comp., Veteran's Payments Child Support, Alimony Cash Welfare for Disabled, SSI 24

25 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

26 Wages for lower education groups have been falling Real Median Earnings by Education 26

27 No growth in family income at the bottom of the distribution (and significant growth at the top) th 75th Median 25th 10th Source: Debbie Reed, PPIC 27

28 How does this relate to the current attention to the 99% (and the 1%)? 28

29 Share of total income accruing to each group The top 1%: Top Share 1% (incomes above of $352,000 total in 2010) US income 25% 20% 15% 10% 5% Top 1% (incomes above $352,000 in 2010) 0% Source: Emmanuel Saez, UC Berkeley 29

30 Share of total income accruing to each group 25% Share of total income to top decile 20% 15% 10% 5% 0% 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) Source: Emmanuel Saez, UC Berkeley 30

31 31

32 (2) Economic Growth (?) 32

33 Poverty persists despite economic growth Poverty Rate, All Persons 15 percent poor in recessions: 1983, 1993,

34 Poverty persists despite economic growth 30 Poverty Rate, All Persons 50 GDP per capita (thousands of 2005 $) percent poor in recessions: 1983, 1993, Strong GDP growth % increase

35 These figures show that economic growth does not necessarily translate into reductions in poverty 35

36 Government policies that reduce poverty or don t (and why) 36

37 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)

38 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.

39 Per Capita Real Expenditures Cash and Near Cash Safety Net Spending per Capita, 2009$ 250 Contractions 200 AFDC/TANF Cash Grants Per Capita Food Stamp Total Expenditures Per Capita EITC Total Expenditures Per Capita Federal welfare reform

40 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 inwork and welfare targets those out-of-work 40

41 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

42 KEY: Maximum EITC credit helps families near poverty threshold! $5,000 Credit Amount (2006$) $4,000 $3,000 $2,000 Phase in Region Flat Region Phase out Region $1,000 $0 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 Earned Income 2006$ One Child Two or more Children 42

43 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

44 Family after-tax and transfer income Illustrating how EITC encourages work and reduces poverty $40,000 $30,000 $20,000 Poverty Line, Family of Three $10,000 Earnings $0 $0 $10,000 $20,000 $30,000 $40,000 Family earnings 44

45 Illustrating how EITC encourages work and reduces poverty $40,000 $30,000 Earnings + EITC $20,000 Poverty Line, Family of Three $10,000 Earnings $0 $0 $10,000 $20,000 $30,000 $40,000 45

46 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

47 Out-of-work cash assistance: welfare programs 47

48 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

49 Family after-tax and transfer income Illustrating why TANF is unlikely to affect poverty $40,000 $30,000 $20,000 Poverty Line, Family of Three $10,000 Earnings $0 $0 $10,000 $20,000 $30,000 $40,000 Family earnings 49

50 Illustrating why TANF is unlikely to affect poverty $40,000 Earnings $30,000 $20,000 Poverty Line, Family of Three $10,000 $0 Earnings + TANF $0 $10,000 $20,000 $30,000 $40,000 50

51 One could use TANF to reduce poverty, but funding would have to be about four times the current funding $40,000 Earnings $30,000 Earnings + TANF $20,000 Poverty Line, Family of Three $10,000 $0 $0 $10,000 $20,000 $30,000 $40,000 51

52 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 Percent of Women Working (by Marital Status and Children) 100% 95% Percent employed at all last year 90% 85% 80% 75% 70% Single, No Children Married, No Children 65% Single, Children Married, Children 60% On the eve of welfare reform and EITC increases, much attention is given to the low employment rates of single mothers. 53

54 100% Percent of Women Working (by Marital Status and Children) 95% Percent employed at all last year 90% 85% 80% 75% 70% Single, No Children Married, No Children 65% Single, Children Married, Children 60% Beginning in 1992 dramatic increases in employment for single mothers, with little change for other women 54

55 Employment rates for the single moms have fallen since their peak in 2000 but are still historically high 100% 90% 80% 70% 60% Single no children Single with children Married with children 50%

56 More on what the government policies can do 56

57 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

58 Per Capita Real Expenditures Food Stamps and TANF in the Great Recession Which is acting as the safety net? Contractions AFDC/TANF Cash Grants Per Capita Food Stamp Total Expenditures Per Capita EITC Total Expenditures Per Capita Federal welfare reform

59 Monthly Unemployed and Program Caseloads Food Stamps and TANF in the Great Recession Which is acting as the safety net? Recession ends June Unemployed Persons TANF Cases FSP Cases :1 2007:7 2008:1 2008:7 2009:1 2009:7 2010:1 59

60 Food Stamps and TANF in the Great Recession Which is acting as the safety net? Food Stamps and Unemployment Rate Change between 2007 and 2009 Percent change in AFDC/TANF caseload per capita Change in unemployment rate Cash Welfare (TANF) and Unemployment Rate Change between 2007 and Change in unemployment rate 60

61 So the U.S. safety net can reduce poverty. How are we doing? But 61

62 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 Therefore neither SNAP nor the EITC figures in to the official poverty statistics. 62

63 Supplemental Poverty Measure In November 2011, the U.S. Census released an alternative measure. Uses post-tax family income including inkind government benefits Also accounts for out of pocket medical expenses and adds geographic dimension to poverty thresholds. 63

64 25% Official Poverty 20% Supplemental Poverty Measure 15% 10% 5% 0% All Age < 18 Age Age

65 20 18 Poverty Rate, All Persons Alternative poverty measure shows much smaller increase in the recession Poverty Rate, Official Poverty Rate, alternative Alternative census poverty measure shows much smaller increase in poverty during the U.S. recession. The safety net can make a difference!

66 4 Change in poverty due to safety net EITC SNAP Housing Subsidy School Lunch WIC LIHEAP Child Support Paid Federal Income tax before credits FICA Work Expenses Out of pocket medical 66

67 8 6 4 Big differences for children and aged Age < 18 Age EITC SNAP Housing Subsidy School Lunch WIC LIHEAP Child Support Paid Federal Income tax before credits FICA Work Expenses Out of pocket medical 67

68 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