Poverty: Poverty: Facts, Causes and Facts, Causes and

ConsequencesConsequences

Hilary HoynesHilary Hoynes

University of California, DavisUniversity of California, Davis

California Symposium on PovertyCalifornia Symposium on Poverty

October 2009October 2009

22

In 2008, more than 1 in 6 children lived in In 2008, more than 1 in 6 children lived in poverty and 13.2 percent of all persons poverty and 13.2 percent of all persons were poor. were poor.

These numbers are expected to be higher These numbers are expected to be higher in 2009.in 2009.

Government spending on anti-poverty Government spending on anti-poverty programs in 2008 included $25 b. on programs in 2008 included $25 b. on TANF, $50 b. on the EITC, and $38 b. on TANF, $50 b. on the EITC, and $38 b. on Food Stamps.Food Stamps.

In this talk, I discuss what we know about In this talk, I discuss what we know about the causes of poverty and its the causes of poverty and its consequences for children and families.consequences for children and families.

33

OutlineOutline

How do we define poverty?How do we define poverty? Facts: Poverty in the U.S. and in CaliforniaFacts: Poverty in the U.S. and in California Impacts of poverty on children and Impacts of poverty on children and

familiesfamilies Causes and how government programs Causes and how government programs

can helpcan help

44

How do we define poverty?How do we define poverty? Facts: Poverty in the U.S. and in CaliforniaFacts: Poverty in the U.S. and in California Impacts of poverty on children and Impacts of poverty on children and

familiesfamilies Causes and how government programs Causes and how government programs

can helpcan help

55

What is the Official Poverty Measure?What is the Official Poverty Measure?

A family is poor if their family income is less A family is poor if their family income is less than the federal poverty thresholdthan the federal poverty threshold– Poverty lines vary by family size and are adjusted for Poverty lines vary by family size and are adjusted for

changes in prices each yearchanges in prices each year– Based on the cost of food in the 1960s (mult by 3)Based on the cost of food in the 1960s (mult by 3)

Poverty is a Poverty is a family family concept—all persons in the concept—all persons in the same family have the same poverty statussame family have the same poverty status

Poverty Thresholds by Family Poverty Thresholds by Family Type, 2008Type, 2008

1 parent, 1 child1 parent, 1 child $14,489$14,489

1 parent, 2 1 parent, 2 childrenchildren

$17,163$17,163

2 parents, 2 2 parents, 2 childrenchildren

$22,025$22,025

By comparison, 2008 median family income was $52,000.

66

Concerns about official poverty Concerns about official poverty measuremeasure

Income measure is pre-tax family income; Income measure is pre-tax family income; includes only cash income includes only cash income – Does not include Food Stamps or Earned Income Does not include Food Stamps or Earned Income

Tax CreditTax Credit– Not adjusted for work-related expensesNot adjusted for work-related expenses

Not adjusted for regional variation in costs of Not adjusted for regional variation in costs of living (e.g., housing)living (e.g., housing)

Definition of poverty has not changed since Definition of poverty has not changed since measure developed in early 1960smeasure developed in early 1960s

There are no easy solutions. In this There are no easy solutions. In this presentation, I use the official measurepresentation, I use the official measure

77

How do we define poverty?How do we define poverty? Facts: Poverty in the U.S. and in CaliforniaFacts: Poverty in the U.S. and in California Impacts of poverty on children and Impacts of poverty on children and

familiesfamilies Causes and how government programs Causes and how government programs

can helpcan help

88

Begin with looking at poverty for the U.S. Begin with looking at poverty for the U.S. as a wholeas a whole

99

Official Poverty Rate for the U.S.Official Poverty Rate for the U.S.

POVERTY RATE ALL PERSONS

0

5

10

15

20

25

30

2008200319981993198819831978197319681963

per

cen

t in

pov

erty

In 2008, 38.8 million persons or 13.2% of the population was poor.

