More About Arloc Sherman
Sherman is a Senior Researcher focusing on family income trends, income support policies, and the causes and consequences of poverty.
Full bio and recent public appearances | Research archive at CBPP.org
When the Census Bureau releases its poverty figures for 2011 tomorrow, the official poverty rate could reach its highest point since 1965, as I discussed earlier this year. Although private-sector employment improved in 2011, other factors that affect the poverty rate (such as the amount of unemployment assistance provided to jobless families, government employment, and real average weekly wages) fell.
But even if the comparison to 1965 proves technically true, it will be misleading. That’s because the official poverty rate is based on families’ pre-tax, cash income. It ignores all non-cash benefits (such as SNAP, formerly called food stamps) and working-family tax credits such as the Earned Income Tax Credit (EITC) and Child Tax Credit — the very parts of the safety net that have expanded substantially over the past half century and that have reduced the reality of poverty, even if the improvement doesn’t show up in the official poverty figures.
In 1965, cash programs that are included in the official poverty measure — Unemployment Insurance, Aid to Families with Dependent Children (since converted into Temporary Assistance for Needy Families), Supplemental Security Income for the low-income elderly and people with disabilities, and state and local general assistance programs — comprised more than 90 percent of the benefits provided by major federal income-support programs for low-income and jobless Americans. By 2010, they accounted for only a little more than half of the benefits.
In other words, the official measure of poverty counts various means-tested cash assistance programs that have shrunk markedly, while ignoring key forms of “non-cash” assistance that have expanded substantially. The result is that using the official poverty measure to compare today’s poverty rate to that of decades ago yields a distorted picture that obscures more than it illuminates.
The Census Bureau is developing alternative poverty measures that count the full safety net’s effect. Its most complete and analytically sound measures — those that follow the poverty-measurement recommendations of the National Academy of Sciences (NAS) — go even further, also accounting for rising work expenses and out-of-pocket medical expenses, for example, and modestly updating the poverty line itself.
Under these measures, poverty rose slightly over the last decade, including during the recent downturn, but has been flatter than the official rate since 2000. Census will release NAS-based poverty data for 2011 later this year.
Unfortunately, the NAS measures don’t stretch back to the 1960s or 1970s to allow a full comparison with the official poverty data. But a cruder measure that I calculated myself — unlike the NAS measures, it’s not a complete and balanced measure of poverty — shows the growing importance of non-cash benefits in raising people out of poverty back to 1979 (see chart).
Under this measure, which counts taxes, the estimated value of food stamps, and housing assistance, poverty rose much more slowly in recent years than the official poverty rate. It shows that in 2010, such “non-cash” assistance cut the number of people in poverty by more than 10 million, or 3 percent of the population.
Tomorrow’s Census data will likely underscore the very serious state of poverty in America. But as we consider how to reduce the number of poor families, we shouldn’t get distracted by comparisons that fail to account for how effectively major parts of the safety net have fought poverty.
We won’t know the official poverty figures for 2011 until next Wednesday, but the most current Census data available show that a decline in unemployment insurance (UI) payments and large public-sector layoffs put upward pressure on poverty last year — maybe enough by themselves to raise the poverty rate above its 2010 level.
For the first 11 months of 2011, the average share of people with monthly cash income below the official poverty line rose by about half a percentage point, the data show. They also show that a decline in UI payments added half a percentage point to the monthly poverty rate, compared to what it otherwise would have been. UI benefits kept 1.3 million fewer people out of poverty in the first 11 months of 2011 than in the same months of 2010 (see graph).
Falling income from public-sector employment added another 0.2 percentage points to the poverty rate, the data show, as public-sector jobs kept roughly 600,000 fewer people above the poverty line in 2011 than in 2010. Taken together, income from UI and public-sector jobs kept 25.0 million people above the monthly poverty line in 2011, down from 26.9 million in 2010.
These preliminary estimates will likely differ somewhat from the official figures, which will come from a different Census survey and will be based on annual data. But the finding that falling UI benefits and public-sector employment pushed poverty rates upward is solid.
That finding is also consistent with Labor Department data showing sizable declines in UI payments and reductions in public-sector payrolls in 2011:
- Total UI payments fell by 25 percent in 2011, after adjusting for inflation. This happened because the 2009 Recovery Act’s $25-a-week increase in UI benefits expired in late 2010, large numbers of workers exhausted their long-term UI benefits before finding a job, and the number of new cases entering the UI system fell.
- The number of government jobs fell by 386,000 (1.7 percent) in 2011, primarily in state and local government. The number of state and local education jobs fell by 110,000, for example.
Some other leading determinants of poverty showed improvement in 2011; the number of private-sector jobs grew by 1.7 percent, for example, the second-largest increase in more than a decade. But that may not have been enough to offset the impact of UI declines and public-sector layoffs.
