poverty: facts, causes and consequences hilary hoynes university of california, davis california...
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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
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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.
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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
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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
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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.
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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
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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
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Begin with looking at poverty for the U.S. Begin with looking at poverty for the U.S. as a wholeas a whole
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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
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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
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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
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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
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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
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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
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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
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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%
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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
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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
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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
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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
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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
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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.
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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
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(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
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Importance of job availabilityImportance of job availability
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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
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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
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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
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Importance of wages paid at those jobsImportance of wages paid at those jobs
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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)
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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
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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
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(2) Government policies that reduce (2) Government policies that reduce povertypoverty
(and why)(and why)
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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.
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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
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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.
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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
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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
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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.
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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
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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
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(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
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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.]
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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
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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
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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
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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.
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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.
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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
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$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
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(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)
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(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
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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)