22.4% poor in 1959

1010

Children have higher poverty than any Children have higher poverty than any other age groupother age group

18%

12%10%

34%

9%

57%

0%

10%

20%

30%

40%

50%

60%

Under 18 years 18 to 64 years 65 years and over

Poverty Rate

Share of Poor

1111

U.S. ‘success’ in improving poverty U.S. ‘success’ in improving poverty varies varies by ageby age

0

10

20

30

40

50

2008200319981993198819831978197319681963

perc

ent

of p

erso

ns in

pov

erty

AllPersons 18-64ChildrenElderly

1212

Latinos and African Americans have Latinos and African Americans have high poverty rateshigh poverty rates

9%

24%21%

46%

22%25%

0%

10%

20%

30%

40%

50%

White alone, notHispanic or Latino

Black or AfricanAmerican

Hispanic or Latinoorigin (of any race)

Poverty Rate

Share of Poor

1313

Female headed households have high Female headed households have high poverty ratespoverty rates

10%

5%

28%

15%

7%

36%

0%

10%

20%

30%

40%

All Families Married-couplefamilies

Female householder,no husband present

All Families

Families with Children

1414

Poverty dramatically declines with Poverty dramatically declines with educationeducation

24%

12%

8%

4%

18%16%

12%

5%

0%

5%

10%

15%

20%

25%

30%

Less than highschool graduate

High schoolgraduate(includes

equivalency)

Some college,associate's

degree

Bachelor's degreeor higher

Poverty Rate

Share of Poor

1515

Poverty in CaliforniaPoverty in California

Poverty rates across groups in California Poverty rates across groups in California mirror the patterns shown for the U.S. as a mirror the patterns shown for the U.S. as a whole.whole.

There are important things to point out for There are important things to point out for CaliforniaCalifornia

1616

In recent years, poverty rates have In recent years, poverty rates have been higher in Californiabeen higher in California

POVERTY ALL PERSONS

0

5

10

15

20

1970 1975 1980 1985 1990 1995 2000 2005

per

cen

t p

oo

r

US Poverty

CA PovertyPoverty Rate, 2008

U.S. 13.2%

California 14.6%

1717

The same is true for child povertyThe same is true for child povertyCHILD POVERTY

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1970 1975 1980 1985 1990 1995 2000 2005

per

cen

t p

oo

r

US Poverty

CA Poverty

1818

Poverty Varies Substantially Across Poverty Varies Substantially Across California’s RegionsCalifornia’s Regions

Poverty, All persons, 2005-2007 Average

10%

13%12%

17%

19%

12%13%

0%

5%

10%

15%

20%

25%

Bay Area CentralCoast

GreaterSacramento

No. SacrValley

San JoaquinValley

SouthernBorder

SouthernCalifornia

1919

Most poor families have a workerMost poor families have a worker

Family Poverty Rate, CA 2008

25%

16%

3%

29%

54%

17%

0%

10%

20%

30%

40%

50%

60%

No workers One worker Two or more workers

Poverty Rate

Share of Poor

2020

How do we define poverty?How do we define poverty? Facts: Poverty in the U.S. and in CaliforniaFacts: Poverty in the U.S. and in California Impacts of poverty on children and Impacts of poverty on children and

familiesfamilies Causes and how government programs Causes and how government programs

can helpcan help

2121

Poverty is measured and watched by Poverty is measured and watched by virtually all developed countries.virtually all developed countries.

It is an important indicator of economic It is an important indicator of economic well-beingwell-being

In the U.S., poverty is associated with In the U.S., poverty is associated with many adverse outcomesmany adverse outcomes

2222

Children who grow up poor are more Children who grow up poor are more likely tolikely to

Not attend preschoolNot attend preschool Perform worse in schoolPerform worse in school Drop out of high school, have lower educational Drop out of high school, have lower educational

attainmentattainment (Girls) Have a teen birth(Girls) Have a teen birth (Boys) Be incarcerated(Boys) Be incarcerated Live in poverty as adultsLive in poverty as adults Have worse health and shorter life expectancyHave worse health and shorter life expectancy

Caution: It is difficult to know the role played by poverty in these correlations. There are many other factors involved.

2323

How do we define poverty?How do we define poverty? Facts: Poverty in the U.S. and in CaliforniaFacts: Poverty in the U.S. and in California Impacts of poverty on children and Impacts of poverty on children and

familiesfamilies Causes and how government programs Causes and how government programs

can helpcan help

2424

(1) The Labor Market(1) The Labor Market

As we saw, most poor families contain As we saw, most poor families contain workersworkers

Poverty is very closely tied to the Poverty is very closely tied to the conditions of the labor marketconditions of the labor market– Availability of jobsAvailability of jobs– Wages paid at those jobsWages paid at those jobs

2525

Importance of job availabilityImportance of job availability

2626

Poverty moves with the unemployment Poverty moves with the unemployment raterate

California poverty and unemployment trends (%)

