Class Note for INDV 102 with Professor Kenworthy at UA
Class Note for INDV 102 with Professor Kenworthy at UA
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Date Created: 02/06/15
Persistent poverty Outline Why no apparent progress in reducing poverty since the mid 1970s Are the poor truly deprived Is most poverty temporary Is the United States a highpoverty country Persistent pa verty 25 U39l O Poverty rate 0 I I l I l I 1955 1965 1975 1985 1995 2005 Year Note Percentage of individuals in households with incomes below the poverty line Posttransferpretax income adjusted for household size Source Census Bureau wwwcensusgovhheswwwpoveItyhistpovperindexhtml Why no apparent progress in reducing poverty since the mid19705 Why no apparent progress GDP per capita has nearly doubled since 1973 Even if only a little trickles down shouldn39t there have been some decline in poverty Real progress for the elderly 25 E D E gt t39 D gt O n Children 5 e Age 18 to 64 Elderly 0 I I I 1975 1985 1995 2005 Year Note Percentage of individuals in households with incomes below the poverty line Posttransfer pretax income adjusted for household size Source Census Bureau wwwcensusgovhheswwwpoveItyhistpovperindexhtml Due largely to Social Security 15000 10000 5000 Average bene t 2007 I I I I 1975 1985 1995 2005 Year Note Average Social Security benefit for retired workers Source My calculations from data in Social Security Administration Annual Statistical Supplement to the Social Security Bulletin 2007 table 304 Some progress for workingage adults and their kids in the late 1990s 25000 Fourperson households 20000 I a 3 15000 0 S D E 8 10000 E Mon 5000 households 0 I 1975 1985 1995 2005 Year Note Tenthpercentile of the household income distribution Posttransferposttax income The income measure includes the EITC and Food Stamps and subtracts taxes Poverty line for a one person household in 2004 9800 Poverty line for a fourperson household 19300 Source My calculations using Luxembourg Income Study LIS data Some progress for workingage adults and their kids in the late 1990s Why doesn39t this progress show up in the poverty rate The Census Bureau39s income measure doesn39t include the Earned Income Tax Credit EITC The poverty rate measure is yesorno it doesn39t convey information about the degree of poverty Partly due to more employment E 100 I E O C 3 80 3 O C 2 g 60 3 F D E 8 40 E 2 g 20 u6 D E 0 0 I I 1975 1985 1995 2005 Year Note Share of workingage quotheadquot age 25 to 59 households in the bottom quartile of the income distribution that have at least one employed person Source My calculations using Luxembourg Income Study LIS data Partly due to increased earnings 25000 20000 15000 M 10000 Earnings 2005 5000 0 I l I I 1975 1985 1995 2005 Year Note Tenth percentile ofthe earnings distribution P10 Hourly earnings multiplied by 2080 Source Economic Policy Institute using Current Population Survey CPS data Partly due to more generous E T C bene ts 25000 lt3 Q 20000 0 O S E 15000 a Top line two or more children 8 Middle line one child 39 Bottom line no children E 10000 E 5 E 0 5000 2 f 0 1975 1985 1995 2005 Year Note Benefit per household The EITC originated in 1975 Prior to 1991 the benefit level did not vary by number of children Prior to 1994 it was not available to families with no children Source My calculations from data in Hoffman and Seidman Helping Working Families Upjohn Institute for Employment Research Center on Budget and Policy Priorities wwwcbpporg Partly due to more generous E T C bene ts 5000 1 No children 2 One child 3 Two or more children 4000 3000 2 2000 1000 Z I I I I I 0 5000 10000 15000 20000 25000 30000 35000 40000 Pretax household income EITC Note For tax year 2004 Source Center on Budget and Policy Priorities quotFacts about the Earned Income Creditquot wwwcbpporg Partly due to more generous E T C bene ts 20 15 10 Persons of US population I I I 1975 1985 1995 2005 Year Note EITC recipients These data are estimates tax units multiplied by average household size Source My calculations using data from Hoffman and Seidman Helping Working Families and the Center on Budget and Policy Priorities Why no progress for single adults and households with no one employed The EITC is tiny for households with no children For households with no earner there has been little change in government benefits Decrease in AFDCTANF Small increase in Food Stamps Small increase in Supplemental Social Security SSI One other group making real progress femaleheaded households Ag 4 v Poverty rate N o O 0 I I I 1975 1985 1995 2005 Year Note Percentage of individuals in femaleheaded households with incomes below the poverty line Posttransferpretax income adjusted for household size Source Census Bureau wwwcensusgovhheswwwpovertyhistpovperindexhtml One other group making real progress femaleheaded households This is a product of moving from welfare to work following the 1996 welfare reform and earlier state changes Work pays more than welfare and sometimes these women received both wage and benefit income Are their lives and those of their kids better We don39t know An earlier study by Kathryn Edin and Laura Lein Making Eno s Meet suggested not necessarily The main problem is that costs child care transportation and others tend to increase sharply when employed Are the poor truly dep ved How the Census Bureau measures poverty Thresholds One adult 10590 Two adults 13540 One adult two kids 16705 Two adults two kids 21027 The money income measure does not include capital gains the EITC or noncash benefits such as Food Stamps Medicaid and public housing and taxes are not subtracted These poverty thresholds are updated annually for inflation They do not vary geographically Are the poor truly deprived In a relative sense yes the poor are on average worse off in their material wellbeing than the nonpoor Are the poor truly deprived No telephone A A A A A A A A O Bottom income decile 0 All others Had to eat less than should due to lack of money