Transcript Poverty, Income Inequality & Income Support Policies

Poverty and Antipoverty
Policies Before and After the
Great Recession
Sheldon Danziger
H.J. Meyer Distinguished University Professor of
Public Policy
August 8, 2012
Shepherd Higher Education Consortium on Poverty
Clinton School of Public Service
University of Arkansas-Little Rock
www.fordschool.umich.edu
Overview
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Changing views on why people are poor
and what government can do to reduce
poverty
Historical Trends—from a “Rising Tide
Lifts all Boats,” to a “Gilded Age of
Rising Inequalities”
Lessons from the Great Recession and the
2009 Stimulus
How to Reduce Poverty and Promote
Opportunity in the Next Decade
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President Johnson Declares War on
Poverty, January 8, 1964
“Americans today enjoy the highest standard
of living in the history of mankind. But for
nearly a fifth of our fellow citizens, this is a
hollow achievement….
We
cannot and need not wait for the gradual
growth of the economy to lift this forgotten fifth
of our nation above the poverty line. We know
what must be done and this nation of
abundance can surely afford to do it.
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Johnson continued:
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“Today, as in the past, higher
employment and speedier economic
growth are the cornerstones of a
concerted attack on poverty… But
general prosperity and growth leave
untouched many of the roots of human
poverty.”
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Perspectives on the Causes of
Poverty
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Economic Growth is necessary, but
not sufficient
Poor are Victims of Circumstance
beyond their control
Poor Have Unequal Opportunities
Lack of Income is the Problem
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President’s Commission on Income
Maintenance,1969:
“We
have concluded that more often than not
the reason for poverty is not some personal
failing, but the accident of being born to the
wrong parents, or the lack of opportunity to
become nonpoor, or some other circumstance
over which individuals have no control….
“Our
main recommendation is for the creation
of a universal income supplement program
financed by the Federal government….
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The Post-War on Poverty Decade
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A golden age of social program growth
at the end of a golden age of economic
growth.
Optimism about government’s ability to
solve complex social problems.
Willingness to spend federal funds to
reduce poverty and promote equal
opportunity
Willingness to take federal action in face
of state government opposition
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A Rising Tide Lifts All Boats,1947-73
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Rapid Economic Growth, modest
recessions
Rapid wage growth for all workers
Spread of employer-provided health
insurance and pensions
Minimum wage rises relative to
inflation
Rapidly falling poverty
Slowly falling income inequality
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A Gilded Age of Rising Inequality,
1973-present
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Poverty rises above 15% during severe
recessions of early 1980s
Poverty falls during recoveries, but not
to 1973 level
Less-educated workers no longer benefit
from economic growth
Inequality increases rapidly
Effective safety net only for elderly
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Change in Family Income (inflation-adjusted) at
Selected Points in the distribution
Source:
U.S. Census Bureau (2011). Table F-1. Income Limits for Each Fifth and Top 5
Percent of Families, from Historical Income Tables. Retrieved from:
http://www.census.gov/hhes/www/income/data/historical/index.html
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Real Median Weekly Earnings by Educational Attainment*
Percent change 1979-2010
36.6
40.0
20.0
10.0
-15.9
-1.1
-0.6
0.0
Percent change
30.0
26.9
-10.0
-20.0
Less than high High school,
school
no college
Some college Bachelors only
or Associates
Advanced
Source: Census Bureau, Current Population Survey
*For full time wage and salary workers, deflated by the PCE deflator
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Causes of Rising Inequality
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Skill-biased technological changes
Globalization of markets
Decline in unionization
Erosion of the minimum wage
Declining progressivity of federal
income tax
Explosion of Executive Pay and the
size of the financial sector
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CEO Compensation
•
This graph shows the ratio of average CEO direct compensation to average
production worker compensation from 1965 – 2009. In 2005, the average CEO
in the United States earned 262 times the pay of the average worker, earning
more in one workday than an average worker earned in an entire year.
Source: Economic Policy Institute
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Wealth of the Wealthiest 1% Compared to the
Wealth of the Median Household, 1962 - 2009
•
This figure shoes the ratio of the average wealth of the wealthiest 1%
compared to the median American household’s wealth. In 1962, the top
1% had 125 times the wealth of the median household. By 2009 the otp 1%
had 225 times the median household’s wealth.
Source: Allegretto, Sylvia. 2011. “The State of Working America’s Wealth,
2011.” Economic Policy Institute Briefing Paper #292.
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Changing
Perspectives on the
\
Causes of Poverty
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Poor lack personal responsibility
Poor don’t take advantage of available
opportunities
Government programs exacerbate the
problem—poverty does not decline
when benefits increase due to work and
family disincentives
Money alone won’t cure poverty
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President Reagan’s View
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“In 1964, the famous War on Poverty was
declared. And a funny thing happened.
Poverty, as measured by dependency,
stopped shrinking and actually began to
grow worse. I guess you could say,
“Poverty won the War.” Poverty won, in
part, because instead of helping the poor,
government programs ruptured the bonds
holding poor families together (Radio
Address, Feb. 15, 1986).
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From Federal Responsibility to
Personal Responsibility
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“Money alone will not cure poverty;
internalized values are also
needed….The most disturbing element
among a fraction of the contemporary
poor is an inability to seize opportunity
even when it is available and while
others around them are seizing it (The
New Consensus on Family and Welfare,
1987, Novak et al.)
