Poverty in America is a transitory state

BY BRADLEY R. SCHILLER

Special to The Washington Post

WASHINGTON – The recently released poverty data paint a grim picture of life in America. Once again the U.S. Census Bureau tells us that 37 million people – one of every 12 residents – is living hand-to-mouth in the United States. This is a shocking statistic, especially in view of our extraordinarily high average incomes (around $60,000 per household), three years of robust economic growth, declining unemployment rates and a dramatic drop in welfare rolls.

Critics of the administration, of course, are quick to interpret this picture. They point to “tax cuts for the rich,” punitive welfare reforms, a stagnant federal minimum wage, cutbacks in education and increasingly cutthroat international trade as explanations for both persistent poverty and the widening gap between rich and poor Americans. But whatever merit some of these explanations might have, they are not focused on the right subject. The most important picture that emerges from census data is not the size of the poverty population but its transitory nature.

The number of people living in poverty has been in a narrow range of 32 million to 37 million for the past 25 years. The 1991 recession briefly pushed the number of poor people up to 39 million; the 1995-99 economic boom shrank it to 31.6 million. The year-to-year changes have been about a million people, up or down.

Changes in composition

Although the size of the poverty population has been fairly stable, its composition has not been. The people who were poor in 1981 aren’t poor now. The 4 million poor people who were over 65 back then are mostly dead now. The millions of household heads who were unemployed then are probably retired from their jobs. And all those welfare kids being raised by single moms in 1981 are now grown up.

So who took their place in the poverty ranks? We’ve got a constant flow of immigrants, for starters. Well over a million immigrants – both legal and illegal – enter the country every year. Most come in at the lowest rungs of the economic ladder, working for the minimum wage or less. The household poverty rates among immigrants are twice as high as those of non-immigrants.

Then we’ve got 5 million or so low-achieving kids dropping out of high school every year. And more than a million births a year to single moms, about a third of whom are teen-agers. On top of that, add more than a million divorces every year that often devastate someone’s finances.

Then there are the persistent scourges of death, disability and illness – all of which throw families into poverty, often without warning. Finally, there’s the economy, in which constantly shifting demands, costs and technology create a continuous profusion of winners and losers. So there’s always a flow of new faces into the poverty ranks.

The outflow is just as impressive. Unemployed workers don’t stay unemployed – they do find work and exit the poverty population. Likewise, minimum-wage workers don’t keep working for minimum wage. As they gain skills and experience, they command higher wages. Within three years of joining the labor market, 85 percent of minimum-wage entrants (primarily teen-agers and immigrants) earn significantly more than the federal minimum.

Immigrants assimilate and move out of poverty as quickly today as in past generations. Most of the single moms will marry (again), gaining the greater economic stability of a two-parent family. Others, perhaps prodded by welfare reforms, will gain employment, particularly once their children start attending school. Inflation-adjusted Social Security and disability benefits will lift millions of older and disabled workers out of poverty.

The reality of our poverty population is constant churn. Some people fall into poverty every year, and just about as many escape its clutches. The popular notion of a “poverty trap” is greatly exaggerated. The flows in and out of poverty are far more impressive than the relatively small subgroup of individuals who stay in poverty for many years. Researchers have observed that three out of five families that fall into poverty in any one year are out of poverty the following year making poverty a highly transient state.

Few stay poor indefinitely

Even more impressive statistics were collected over a longer period. A University of Michigan study discovered that one out of three U.S. households experienced poverty in at least one year of a 13-year stretch. But only one out of 20 families was poor in at least 10 years, and only one out of 60 stayed poor in all 13 years. Hence, the permanent poverty rate is less than 2 percent, even though the annual poverty rate is closer to 13 percent.

The evident churning in the poverty population doesn’t diminish its social importance. But it should change the way we look at poverty statistics and the policy choices we make. We don’t have a permanent poverty caste in the United States. Instead we have a very fluid combination of demographic, social and economic forces that propel people in and out of poverty.

Policy choices should focus on reducing institutional barriers that slow the poverty outflow and expanding (temporary) safety nets (e.g., unemployment benefits, child support) that reduce the poverty inflow.

Bradley R. Schiller is a professor of economics at American University in Washington, D.C. and author of “The Economics of Poverty and Discrimination.”