Intergenerational Poverty creates a Lasting Underclass

Vijay K. Mathur

 “If the misery of the poor be caused not by the laws of nature, but by our institutions, great is our sin.”

Charles Darwin, The Voyage of the Beagle

The Johnson Administration’s efforts in the 60’s to eradicate poverty did not bear much fruit. Nationally, the poverty rate for all people as well as all families dropped significantly from 1960 to mid 70’s, but since then it has increased. The Utah Legislature enacted the Intergenerational Poverty Mitigation Act in 2012 with a broad outline of a plan of action for Utah. Weber County is also making a concerted effort to mitigate intergenerational poverty in the county.  

First, some concepts and facts related to poverty.  The official poverty threshold money income is 3 times the inflation-adjusted cost of minimum food diet in 1963.  Any family below the threshold income, adjusted for family size, composition and age of householder(s), is considered poor and eligible for public safety net programs’ benefits. 

This official poverty measure is imperfect, because it gives more weight only to food expenditure and lumps together other increasingly significant expenditures, such as housing, transportation, utilities and health care.  The official measure also excludes non-cash benefits of many public safety-net programs.  However, it is the one most used and reported in the US Census. The supplemental measure adjusted for other expenditures and benefits is used for policies to deal with other complex poverty-related issues.  

Utah has close to 2.2 children per family on the average. In 2016, according to the US Census, national poverty threshold income for a family of 4 with 2 children was $24,339, and for a family of 5 with 3 children it was $28,643. Using the official measure, Weber Country had 13.5% poverty rate for all families and 39% rate for families headed by single mothers with related children below18 years of age.   

According to the Utah Department of Workforce Services, intergenerational poverty is when families continue to be in the poverty status for two or more generations.   The poverty situation, related to intergenerational income mobility, has not improved over decades. Stanford University professor Raj Chetty finds in his studies that upward income mobility is lowest in the US, as opposed to other developed countries, and it varies significantly across regions of the US.   Even though the odds of upward income mobility in Utah are better than in most states, the recognition for improvement in intergenerational poverty in Utah and in Weber County is on the right track.  

To break the cycle of poverty public policy solutions require close cooperation of family and external institutions, such as schools, churches, and other non-profit institutions, with accountability at the public level and of others involved in implementing and carrying out policies.  In a study in Economic Inquiry, July 2008, Nobel Laureate economist James Heckman reports that, aside from many factors in human development, wages in adult life depend both on cognitive abilities (ability to reason and conduct analysis) and non-cognitive abilities (perseverance, motivation, self control, self-esteem and preference for risk aversion) learned in childhood.  Emphasis on tests in schools that enhance cognitive skills are not enough for future economic success and reduction in social pathologies, such as crime, drug abuse, teenage pregnancies and smoking. Family environment with adequate income and early childhood intervention is a significant predictor of these abilities and future success. 

Public and private institutions must provide resources to poor families for early childhood education, parental education for raising children, and marketable technical and behavioral job-skills to non-working poor for employment to reduce the dependency on public assistance. Then, the working poor would qualify for EITC (Earned Income Tax Credit).  ETIC is the most successful program to boost incomes of low-income working families and reduce poverty rates.  

Studies show the school performance of disadvantaged children improved the most due to EITC. To incentivize work, the state should also have income-based programs for child care for working families.  A mentoring program for children would fill parental gaps in adult supervision, support and guidance.  

Policy focus should be on the family and early intervention for disadvantaged children.  Professor Heckman states, “ The family plays a powerful role in shaping adult outcomes that is not fully appreciated by current American policies.”

Mathur is former chair and professor of economics and now professor emeritus, Department of Economics, Cleveland State University, Cleveland, OH. He resides in Ogden, UT. 

Published in The Salt Lake Tribune, Opinion, July 22, 2018, www.SLTRIB.Com

Conservatives Must Realize That Redistribution Programs Help Poor

Published in The Huffington Post: Huffpost Politics 04/12/2016

Vijay K. Mathur
, Professor of Economics, Emeritus at Cleveland State University

Income inequality in the U.S. has increased since 1979. According to the Center on Budget and Policy Priorities, October 26, 2015, real after-tax income gains of the top 1 percent of households were 200 percent, while the bottom 20 percent and mid 60 percent gained only 48 percent from 1979 to 2010. Other measures of income inequality tell the same story.