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Work as Personal Responsibility
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“Poverty reflects social disorder more
than deficient opportunity…The chief
solution to poverty… is to restore order.
Government must provide…pressure to
work….Work must become an obligation
and not a choice (Lawrence Mead,
“Toward a Mandatory Work Policy for
Men,” 2007).
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Why are poverty and inequality
higher in the US than in Europe?
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Americans are more likely to believe that
“anyone who works hard can get
ahead.”
Americans are less likely to endorse
government’s responsibility to reduce
income differences.
Americans prefer a flexible labor market
with relatively little government
regulation of firms
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Likelihood of Young Adults Enrolling in and Graduating from
College by Parental Income
90%
79%
80%
70%
60%
53%
52%
50%
40%
Bottom
Middle
34%
Top
30%
25%
20%
11%
10%
0%
Enrolled
Graduated
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Why do poor children complete less
schooling than nonpoor children?
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Americans believe that all who are
qualified should have an opportunity to
attend college. Is there a role for
government?
I. Yes--Educational opportunities are
limited by circumstances of birth
II. NO--Opportunities are available, but
poor children do not study enough and
poor parents do not supervise enough
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The Great Recession
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Recession was long—from
December 2007 through June 2009
Recession was deep—about 6% of
all jobs were lost
Labor Market Crisis
Financial Crisis
Housing Market Crisis
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Percent of Workers with a HS Degree or Less
Employed in Prior Week, Ages 25 - 54
Source:
Note:
Current Population Survey (March Supplement)
Percentage point change between 1973 and 2010 in parenthesis.
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Unemployment Rates by Race and Ethnicity,
1975 - 2010
Source:
U.S. Bureau of Labor Statistics
Retrieved from www.bls.gov
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The American Reinvestment and
Recovery Act, February 2009
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Economically successful, but too small in
hindsight
Kept recession from being more severe
and poverty from being even higher
Poorly explained by the administration
Misreported by the media
Became a political failure that fed Deficit
Mania
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ARRA Income Support
Expansions
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Massive expansion of Unemployment
Insurance benefits
Increased Food Stamp benefits
New TANF Emergency Jobs Program
New Make Work Pay Tax Credit
Expanded EITC
Expanded Per Child Tax Credit
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ARRA Human Capital
Investments
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Expanded Head Start/Early Head Start
Child Care Development Block Grant
American Opportunity Tax Credit
Pell Grant Expansion
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Economists on the both the right and the
left agree that the stimulus worked
The combination of increased federal purchases and
benefits raised output and income…Stimulus worked
in the sense that the recession would have been
substantially worse without the stimulus…. Robert
Hall. Stanford, Fall 2010, Daedalus
…fiscal policy sits idle, paralyzed by extreme
partisanship, tarred by a successful public relations
campaign against the 2009 stimulus bill and
consumed by fears of large budget deficits. Our real
deficit problem…lies in the future, not the present.
Alan Blinder, Princeton, Oct. 25, 2010, Wall St. Journal
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Slow Recovery from the Great
Recession
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ARRA kept recession from being
deeper and lasting longer
Safety net spending on low-income
families increased dramatically
Yet, 2011 unemployment rate of
about 9% and 2010 poverty rate of
15.1%
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Official U.S. Poverty Rate, 1959 - 2010
Source:
U.S. Census Bureau
Retrieved from www.census.gov
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Current Economic Climate
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Unemployment remains high—could take 8
more years to replace all jobs lost
Real wage growth for less-educated workers is
unlikely
Income & wealth inequalities at highest levels
since the 1920s
States are cutting social programs and public
sector jobs
Deficit Mania threatens safety net as we know
it
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Ellwood noted the problem in
2000…
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“We worry that the early apparent successes
in welfare reform hide increases in
insecurity….If we are reluctant to leave
families with children without some form of
safety net and equally reluctant to simply
pay welfare benefits without some
expectation of work in return, public work
programs may need to be an important part
of the mix sometime in the future.”
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Emphasize Mutual Responsibility
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Structural labor market changes keep
poverty and unemployment high so if
poor have responsibility to work they
need support
Government can effectively reduce
poverty
Modest tax increases won’t destroy the
market economy
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Policy Recommendations –
Adults
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Make permanent ARRA’s Food Stamp
and Unemployment Insurance changes
Establish a subsidized jobs program for
long-term unemployed
Expand EITC for childless low-wage
workers
Let all Bush tax cuts expire
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Policy Recommendations Children
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Expand early education programs
Improve implementation of NCLB
Expand supply of teachers in
disadvantaged school districts
Expand magnet and charter school
options
Make college more affordable
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Blair’s UK Antipoverty Policies
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Reduce poverty not welfare rolls
Modeled after U.S. policies
Provide work for those who can
Provide security for those who
can’t
Focus on children
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Candidate Obama, July 18, 2007
• “In this country… no child's destiny
should be determined before he takes
his first step…. Our government cannot
guarantee success and happiness in life,
but what we can do as a nation is to
ensure that every American who wants
to work is prepared to work, able to find
a job, and able to stay out of poverty….
What we can do is retire the phrase
"working poor" in our time.”
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Responses to Safety Net’s Critics
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Labor market changes, not failure to
take available jobs, are primary reason
poverty and unemployment remain
high
Safety net programs reduce poverty
without large distortions in work and
family choices
Modest tax increases reduce poverty
and inequality without disrupting the
market economy
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