Why Poverty Persists in America

Originally posted on July 31, 2012

There are four reasons, says Peter Edelman, author of “So Rich, So Poor: Why It’s So Hard to End Poverty in America”:

With all of that, why have we not achieved more? Four reasons: An astonishing number of people work at low-wage jobs. Plus, many more households are headed now by a single parent, making it difficult for them to earn a living income from the jobs that are typically available. The near disappearance of cash assistance for low-income mothers and children — i.e., welfare — in much of the country plays a contributing role, too. And persistent issues of race and gender mean higher poverty among minorities and families headed by single mothers.

In the wake of the recession, with so many people currently unemployed, the poverty level in the U.S. continues to grow. And, while Edelman’s diagnosis is right, the fixes for at least some of the problems seem more difficult. The number of low-wage jobs in America reflects the spread of globalization and the movement of jobs overseas. This process has been ongoing for several decades, as manufacturing steadily moved abroad and, increasingly service industries, like call centers and business process outsourcing, followed suit. Ironically, America’s loss became the developing world’s gain, as hundreds of millions of people climbed above the poverty line in places like China, India, Brazil, and the Philippines. On a global scale, the trend toward low-wage jobs in the United States may actually reflect a global poverty reduction trend.

Still, working a low-wage job in the U.S. is no doubt difficult. More than 100 million people – nearly a third of the population – live below twice the poverty line ($38,000 for a family of three). Edelman says that this trend has been ongoing since the 80’s, but we only opened our eyes after the recession. This is true, but doesn’t tell the whole story. Amidst one of the longest, deepest recessions since the Great Depression, corporate profits have broken records for the last three years. As companies retrenched and laid off their employees to cope with a crash in demand, they became more nimble and cost-conscious. As the economy recovered, instead of hiring back old employees, they outsourced jobs overseas or automated wherever possible, lowering their operating costs and increasing profits. In the long-run, the U.S. economy will be stronger and more globally-competitive as a result. But, in the short-term, the number of people living below the poverty line in the US will surely increase.

Those jobs are not coming back. Edelman suggests investing more heavily in education and skill development, and I agree. Because the funding source is local, our current public education system is failing to educate huge swathes of the population in a vicious cycle that creates a poverty trap. Setting aside the fact that discriminating on the basis of zip code is morally wrong, as I have discussed on this blog, it will only exacerbate our competitiveness problem.

On the Program for International Student Assessment (PISA) test, a global test given to 470,000 students in 2010, the U.S. ranked 14th in reading, 17th in science, and 25th in math. But these numbers do not tell the entire story. When the results are segmented by the percentage of students participating in the subsidized lunch program, which is the most accurate gauge of poverty levels in schools, the level of stratification is striking. In schools where less than 10% of students apply for subsidized lunch, the U.S. has the highest PISA scores of any OECD nation. In schools with more than 50% participation, the U.S. sits between Austria and Luxembourg. Mel Riddle, the head of the National Association of Secondary School Principals, explains the other side of that coin:

The problem is not as much with our educational system as it is with our high poverty rates. The real crisis is the level of poverty in too many of our schools and the relationship between poverty and student achievement. Our lowest achieving schools are the most under-resourced schools with the highest number of disadvantaged students. We cannot treat these schools in the same way that we would schools in more advantaged neighborhoods or we will continue to get the same results. The PISA results point out that the U.S. is not alone in facing the challenge of raising the performance of disadvantaged students.

This is a travesty for a number of reasons. Not only are we denying huge numbers of children a decent education, we are also diminishing our own competitiveness as a nation in the future.

The other day, I talked about the first of the four reasons why we cannot end poverty in the United States. Now I will talk about the other three.

Single parenthood is another challenge. According to Edelman, poverty rates among families led by single mothers is an astonishing 40%. I don’t know enough about the problem to propose any solutions. In the past, I have discussed how the the problem is systemic and self-reinforcing. But, from a policy perspective, I am not sure there is much that can be done. And race and gender are also big problem. There are certainly policy prescriptions here, but the issue is so systemic that I won’t even try to address them in this post.

The last reason – the reduction of the safety net and elimination of certain assistance programs – is really troubling however. Edelman explains the implications:

The census tells us that 20.5 million people earn incomes below half the poverty line, less than about $9,500 for a family of three — up eight million from 2000.

Why? A substantial reason is the near demise of welfare — now called Temporary Assistance for Needy Families, or TANF. In the mid-90s more than two-thirds of children in poor families received welfare. But that number has dwindled over the past decade and a half to roughly 27 percent.

One result: six million people have no income other than food stamps. Food stamps provide an income at a third of the poverty line, close to $6,300 for a family of three. It’s hard to understand how they survive.

At least we have food stamps. They have been a powerful antirecession tool in the past five years, with the number of recipients rising to 46 million today from 26.3 million in 2007. By contrast, welfare has done little to counter the impact of the recession; although the number of people receiving cash assistance rose from 3.9 million to 4.5 million since 2007, many states actually reduced the size of their rolls and lowered benefits to those in greatest need.

During a recession, expanding the food stamp program and other TANF programs provide the greatest ROI in terms of stimulating demand. Unlike the stimulus checks of 2008, which most people used to pay down debt and squirrel away in a savings account, food stamps and other credits are spent immediately. Aside from the fact that we, as a country, have an obligation to make sure that people can eat, these programs make sense from an economic recovery standpoint.

The chart on the right shows spending on low-income programs, with and without Medicare and Social Security, as a percentage of real GDP over time. In the War on Poverty during the LBJ administration, federal spending increased significantly before leveling off until the recession in 2008. It has increased since Obama took office, primarily in response to the downturn, which increased the rolls of people in need. Despite this mini-surge in spending, there a danger that it could be reversed.

Edelman ends the article with a stark warning that the status quo, as inadequate as it is, may not last. There are long-term ways of dealing with the growing income and wealth gaps – simplifying the tax code, allowing the Bush tax cuts to expire, increasing the capital gains tax, regulating financial institutions, and investing in education and infrastructure, to name a few. But an easy short-term solution is to, at the very least, maintain the current TANF programs, if not expand them to include the growing numbers of people living at or below the poverty line in this country.

Poverty in this country is a challenge. But we can deal with the problem by reforming our education system and maintaining and potentially expanding the social safety net.