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Poverty

Poverty in Philadelphia

• In 2014 the poverty rate in Philadelphia was down, as it was in a number of major cities, falling to 26.3 percent of the population.
• Poorest of the ten most populous U.S. cities
• That meant that more than 400,000 Philadelphians were living below the poverty line, creating a demand for government services, a drag on the city’s economic prospects, and a reality check on all of the good feeling.
• Pew Charitable Trusts (2015)

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Poverty in Philadelphia

• Between 2006 and 2016, childhood hunger* in North Philadelphia more than tripled among families where parents work 20 or more hours a week.
• Median rent increased nearly 22% between 2008 and 2014 while incomes for people who rent went up only 11%.
• Philadelphia Inquirer (September 19, 2017)

* Child food insecurity: where a caregiver reports that one or more children lacked adequate, nutritious food at times during the year.

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CHAPTER OUTLINE

• Measuring Poverty
• Programs For The Poor
• Incentives, Disincentives, Myths And Truths
• Welfare Reform

Welfare

• “Relief” programs to help the poor began in the 1930s during the Great Depression.
• Many programs were created and others greatly expanded in the 1960s and 1970s.
• Significant welfare reform occurred in the 1990s

Poverty rates: percentage of the population living below the poverty line, selected years 1960–2011

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What is Poverty?

• Is it an absolute concept that is the same across the world or
• Is it a relative concept that depends on the incomes of others in the area?
• Can we say an American is poor if they have a living standard that is higher than the average person in the rest of the world?
• A poor person today has a higher living standard than an average person had 100 years ago. Does that mean that today’s poor person is not really poor?

Measuring Poverty

• Poverty Line: that level of income sufficient to provide a family with a minimally adequate standard of living as defined by the government
• The poverty line was originally established in the 1960s.
• Surveys indicated that, in the 1960s, poor families of four spent an average of one-third of their income on food.
• A survey established the cost of a minimally adequate diet and that figure was multiplied by 3 to get the poverty line.
• Similar surveys established the poverty line for other family sizes.
• The figure is updated annually for inflation using the CPI.

Poverty Lines 2016

• Family of
• 4 the poverty line is $24,300
• 3 the poverty line is $20,160
• 2 the poverty line is $16,020
• 1 the poverty line is $11.880

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Computations for the 2016 Annual Update of the HHS Poverty Guidelines for the 48 Contiguous States and the District of Columbia

$24,3000

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= $2025 / month

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= $467.31 / week

Measuring Poverty �(continued)

• Poverty Rate: percentage of people in households whose incomes were under the poverty line.
• 2016: 12.7%; 2015: 13.5%; 2014: 14.8%
• For most demographic groups, the number of people in poverty decreased from 2015. Adults aged 65 and older were the only population group to experience an increase in the number of people in poverty.
• Poverty Gap: amount of money that would have to be transferred to households below the poverty line to get them out of poverty. In 2011 it was $91 billion.

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Incidence of Poverty

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Incidence of Poverty

Poverty Statistics

Problems with Our Measures of Poverty

• Concerns that suggest the poverty rate is understated
• Child care costs are a bigger issue with today’s poor than those who were poor when the original poverty line was established.
• It is estimated that today poor families of four spend an average of one-seventh of their income on food.

Problems with Our Measure of Poverty (continued)

• Concerns that suggest the poverty rate is overstated
• Americans under the poverty line consume more protein, have more living space, are more likely to have air conditioning than the average European.
• Updates are based on the CPI which has consistently overstated the increase in the cost of living.
• The measure only counts income and not wealth. There are nearly a million “poor” who own homes worth more than $150,000.

Problems with Our Measure of Poverty (continued)

• Concerns that suggest the poverty rate is overstated
• The measure only counts cash income and does not count the non-cash amounts people get from programs such as food stamps and Medicaid.
• The method of calculation misses a large proportion of income that we know exists.

