Poverty in America: A Handbook

Poverty in America

Poverty in America

A Handbook

Third Edition

John Iceland

UNIVERSITY OF CALIFORNIA PRESS

Berkeley•Los Angeles•California

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University of California Press

Berkeley and Los Angeles, California

University of California Press, Ltd.

London, England

© 2013 by The Regents of the University of California

Library of Congress Cataloging-in-Publication Data

Iceland, John.

Poverty in America : a handbook / John Iceland. — 3rd ed.

p. cm.

Includes bibliographical references and index.

ISBN 978-0-520-27636-9 (pbk., alk. paper)

eISBN 978-0-520-95679-7

1. Poor—United States—History. 2. Poverty—United States—History. 3. Economic assistance, Domestic—United States—History. I. Title.

HC110.P6I252013

339.4’60973—dc232012042288

Manufactured in the United States of America

22  21  20  19  18  17  16  15  14  13

10  9  8  7  6  5  4  3  2  1

In keeping with its commitment to support environmentally responsible and sustainable printing practices, UC Press has printed this book on Cascades Enviro 100, a 100% post consumer waste, recycled, de-inked fiber. FSC recycled certified and processed chlorine free. It is acid free, Ecologo certified, and manufactured by BioGas energy.

To Mia, Jakob, and Jeannie

Contents

List of Illustrations

Preface

Acknowledgments

Introduction

1.Early Views of Poverty in America

2.Methods of Measuring Poverty

3.Characteristics of the Poverty Population

4.Global Poverty

5.Causes of Poverty

6.The Great Recession

7.Poverty and Policy

Conclusion

Notes

References

Index

Illustrations

FIGURES

1.Poverty Thresholds for Four-Person Families, 1947–2011

2.Poverty Rates, by Measure

3.Official Poverty Rates by Age, 1959 to 2011

4.Ratio of Family Income to the Poverty Threshold, 2011

5.Percentage of Households with Various Consumer Goods, 2009

6.Share of Total Population and Poor Population in High-Poverty Neighborhoods, 1990 to 2005–2009

7.Percentage of People Living on Less Than $1.25 a Day, by Region, 1981–2005

8.Infant Mortality by Region, 2010

9.Relative Poverty Rates for Selected Countries, Mid-2000s

10.Absolute Poverty Rates for Selected Countries, Mid-2000s

11.Death Rates among Children 1–19 Years of Age, by OECD Country, Mid-2000s

12.Father-Son Earnings Elasticities, by Country

13.Poverty Rates and the Gross Domestic Product, 1929–2011

14.Cumulative Growth in Average After-Tax Income, by Income Group, 1979–2007 / 84

15.Shares of Income after Transfers and Federal Taxes, 1979 and 2007

16.Percentage Change in Median Usual Weekly Earnings, by Educational Attainment and Gender, 1979–2010

17.Official Poverty Rates by Race and Hispanic Origin, 1959–2011

18.Women’s Median Annual Earnings as a Percentage of Men’s Earnings for Full-Time, Year-Round Workers, 1960–2011

19.Percentage of Births to Unmarried Women by Race and Hispanic Origin, 1940–2009

20.Poverty Rates of Families by Family Structure and Race and Hispanic Origin, 2011

21.Poverty Rates, Using the National Academy of Sciences Poverty Measure, with and without Government Assistance, 2007 and 2010

22.Spending on Government Programs, 1970 to 2009

23.Spending on Programs as a Percentage of the Federal Budget, Fiscal Year 2010

24.Percentage of Households That Report Receiving Income from Selected Programs, by Poverty Status, 2009

25.Percentage Point Decline in Pretransfer Poverty Produced by Government Transfers (Social Insurance and Means-Tested), 2004

TABLES

1.Poverty Rates for Individuals by Demographic Characteristics

2.Percentage of People Reporting Various Hardships

3.Poverty Rates by Region, Metropolitan Status, and State, 1999 and 2011

4.Intergenerational Mobility across the Earnings Distribution

5.Poverty Rates by Nativity and Race and Hispanic Origin, 2011

6.Poverty Rates by Group, before and after the Great Recession, 2006–2011

Preface

Much has changed since I wrote the second edition of Poverty in America. The Great Recession and its aftermath have brought new attention to the problems of poverty and inequality. My goal here is to provide a fresh look at patterns and trends in poverty and help contextualize them. This is necessary for providing a basis for an honest political discussion of what ails us and what we can do about it. That is not to say that information alone leads to specific policy solutions. Policy is always guided in part by people’s values. But having a better understanding of a problem is necessary for more wisely choosing a course of action that will ultimately help further one’s goals.

