Social Welfare Policy Contending with Poverty In America

The Concept of Poverty: A Social Indicator 1. Technical topic vs. broader issue (what is a poverty lifestyle? how do the poor spend their money?) 2. Lack of definitive methodology and replication/robustness issues 3. Identification of causes and remedies: the policy issues 4. Modesty, please!

Poverty: Measurement Issues, Trends, Results Resources vs. needs Absolute vs. relative poverty What’s poor, officially speaking and interpreted) Who’s poor? Generational differences from latest (2005) Census report Why are they poor? a. economic change b. demographic change c. public policy effects

Dissatisfaction with Poverty Measurement and the NAS Report: Should We Revise Our Techniques? “Poverty Math”

Another Key Focus: Working Poor with Kids Working poor (14.3 million families with kids; 75 percent of all such units) a. employment matters b. work alone won’t do (volatility, cyclicity) and low education c. need jobs, houses, affordable child care, some type of subsidy

Working Poor with Kids (cont.) 2. a. overall, children, elderly; levels and trends b. why?: taxes, transfers, and low earnings (working poor higher in USA) c. real living standards: absolute levels of economic well-being for kids, if you could choose where to be born

Poverty: Why Do We Care? The Effects of Deep Poverty on Young Children Education related effects (ready for school) Health and Development effects Parental effects (stress, violence, time) Neighborhood effects (stuck) Immobility effects (Katrina and cars, gas; resulting health effects)

What Do We Know: Stylized Facts on American Inequality The U.S. had the highest level of income inequality across modern rich nations and a low income population with less spending power than is found among the low income population in all other rich countries, except the United Kingdom, in the 1990s.

There has been a structural widening of income inequality in America over the past 30 and 50 years. Most of the driving force in producing this change has been economic (men’s earnings, couple’s earnings) and to a lesser extent, demographic (single parents, immigration). Public policy (via tax and transfer policy) has done little to directly lessen this trend. The strong economy of the late 1990s increased real incomes at all income levels, but since then “average” income has been flat. However, inequality has not declined; over the past years, it has increased greatly.

The causes of the widening of earned income inequality (i.e., differences in earnings within and between groups) include: skill-biased technological change, international trade, immigration of lower skilled workers, and de- industrialization, with each of these forces playing some role in this transition and with the largest role probably being played by technological change.

The U.S. suffered a declining “middle class” from (defining “middle class” by the real income levels of those living between the 90 th and 20 th percentiles of the income distribution in 1977). The middle-class grew from 70 percent of the population in 1970 to 75 percent by 1979, and then fell to less than 65 percent by the late 1990s.

About 2/3 of those who moved out of the middle- class moved up (“winners”) in the distribution; about 1/3 moved down (“losers”). The winners (those who moved and/or stayed up) were the highly educated, particularly double income couples with and without children. The losers (those who moved down and/or stayed down) were the less educated particularly minorities and single parent households.

The U.S. population seems to exhibit no greater inter-temporal income mobility than is found in other modern nations in the 1980’s and 1990’s. Further income mobility in the 1990s in the United States is no greater, and perhaps less, than that found in the 1970s. And generational mobility is also low or falling.

There has been a widening of inequality in measurable net worth (housing and financial assets) from 1963 to 1998 with changes in net worth generally reinforcing income changes. Since then, everyone has taken a hit, especially the wealthy, due to stock market declines but inequality has not changed and the stock market is now back up.

The simple rule of thumb for the wealth distribution is 1/3 of net worth each to the top 1 percent (1.15million households; with Forbes 400 having only 2 percent of the total national wealth); the next 9 percent and bottom 90 percent of households. The bottom 20 percent of households owe more than they own; they have negative net worth. Therefore, income and wealth inequality reinforce one another.

Moving from 1998 to 2005 income inequality remained high and even rose. Indeed, 1999 was the 8 th straight year of economic expansion; 2000 was neutral; 2001 a recession; but then were 4 years of “recovery.”

Finally, even the “average American” (non- elderly, middle class family) is not doing well and may be in a state of “downward mobility.”