The surest way to fight poverty is to achieve stronger economic growth. That, anyway, is a view embedded in the thinking of a lot of politicians and economists.
“The federal government,” Paul Ryan, the House Budget Committee chairman, wrote in The Wall Street Journal, “needs to remember that the best anti-poverty program is economic growth,” which is not so different from the argument put forth by John F. Kennedy (in a somewhat different context) that “a rising tide lifts all boats.”
In Kennedy’s era, that had the benefit of being true. From 1959 to 1973, the nation’s economy per person grew 82 percent, and that was enough to drive the proportion of the poor population from 22 percent to 11 percent.
But over the last generation in the United States, that simply hasn’t happened. Growth has been pretty good, up 147 percent per capita. But rather than decline further, the poverty rate has bounced around in the 12 to 15 percent range — higher than it was even in the early 1970s. The mystery of why — and how to change that — is one of the most fundamental challenges in the nation’s fight against poverty.
The disconnect between growth and poverty reduction is a key finding of a sweeping new study of wages from the Economic Policy Institute. The liberal-leaning group’s policy prescriptions are open to debate, but this piece of data the researchers find is hard to dispute: From 1959 to 1973, a more robust United States economy and fewer people living below the poverty line went hand-in-hand. That relationship broke apart in the mid-1970s. If the old relationship between growth and poverty had held up, the E.P.I. researchers find, the poverty rate in the United States would have fallen to zero by 1986 and stayed there ever since.
“It used to be that as G.D.P. per capita grew, poverty declined in lock step,” said Heidi Shierholz, an economist at E.P.I. and an author of the study. “There was a very tight relationship between overall growth and fewer and fewer Americans living in poverty. Starting in the ′70s, that link broke.”
Now, one shouldn’t interpret that too literally. The 1959 to 1973 period might be an unfair benchmark. The Great Society social safety net programs were being put in place, and they may have had a poverty-lowering effect separate from that of the overall economic trends. In other words, it may be simply that during that time, strong growth and a falling poverty rate happened to take place simultaneously for unrelated reasons. And there presumably is some level of poverty below which the official poverty rate will never fall, driven by people whose problems run much deeper than economics.
But the facts still cast doubt on the notion that growth alone will solve America’s poverty problem.
If you are committed to the idea that poor families need to work to earn a living, this has been a great three decades. For households in the bottom 20 percent of earnings in the United States — in 2012, that meant less than $14,687 a year — the share of income from wages, benefits and tax credits has risen from 57.5 percent of their total income in 1979 to 69.7 percent in 2010.
The percentage of their income from public benefits, including Medicaid, food stamps, Social Security and unemployment insurance, has fallen in that time.
The fact that more of poor families’ income is coming from wages doesn’t necessarily mean that they’re getting paid more, though. In fact, based on the E.P.I.’s analysis of data from the Census Bureau, it appears that what income gains they are seeing are coming from working more hours, not from higher hourly pay.
Indeed, if you adjust for the higher number of hours worked, over the 1979 to 2007 period (selected to avoid the effects of the steep recession that began in 2008), hourly pay for the bottom 20 percent of households rose only 3.2 percent. Total, not per year. In other words, in nearly three decades, these lower-income workers saw no meaningful gain in what they were paid for an hour of labor. Their overall inflation-adjusted income rose a bit, but mainly because they put in more hours of work.
The researchers at E.P.I. also looked at demographic factors that contribute to poverty, including race, education levels and changes in family structure (such as the number of one-parent versus two-parent households). This look at the data also shows rising inequality as the biggest factor in contributing to the poverty rate, dwarfing those other shifts.
Debates over what kind of social welfare system the United States ought to have are always polarizing, from the creation of the Great Society in the 1960s to the Clinton welfare reforms of the 1990s to the Paul Ryan budgets of this era. Conservatives tend to attribute the persistence of poverty, even amid economic growth, to the perverse incentives that a welfare state creates against working.
But the reality is that low-income workers are putting in more hours on the job than they did a generation ago — and the financial rewards for doing so just haven’t increased.
That’s the real lesson of the data: If you want to address poverty in the United States, it’s not enough to say that you need to create better incentives for lower-income people to work. You also have to devise strategies that make the benefits of a stronger economy show up in the wages of the people on the edge of poverty, who need it most desperately.