A
Quarterly Feature highlighting Sites of Interest
This
month we feature an article from the The
Center on Budget and Policy Priorities. Which is a nonpartisan
research organization and policy institute that conducts research
and analysis on a range of government policies and programs,
with an emphasis on those affecting low- and moderate-incomes.
Revised
October 1, 1999
LOW
UNEMPLOYMENT, RISING WAGES FUEL POVERTY DECLINE
Concerns
Remain Amidst the Good News
Continued
economic growth led to a significant reduction in poverty
in 1998, as the poverty rate declined to 12.7 percent. The
reduction in poverty appears to have been driven largely by
a drop in unemployment to the lowest level in 30 years as
well as a significant rise in the wages of low-paid workers,
itself apparently a product of the low levels of unemployment
(tight labor markets tend to push up wages) and an increase
in the minimum wage.
The
poverty rate for children fell to 18.9 percent last year,
the first time it has been below 19 percent since 1980. Poverty
rates also fell for Hispanics and non-Hispanic whites. The
black poverty rate was not statistically different from its
level for 1997, when it reached an all-time low.
The
poverty rate for the South, historically the region with the
highest poverty rate, also reached its lowest point on record.
In fact, most of the drop in poverty in 1998 occurred in the
South. The number of poor people declined 1.1 million nationally;
760,000 of this decline — 69 percent of it — occurred in the
South. There was no statistically significant change in the
number or percentage of poor people in any of the other three
regions.
Poverty
also declined outside metropolitan areas, while registering
no statistically significant change within metro areas. Median
household income, however, did increase both within and outside
metro areas, as well as in all regions of the country. Median
income rose for non-Hispanic whites and Hispanics as well,
while remaining unchanged for blacks.
"Last
year's 4.5 percent unemployment rate is the big story here,"
commented Robert Greenstein, the Center's executive director.
"These data show how important low unemployment is in reducing
poverty."
Some
Data Remain Disturbing
But
even with this good news about falling poverty rates, Greenstein
added, significant challenges remain. The poverty rate last
year remained higher than in nearly all years of the 1970s,
even though the unemployment rate was considerably lower last
year than in any year of the 1970s. In addition, child poverty
continues to be higher than in most other industrialized nations,
including Canada and most western European countries. And
more than one in every three black and Hispanic children remain
poor.
Also
of concern, the number of full-time year-round workers with
incomes below the poverty line rose by 459,000 in 1998.
"For
an economy this strong," Greenstein said, "the poverty rate
is still too high."
The
new Census
data show particularly striking poverty rates among young
children in female-headed families. Some 55 percent of related
children under six in female-headed families lived in poverty
last year. Among related black children under six
in such families, 60 percent were poor. Among related Hispanic
children under six in these families, 67 percent — two of
every three — were poor.
The
Census data also show that poor families are poorer, on average,
than they were a few years ago. The average amount by which
the incomes of poor families fall below the poverty line was
$245 greater per family member in 1998 than in 1995. (This
measure of how the incomes of poor families compare to the
poverty line counts food stamps, housing subsidies, and the
Earned Income Tax Credit as income, as many analysts believe
should be done.)
Part
of this increase in the depth of poverty amidst economic growth
has occurred among poor families with children and appears
to reflect sharp decreases in the proportions of poor children
and families that receive cash assistance and food stamp benefits.
The percentage of poor children whose families receive cash
assistance benefits fell from 62 percent in 1994 to 43 percent
in 1998. The percentage of poor children whose families receive
food stamps dropped from 94 percent to 75 percent during the
same period.(1)
Finally,
the Census data show that while income disparities between
rich and poor did not widen further in 1998, these gaps remain
at their widest point since the Census Bureau began collecting
these data several decades ago. The average income of the
most affluent households increased substantially between 1989
and 1998. (The year 1989 is used as the comparison year here
because it was the last year before the recession of the 1990s.)
But among the middle fifth of households, average income rose
only modestly between 1989 and 1998, and the average income
of the poorest fifth of households failed to register any
increase at all. The fact that income disparities have widened
substantially since the late 1970s, with a disproportionate
share of the gains from economic growth accruing to higher-income
households and far less to those at the bottom of the income
scale, is one of the reasons that poverty rates remained higher
in 1998 than in any year of the 1970s.
