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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