Chapter 12 Chapter 12 Poverty, Welfare, and WomenPoverty, Welfare, and WomenChapter 12 Chapter 12 Poverty, Welfare, and WomenPoverty, Welfare, and Women

• Poverty in the U.S.

• Welfare programs incentives reform

• EITC

• Poverty in the U.S.

• Welfare programs incentives reform

• EITC

Measuring povertyMeasuring povertyMeasuring povertyMeasuring poverty

• Bureau of the Census

• 12.1% population is “poor” 2003 official poverty rate

• where does that come from?

• Bureau of the Census

• 12.1% population is “poor” 2003 official poverty rate

• where does that come from?

Calculating the poverty rateCalculating the poverty rateCalculating the poverty rateCalculating the poverty rate

• compare HH money income to poverty threshold

• poverty threshold cost nutritionally adequate diet for

HH

x 3 $14,824 for adult w/ 2 children (2003)

• compare HH money income to poverty threshold

• poverty threshold cost nutritionally adequate diet for

HH

x 3 $14,824 for adult w/ 2 children (2003)

• money income earned income, interest income + cash benefits before taxes does not include noncash benefits

• food, housing, medical care

• poverty rate is sensitive to the income measure

• money income earned income, interest income + cash benefits before taxes does not include noncash benefits

• food, housing, medical care

• poverty rate is sensitive to the income measure

criticismscriticismscriticismscriticisms

• poverty measure overstates problem money income does not include

non-cash benefits

• poverty measure understates problem HH should only spend 20-25% of

budget on food

• poverty measure overstates problem money income does not include

non-cash benefits

• poverty measure understates problem HH should only spend 20-25% of

budget on food

poverty variespoverty variespoverty variespoverty varies

• household type

• education

• race

• sex

• age

• state

• household type

• education

• race

• sex

• age

• state

26.5%

17.8%

11.1%7.9%

3.5% 3.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

< HS HS diploma College degree

Poverty Rates by Education (age 25+), 2001

Women Men

by state, 2002by state, 2002by state, 2002by state, 2002

• New Hampshire 5.8%

• New York 14%

• New Jersey 7.9%

• Pennsylvania 9.5%

• Mississippi 18.4%

• New Hampshire 5.8%

• New York 14%

• New Jersey 7.9%

• Pennsylvania 9.5%

• Mississippi 18.4%

feminization of povertyfeminization of povertyfeminization of povertyfeminization of poverty

• high poverty rate among female-headed HH (28%)

• rising number of female-headed HH over past 30 years

• over 50% of poor families are female-headed HH

• high poverty rate among female-headed HH (28%)

• rising number of female-headed HH over past 30 years

• over 50% of poor families are female-headed HH

child poverty, 2004child poverty, 2004child poverty, 2004child poverty, 2004

• % of people < 18 living in poverty 17.2% (all) 29.4% (Hispanic) 33.2% (Black)

• % of people < 18 living in poverty 17.2% (all) 29.4% (Hispanic) 33.2% (Black)

Why are women more likely to be Why are women more likely to be poor?poor?Why are women more likely to be Why are women more likely to be poor?poor?

• more single women have custody of children

• women, on average, earn less mothers, on average, earn less

• alimony, child support is spotty

• women live longer

• more single women have custody of children

• women, on average, earn less mothers, on average, earn less

• alimony, child support is spotty

• women live longer

Why are people poor?Why are people poor?Why are people poor?Why are people poor?

• lack of education, skills spotty work history low wages

• adverse events—divorce, job loss, disability

• bad attitudes? small % of those in poverty are their for

a long time

• lack of education, skills spotty work history low wages

• adverse events—divorce, job loss, disability

• bad attitudes? small % of those in poverty are their for

a long time

• Do programs to help the poor actually encourage poverty?

• Do programs to help the poor actually encourage poverty?

What is welfare?What is welfare?What is welfare?What is welfare?

