Lecture 20: Poverty

Outline:

1. Trends in the incidence and extent of poverty in the US

2. What the level of poverty reflects about a society.

3. The official measure of poverty in the US - the poverty line

4. Who are the poor?

5. Anti-poverty programs

i. Issues

ii. Policies

a. Providing employment opportunities

b. Providing income support

c. Public Education

6. Welfare reform

7. Dollars and Sense Article 34.

8. New Field Guide: 3.9, 3.10, 3.13, 6.4, 6.5, 6.6, 6.7, 6.10.

9. The Grameen Bank video.

1. Trends in the incidence and extent of poverty:

* Poverty in the US decreased from 1960 to 1970, remained fairly constant until the end of the 1970s then began to increase again.

* The incidence of poverty among the elderly has decreased significantly since the 1960s.

* The incidence of poverty among children has increased significantly more recently.

1969: 15.6% of children were poor

1992: 21.9% of children were poor

46.6% of Black children were poor

* There has been a feminization of poverty - in 1992 approximately 50% of people living in households headed by women, with children, were poor.

2. What does the extent of poverty reflect about a society?

"The concept of poverty reflects the expectations and aspirations of society as a whole as to what constitutes an acceptable minimum standard of living." Lipsey and Courant p. 334

3. Official measure of Poverty in the US:

US Bureau of the census defined the poverty level (or poverty line) according to a standard that was developed in the 1960's.

Poverty line for a family of four = three times the cost of a minimally nutritionally sound food budget.

1992: Poverty line for a family of four was $14, 335.

36.9 million Americans lived below the poverty line

14.5 % of Americans lived below the poverty line

33 % of Black Americans lived below the poverty line

Question: Is the official measure of poverty a good measure of the number of people living in poverty?

4. Who are the poor?

Table 16.1 Lipsey and Courant.

Describes the prevalence of poverty among certain groups - people who are unemployed, young people, minorities, female headed households, less educated people.

Table 16.2 Lipsey and Courant

Describes some of the characteristics of the poor - many are employed, have not finished high school, are from small families and are across all age groups.

What's so bad about child poverty?

Poverty in childhood is strongly correlated with economic and social conditions later in life.

5. Anti-poverty policies:

Poverty gap = the amount that would need to be spent every year to bring every household below the poverty line up to the poverty line.

1992: the poverty gap was estimated to be $75 billion

(Perspective - that equals 25% of the defense budget, and less than 2% of US GDP)

Question: Why don't we just pay the money and eliminate poverty in the US?

Question: Why are people poor?

Question: Why is poverty a problem for a society?

Question: What is the most effective way of reducing the extent of poverty?

Government Policies to reduce poverty:

i. Providing employment opportunities:

* The traditional approach to reducing poverty

* Worked well when jobs paid a "living wage" - doesn't work so well today

* 40% of the poor in the US have an employed head of household - they are called the "working poor"

* Minimum wage jobs will not eliminate poverty especially when there are children in the family

ii. Income support:

a. Social insurance:

These are programs that are not directly aimed at alleviating poverty

There purpose is to replace labor income when people lose it through no fault of their own

These programs are NOT means tested - anyone can benefit from them regardless of income level

Definition:

Means tested programs are programs that are only available to people whose income falls below a certain threshold.

Examples: Social Security, unemployment insurance, workers compensation, medicare.

b. Income assistance (welfare):

These programs are targeted at the poor

They are means tested - to be eligible people must fall below a certain level of income

Examples: AFDC (Aid to families with dependent children), SSI (aged, blind, disabled), Food stamps, housing assistance, medicaid, school lunches.

How much does the government spend on these? Table 16.3 Lipsey and Courant.

c. Earned income tax credit*:

The tax credit supplements the incomes of working families with children who earn less than $26,000 per year.

* Note: Has recently been abolished by the Congress.

iii. Public Education:

Question: In what sense can public funding for education be considered an anti-poverty policy.

* Public spending on education is investment in people's human capital.

* Higher levels of human capital should be associated with higher income levels.

* If people can earn higher incomes they are less likely to live in poverty.

* K-12 education is a government policy that aims to give all children access to an education which decreases the probability that they will be poor.

* Government grants and loans for college is also a policy that seeks to provide as many Americans as possible with access to higher education, which also decreases the probability that they will be poor.

6. The effectiveness of anti-poverty programs:

The bottom line - policy effectiveness requires understanding the causes of poverty - only then can we design policies that directly address those causes.

7. Welfare Reform:

* The welfare reform movement in the US was centered around AFDC

* AFDC is money that goes primarily to women and children.

* Even though AFDC accounted for such a small share of government spending - there was a sense that the system was not working

* One of the concerns was with disincentives to work built into the system

* One of the difficulties with reforming the system has been that children - even if they live in poor families - need to be taken care of. If their mothers work, who cares for the kids?

* reform has meant a requirement that after a short stay on welfare (2 years total), women must find jobs to support themselves and their children - the new welfare system is called Temporary Assistance for Needy Families (TANF).

* Whereas AFDC was a federal program, TANF is administered through the states with block grants from the federal government.

Read Application 16.3 in your textbook.

Question: How do we balance the needs of children with the goal of encouraging people (those who are capable) to be self-sufficient?