Friday, September 14, 2007

What Causes Poverty?

Are poverty rates increasing in Ada County (where Boise is located)? If they are increasing, why?

I wasn't able to find poverty rate changes over time, but I did find something very interesting that might explain, at least in part, an increase in poverty rates in Ada County since 2000. Table 2.5 here shows that the percentage of the population living in poverty is usually much higher for Hispanics than for the general population: 17% vs. 8% in Ada County; 24% vs. 12% for the entire state of Idaho--and the Hispanic proportion of the population is increasing in Ada County.

This report
from the City of Boise shows that the Hispanic percentage of Ada County went from 4.5% in 2000 to 5.0% in 2004, with a projection of 5.8% in 2009. That doesn't sound like much--but an 11% increase in Hispanics when they are more than twice as likely to be in poverty makes a big difference. Unfortunately, there's no breakdown of illegals vs. legals, or for that matter, of citizens vs. aliens. It would not be at all difficult to see how a large influx of aliens with limited English skills and averaging less than a high school education would increase poverty rates for the county.

Is poverty increasing in America? Is the gap between rich and poor increasing? This New York Times report about income mobility for the period 1988-98 is really cute--you can mouse over the various quintiles of the population and see whether they stayed the same, move up, or moved down in that ten year period. Not surprisingly, a bit more than half of the poorest quintile stayed poor. Also, not surprisingly, most families in the top quintile stayed there. What is a bit surprising is that the percentage of families in the top and bottom quintiles that stayed there after ten years--at least as represented by this graph--was the same.

This suggests that whatever was going in America, there were roughly equal opportunities to fall from the heights and rise from the bottom. If America was the country that liberals like to claim--a place where the rich benefit from everything, and the middle class are being ground down into poverty--you wouldn't know it from watching this relative equal opportunity to rise and false.

About 5% of the richest quintile in 1988 ended up in the poorest quintile by 1998, and about 2.5% of the poorest quintile ended up in the richest quintile over that same ten year period. Families in the middle quintile were slightly more likely to end up in the richest quintile than in the poorest quintile, and about equally likely to end up in the income quintile either just above or just below them. What seems to be increasing is not poverty, but a slight tendency for middle income people to move up.

More recently, what has happened? Here's a 2004 press release from the Census Bureau:

# The number of people below the official poverty thresholds numbered 35.9 million in 2003, or 1.3 million more than in 2002, for a 2003 poverty rate of 12.5 percent. Although up from 2002, this rate is below the average of the 1980s and 1990s.
# The poverty rate and number of families in poverty increased from 9.6 percent and 7.2 million in 2002 to 10.0 percent and 7.6 million in 2003. The corresponding numbers for unrelated individuals in poverty in 2003 were 20.4 percent and 9.7 million (not different from 2002).

That's an increase in the poverty rate from 2002 to 2003, but not a huge one.

More recently, I found this poverty rate table from the Census Bureau. It shows that the percentage of the population living in poverty declined from 12.7% in 2004 to 12.3% in 2006. Fortunately, they give standard error numbers for these percentages, so we can see that the change is statistically significant.

The table also shows a breakdown of poverty rates by state, with a non-significant decline in poverty rate in Idaho from 2004 to 2006. This gives me increased confidence that the increase in Ada County could be because of an influx of illegal immigrants, at least in part. California, Arizona, and Texas, all of which have a huge illegal immigrant population, also have higher poverty rates than Idaho.

There's another table of historical poverty information, covering 1987-2006 for people 16 years of age and older, that shows a connection between work and poverty. People who worked full-time year round were very, very unlikely to be in poverty. Of those who worked full-time year round, the percentage in poverty never exceeded 3%. Of those who did not work at all during the year, the percentage in poverty varied between 19.8% and 24.2%. In other words, those who did not work at all were 6 to 8 times more likely to be in poverty than those who worked full-time year round. Unsurprisingly, those who worked, but not full-time year round, were in the middle in the percentage of those in poverty.

Now, there may be a reason why someone does not work full-time year round, such as a shortage of jobs, or chronic illness. But if someone does not work at all, that has to be more than just a shortage of work. It could be disability, it could be a substance abuse problem, it could be that Mom has a bunch of small children to care for and the father has run off. But the very small percentages of full-time year round workers in poverty suggest that a shortage of decent paying jobs isn't likely to be the primary explanation for living in poverty for anything but a few percent of the poor.

UPDATE: It occurred to me this morning that while less than 3% of those 16 and older who work full time year round are in poverty, that doesn't tell us much about their dependents. The poverty definition is dependent on household size, and there probably is at least one child living in poverty with that worker.

Another difficulty is that while those living in poverty is a very small percentage of full time year round workers--less than 3%--it doesn't tell us much about what percentage of those living in poverty work full time year round. I don't immediately see any statistics on this, but the relative size of populations "full-time year round," those who didn't work at all during the year, and those who worked some--would suggest that full-time year round workers could be a large fraction of those 16 and older who live in poverty. As Different River pointed out here:
So: 1.8% of workers earn the minimum wage, and 5.3% of those workers come from households below the poverty line. In other words, only 0.0954% of workers — that is, less than 1 in 1,000 workers — are minimum-wage workers from households below the poverty line. And no doubt not all of them are the highest-earning worker in the household. Some of them probably even have other jobs themselves.

Of course, this is not much consolation if you are that 1 in 1,000+ workers. It is probably also not much consolation that at that level, you have to pay taxes on that income. Not regular income tax, but Social Security and Medicare tax. One who works 40 hours a week, 52 weeks a year pays $1,638.74 in Social Security and Medicare tax. Half of that is through a direct payroll deduction, and half is the “employer share,” which is money the employer must pay as a cost of hiring the employee, but which the employee does not actually receive. Thus, the net wages of a full-time, minimum-wage worker, after taxes is only $9,073.06.

We could give a substantial benefit to minumum-wage workers — at no cost to their employers — by exempting workers at that income level from Social Security and Medicare tax. The cost to the Treasury and the Social Security and Medicare systems would be minimal, since there are so few of those workers.
As I pointed out here, a Bureau of Labor Statistics report found that minimum wage jobs were transitory for the vast majority of workers:
But realistically--how many minimum wage workers stay at that level their entire life? For the vast majority of workers, minimum wage is a phase you go through for a few months or, for most, for a year or two, as this Bureau of Labor Statistics abstract explains:
For example, a study by Ralph E. Smith and Bruce Vavrichek examined the 1-year earnings mobility of workers that initially worked at minimum wage jobs.[3] They found that 63 percent of the minimum-wage workers in their sample were employed at higher-than-minimum wage jobs 1 year later. Also, Bradley R. Schiller found that "only 15 percent of the 1980 entrants still had any (minimum wage) experience after three years, "which suggests that long-term minimum wage employment is rare.[4] More than three-quarters of Schiller’s sample were still attending school while working at their first job, however, and relatively few of the sample workers had embarked on their post-school career.[5]

Not contributing money to Social Security in the first year out of a forty year working career is not going to make any difference to the size of that worker's retirement check. But it may be the difference between having enough money to pay for shoes, or food.
UPDATE 2: I spoke too soon when I suggested that there was at least one child dependent on the person in poverty. This Census Bureau table about poverty and dependent children shows that in 2006, there were 36,460,000 people living in poverty in America, of whom 12,333,000 were related children under 18. That means that for every child under 18 living in poverty, there were roughly two adults living in poverty. Obviously, that's an average; there are probably a lot of poverty families that consist of one adult and two or three children, some that have two parents and two or three children--but that also implies a fair number of person living in poverty with no under 18 children in the house.

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