• “means-tested” assistance

• several different programs

• federally and state funded administered by states states get wide latitude

• “means-tested” assistance

• several different programs

• federally and state funded administered by states states get wide latitude

• housing assistance (HUD) rent vouchers subsidized housing housing renovation home heating

• food assistance food stamps (dept. of Agriculture) WIC school lunch program

• housing assistance (HUD) rent vouchers subsidized housing housing renovation home heating

• food assistance food stamps (dept. of Agriculture) WIC school lunch program

• medical care Medicaid state subsidized health insurance

• childcare subsidies

• cash assistance AFDC/TANF SSI

• medical care Medicaid state subsidized health insurance

• childcare subsidies

• cash assistance AFDC/TANF SSI

• unemployment compensation is NOT welfare have to qualify

--work history funded through payroll taxes

• unemployment compensation is NOT welfare have to qualify

--work history funded through payroll taxes

Cost of welfareCost of welfareCost of welfareCost of welfare

• 2001 $82 billion total federal budget = $1.85 trillion 4.5% of the federal budget

• 2001 $82 billion total federal budget = $1.85 trillion 4.5% of the federal budget

Welfare and workWelfare and workWelfare and workWelfare and work

• prior to 1996, no time limit on benefits benefits cut (earnings penalty)

when recipients work

• prior to 1996, no time limit on benefits benefits cut (earnings penalty)

when recipients work

Welfare and work incentivesWelfare and work incentivesWelfare and work incentivesWelfare and work incentives

• welfare is nonearned income income effect

• earnings penalty makes working costly substitution effect

• welfare is nonearned income income effect

• earnings penalty makes working costly substitution effect

recall our time allocation modelrecall our time allocation modelrecall our time allocation modelrecall our time allocation model

• decision to work depends on MVT from working

• welfare lowers MVT of work earnings penalty lowers effective

wage welfare acts as nonearned income

• decision to work depends on MVT from working

• welfare lowers MVT of work earnings penalty lowers effective

wage welfare acts as nonearned income

• with a lower MVT for work, cut back on work to boost overall

utility allocate more time to leisure,

housework

• with a lower MVT for work, cut back on work to boost overall

utility allocate more time to leisure,

housework

evidenceevidenceevidenceevidence

• studies show that AFDC reduces labor supply of its recipients

• studies show that AFDC reduces labor supply of its recipients

Welfare ReformWelfare ReformWelfare ReformWelfare Reform

• many states experimented with reforms in late 1980s – early 1990s

• Federal reform 1996

• many states experimented with reforms in late 1980s – early 1990s

• Federal reform 1996

1996 Welfare Reform1996 Welfare Reform1996 Welfare Reform1996 Welfare Reform

• AFDC replaced by TANF block grants to states to use as

they see fit not a legal entitlement time limits

• 5 years total

• after 2 years, work requirements

• AFDC replaced by TANF block grants to states to use as

they see fit not a legal entitlement time limits

• 5 years total

• after 2 years, work requirements

• limits on benefits for noncitizens

• focus on family formation discourage unwed/teenage

motherhood family caps child support enforcement programs that encourage marriage

• limits on benefits for noncitizens

• focus on family formation discourage unwed/teenage

motherhood family caps child support enforcement programs that encourage marriage

EvidenceEvidenceEvidenceEvidence

• huge TANF caseload decline 1996-1999 4.4 million to 2.1 million success of reforms? and/or rapid economic growth

• huge TANF caseload decline 1996-1999 4.4 million to 2.1 million success of reforms? and/or rapid economic growth

• studies 1/3 of decline due to reforms 1/5 of decline due to economy

• studies 1/3 of decline due to reforms 1/5 of decline due to economy

• impact on marriage state evidence suggests that work

requirements reduce marriage• women more self-sufficient,

• women have less time for relationships

• impact on marriage state evidence suggests that work

requirements reduce marriage• women more self-sufficient,

• women have less time for relationships

EITCEITCEITCEITC

• Earned Income Tax Credit started 1975 expanded 1990s

• EITC is like a negative tax refundable tax credit to low-

income families• up to about $4000/yr.

• Earned Income Tax Credit started 1975 expanded 1990s

• EITC is like a negative tax refundable tax credit to low-

income families• up to about $4000/yr.

EITC vs. welfareEITC vs. welfareEITC vs. welfareEITC vs. welfare

• family must have earnings

• married & single parents eligible

• structure rewards works greater political support alternative to minimum wage

• family must have earnings

• married & single parents eligible

• structure rewards works greater political support alternative to minimum wage

Impact of EITCImpact of EITCImpact of EITCImpact of EITC

• increased LFP among single mothers

• but decreases LFP among married mothers in families close to cut-off point loss of EITC makes work too costly

• increased LFP among single mothers

• but decreases LFP among married mothers in families close to cut-off point loss of EITC makes work too costly