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Poverty: Facts, Causes and Consequences Hilary Hoynes University of California, Davis California Symposium on Poverty October 2009 In 2008, more than 1 in 6 children lived in poverty and 13.2 percent of all persons were poor. These numbers are expected to be higher in 2009.

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Poverty: Facts, Causes and Consequences

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Poverty: Facts, Causes and Consequences

Hilary Hoynes

University of California, Davis

California Symposium on Poverty

October 2009


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  • In 2008, more than 1 in 6 children lived in poverty and 13.2 percent of all persons were poor.

  • These numbers are expected to be higher in 2009.

  • Government spending on anti-poverty programs in 2008 included $25 b. on TANF, $50 b. on the EITC, and $38 b. on Food Stamps.

  • In this talk, I discuss what we know about the causes of poverty and its consequences for children and families.


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Outline

  • How do we define poverty?

  • Facts: Poverty in the U.S. and in California

  • Impacts of poverty on children and families

  • Causes and how government programs can help


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  • How do we define poverty?

  • Facts: Poverty in the U.S. and in California

  • Impacts of poverty on children and families

  • Causes and how government programs can help


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What is the Official Poverty Measure?

  • A family is poor if their family income is less than the federal poverty threshold

    • Poverty lines vary by family size and are adjusted for changes in prices each year

    • Based on the cost of food in the 1960s (mult by 3)

  • Poverty is a family concept—all persons in the same family have the same poverty status

By comparison, 2008 median family income was $52,000.


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Concerns about official poverty measure

  • Income measure is pre-tax family income; includes only cash income

    • Does not include Food Stamps or Earned Income Tax Credit

    • Not adjusted for work-related expenses

  • Not adjusted for regional variation in costs of living (e.g., housing)

  • Definition of poverty has not changed since measure developed in early 1960s

  • There are no easy solutions. In this presentation, I use the official measure


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  • How do we define poverty?

  • Facts: Poverty in the U.S. and in California

  • Impacts of poverty on children and families

  • Causes and how government programs can help


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  • Begin with looking at poverty for the U.S. as a whole


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Official Poverty Rate for the U.S.


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Children have higher poverty than any other age group


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U.S. ‘success’ in improving poverty varies by age


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Latinos and African Americans have high poverty rates


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Female headed households have high poverty rates


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Poverty dramatically declines with education


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Poverty in California

  • Poverty rates across groups in California mirror the patterns shown for the U.S. as a whole.

  • There are important things to point out for California


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In recent years, poverty rates have been higher in California


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The same is true for child poverty


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Poverty Varies Substantially Across California’s Regions


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Most poor families have a worker


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  • How do we define poverty?

  • Facts: Poverty in the U.S. and in California

  • Impacts of poverty on children and families

  • Causes and how government programs can help


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  • Poverty is measured and watched by virtually all developed countries.

  • It is an important indicator of economic well-being

  • In the U.S., poverty is associated with many adverse outcomes


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Children who grow up poor are more likely to

  • Not attend preschool

  • Perform worse in school

  • Drop out of high school, have lower educational attainment

  • (Girls) Have a teen birth

  • (Boys) Be incarcerated

  • Live in poverty as adults

  • Have 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?

  • Facts: Poverty in the U.S. and in California

  • Impacts of poverty on children and families

  • Causes and how government programs can help


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(1) The Labor Market

  • As we saw, most poor families contain workers

  • Poverty is very closely tied to the conditions of the labor market

    • Availability of jobs

    • Wages paid at those jobs


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  • Importance of job availability


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Poverty moves with the unemployment rate


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Poverty increased more in states that experienced larger increases in unemployment

Changes from 2000 to 2008


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Poverty increased more in states that experienced larger increases in unemployment

CA is here


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  • Importance of wages paid at those jobs


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Wages for less skilled men have been falling since the early 1970s

Source: Autor, Katz and Kearney (2008)


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No growth in family income at the bottom of the distribution (and significant growth at the top)

Source: Debbie Reed, PPIC


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  • KEY: These figures show that economic growth does not guarantee reductions in poverty


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(2) Government policies that reduce poverty

(and why)


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The Earned Income Tax Credit

  • Refundable tax credit for working, low-income taxpayers with children (single and married)

  • [Much smaller credit for childless]

  • No credit if no family earnings

  • EITC acts to supplement earnings.

  • Maximum credit for 2009:

    • $3043 for one-child families

    • $5028 for families with two or more children

  • Total cost in 2008 of the EITC is $40 b. compared to $25 b. for TANF and $38 b. for food stamps.


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KEY: Maximum EITC credit helps families near poverty threshold!


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How the EITC reduces poverty

  • Key design feature of EITC (and what distinguishes it from traditional income support programs) is that eligibility requires earned income.

    • The EITC transfers income to low income families with children WHILE encouraging work.

  • The generosity of the EITC increased substantially with tax reforms in 1986, 1990, and 1993.


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Illustrating how EITC encourages work and reduces poverty


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Illustrating how EITC encourages work and reduces poverty


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  • So, the EITC has the potential to increase incomes and reduce poverty through two channels:

    • The EITC represents an increase in income for the family

    • The EITC provides incentives to enter work, and thus increase earnings which increases family income.


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Census estimates of poverty reduction due to EITC, 2003


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BUT … the success of the EITC is not measured by official poverty statistics

  • Remember our definition of poverty?

  • Poverty is based on PRE-TAX family income

  • EITC operates through the tax system


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(3) Government Assistance: Why U.S. cash welfare programs are unlikely to affect poverty


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Cash Welfare Programs (TANF)

Income support (welfare) programs are unlikely to affect poverty rates for two reasons:

  • Benefit levels are low, unlikely to increase a household’s income over the poverty line.

  • Benefits are targeted on those out of work; thereby discouraging work rather than encouraging it.

    [This does not mean the program is not important or useful. Rather that it simply should not affect poverty rates.]


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Illustrating why TANF is unlikely to affect poverty


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Illustrating why TANF is unlikely to affect poverty


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One could use TANF to reduce poverty, but funding would have to be about four times the current funding


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  • What we do know, however, is that the combination of welfare reform and the expansion of the EITC led to large increases in employment among female-headed families in the late 1990s.

  • These increases in employment have the potential to reduce poverty.


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Percent of Women Working (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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Percent of Women Working (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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Expansion of EITC and Welfare Reform has Radically Changed the Landscape for Low Income Families with Children


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(4) More on government programs

  • Food stamps is important (but again not measured in official poverty statistics)

  • Minimum wages are a less targeted policy for reducing poverty (minimum wages not targeted on the poor)


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(5) Demographics and poverty

  • Growth in female headed households increases poverty

  • Growth in immigration increases poverty


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Concluding remarks

  • Reducing poverty takes a commitment of resources

  • Improve opportunities

    • Invest in education from early childhood through access to college

  • Encourage work and supplement income:

    • Further expansions of the EITC

    • Provide the necessary work supports (child care)


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