Economy
Boosts the Recovery
The
improvement in poverty and income in 1998 appears primarily
due to the strength of the economy. The 1998 unemployment
rate of 4.5 percent was the lowest since 1969. In addition,
between 1996 and 1998, the average hourly wages of the lowest-paid
workers increased, after declining for much of the previous
two decades. The year 1998 also was the first full year that
the increase in the minimum wage to $5.15 per hour was in
effect.
A
study that the Economic Policy
Institute issued earlier this year found wage increases
to be particularly strong for very low-paid workers between
1996 and 1998, due to both the tight labor market and the
increase in the minimum wage.(2) Among male
workers with hourly wages at the 10th percentile
of all male workers, hourly wages increased 4.7 percent between
1996 and 1998, after adjusting for inflation. (Workers with
wages at the 10th percentile have wages lower than 90 percent
of all wage-earners, and higher than the remaining 10 percent
of wage-earners.) Female workers with hourly wages at the
10th percentile of all female workers saw a 7.4 percent real
increase in hourly wages during the same period. Wages for
both male and female workers at these wage levels had fallen
for most of the previous two decades, after adjusting for
inflation.
The
effects of increased wages and low unemployment on the economic
situation of low-wage and minority workers highlight the significance
of policies that maintain low unemployment rates and restore
the value of the minimum wage.
Not
all of the news related to low wage workers in 1998 was positive,
however. The number of full-time year-round workers with incomes
below the poverty line increased by 459,000 in 1998, as the
poverty rate among these workers rose. Even so, the poverty
rate among full-time year-round workers remains quite low.(3)
Child
Poverty Rate Remains High
Despite
the reduction in poverty among children, the level of the
child poverty rate — 18.9 percent — remains high compared
to rates in other advanced industrialized countries. According
to data from the 25-nation Luxembourg Income Study, child
poverty rates are higher in the United States than in most
countries of western Europe and Canada.(4)
Child
poverty also remains high by historical standards. Although
the child poverty rate for 1998 appears to be the lowest since
1980, the child poverty rate was considerably lower in the
late 1960s and all years of the 1970s. The child poverty rate
ranged between 14.4 percent and 16.6 percent from 1967 to
1979, with the sole exception of the 1975 recession year,
when it climbed to 17.1 percent.
Income
Inequality Continues at Record Levels
The
most affluent fifth of households (that is, the top 20 percent
of households) received a significantly larger share of the
national income in 1998 than in 1989, the peak year of the
recovery of the 1980s (and the last year before the recession
that began in 1990). Each of the other four fifths of the
population received a smaller share of the national income
last year than in 1989. Income disparities have widened over
the current business cycle.
In
1998, the richest fifth of households received nearly half
— 49.2 percent — of all national before-tax income. The remaining
four-fifths shared the other half. Since 1993, the share of
the national income before taxes that goes to the richest
fifth of households has been larger than at any time since
the Census Bureau began collecting these data in the late
1960s.
Furthermore,
from 1989 to 1998, the income of the poorest fifth of households
failed to increase despite the tremendous growth of the economy.
The average income of these households was $9,200 in 1989
and $9,223 in 1998, a virtually identical figure. Among the
next-to-the poorest fifth of households, average income before
taxes rose only two percent between 1989 and 1998, while among
the middle fifth of households, income climbed three percent,
or about $1,000. By contrast, among the top fifth of households
— and especially among the top five percent — the income gains
were much greater in both percentage terms and dollar terms,
with the average income of the top five percent of households
climbing 23 percent, or some tens of thousands of dollars.
(All figures are adjusted for inflation and expressed in 1998
dollars.(5))
These
income trends are similar to those found in after-tax income
data that the Congressional Budget Office has issued. A recent
analysis of the CBO data by the Center on Budget and Policy
Priorities found that between 1989 and 1999, the average income
of the top fifth of households is projected to grow faster
than the average incomes of the middle fifth or the poorest
fifth.(6) This analysis
also shows that income disparities are now at their widest
point on record; CBO has compiled these data for years since
1977. In addition, the CBO data indicate that since 1977,
incomes have climbed much faster for the richest one percent
of the population than for any other income group. (Unlike
the CBO data, the Census figures do not include data for the
top one percent of households.)
The
failure of the income gap to narrow during the most recent
economic recovery is notable because prior to the 1970s, income
inequality tended to decrease during periods of economic growth.
The
Center on Budget and Policy Priorities is a nonpartisan research
organization and policy institute that conducts research and
analysis on a range of government policies and programs, and
specializes in issues related to fiscal policy and policies
and trends affecting low- and moderate-income families. It
is supported primarily by foundation grants.
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