It is also well known that inequality in the US is greater than in European countries. The question then is why are conservative Americans in general, and Republicans in particular averse to the issue of redistribution programs despite such inequalities in the U.S.? I am referring to all kinds of redistribution programs, such as Supplemental Nutrition Assistance Program (SNAP), Medicaid, healthcare under ACA, Earned Income Tax Credit (EIT). Even programs such as Medicare and Social Security are redistribution programs, since a significant number of people collect more benefits over their lifetime than they contribute to the programs.

Let me briefly enumerate the findings of some academic studies that provide useful information to most conservative Americans and politicians in Congress. They challenge their views on redistribution policies and economic opportunities available to the poor.

The central result of the paper “Preferences for Redistribution in the Land of Opportunity“, by Alberto Alesina and Eliana La Ferrara (Harvard Institute of Economic Research), November 2001, is that those who believe that opportunities are equally available to the poor as well as to the rich see social and income mobility as a substitute for redistribution. People who expect to be in the upper income brackets or are wealthy are afraid to lose with redistribution and hence are opposed to redistribution schemes. However, Blacks, women and those who suffered unemployment shocks support redistribution. High income and wealthier people in general vote for Republican and conservative politicians. Pew Research Center data, December 12, 2013 show, that whites were almost 13 times wealthier than Blacks in 2013.

The above findings are consistent with the results in another study by Alberto Alesina and George-Marios Angeletos, American Economic Review, September 2005. Most Americans, as opposed to Europeans, believe that poverty is due to bad choices or lack of effort. This view reflects cultural differences between U.S. and countries such as Denmark, Sweden and Norway, where people are willing to pay more taxes to help poor and low-income people, because they do not consider the poor lazy.

These findings on attitudes of richer Americans about the poor are at odds with studies that have investigated opportunity issue, work profile and income mobility of the poor, and the remedial effect of redistribution on poverty.

The paper, “Rags, Riches, And Race“, by Tom Herts, published in Unequal Chances (2005), editors Samuel Bowes et al., found that a rich child, born in the top decile (top 10 percent of the income distribution), has 26.7 percent chance of remaining in the same decile, while a child born in the bottom decile has only 0.5 percent chance of ending up in the top decile. In the paper, “Land of Opportunity“, for the Federal Reserve Bank of Richmond, 2002 Annual Report, Kartik Athreya and Jessie Romero report that 43 percent of taxpayers in the bottom quintile (20 percent of the income distribution) were still in the same quintile after 20 years. Similarly, 46 percent of taxpayers in the top quintile were still in the same quintile. Hence, poverty and low-income status persist in a large fraction of families throughout generations.

What about the claim that poor are lazy? A study by Deborah et al., “The Working Poor Families Project 2014-2015“, using Census data, found that 32 percent of working families were below 200 percent of the official poverty threshold in 2013. The percentages for Hispanic and Blacks are almost double (48 to 49 percent) the percentage for white working families.

Two recent studies by researchers Raj Chetty et al., and Hilary Haynes et al., in The American Economic Review, April 2016, tend to dispel the myth that redistribution programs do not help the poor. Chetty et al., found that the housing voucher program, enabling children before the age of 13 to move from high poverty areas to low poverty areas, increased their college attendance, earnings and reduced single parenthood.

Hilary Hoynes et al., focused on the effect of the food stamp program (FSP), now called SNAP, on the general well being of a sample of adults born between 1956 and 1981 and their mothers. The estimates show that FSP significantly reduced “metabolic syndrome” (conditions such as obesity, high blood pressure, heart disease and diabetes) and promoted good health among adults. The FSP also significantly increased economic self-sufficiency among mothers.

Evidence shows that programs promoting better neighborhoods, schools, sufficient food supply, health care and education in the lives of poor children, have the best chance to ameliorate poverty in the long run. By now conservatives must realize that trickle-down model is flawed and is not the solution for generational poverty. They must work with progressives to implement the most efficient redistribution programs that enable the poor to get out of the poverty trap, hence minimizing waste of human resources.