0

2

4

6

8

10

12

14

16

18

20

1970 1975 1980 1985 1990 1995 2000 2005

Unemployment Rate

Poverty Rate

2727

Poverty Poverty increasedincreased more in states that more in states that experienced larger experienced larger increasesincreases in in

unemploymentunemployment

ALAK

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 RISC

SD

TN

TXUT

VT

VA

WAWV

WI

WY

-20

24

6C

hang

e in

Po

vert

y R

ate

2000

-20

08

-2 0 2 4 6Change in Unemployment Rate 2000-2008

Changes from 2000 to 2008

2828

Poverty Poverty increasedincreased more in states that more in states that experienced larger experienced larger increasesincreases in in

unemploymentunemployment

ALAK

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 RISC

SD

TN

TXUT

VT

VA

WAWV

WI

WY

-20

24

6C

hang

e in

Po

vert

y R

ate

2000

-20

08

-2 0 2 4 6Change in Unemployment Rate 2000-2008

CA is here

2929

Importance of wages paid at those jobsImportance of wages paid at those jobs

3030

Wages for less skilled men have been Wages for less skilled men have been falling since the early 1970sfalling since the early 1970s

-.1

0.1

.2.3

.4.5

.6

1963 1969 1975 1981 1987 1993 1999 2005

HS Dropout HS GradsSome College Exactly CollegePost-College

Cha

nges

in L

og R

eal W

age

Leve

ls (

1963

= 0

)A. Males

Source: Autor, Katz and Kearney (2008)

3131

No growth in family income at the bottom of No growth in family income at the bottom of the distribution (and significant growth at the distribution (and significant growth at

the top)the top)

-40

-20

0

20

40

60

80

1969 1974 1979 1984 1989 1994 1999 2004

90th

75th

Median

25th

10th

Source: Debbie Reed, PPIC

3232

KEY: These figures show that economic KEY: These figures show that economic growth does not guarantee reductions in growth does not guarantee reductions in poverty poverty

3333

(2) Government policies that reduce (2) Government policies that reduce povertypoverty

(and why)(and why)

3434

The Earned Income Tax CreditThe Earned Income Tax Credit Refundable tax credit for Refundable tax credit for workingworking, low-income , low-income

taxpayers with children (single and married)taxpayers with children (single and married) [Much smaller credit for childless][Much smaller credit for childless] No credit if no family earningsNo credit if no family earnings EITC acts to supplement earnings. EITC acts to supplement earnings. MMaximum credit for 2009:aximum credit for 2009:

– $3043 for one-child families$3043 for one-child families– $5028 for families with two or more children$5028 for families with two or more children

Total cost in 2008 of the EITC is $40 b. Total cost in 2008 of the EITC is $40 b. compared to $25 b. for TANF and $38 b. for compared to $25 b. for TANF and $38 b. for food stamps.food stamps.

3535

KEY: Maximum EITC credit helps KEY: Maximum EITC credit helps families near poverty threshold!families near poverty threshold!

$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 Income2006$

Cre

dit

Am

oun

t (2

006$

)

One Child Two or more Children

Phase inRegion

Phase outRegion

FlatRegion

3636

How the EITC reduces povertyHow the EITC reduces poverty1.1. Key design feature of EITC (and what Key design feature of EITC (and what

distinguishes it from traditional income distinguishes it from traditional income support programs) is that eligibility support programs) is that eligibility requires earned income. requires earned income. – The EITC transfers income to low income The EITC transfers income to low income

families with children WHILE encouraging families with children WHILE encouraging work.work.

2.2. The generosity of the EITC increased The generosity of the EITC increased substantially with tax reforms in 1986, substantially with tax reforms in 1986, 1990, and 1993. 1990, and 1993.

3737

Illustrating how EITC encourages work Illustrating how EITC encourages work and reduces povertyand reduces poverty

$0

$10,000

$20,000

$30,000

$40,000

$0 $10,000 $20,000 $30,000 $40,000

Poverty Line, Family

of Three

Earnings

3838

Illustrating how EITC encourages work Illustrating how EITC encourages work and reduces povertyand reduces poverty

$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

3939

So, the EITC has the potential to increase So, the EITC has the potential to increase incomes and reduce poverty through two incomes and reduce poverty through two channels:channels:– The EITC represents an increase in income The EITC represents an increase in income

for the familyfor the family– The EITC provides incentives to enter work, The EITC provides incentives to enter work,

and thus increase earnings which increases and thus increase earnings which increases family income.family income.

