www.fordschool.umich.edu poverty and antipoverty policies before and after the great recession...

www.fordschool.umich.edu

Poverty and Antipoverty Policies Before and After

the Great RecessionSheldon Danziger

H.J. Meyer Distinguished University Professor of Public Policy

August 8, 2012Shepherd Higher Education Consortium

on PovertyClinton School of Public Service

University of Arkansas-Little Rock


Overview 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


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.


Johnson continued:

“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.”


Perspectives on the Causes of Poverty

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


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….


The Post-War on Poverty Decade 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


A Rising Tide Lifts All Boats,1947-73 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


A Gilded Age of Rising Inequality, 1973-present 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


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


-15.9 -1.1 -0.6

26.9

36.6

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

Less than high school

High school, no college

Some college or Associates

Bachelors only Advanced

Perc

ent c

hang

e

Source: Census Bureau, Current Population Survey*For full time wage and salary workers, deflated by the PCE deflator

Real Median Weekly Earnings by Educational Attainment*Percent change 1979-2010


Causes of Rising Inequality 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


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


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.


Changing Perspectives on the Causes of Poverty

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

\


President Reagan’s View

“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).


From Federal Responsibility to Personal Responsibility

“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.)


Work as Personal Responsibility “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).


Why are poverty and inequality higher in the US than in Europe? 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


Enrolled Graduated0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

34%

11%

52%

25%

79%

53%

Likelihood of Young Adults Enrolling in and Graduating from Col-lege by Parental Income

BottomMiddle Top


Why do poor children complete less schooling than nonpoor children? 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


The Great Recession

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


Percent of Workers with a HS Degree or Less Employed in Prior Week, Ages 25 - 54

Source: Current Population Survey (March Supplement)Note: Percentage point change between 1973 and 2010 in parenthesis.


Unemployment Rates by Race and Ethnicity, 1975 - 2010

Source: U.S. Bureau of Labor Statistics Retrieved from www.bls.gov


The American Reinvestment and Recovery Act, February 2009

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


ARRA Income Support Expansions

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


ARRA Human Capital Investments

Expanded Head Start/Early Head Start

Child Care Development Block Grant

American Opportunity Tax Credit Pell Grant Expansion


Economists on the both the right and the left agree that the stimulus workedThe 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


Slow Recovery from the Great Recession

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%


Official U.S. Poverty Rate, 1959 - 2010

Source: U.S. Census BureauRetrieved from www.census.gov


Current Economic Climate

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


Poverty Rate, All Persons, 1959-2010, with Pro-jections to 2016


Ellwood noted the problem in 2000…

“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.”


Emphasize Mutual Responsibility 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


Policy Recommendations – Adults 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


Policy Recommendations -

Children 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


Blair’s UK Antipoverty Policies 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


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.”


Responses to Safety Net’s Critics 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

www.fordschool.umich.edu poverty and antipoverty policies before and after the great recession...

Documents

poverty decade

s poverty

present poverty

poverty line

income inequality slide

decade slide

economic growth inequality

poverty historical trendsfrom