Poverty's Changing Faces

Bradley R. Schiller takes a look at who is poor and how long they stay poor.

Once again the U.S. Census Bureau tells us that 37 million people -- one of every 12 residents -- is living hand-to-mouth in the United States. The number of people living in poverty has been in a narrow range of 32 million to 37 million for the past 25 years. The 1991 recession briefly pushed the number of poor people up to 39 million; the 1995-99 economic boom shrank it to 31.6 million.

Although the size of the poverty population has been fairly stable, its composition has not been. The people who were poor in 1981 aren't poor now. Researchers have observed that three out of five families that fall into poverty in any one year are out of poverty the following year -- making poverty a highly transient state. A University of Michigan study discovered that one out of three U.S. households experienced poverty in at least one year of a 13-year stretch. But only one out of 20 families was poor in at least 10 years, and only one out of 60 stayed poor in all 13 years. Hence, the permanent poverty rate is less than 2 percent, even though the annual poverty rate is closer to 13 percent.

Interesting. Although 13% of Americans are poor in any given year, closer to 5% spend most of their years in poverty and less than 2% spend all of their time in poverty. Poverty in the US is very transitory.

Instead of looking at who is poor, maybe we should be looking at who becomes poor each year and who leaves poverty.

Well over a million immigrants -- both legal and illegal -- enter the country every year. Most come in at the lowest rungs of the economic ladder, working for the minimum wage or less. The household poverty rates among immigrants are twice as high as those of non-immigrants.

Then we've got 5 million or so low-achieving kids dropping out of high school every year. And more than a million births a year to single moms, about a third of whom are teenagers. On top of that, add more than a million divorces every year that often devastate someone's finances. Then there are the persistent scourges of death, disability and illness -- all of which throw families into poverty, often without warning. Finally, there's the economy, in which constantly shifting demands, costs and technology create a continuous profusion of winners and losers.

This reminds me of The Progress Paradox by Gregg Easterbrook where he states:

Statistics show that in order to avoid becoming poor in the United States, you must do three things: graduate from high school, marry after the age of twenty, and marry before having your first child. Only 8 percent of those who do these three things become poor as adults, whereas 79 percent of poor adults have failed to do these three things.

Looked at it that way, programs that promote higher graduation rates, reduce teenage marriage and pregnancy before marriage would all be effective anti-poverty programs.

Would raising the minimum wage help?

Within three years of joining the labor market, 85 percent of minimum-wage entrants (primarily teenagers and immigrants) earn significantly more than the federal minimum.

Maybe, but it doesn't appear that there are a significant number of people who continually work at minimum wage levels.

Another problem is that the definition of poverty used by the Census Bureau doesn't match the most people's definition. Most people would consider the government's Earned Income Tax Credit (EITC) a poverty reduction tool. But as Greg Mankiw points out the Wikipedia entry on poverty was incorrect as it stated: "Today, the EITC is one of the largest anti-poverty tools in the United States."

Because the Census omits the income from the EITC when computing the poverty rate. As a program to reduce measured poverty, the program is, by assumption, doomed to failure.

You can take a look at the Census Bureau's definition of poverty yourself to see if you agree. Food stamps, housing subsidies and the earned income tax credit are all ignored in the calculation. If you ask me, those should all be added back in. I am sure it would reduce the level of poverty, but I am not sure by how much.

via Washington Post