4040

Census estimates of poverty reduction Census estimates of poverty reduction due to EITC, 2003due to EITC, 2003

31.6

35.9

0 10 20 30 40 50

1

2

Number of persons in poverty (millions)

Not including EITC

Including EITC

EITC lifts 4.3 million persons out of poverty

4141

BUT … the success of the EITC is not BUT … the success of the EITC is not measured by official poverty statisticsmeasured by official poverty statistics

Remember our definition of poverty?Remember our definition of poverty? Poverty is based on PRE-TAX family Poverty is based on PRE-TAX family

incomeincome EITC operates through the tax systemEITC operates through the tax system

4242

(3) Government Assistance: Why U.S. cash (3) Government Assistance: Why U.S. cash welfare programs are unlikely to affect welfare programs are unlikely to affect

povertypoverty

4343

Cash Welfare Programs (TANF)Cash Welfare Programs (TANF)

Income support (welfare) programs are unlikely Income support (welfare) programs are unlikely to affect poverty rates for two reasons:to affect poverty rates for two reasons:

1.1. Benefit levels are low, unlikely to increase a Benefit levels are low, unlikely to increase a household’s income over the poverty line.household’s income over the poverty line.

2.2. Benefits are targeted on those out of work; Benefits are targeted on those out of work; thereby discouraging work rather than thereby discouraging work rather than encouraging it.encouraging it.

[This does not mean the program is not [This does not mean the program is not important or useful. Rather that it simply important or useful. Rather that it simply should not affect poverty rates.] should not affect poverty rates.]

4444

Illustrating why TANF is unlikely to affect Illustrating why TANF is unlikely to affect povertypoverty

$0

$10,000

$20,000

$30,000

$40,000

$0 $10,000 $20,000 $30,000 $40,000

Poverty Line, Family

of Three

Earnings

4545

Illustrating why TANF is unlikely to affect Illustrating why TANF is unlikely to affect povertypoverty

$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

4646

One One couldcould use TANF to reduce poverty, but use TANF to reduce poverty, but funding would have to be about four times funding would have to be about four times

the current fundingthe current funding

$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

4747

What we do know, however, is that the What we do know, however, is that the combination of welfare reform and the combination of welfare reform and the expansion of the EITC led to expansion of the EITC led to large large increasesincreases in employment among female- in employment among female-headed families in the late 1990s.headed families in the late 1990s.

These increases in employment have the These increases in employment have the potential to reduce poverty.potential to reduce poverty.

4848

60%

65%

70%

75%

80%

85%

90%

95%

100%

1983 1986 1989 1992 1995 1998 2001 2004

Per

cent

em

ploy

ed a

t al

l las

t ye

ar

Single, No Children

Married, No Children

Single, Children

Married, Children

Percent of Women Working Percent of Women Working ((by Marital Status and Children)by Marital Status and Children)

On the eve of welfare reform and EITC increases, much attention is given to the low employment rates of single mothers.

4949

60%

65%

70%

75%

80%

85%

90%

95%

100%

1983 1986 1989 1992 1995 1998 2001 2004

Per

cent

em

ploy

ed a

t al

l las

t ye

ar

Single, No Children

Married, No Children

Single, Children

Married, Children

Percent of Women Working Percent of Women Working ((by Marital Status and Children)by Marital Status and Children)

Beginning in 1992—dramatic increases in employment for single mothers, with little change for other women

5050

$0

$10

$20

$30

$40

$50

1975 1980 1985 1990 1995 2000 2005

$200

6 B

illio

ns

AFDC/TANF Expenditure

EITC Expenditure

Expansion of EITC and Welfare Reform has Expansion of EITC and Welfare Reform has Radically Changed the Landscape for Low Radically Changed the Landscape for Low

Income Families with ChildrenIncome Families with Children

5151

(4) More on government programs(4) More on government programs

Food stamps is important (but again not Food stamps is important (but again not measured in official poverty statistics)measured in official poverty statistics)

Minimum wages are a less targeted policy Minimum wages are a less targeted policy for reducing poverty (minimum wages not for reducing poverty (minimum wages not targeted on the poor)targeted on the poor)

5252

(5) Demographics and poverty(5) Demographics and poverty

Growth in female headed households Growth in female headed households increases povertyincreases poverty

Growth in immigration increases povertyGrowth in immigration increases poverty

5353

Concluding remarksConcluding remarks

Reducing poverty takes a commitment of Reducing poverty takes a commitment of resourcesresources

Improve opportunitiesImprove opportunities– Invest in education from early childhood Invest in education from early childhood

through access to collegethrough access to college Encourage work and supplement income:Encourage work and supplement income:

– Further expansions of the EITC Further expansions of the EITC – Provide the necessary work supports (child Provide the necessary work supports (child

care)care)