This edition contains numerous changes from the previous one. First, this edition contains two new chapters. Chapter 4 discusses global poverty, and chapter 6 tackles the Great Recession. There was a limited discussion of poverty in the international context in the previous edition, but I opted for a fuller treatment here. There is much we can learn about poverty in the United States by comparing our experience with those of other nations. The new chapter on the Great Recession discusses both its causes and effects on American society. Although the recession officially ended in 2009, its impact on both the U.S. economy and its politics has been far reaching. One empirical chapter was eliminated from this edition, chapter 6 in the previous edition, Why Poverty Remains High, Revisited; the information in this chapter, although originally useful, became increasingly dated.

Second, in addition to adding and subtracting these chapters, I updated other ones so that they engage in extended discussions of recent poverty debates. I discuss, for example, how the recession helped spawn the Tea Party and Occupy Wall Street movements. The chapter on the causes of poverty delves into the debate about whether culture or changing economic conditions are more responsible for increases in female headship and nonmarital fertility, especially among the white population, in recent years. The chapter on policy discusses the contrasting visions of government’s role in society that permeate current policy debates, including the debate on President Obama’s Patient Protection and Affordable Care Act, or Obamacare.

I sought to make this edition more accessible for students of poverty by adding vignettes throughout the book to illustrate theoretical arguments and statistical findings. For example, I discuss newspaper accounts of Apple’s Foxconn factories in China to illustrate why many U.S. manufacturing jobs have gone overseas as well as the difficult working conditions faced by many people in developing countries. I provide short accounts of the psychological toll of losing a job during the recession and stories of the hardships experienced by people who are desperately poor. This helps humanize poverty for people with relatively little firsthand knowledge of what it means to be poor.

Finally, I updated all of the tables and figures in this edition so that they contain the latest information available. This involved eliminating some tables and figures and adding new ones. Naturally, the text accompanying these tables and figures was likewise updated.

In short, the second edition of Poverty in America was beginning to show its age. This edition provides basic updates to facts and figures, but, more importantly, it engages in the most recent research and current political debates on poverty. In the wake of the deepest recession since the Great Depression, the time is ripe for a renewed discussion of poverty in America.

Acknowledgments

I would like to thank a number of people who helped in the development of this book, including its earlier editions: Gordon Fisher, Patricia Ruggles, Daniel T. Lichter, Andrew Beveridge, Josh Kim, Susan Ferber, Leif Jensen, and Charles Ferrer. A special thanks to Naomi Schneider at the University of California Press, who has provided invaluable advice, direction, and support for this project over the years. My thanks as well to Mari Coates and Stacy Eisenstark at the University of California Press for their dedicated work.

I have the deepest gratitude for my friends and family for their support and encouragement, including my wife, Jean, who inspired me to write this book and is always there for me. I would like to thank my children, Jakob and Mia, for the light they bring into our lives; and my parents, Harry and Joan, for all they have done and continue to do. Finally, I would like to thank all of my other family members, including Charles, Debbie, Matthew, Josh, Matt, John, and Edna.

Introduction

Poverty will always be with us. This is not a new idea. From the Gospel of John to today many have despaired that poverty is an enduring feature of society, even as they search for ways to alleviate it. But is this true? Will poverty really always be with us?

The last fifty years, much like the fifty years before it, have been an economic roller coaster. In 1964 President Lyndon Johnson boldly proclaimed the War on Poverty, making it the centerpiece of his domestic agenda. Then, after nearly a decade of true progress against poverty in the United States—the poverty rate declined from 19 percent in 1964 to 11 percent in 1973—progress stalled. The 1970s and early 1980s saw two recessions and a simultaneous bout of high inflation and unemployment. This led Ronald Reagan to quip, in 1988, My friends, some years ago the federal government declared war on poverty—and poverty won. Nevertheless, the good economic times were hardly over for good. The 1990s were generally a decade of very healthy economic growth during which both high- and low-income Americans experienced increases in their standards of living. In 2000, President Clinton’s Council of Economic Advisors predicted the dawn of a new era in which the business cycle of boom and busts would soon be but a memory. Unfortunately, a mere decade later—after another two recessions, including the near economic catastrophe of the Great Recession of 2007–9—the economic and political mood of the country seemed to reach a new low. There was a feeling that America’s best days were in the past, and it was only a matter of time before other countries—especially China—would take the mantle as the new global superpower.

This mood was accompanied by bitter competing visions of what ailed the United States and what it could do to regain its footing. Conservatives felt the problem was too much government stifling economic growth and infringing on people’s freedoms. Their remedy was tax cuts and smaller government. Progressives thought the problem was underinvestment and runaway inequality that thwarted opportunity. Their answer was targeted spending and investment in basic physical infrastructure and human capital. For a variety of reasons, political moderates lost their voice and polarization and gridlock set in.

