1. Chapter 12 Poverty, Welfare, and Women Poverty in the U.S. Welfare  programs  incentives  reform EITC Poverty in the U.S. Welfare  programs  incentives  reform EITC

2. Measuring poverty Bureau of the Census 12.1% population is “poor” 2003  official poverty rate where does that come from? Bureau of the Census 12.1% population is “poor” 2003  official poverty rate where does that come from?

3. Calculating the poverty rate compare HH money income to poverty threshold poverty threshold  cost nutritionally adequate diet for HH x 3  $14,824 for adult w/ 2 children (2003) compare HH money income to poverty threshold poverty threshold  cost nutritionally adequate diet for HH x 3  $14,824 for adult w/ 2 children (2003)

4. money income  earned income, interest income  + cash benefits  before taxes  does not include noncash benefits food, housing, medical care poverty rate is sensitive to the income measure money income  earned income, interest income  + cash benefits  before taxes  does not include noncash benefits food, housing, medical care poverty rate is sensitive to the income measure

5. criticismscriticisms poverty measure overstates problem  money income does not include non-cash benefits poverty measure understates problem  HH should only spend 20-25% of budget on food poverty measure overstates problem  money income does not include non-cash benefits poverty measure understates problem  HH should only spend 20-25% of budget on food

6. poverty varies household type education race sex age state household type education race sex age state

11. by state, 2002 New Hampshire 5.8% New York 14% New Jersey 7.9% Pennsylvania 9.5% Mississippi 18.4% New Hampshire 5.8% New York 14% New Jersey 7.9% Pennsylvania 9.5% Mississippi 18.4%

13. feminization of poverty high poverty rate among female- headed HH (28%) rising number of female-headed HH over past 30 years over 50% of poor families are female- headed HH high poverty rate among female- headed HH (28%) rising number of female-headed HH over past 30 years over 50% of poor families are female- headed HH

14. child poverty, 2004 % of people < 18 living in poverty  17.2% (all)  29.4% (Hispanic)  33.2% (Black) % of people < 18 living in poverty  17.2% (all)  29.4% (Hispanic)  33.2% (Black)

15. Why are women more likely to be poor? more single women have custody of children women, on average, earn less  mothers, on average, earn less alimony, child support is spotty women live longer more single women have custody of children women, on average, earn less  mothers, on average, earn less alimony, child support is spotty women live longer

16. Why are people poor? lack of education, skills  spotty work history  low wages adverse events—divorce, job loss, disability bad attitudes?  small % of those in poverty are their for a long time lack of education, skills  spotty work history  low wages adverse events—divorce, job loss, disability bad attitudes?  small % of those in poverty are their for a long time

17. Do programs to help the poor actually encourage poverty?

18. What is welfare? “means-tested” assistance several different programs federally and state funded  administered by states  states get wide latitude “means-tested” assistance several different programs federally and state funded  administered by states  states get wide latitude

19. housing assistance (HUD)  rent vouchers  subsidized housing  housing renovation  home heating food assistance  food stamps (dept. of Agriculture)  WIC  school lunch program housing assistance (HUD)  rent vouchers  subsidized housing  housing renovation  home heating food assistance  food stamps (dept. of Agriculture)  WIC  school lunch program

20. medical care  Medicaid  state subsidized health insurance childcare subsidies cash assistance  AFDC/TANF  SSI medical care  Medicaid  state subsidized health insurance childcare subsidies cash assistance  AFDC/TANF  SSI

21. unemployment compensation  is NOT welfare  have to qualify --work history  funded through payroll taxes unemployment compensation  is NOT welfare  have to qualify --work history  funded through payroll taxes

22. Cost of welfare 2001 $82 billion  total federal budget = $1.85 trillion  4.5% of the federal budget 2001 $82 billion  total federal budget = $1.85 trillion  4.5% of the federal budget

23. Welfare and work prior to 1996,  no time limit on benefits  benefits cut (earnings penalty) when recipients work prior to 1996,  no time limit on benefits  benefits cut (earnings penalty) when recipients work

24. Welfare and work incentives welfare is nonearned income  income effect earnings penalty  makes working costly  substitution effect welfare is nonearned income  income effect earnings penalty  makes working costly  substitution effect

25. recall our time allocation model decision to work depends on MVT from working welfare lowers MVT of work  earnings penalty lowers effective wage  welfare acts as nonearned income decision to work depends on MVT from working welfare lowers MVT of work  earnings penalty lowers effective wage  welfare acts as nonearned income

26. with a lower MVT for work,  cut back on work to boost overall utility  allocate more time to leisure, housework with a lower MVT for work,  cut back on work to boost overall utility  allocate more time to leisure, housework

27. evidenceevidence studies show that AFDC reduces labor supply of its recipients

28. Welfare Reform many states experimented with reforms in late 1980s – early 1990s Federal reform 1996 many states experimented with reforms in late 1980s – early 1990s Federal reform 1996

29. 1996 Welfare Reform AFDC replaced by TANF  block grants to states to use as they see fit  not a legal entitlement  time limits 5 years total after 2 years, work requirements AFDC replaced by TANF  block grants to states to use as they see fit  not a legal entitlement  time limits 5 years total after 2 years, work requirements

30. limits on benefits for noncitizens focus on family formation  discourage unwed/teenage motherhood  family caps  child support enforcement  programs that encourage marriage limits on benefits for noncitizens focus on family formation  discourage unwed/teenage motherhood  family caps  child support enforcement  programs that encourage marriage

31. EvidenceEvidence huge TANF caseload decline 1996- 1999  4.4 million to 2.1 million  success of reforms? and/or  rapid economic growth huge TANF caseload decline 1996- 1999  4.4 million to 2.1 million  success of reforms? and/or  rapid economic growth

32. studies  1/3 of decline due to reforms  1/5 of decline due to economy studies  1/3 of decline due to reforms  1/5 of decline due to economy

33. impact on marriage  state evidence suggests that work requirements reduce marriage women more self-sufficient, women have less time for relationships impact on marriage  state evidence suggests that work requirements reduce marriage women more self-sufficient, women have less time for relationships

34. EITCEITC Earned Income Tax Credit  started 1975  expanded 1990s EITC is like a negative tax  refundable tax credit to low- income families up to about $4000/yr. Earned Income Tax Credit  started 1975  expanded 1990s EITC is like a negative tax  refundable tax credit to low- income families up to about $4000/yr.

35. EITC vs. welfare family must have earnings married & single parents eligible structure rewards works  greater political support  alternative to minimum wage family must have earnings married & single parents eligible structure rewards works  greater political support  alternative to minimum wage

36. Impact of EITC increased LFP among single mothers but decreases LFP among married mothers in families close to cut-off point  loss of EITC makes work too costly increased LFP among single mothers but decreases LFP among married mothers in families close to cut-off point  loss of EITC makes work too costly