Poverty: Facts, Causes and Consequences · PDF filePoverty: Facts, Causes and Consequences Joe Tiao Lecture, Kansas State University Hilary Hoynes University of California, Davis April

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





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





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





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.





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


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

http://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)


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 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 persists despite economic growth

0

5

10

15

20

25

30

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 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


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


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, 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

Documents

Poverty: Facts, Causes and Consequences · PDF filePoverty: Facts, Causes and Consequences Joe Tiao Lecture, Kansas State University Hilary Hoynes University of California, Davis April