Many Millions Above the Poverty Line Lack Basic Economic Security

November 24, 2014

Blogger Matt Bruenig has declared war on the notion that poor people are “a small, especially degenerate class.” I don’t think this view is as common as he implies, thought it’s hardly as marginal as one would wish.

I mentioned his campaign, however, because the salvo I’ve linked to focuses on the arbitrariness of the federal poverty line. Look, he says, at the 53 million people hovering just above it, according to the Census Bureau’s latest Supplemental Poverty report. That’s 4 million more than fall below it.

And look at the gradual upward slope of the income distribution from way below the poverty line up to 300% of it. We see no “especially large gap” that would justify putting poor people into one bucket and everyone else into another.

Besides, he reminds us, people cycle in and out of official poverty. During 2009-11, for example, 31.6% of the population lived in poverty for at least two months, but only 3.5% were poor for the entire three-year period.

It’s nevertheless hard to imagine doing away with a line of some sort or other — at least, so long as we have programs that set eligibility and/or benefit levels based on income.

At the same time, a line, wherever we set it, will be a crude measure of what should most concern us — material hardship. Do people have the wherewithal for food, shelter, heat during the winter, etc. For what they need to pay in order to work, e.g., transportation, perhaps child care?

As I wrote awhile ago, Molly Scott at the Urban Institute showed that a single mother working part time at the minimum wage could actually be better off than a single mother working 60 hours a week at the same wage. Public benefit help explain this, but so do work-related costs.

Yet having just the resources to get by day to day without material hardship seems a low bar to set in a country with as much wealth as ours. Wider Opportunities for Women proposes that we look instead at how much a family much have to be economically secure.

WOW has a very complex database — the BEST (Basic Economic Security Tables) Index. It’s made up of many hundreds of monthly budgets for different family configurations, with and without employment-based benefits, and each reflecting costs in diverse geographic locations.

The budgets include not only basic needs and work-related expenses, but some savings for retirement and for emergencies — enough to get along for nine weeks without earnings because that was the average time jobless workers remained unemployed when the index was created.

The budgets are strictly “no frills,” in the words of WOW’s Vice President for Policies and Programs. In other words, they don’t allow for entertainment, vacations or even electronics, except a phone. They do, however, include optional, below the line savings for higher education and home ownership.

Using the BEST Index, WOW finds that 44% of Americans didn’t have enough income for economic security two years ago. Children in the household raised the rate to nearly 50%.

Economic insecurity was much more common than this for single parents with children — 77% without enough income. The rate for single-mother families was an even higher 81% — more than two and a half times their high poverty rate.

These are national figures. Economic security requires far more income in some places than others, of course. Consider, for example, Scott’s single mother and her two elementary school-age children living in the District of Columbia.

She and her kids would have cleared the poverty threshold in 2012 if she earned $18,500 a year. But she’d have had to make well over four times as much — at least $79,932 — for her family to be economically secure.

“At least” because this formidable sum assumes she was eligible for unemployment insurance, e.g., not a contract worker, and that her employer provided both a health insurance and a retirement plan. Without these employed-related benefits, she’d have had to make $85,992.

In both cases, the biggest ticket items for her child care, taxes and rent. Child care was the second biggest, even though her children needed it only during after-school hours — nearly $1,300 a month. And the rent, as WOW computes it, is quite low for the District — $1,259 a month.

I’m not sure what we should make of all this. I suppose we could begin, as Professor Stephen Pimpare suggests, by recognizing the “widespread economic fragility” of households in our country — and the weakness of the safety net many are likely to need.

But there are other, more specific policy lessons in the enormous gap between what it takes to be officially not-poor and what it takes to have enough for health, safety and work-related costs, plus a modest stash to draw on so as not to fall into poverty.

Far too many lessons for this post. But the sobering figures surely support a wide range of proposals — and confirm objections to others that our recent “Republican wave” seems likely to toss onto our Congressional and state legislative agendas.

 


New Reports Show Widespread Economic Insecurity In America

December 27, 2011

The latest Census reports sparked a lot of media attention to poverty in America — the issue’s annual 15 minutes of fame.

No surprise to anyone that the poverty rate rose last year — even when measured by the very low poverty thresholds based on food costs.

More notable perhaps were the increases found when the Census Bureau used its new supplemental poverty measure.

But everyone, I think, knows that poverty rates give us an incomplete picture of how low-income people in the U.S. get along — or don’t — financially.

Three recent reports round out the poverty rates with data on economic insecurity — defined by each in a different way. Brief recap follows.

Census Report for the New York Times

The New York Times asked the Census Bureau to use its supplemental measure for an analysis that captured the number of people with incomes above the poverty threshold, but by only 50%.

Turns out that there are 51 million Americans in what the Times reporters call “the fretful zone,” where one untoward event can mean a plunge into what we officially define as poverty.

Adding the poor and “near poor” together, we find that nearly a third of the U.S. population is economically insecure.

Wider Opportunities for Women

Wider Opportunities for Women provides a much more detailed analysis of people who are “living below the line” that represents economic security.