The CPI point

Problems with Our Measure of Poverty (continued)

• Concerns that suggest the poverty rate is overstated for some and understated for others
• The measure treats as equal the incomes of residents of high cost cities and low costs towns. This overstates rural poverty and understates urban poverty.
• The measure uses the overall CPI, which includes goods the poor cannot afford. In some years, the prices of goods bought by the poor rise more than the CPI and in other years it rises less.

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In Cash Programs for the Poor

• Temporary Aid to Needy Families (TANF)
• A program that gives money to states for them to work with the poor. If there is a “welfare check,” this is the program that grants it.
• Supplemental Security Income (SSI)
• A program that gives money to widows, orphans and the disabled.
• Earned Income Tax Credit (EITC)
• A program that gives to recipients money in the form of a tax refund that is much greater than the taxes they had withheld.

The U.S. Income-Maintenance System

In Kind Programs for the Poor

• In-Kind transfers: provisions of goods and services in forms other than cash
• Women, Infants and Children (WIC): vouchers allow people to get basic food products for pregnant women, new mothers and their children.
• Food Stamps: vouchers that enhance the recipients ability to buy food
• Medicaid: free health insurance
• Section 8 or Housing Authority housing: subsidized housing.
• Head Start: subsidized day care and preschool
• School Lunch: free breakfasts and lunches at school

Relative Costs of �Cash and In-Kind Programs

• Total Costs of the programs $685 billion
• Cash programs $134 billion
• In-Kind programs $551 billion

Why Spend $685 Billion on a �$91 Billion Problem

• Cash transfers would cost the government less to administer.
• Much of the benefit of the Medicaid goes to children in households just above the poverty line.
• Giving cash does not serve the goals of those helping the poor because Americans generally
• believe the poor would waste the money.
• believe the poor would not spend the money on their children.
• feel better giving people what they need rather that what they like.

Myths, Incentives and Disincentives

• Fact: Having a child can make someone who is ineligible for a welfare program eligible for that program.
• Fact: Having an additional child increases the amount of aid recipients are eligible for.
• Myth: People have (more) children to get (more) welfare.
• Though economists recognize an incentive to have, or to have more children, they have generally found little evidence to support that conclusion.

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Welfare Reform

• An optimal welfare program would
1. be sufficiently funded to solve the problem of poverty
2. provide an incentive to leave the program
3. be politically sustainable by not putting an excessive burden on taxpayers.

Welfare Reform

• The three can not be simultaneously met in the U.S. and the second (incentive to leave the program) has typically been the aspect sacrificed.
• Prior to 1996 reform a person who worked part-time would have most of the benefit of working taken away because their benefits would be reduced.
• After 1996 reform a person must show they are working or seeking work. Those who work part-time generally get to keep many of their welfare benefits. They must leave many programs within 2 years.

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Evidence on 1996 Welfare Reform

• TANF replaced prior system
• 1996 Welfare reform included work requirements and incentives
• Work activity by the welfare eligible has increased substantially since 1996.

Complexity of Poverty

• Complexity of poverty
• Many of the poor experience multiple problems that limit their successful employment
• Try to understand the complexities of poverty
• Avoid stigmatizing and stereotyping the poor
• We must seek common ground for solutions to poverty that work

Income Inequality and Poverty

• Government “welfare” in the form of tax benefits and subsidies exist also for middle-income and upper-income groups
• Education subsidies, home mortgage interest deductions from taxable income, farm subsidy programs, government buyouts, and others.

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Conservative versus Liberal

Liberals

• Need for government involvement in antipoverty efforts
• There are equity issues that are not dealt with by the market economy
• Prefer extensive federal involvement in poverty programs
• Favor a direct approach to dealing with the problem of poverty

Conservatives

• Leery of government involvement
• Concerned that too many programs or too much assistance creates inefficiencies and disincentives for work effort
• Prefer greater responsibility by private charities and by state governments
• Favor an indirect, trickle-down approach

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