The question remains: did we really lose the War on Poverty? We certainly did not win; the official poverty rate is higher today than it was a generation ago. However, it is not fair to say it was lost either. The war effort was relatively short in duration, more or less ending by the early 1970s. Moreover, official poverty statistics also mask some improvements in poverty, as programs today are less likely to deliver cash benefits that are counted in official poverty statistics and more likely to include noncash or near-cash benefits that are not, such as in the form of Medicaid, housing subsidies, and the Earned Income Tax Credit. The 2000s notwithstanding, median incomes and standards of living rose through most of the post-1960 period. People today have access to a greater array of useful (and entertaining) consumer products (including smartphones and tablets) that were almost unimaginable in President Johnson’s day.

Nevertheless, many Americans continue to struggle to gain a foothold in the middle class. Growing inequality since the 1970s has made matters worse. College costs have soared, as have health care and child care costs in many parts of the country. Families have become more fragile, and marriage is in retreat. High-paying blue-collar jobs appear to have gone overseas for good. The United States has lost ground to other rapidly growing countries. Many of our political leaders seem consumed by petty bickering and are unable or unwilling to rise to these challenges.

At this juncture we need to refocus our attention on simmering—some might say festering—problems in America. Poverty is one of these. This book draws new attention to this issue. My basic goal is to answer the following questions: Why does poverty remain so pervasive? What does it mean to be poor? Are particular groups of people (e.g., ethnic minorities, single-parent families) inevitably more likely to be poor? What can we expect over the next few years? What are the limits of policy?

I advance several arguments throughout this book. First, views of poverty vary over time and place. What it means to be poor today is not the same as what it meant in the early twentieth century. Nor is the standard of what constitutes poverty in the United States the same as that in the developing world. Second, the persistence of poverty in the United States reflects more than just an aggregation of individual failings. Structural factors, such as the way we understand and define poverty, the inherent features of our economic system that produce income inequality, other social inequities, and our policy responses to these problems shape current trends. Third, antipoverty policies constitute a relatively small part of the federal budget and have only a moderate impact on poverty. The effect of policy on poverty is limited by the role of government in society that the public supports. Public sentiment is in turn affected by trust in government and the tension between individualistic and communitarian values. Social and ideological conflicts, confusion about the causes of poverty, and parochial concerns all stand in the way of efforts to reduce poverty and inequality.

These analyses are based on a synthesis of a wide range of quantitative and qualitative studies and a firsthand examination of information collected in a variety of social surveys, such as the decennial census and the Current Population Survey. The strength of these data is that they provide us with a comprehensive overview of poverty across the United States. My goal here is to provide a comprehensive understanding of the general nature and causes of poverty in America by combining this information with the historical record and social scientific theory.

WHY LOOK AT POVERTY?

There are several reasons why poverty continues to be a critical issue in the United States. First, the hardship that often accompanies poverty plainly has adverse effects on individuals’ physical and psychological well-being. A number of studies have shown that children raised in poor families are less healthy and worse off in terms of their cognitive development, school achievement, and emotional well-being.¹ Poor adolescents, for example, are more likely to have low self-esteem, act out antisocial behaviors, and become delinquent. Poor individuals are also more likely to have health problems and die at younger ages. Some of the harmful effects of poverty are due to low income, while others result from conditions that often accompany poverty, such as family instability and low levels of education. Poverty often begets more poverty, as those who grow up in poor families are more likely to be poor themselves as adults. Many people also argue that the continued suffering of some Americans in the midst of plenty is morally troubling.

Second, poverty has broad economic consequences. Economies thrive in societies with a vibrant middle class. Much of the strong economic growth in the United States in the twentieth century was fueled by the expansion of consumer markets. As the demand for new products soared, so did technological innovation, productivity, and wages and benefits. Declining levels of poverty contribute to a healthy economy by increasing the number of people who can purchase goods and services; that increase in turn stimulates economic growth and raises average standards of living. One study suggests that the costs associated with childhood poverty total about $500 billion per year in the United States, or the equivalent of nearly 4 percent of GDP. This is based on a rough estimate of what is lost through forgone earnings (due to, for example, low education), crime, and the health costs of growing up poor.²

Third, high levels of poverty have serious social and political consequences. Poor people often feel alienated from mainstream society. Poverty also provokes social disorder and crime, and it reduces public confidence in democratic institutions if people do not feel their needs are being addressed by the prevailing system. The ghetto riots of the 1960s, as well as the Los Angeles riots in 1992, for example, reflected the economic, social, and political marginalization of African Americans in U.S. cities. The unequal distribution of resources has contributed to the fragmentation of society we experience today, both nationally and globally.

