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Poverty:

Facts, Causes and Consequences

Joe TiaoLecture, 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 (multby 3)

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$22,113

5

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 80
5 10 15 20 25
30

Poverty Rate, All Persons

In 2010, 46 millionpersons

or 15.1percent of the population was poor

Children have the highest poverty rates

90%
10% 20% 30%
40%
50%
60%

Age < 18Age 18-64Age 65+

Poverty Rate

Share of Poor

100%
10% 20% 30%
40%
50%
60%

Age < 18Age 18-64Age 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 improǀing poǀerty ǀaries by age 110
10 20 30
40

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%

WhiteBlackAsianHispanic

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 kidsSingle 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 bornForeign 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

220
5 10 15 20 25
30

Poverty Rate, All Persons

15percent poor in recessions:

1983, 1993, 2010

Poverty increasedmore in states that experienced

larger increasesin 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 NENV NH NJNM NY NCND OH OK OR PARI SC SD TN TX UT VT VA WAWV WI WY -2 0 2 4 6

Change in Poverty Rate 2000-2008

-20246Change 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

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

19691974197919841989199419992004

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%

Share of total income accruing to each group

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%

Share of total income accruing to each group

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

Poverty Rate, All Persons

15percent poor in recessions:

1983, 1993, 2010

Poverty persists despite economic growth

0 5 10 15 20 25
30

Poverty Rate, All Persons

15percent poor in recessions:

1983, 1993, 2010

0 10 20 30
40
50

GDP per capita (thousands of 2005 $)

Strong GDP growth 1983-2010

63% increase

These figures show that economic growth

does not necessarily translate into reductions in poverty 35

Government policies that reduce poverty

or 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

1980198519901995200020052010

Per Capita Real Expenditures

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 AEEITC 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

Earned Income 2006$

Credit Amount (2006$)

One ChildTwo 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 $20,000quotesdbs_dbs8.pdfusesText_14