American Economic Association Poverty in America: Trends and Explanations Author(s): Hilary W

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American Economic Association Poverty in America: Trends and Explanations Author(s): Hilary W. Hoynes, Marianne E. Page and Ann Huff Stevens Source: The Journal of Economic Perspectives, Vol. 20, No. 1 (Winter, 2006), pp. 47-68 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/30033633 Accessed: 25-06-2015 20:21 UTC Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://www.jstor.org/page/ info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. American Economic Association is collaborating with JSTOR to digitize, preserve and extend access to The Journal of Economic Perspectives. http://www.jstor.org This content downloaded from 149.84.147.108 on Thu, 25 Jun 2015 20:21:26 UTC All use subject to JSTOR Terms and Conditions Journal of EconomicPerspectives-Volume20, Number1-Winter 2006-Pages 4 7-68 Poverty in America: Trends and Explanations Hilary W. Hoynes, Marianne E. Page and Ann Huff Stevens ver the past 45 years, the United States has experienced a rising standard of living, with real GDP per capita more than doubling between 1959 and 2004. In contrast, living standards among some groups seem to have stagnated. The nonelderly poverty rate declined from 1959-1969, but then rose from 10.7 percent in 1970 to 12.7 percent in 1980 and remained at 12.8 percent in 2003. Figure 1 illustrates the trends in GDP per capita and poverty over this period. Although a number of studies have documented a correlation between macroeconomic conditions and poverty, Figure 1 makes clear that the relationship is not as simple, or as strong, as one might think. What additional factors can explain the starkly different trends in economic well-being that are measured by overall GDP growth and the poverty rate1 Consideration of additional factors only adds to the puzzle. First, the fraction of women ages 25 to 64 participating in the labor force and contributing to household money income skyrocketed during this period, increasing from 57 percent to 76 percent between 1970 and 2000 according to data from the Current Population Survey. At the same time, average levels of education grew substantially. In 1970, 48 percent of individuals over age 25 had less than a high school education; by 2000 this figure had fallen to 17 percent (U.S. Bureau of the Census, 2004). Finally, the stickiness in the nonelderly poverty rate does not exist for all demographic groups in the United States: poverty rates among the elderly O m Hilary W. Hoynes is Professorof Economics,Marianne E. Page is AssociateProfessorof Economics,and Ann Huff Stevensis AssociateProfessorof Economics,all at Universityof Californiaat Davis, Davis, California.Theire-mailaddressesare(hwhoynes@ucdavis.edu), and (annstevens@ucdavis.edu), (mepage@ucdavis.edu) respectively. This content downloaded from 149.84.147.108 on Thu, 25 Jun 2015 20:21:26 UTC All use subject to JSTOR Terms and Conditions 48 Journal of EconomicPerspectives Figure 1 Trends in Individual Poverty Rates and Real GDP per Capita, 1959-2003 All 40- Nonelderly Children 35 Elderly GDP per capita -40,000 S35,000 30- -30,000 25rate 20 -25,000 S20,000 -, Poverty 15- -15,000 10 - 10,000 5- (20031) capita per GDP -5,000 0- -0 1963 1968 1973 1978 1983 1988 1993 1998 2003 Source:Poverty rates are from U.S. Bureau of the Census, Current Population Survey, Annual Social and Economic Supplements. The GDP per capita series is from the Economic Report of the President (2005). Note:The poverty rate data are unavailable for some subgroups for 1960-1965. declined steadily during this period, falling from 24.6 percent in 1970 to 10.2 percent in 2003. Other factors may better explain why the poverty rate has failed to fall. Rising numbers of female headed families may offset income gains from women's increasing labor force participation. Increasing income inequality-in particular stemming from declines in wages for less-skilled workers-may have limited the povertyfighting effects of economic growth. Finally, the level of and changes in government benefits directed toward the nonelderly may explain why the nonelderly poverty rate has not moved in the same direction as elderly poverty. Our task in this paper is to document and quantify the effects of these competing factors to understand recent poverty trends better. Since the steady fall in elderly poverty rates in recent decades is likely explained by other factors such as Social Security (Englehardt and Gruber, 2004), we focus throughout this paper on the conundrum of why the nonelderly poverty rate has failed to decline as the economy has expanded. Dimensions of Poverty In this section, we summarize some basic facts about poverty in the United States, relying on a combination of previously published data from the Census This content downloaded from 149.84.147.108 on Thu, 25 Jun 2015 20:21:26 UTC All use subject to JSTOR Terms and Conditions Hilary W. Hoynes,MarianneE. Page and Ann Huff Stevens 49 Bureau and our own tabulations based on Current Population Survey data. Throughout the paper, we measure individual poverty rates (the alternative is to measure poverty rates among families) using the official Census Bureau definition. In particular, an individual is considered poor if their total family pretax money income in a given year is below the poverty threshold for their family size and age composition. By construction, all persons in the same family have the same poverty status. In 2004, the poverty threshold for a family of four was roughly 119,000, and for a single individual it was approximately 110,000. For details about poverty rates and how they are calculated, a useful starting point is the website of the U.S. Census Bureau at (http://www.census.gov/hhes/www/poverty/poverty.html). A Snapshot of Current Poverty Data on poverty in the United States is collected annually by the Current Population Survey. In 2003, 12.8 percent of all nonelderly individuals lived below the poverty line, while 17.6 percent of children lived in families with incomes below the poverty line. Women are more likely to be poor than men; in 2003, the poverty rate for males was 11.7 percent and for females was 13.9 percent. This relatively small difference is driven by the fact that men and women live together in most families and so have the same family income and poverty standard. When the population is divided using characteristics of the head of household or family structure, the differences are more dramatic. The poverty rate for individuals for whom the head of the family is married was 7 percent. In contrast, among individuals in families with an unmarried head and children present (five-sixths of whom are female unmarried heads), the poverty rate was 40.3 percent. Finally, among those with single heads, but no children present, the 2003 poverty rate was 17.9 percent. Race and ethnicity are also strongly related to the probability of living in poverty. The 2003 poverty rates among blacks and Hispanics were 24.3 percent and 22.5 percent, respectively, nearly triple the 8.2 percent poverty rate for whites. Individuals born in the United States have a poverty rate of 11.8 percent, while those who are immigrants have a rate of 17.4 percent. Finally, education is a strong predictor of poverty status. Among individuals living in families in which the head has less than a high school education, 31.3 percent are below the poverty line, compared with just 9.6 percent of those whose head has at least a high school education. Table 1 lists some characteristics of the poor and for comparison also shows the characteristics for the general population. The first row of Table 1 shows that the poor as a group are younger than the population as a whole, with children making up 39.8 percent of the poor, compared with 28.8 percent of the overall population. The slightly higher poverty rates among women, who are roughly half of the population, of course mean that the poor are also disproportionately female. The poor are disproportionately comprised of single parents with children. Single This content downloaded from 149.84.147.108 on Thu, 25 Jun 2015 20:21:26 UTC All use subject to JSTOR Terms and Conditions 50 Journal of EconomicPerspectives Table 1 Characteristics of the Nonelderly Poor, 2003 (percentagewith given characteristic) Among nonelderlypoor Among all nonelderly Individual characteristics Age