I laid out some short-term steps earlier this week that we could take to lower poverty. In this post, I take a look at what we should do over the longer term.
Four key points:
First, poverty was growing even before the Great Recession. Poverty rose during the economic expansion of 2001-2007, the first time on record that the official poverty rate was higher at the end of a recovery than before it. This suggests that we can’t count on economic growth alone to lower poverty unless the growth is stronger than in the last recovery.
Second, the safety net matters. While the Great Recession pushed poverty upward, the safety net pushed back, so the actual increase in poverty — particularly when measured with a poverty rate that includes the value of tax credits, food stamps, and other non-cash benefits — was far smaller than it would have been. We should continue some of the improvements made in the safety net during the recession, including improvements in the Earned Income Tax Credit (EITC) and Child Tax Credit, which together kept an estimated 1.6 million people out of poverty in 2010 and lessened the severity of poverty for nearly 13 million others (see chart).
Third, deficit-reduction plans can and should spare programs for the most vulnerable. Successful past deficit-reduction efforts protected key supports, such as food stamps, Medicaid, and tax credits for low-and moderate-income working families, and even included initiatives to reduce poverty. Recently, a group of religious leaders from dozens of Christian denominations and organizations issued a statement of deficit-reduction principles; the leaders proposed safeguarding key low-income programs in a “circle of protection.” In addition to the core low-income assistance programs, these leaders urged policymakers to protect longer-term investments such as Head Start and low-income education and training assistance.
Fourth, such anti-poverty and opportunity-promoting policies have benefits for the economy and society and help ensure that the future labor force can compete and adapt. Studies find that ensuring adequate income helps young children succeed in school and work and earn more later in life. Moreover, even during a time of general deficit reduction, spending money on further improvements in education and training, from the pre-kindergarten years through college and job training, makes long-term economic sense.
Besides protecting current anti-poverty assistance, specific steps forward could include a focus on shifting from regressive tax deductions toward tax credits, including the creation of a new renters’ credit to help low- and moderate-income renters; expanding the EITC for low-income childless workers, who currently receive little other assistance; expanding support for early education; and improving Pell Grants, other post-secondary education assistance (such as permanently extending improvements in the American Opportunity Tax Credit), and proven job-training initiatives that prepare people for jobs for which the demand is increasing in the local economy.
Modest progress in the private sector against poverty and inequality may be possible over the long term through steps like raising and indexing the minimum wage, and better enforcing wage and overtime rules.
Such steps would be just a beginning, but they would show that it’s possible to make progress against poverty — even as we reduce our deficit.
The official poverty rate was high (15.1 percent) in 2010, and when the Census Bureau releases new numbers for 2011 next month, that figure may climb still higher — due in part to declines in unemployment insurance payments, continuing layoffs by state and local governments, and the continuing sluggishness of the economy. Policymakers can — and should — do more to address the problem.
The Great Recession showed how effective the safety net can be in combating poverty. Alternative poverty measures that include the effect of tax credits and non-cash benefits show that poverty rose far less than it otherwise would have during the economic downturn, thanks to the safety net, which was enhanced by additional temporary initiatives that policymakers enacted as the economy contracted. (Unfortunately, as I’ve explained, the official poverty measure doesn’t count a lot of the safety net. That’s why official poverty rates have risen more than have alternative measures of poverty that are more comprehensive.)
In the recession, the safety net fought poverty in two ways: (1) by directly supplementing incomes, it kept a substantial number of families out of poverty, and (2) by helping these consumers continue spending, it saved private-sector jobs. The unemployment rate climbed steeply, but by less than it would have otherwise. Poverty will likely rise, though, if policymakers cut the safety net deeply, as some have proposed.
Instead, the President and Congress should consider a set of actions in the near term that could keep millions of families from falling into poverty both by providing needed income support and by strengthening the recovery, which would generate more job opportunities and income:
- Extend recent improvements in working-family tax credits (the Earned Income Tax Credit and the Child Tax Credit) that reward and encourage work for moderate and low-income families and individuals, and continue temporary extended unemployment assistance for long-term unemployed workers until the unemployment rate falls further.
- Stem the losses of government jobs, and temporarily shore up state and local spending on needed services such as schools, health care, and fire departments.
- Work to fund more jobs, such as for needed infrastructure, as my colleague Jared Bernstein has suggested, or to renew and expand the much-applauded subsidized employment initiative through the Temporary Assistance for Needy Families program that expired in September 2010. Policymakers could adopt such initiatives as part of a larger balanced deficit-reduction plan that spurs the economy in the short term and provides needed deficit-reduction in the mid-term and long-term.
The Federal Reserve can help, too, by pursuing more aggressive policies to push the economy toward full employment.
We can do more to fight poverty in the long term, as well. I’ll take a closer look at some of those policies in a later post.