Much Progress Toward Reducing Poverty, But Much More to Do

So many news reports, analyses, blog posts, etc. on how the House Republicans’ repeal-replace bill and/or Trump’s budget would harm poor people. I thought I should clear my mind and purge anger, however briefly.

So I reread a fleshed-out speech that Jason Furman, Obama’s Chairman of the White House Council of Economic Advisors—gave a few days before Trump’s inauguration.

It seems even more timely now, as we learn more about what the new administration and Republican House leaders have in mind. But it’s relevant also to what state — and in some cases, local — policymakers have done and can do.

So a brief summary of the hefty, research-based framework and then the agenda Furman lays out.

What Accounts for Poverty

“Poverty is shaped by market forces and government policies and programs,” Furman says. Market forces are basically those that determine what people earn by working, investments and profits from sales. Furman focuses solely on the first.

Government policies and programs include other pre-tax income, e.g., Social Security benefits, post-tax cash transfers like refunds from the Earned Income Tax Credit and cash-equivalent transfers like SNAP (food stamp) benefits.

Significant Progress Toward Reducing Poverty

Forget all that rhetoric about throwing trillions at the problem with no impact on poverty rates. The poverty rate, as measured by a back-looking version of the Census Bureau’s Supplemental Poverty Measure was 41% lower in 2015 than in 1967, as the War on Poverty was setting in.

But the news here is that government anti-poverty programs account for the drop. Market-income poverty has remained essentially flat — and its deep poverty rate risen by nearly 3%.

Why No Progress From Market-Income Poverty

Furman identifies three market-income factors that could lift poor workers and their families over the poverty line — productivity growth, i.e., output per worker per hour, where the income generated flows and labor force participation, i.e., the percent of the population over 16 years old that’s working or actively looking for work.

Productivity growth slowed about 20 years ago, though it recently ticked up. The big difference from the prime period the CEA identified is that most of the income flows to the top — very large salaries for top management, corporate decisions to boost stock prices by buying back shares and maximizing dividends.

So productivity growth and average worker pay, plus benefits no longer closely track. The gap has, in fact, steadily widened, as the Economic Policy Institute’s graphs show.

Meanwhile, the labor force participation rate has trended down, recently reaching a 38-year low. Many reasons for this—retirement of baby boomers, for example, more young people going to college, more people (mainly women deciding to stay home with the kids because child care costs more than they’d earn.

But that still leaves a contingent of discouraged workers — those who looked, but gave up, those who decided it was futile to try — in many cases because they’ve found or have reasons to believe that they don’t have the knowledge and/or skills employers demand.

What the participation rate means, of course, is less household income — and less pressure on employers to offer higher wages.

Where to Go From Here

Furman’s agenda for further progress follows logically from his analysis. It has four major items.

Do no harm. Evidence shows that the safety net works — not only in the short term during recessions, but in the long term because the benefits it delivers have lasting effects on children’s prospects for moving up the income scale. So we should avoid policies that make it less effective, including block grants. (Told you this was timely.)

Focus on raising market incomes. This will involve policies to boost economic growth, but also changes to shift more of the gains to lower-income workers. Measures would raising minimum wages, as 22 states, the District of Columbia and more than 60 local communities have.

Furman also names expanded unions — presumably mostly in the private sector. This would also require repealing laws in half the states that allow workers to benefit from union bargaining without joining — and laws in three that have weakened public-sector union bargaining.

For individual workers and prospective workers, we need better programs to connect workers to jobs. Also more and better formal education.

On the more side, Furman cites research showing that low-income children fared better as adults when they participated in early childhood education programs. On the better, everything from that to college and beyond.

Rounding out this part, Furman looks to unspecified steps to reduce monopsony, i.e., cases where only one employer or a few control the labor market, thus enabling them to keep wages low..

Take further steps to improve the safety net. We need, for example, to increase funding for programs that egregiously fail to serve people who are or ought to eligible, e.g., for Temporary Assistance for Needy Families, housing assistance.

We need to expand the EITC so that it’s a work incentive for childless adults, whom we still tax into poverty or deeper poverty.

And we should redesign the unemployment insurance program so that recessions automatically trigger more weeks of benefits or bigger benefits, rather than depending on what Congress decides at any given moment to do..

Think harder about people who fall through the cracks. Furman has no specific suggestions here, just notes the Edin-Shaefer findings on families living on $2 or less per day.

Worth noting, however, that the team attributes the sharp rise in such extreme poverty to the virtual end of cash assistance for non-working families when TANF replaced welfare as we knew it. Furman too zeroes in on TANF in a lengthy boxed insert.

So as we martial our defenses of safety net programs and protections for under-paid (and unpaid) workers, it’s still worth holding onto a vision and speaking out for a better day and better ways. And worth not losing sight of the policy-driven progress we’ve already made.

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