Did not pay rent or mortgage at some point in past year Needed to visit doctor or hospital in past year but Frequently stay at home for fear I I I I O 5 1O 15 20 25 Share of households Note Income decile grouping is based on posttaXposttransfer sizeadjusted household income Equivalence scale is the square root of the number of persons in the household Source Calculations by Dan Duerr from data in the Survey of Income and Program Participation SIPP Are the poor truly deprived At the same time most of America39s poor are not destitute They have food shelter and clothing Are the poor truly deprived So what does quotpovertyquot mean in the United States in 2008 An imprecise but useful way to conceptualize it An income with which it s d icut to make ends meet How far can you get on a pa vertyle vel income Consider a household with two adults and two children Assume 21027 1609 1600 3700 1300 2000 24818 Earnings poverty line as of 2007 Social Security and Medicare tax State income tax ElTC Child tax credit Food Stamps Total 2070 per month How far can you get on a pa vertyle vel income 650 Rent plus utilities 550 100 500 Food 300 Transportation car gas insurance repairs 200 Medical and dental care 20 Phone 50 Clothing 350 Everything else toothpaste furniture etc 2070 Total How far can you get on a pa vertyle vel income We made it But we used an income right at the poverty line And we used lowish estimates In How Much Is Enough Jared Bernstein and coauthors calculated basic budgets for a family of three not four that ranged from 20000 to 40000 depending on the cityarea as of the mid1990s How far can you get on a pa vertyle vel income What this budget doesn39t allow for childcare health insurance for adults movie or sports event books or magazines allowance for kids pets credit card interest baby sitters going out to eat daily newspaper vacations summer camp college saving Wealth as a safeguard Do many poor people have assets that can help them make ends meet Some do but in most instances the only asset is the equity in a home they partially own According to Asa Caner and Edward Wolff as of 1999 about 25 of Americans were quotasset poorquot their net worth assets minus debts is less than enough to keep them above the poverty line for three months Is most poverty temporary Is most pa verty temporary Yes in the sense that relatively few people spend say five or more consecutive years with an income below the poverty line Is most pa verty temporary 30 20 10 Share in poverty 5 or more years total I I I 25 35 45 55 65 Age Source Mark Rank One Nation Underprivieged 2004 table 42 p 94 using Panel Study of Income Dynamics PSID data Is most pa verty temporary But many people cycle in and out of poverty Thus quite a few people nearly 25 of Americans spend five or more total years in poverty during their working years Is most pa verty temporary 30 20 10 Share in poverty 5 or more years total I I I 25 35 45 55 65 Age Source Mark Rank One Nation Underprivieged 2004 table 42 p 94 using Panel Study of Income Dynamics PSID data Is the United States a highpoverty country Is the 15 a highp0 verty country Three measures Relative poverty rate Absolute lowend P10 incomes Material deprivation rate Relative p0 verty I O 5 1O 15 20 Relative poverty rate Note Share of person living in households with income below 50 ofthe country median Posttransferposttax income adjusted for household size Source Luxembourg lncome Study wwwlisprojectorg Relative poverty The drawback of a relative poverty measure the higher the country39s median income the higher the poverty line This penalizes rich countries Absolute incomes at the low end I I 0 3000 6000 9000 12000 P10 income 2000 US per equivalent person Note P10 tenth percentile of the income distribution Posttrahsferposttax income adjusted for household size Currencies converted using purchasing power parities PPPs Source My calculations from Luxembourg Income Study data Material deprivation Den n Swe u Aus H Ire n Bel Fin Fr Ger Asl Ja Sp It US Material deprivation rate Note Average share of respondents reporting deprivation on questions in six areas basic needs housing conditions household items financial stress dependence on help from others and leisure and social activities Source Boarini and Mira d39Ercole 2006 p 30 table 9 using data from the European Community Household Panel ECHP for twelve countries and data from countryspecific surveys for Australia Canada Japan New Zealand and the United States Is the US a highp0 verty country Why does the US look good on absolute lowend incomes but bad on absolute material deprivation Some measurement error perhaps But it39s probably due mainly to government services especially medical care child care housing and transportation These don39t increase poor households39 income but they enable that income to go much farther Summary Summary The official poverty rate has barely budged since the mid1970s This overlooks some progress but it is nevertheless worrisome As with slow income growth for middle America a big part of the problem is wage stagnation Most of America39s poor are not destitute But that doesn39t mean they39re just fine A useful conceptualization of poverty an income with which it39s difficult to make ends meet Relatively few Americans are poor for long stretches at a time but about 25 are poor for 5 years or more Is the US a highpoverty country Yes and no Summary The official poverty rate has barely budged since the mid1970s This overlooks some progress but it is nevertheless worrisome As with slow income growth for middle America a big part of the problem is wage stagnation Most of America39s poor are not destitute But that doesn39t mean they39re just fine A useful conceptualization of poverty an income with which it39s difficult to make ends meet Relatively few Americans are poor for long stretches at a time but about 25 are poor for 5 years or more Is the US a highpoverty country Yes and no
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