MYTHS ABOUT POVERTY

There are many common myths about poverty. A frequent misperception, for example, is that a majority of the poor are African Americans, often residing in inner cities. Even though blacks are overrepresented among the poor, they make up less than one-quarter of the population living in poverty. Another common misperception is that the poor do not work; in fact, over 60 percent of poor families have at least one worker.³ Many believe that poor families are trapped in a cycle of poverty that few escape. However, there is considerable cycling into and out of poverty, and a significant proportion of Americans are poor at some point in their adult lives. Some suppose that welfare programs are a major part of the federal budget. Aside from Medicaid, however, welfare programs constitute a modest share of such spending.

Another common assumption is that poverty represents a fixed measure of economic deprivation. Yet the historical record reveals that people’s views of what it means to be poor have varied considerably both over time and across location. Not only are poverty standards lower in developing countries than in the United States, but American standards of poverty were much lower in the early part of the twentieth century than they were just decades later.

A final misperception I will mention here is that current disagreements about public spending reflect distinctly modern social issues. Quite the contrary, debates about the effect of government transfers on markets, individual conduct, and poverty go back to the nation’s earliest days. From the beginning, Americans have argued about the relative importance of alleviating hardship, on the one hand, and discouraging and limiting socially undesirable behaviors, on the other. The problem with these debates is that they often have been based on only a partial understanding of the causes of poverty, and people also have different goals and priorities when seeking to address them.

ORGANIZATION OF THE BOOKS

In chapter 1, I discuss views of poverty in America from the colonial era to the present. Familiarity with the historical context helps inform current poverty and inequality issues. For example, one way in which current debates on public spending echo past debates lies in how we decide who is worthy of support. There has long been a distinction between the deserving poor (those deserving of public support), such as the elderly, and the undeserving poor, such as able-bodied men and unmarried mothers.

Even as some of the central policy issues on how to address poverty have remained the same, views of what it means to be poor have changed over time. As standards of living have risen, so have assessments of how much money it takes to support a family. Dollar estimates early in the twentieth century were about 50 percent of the estimates made a little over half a century later. Many believe that the current official poverty line, devised in the 1960s and updated annually to account for inflation, is now too low. In 2011 the average poverty line for a family of four was $23,021.

In chapter 2, I review alternative methods of measuring poverty. As the number of antipoverty initiatives grew in the wake of Lyndon Johnson’s War on Poverty, it became clear that a standard poverty measure was needed to assess the effectiveness of these programs. The official poverty measure defines poverty lines for families of different sizes and composition and compares a family’s reported income to that line to determine if the family is poor. These poverty lines are updated annually for inflation. This official poverty measure remains in use to this day, though not everyone agrees that it represents the best way to estimate economic deprivation.

The two basic types of poverty measures are absolute measures and relative measures, each of which has several variants. Absolute measures, such as the current U.S. official measure, typically attempt to define a truly basic needs standard and have thresholds that remain constant over time. Relative measures, on the other hand, define poverty in terms of comparative disadvantage, and thus what constitutes poverty changes as living standards change. Each of these measures has its own strengths and weaknesses, and both are informative about the changing nature of economic well-being in society.

In my view, the best general measure of poverty has both absolute and relative components. The central notion underlying poverty is that poor individuals are unable to meet basic needs, regardless of general living standards. Yet poverty is relative in that the amount of money people believe they need to live within society rises as overall standards of living rise. One way to keep an absolute poverty measure meaningful is simply to update it by adjusting poverty thresholds every generation or so (or as needed). An alternative is a quasi-relative measure recommended by the National Academy of Sciences (NAS) Panel on Poverty and Family Assistance.⁴ Its basic strength is a poverty line that rises as spending on basic goods increases. Because of this and other advantages, this measure is a strong challenger to the current official U.S. poverty measure.

Chapter 3 describes the poverty population in detail. In 2011, for example, 15 percent of the U.S. population, or 46.2 million people, were poor according to the official measure. Poverty rates are a little higher when using the NAS measure and significantly higher if using a common relative measure. Poverty is more pervasive among some demographic subgroups—such as blacks and Hispanics, children, people with less education, and female-headed families—regardless of the poverty measure used. A significant proportion of people report experiencing various material hardships, such as sometimes not having enough food to eat or missing utility payments. However, both rich and poor Americans alike report having basic consumer items such as TVs and refrigerators.

Evidence from studies looking at the dynamics of poverty indicates that a majority of people who fall into poverty remain in poverty for only a short time. Nevertheless, many families frequently move into and out of poverty, and a significant proportion of the poor also suffer long-term poverty spells. Studies show that the large majority of children who grow up poor do not remain so as adults. Nevertheless, as adults they are considerably more likely to be poor than those who did not grow up poor.

Poverty varies widely across states and regions. Although poverty became more concentrated in central cities in the 1970s and 1980s, it became less so thereafter. In recent years suburban poverty has become more widespread. Several pockets of rural poverty have persisted over decades. Some argue that people living in high-poverty neighborhoods (and in remote rural areas) are not only spatially isolated from mainstream society but often socially isolated