The measure here is one that WOW has developed in collaboration with the Center for Social Development at Washington University in St. Louis — the Basic Economic Security Tables (BEST) Index.

Basically, the index pulls together basic living costs, including work-related expenses like child care, and adds some savings for both emergencies and retirement.

These, needless to say, are different for different family configurations — number of workers in the household, number of children (if any), their ages. The index adjusts accordingly.

The WOW analysts slice and dice the population to show us discrete results for some configurations and also for some major racial and ethnic groups. We thus get a fairly complex picture of who lacks “financial stability.”

Bottom line is that 45% of people in the U.S. live in households that do. This figure comprises 39% of all adults and a very disturbing 55% of all children.

For single women, the economic insecurity rate rises to 62%. For African-American and Hispanic women, to 76% and 80% respectively.

These, as WOW acknowledges, are conservative figures because the index doesn’t include items that many families would consider essential — “commonplace” purchases like gifts and home electronics or big-ticket investments like sending a child to college.

The rates are still plenty high enough to give anyone pause — especially now when programs that shore up below-the-line budgets are so vulnerable to further spending cuts.

Economic Security Index

We get a third, lower estimate from a research team headed by Yale Professor Jacob Hacker. They’ve developed what they call the Economic Security Index, though it actually measures economic insecurity.

People count as economically insecure if they meet two basic conditions.

  • Between one year and the next, they lost at least 25% of their inflation-adjusted household income, less out-of-pocket medical costs — because they made less, had higher medical expenses or both.
  • They didn’t have enough “liquid assets,” e.g., money in a bank account of mutual fund, to make up the difference.

The latest ESI report projects long-term figures — mainly from the Census Bureau — forward to 2009.

End result is an estimated 20.4% of Americans who experienced economic insecurity that year.

Note, however, that these are only people who suffered a major economic loss. People too poor to make ends meet don’t get into the estimate unless they were significantly better off the year before.

Still, it’s notable that Americans in the bottom fifth of the income scale register highest on the multi-year ESI — nearly double the rate of the top fifth for the 10-year period preceding our Great Recession.

Same for groups that have disproportionately high poverty rates — African-Americans, Hispanics, single-parent families and people who didn’t graduate from high school.

The report doesn’t have much to say about this.

But I think it’s fair to guess that people who are making barely enough to cover their household’s basic needs — if that — can’t afford to sock away a stash for the rainy days that come, even when the economy is booming along.


How Many Poor People Are There in the U.S.?

March 15, 2009

Since I wrote this posting, the Census Bureau has issued two new official estimates of the number of poor people in the U.S. You can find my summary of the latest here. It has also issued two sets of alternative estimates. You can find my summary of the first set here and a discussion of the second set here.

According to the latest U.S. Census Bureau figures, the answer is about 37.3 million. But if we want to know how many people lack the resources needed for a decent standard of living, then the answer is nobody knows.

Economists, service providers, advocates and many policymakers have known for years that the current poverty measure is outdated–in fact, was flawed from the get-go.

It was developed in 1963, based on a 1955 survey. The survey found that the average family of three or more spent a third of its after-tax income on food. So the basic poverty threshold became three times the cost of the U.S. Department of Agriculture’s Economy Food Plan–a bare subsistence food budget.

This threshold was then spun off into specific thresholds for different family sizes. And certain adjustments were made based on factors related to food purchases. That’s basically what the thresholds are today.

If your income is at or below the relevant threshold, you’re counted as poor. If it’s over, you’re not.  Whether you’re supporting children not living with you doesn’t matter. Nor does it matter whether you have resources other than cash income. Whether you live in New York City or Biloxi, Mississippi doesn’t matter either.

The poverty thresholds are annually updated to reflect rising costs of living as indicated by the Consumer Price Index. But no adjustment has been made for major changes in consumer spending patterns that have significantly reduced the percent of household budgets spent on food.

And the thresholds still takes no account of geographic differences in cost of living. Studies by Wider Opportunities for Women indicate how big those differences can be. For example, in 2005, self-sufficiency for a D.C. adult with two young children required an annual income of $53,634 per year. The same family in Wheeling, West Virginia could have been self-sufficient with $24,321.

In 2005, the poverty threshold for that family of three was $15,735–less than 30% of the D.C. family’s minimal costs of self-sufficiency. And it’s the threshold that determines eligibility for assistance under more than 30 federal programs and some state programs as well.

Last December, the Brookings Institution issued a report recommending a poverty measure based on recommendations in a 1955 report issued by the National Academy of Sciences. It’s quite complex, but then so is the issue.

Basically, the measure would use current data on actual expenditures for a set of basic necessities and resources available to obtain them, after deductions for additional necessary expenditures. Adjustments would then be made for family composition, as well as size, and for geographic differences.

In 2008, legislation was introduced to establish a poverty measure based on the NAS/Brookings approach. It may–and should–be reintroduced in the new Congress.

As the Brookings authors say, it will be politically challenging to put a new measure in place. But we can’t provide needed assistance to poor people unless we can accurately identify them. And we can’t assess current policies and programs unless we know, over time, how many poor people there are.


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