Spotlight Exclusives

Work Supports are Key for Further Progress on Poverty

Angela Rachidi, American Enterprise Institute Angela Rachidi, American Enterprise Institute, posted on

In September of each year, the US Census Bureau releases the official poverty rate. Although it has potentially outlived its usefulness, it still gauges how well Americans are doing from a cash income perspective. And according to today’s release, they are doing much better. Down 0.8 percentage points from 2015 and 2.4 points from the peak in 2010, the 2016 official poverty rate of 12.7 percent means that millions of fewer people are in poverty today than at the peak of the 2007–2009 recession. It is also the first year that the overall poverty rate was not statistically different than the year before the recession started.

To account for problems with the official poverty rate, the Census Bureau also released the Supplemental Poverty Measure, as they have done each year since 2010. By counting most government benefits as income and geographically adjusting the poverty threshold, the supplemental measure does a better job of measuring material well-being. Today’s release offers encouraging news on that front too. The percentage of people in poverty according to the supplemental poverty decreased 0.6 points from 2015 to 13.9 percent in 2016.

It does not undermine the importance of these declines to note that they stem largely from the economic recovery of the past few years. Public programs, such as the Supplemental Nutrition Assistance Program (SNAP) blunted the full effect of the 2007-2009 recession on low-income families, but the poverty declines we are experiencing now are primarily due to a stronger relative economy than in years past.

Although enthusiasm for today’s numbers is appropriate, it should be tempered by the fact that a stronger economy can only do so much. A healthy economy is certainly necessary in order to fight poverty, but history suggests that public policy reforms are also needed to precipitate further declines in the poverty rate. For context, the lowest official poverty rate in the past 25 years was still 11.3 percent in 2000. Expectations that poverty will go much below these numbers without major policy reform are misguided.

Some suggest that the solution is to redistribute more income to the poor. A basic child allowance, an increased Child Tax Credit, and a universal basic income have all been proposed as of late. But these proposals come with risks, including slower economic growth due to increased taxes and transfers. Some economists believe that redistributive policies can happen without slowing growth, but they must be carefully designed to not affect work incentives.

This is why a better approach is to enact policies that help those working less than full-time or not at all to move to full-time employment. Research shows that policies directly linked to work, like the earned income tax credit or child care assistance, can increase employment. Attention should also go to public programs that make work less attractive. Government at all levels should pursue expansions to support programs that increase work and reform programs that decrease it.

Beyond a strong economy and targeted redistributive policy, efforts to better match workers to the demands of today’s labor market are also needed. When millions of people are seeking jobs and employers still complain about labor shortages, it is a problem. And this is happening across sectors: A 2015 report projected a substantial skills gap in manufacturing over the next decade; meanwhile, the July 2017 National Federation of Independent Business report found that 52 percent of small businesses reported “few or no qualified applicants for the positions they were trying to fill.” To address this problem, education and training providers must work closely with private employers to ensure that workers are trained to meet today’s labor market demands.

Even with shared optimism about today’s poverty report, America’s poverty problem won’t fully be addressed until more people work full-time. A strong economy, work supports, and better preparing people for today’s labor market are critical. With these strategic efforts in place, we might finally advance the battle against poverty.

 Angela Rachidi is a research fellow in poverty studies at the American Enterprise Institute.

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