Mathur is former chair and professor of economics and now professor emeritus, Department of Economics, Cleveland State University, Cleveland, Ohio. He resides in Ogden, Utah.

http://www.huffingtonpost.com/vijay-k-mathur/conservatives-aversion-to_b_9657314.html

Poverty Trap and Emerging Underclass in the Land of Opportunity

Published blog in Huffington Post: Politics, January, 13, 2016

Vijay K. Mathur

In August 29, 1977, Time published a cover story about impoverished urban Blacks, labeling them as The American Underclass.  Those were people who were stuck in an environment of  “psychological and material destitution despite 20 years of civil rights gains and 13 years of antipoverty programs” and robust job recovery after the end of 1973-75 recession.   Since 2001 the poverty problem has worsened, and the    severe recession of 2007-08 has accelerated the downward spiral in income opportunities for many Americans.  It is making it more difficult, especially for Blacks and Hispanics and a significant proportion of Whites, to extricate themselves from the lower end of the income scale.

There is greater propensity for an increasing proportion of families and their adult children to end up in the bottom of the income distribution.   American Community Survey, Bureau of Census, September 2013, found that the poverty rate increased from 12.2percent in 2000 to 15.9 percent in 2012.  In addition, the percentage of people with income below 50 percent of the poverty threshold increased from 5 percent in 2000 to 7 percent in 2012.   The rates vary across racial groups, where Blacks and Hispanic rates are more than twice the poverty rates for Asians and Whites.

The study by Elizabeth Kneebone (http://www.brookings.edu/research/interactives/2014/concentrated-poverty#/M10420) at the Brookings Institution, July 31, 2014, found that from 2000 to the peak period 2008-12 of the great recession poverty is becoming more concentrated.  The 100 largest metro areas have 70 percent of the distressed areas with poverty rates of 40 percent or more.  The share of poor people in cities increased from 18.2 percent in 2000 to 23 percent in 2008-12; Suburban share has increased from 4 percent in 2000 to 6.3 percent in 2008-12.  Hence, the poverty problem has worsened over time despite economic growth during 2003-2006 and 2010-2012, and it has affected all ethnic groups.     

The increased concentration of poverty is especially worrisome in light of a study’s finding by Harvard researchers Raj Chetty et al., August 2015 (http://www.equality-of-opportunity.org/images/mto_paper.p). They found that children below age 13 in families given housing subsidy vouchers have significantly higher college attendance rates and earnings in mid-twenties, when they moved to lower poverty neighborhoods, as opposed to the same age children in families in the control group (with no housing subsidy vouchers).

One could argue that high poverty rates may not be of much concern if poor people have more opportunities for intergenerational income mobility.   But the findings of studies that have rigorously examined the issue are not encouraging.   In a book Unequal Chances (2005), edited by Samuel Bowles et al., a study by Tom Hertz found that, adjusting for household size, a rich child born in a household in the top income decile (top 10 percent of the income distribution), has 26.7 percent chance of remaining in that decile.  However, a poor child born in a household in the bottom decile (10 percent) has only 0.5 percent chance of ending up in the top income decile.  Hence, a rich child, as opposed to a poor child, is 53 times more likely to remain rich as an adult.   Persistence of poverty is much more severe for Blacks and Hispanics than for Whites.

Therefore, the question arises: what can be done about it, given the fact that, to some extent, parental education, traits and income determine their children’s educational attainment and incomes.  Another study by Professor Raj Chetty et al., June 2014 (http://www.rajchetty.com/chettyfiles/mobility_geo.pdf) is instructive.  They found that children have a high probability of moving up the income ladder in cities that have less residential segregation, less income inequality, better primary schools, greater social capital and family stability.  Hence, intergenerational mobility is local.

 Although income inequality in the current period affects intergenerational inequality, families stuck in the poverty trap cannot change income inequality in the short run. But they can take the initiative to improve their own skills, better their public schools, demand pre-kindergarten education, provide family stability, and create an environment for disciplined growth of children to foster love for education.  There is increasing evidence in psychological and behavioral studies that the interaction of environmental experiences and personal traits, such as impulse control, determine educational and economic success of children in adulthood.  The Washington Post story of December 20, 2015, on Jennings School District, MO., points out the success in educating primarily Black children.  In addition to requiring high academic standards, the Superintendent Tiffany Anderson has recognized and is dealing with issues related to poverty and fostering a disciplined approach to academic excellence among poor children.

Changes in the labor markets due to globalization and emerging new technologies have created a skills gap.  The skills gap, and therefore poverty, will persist if policy makers and families at the lower end of the income distribution do not respond by taking deliberate actions to remedy the problem.  Families facing prospects of sliding down the income ladder must also recognize the limitations of government income support programs and poverty policies. Hence, their own initiatives in concert with public policy assistance will be the path for economic success for themselves, as well as for their children.

A nation with persistence poverty over a period of time suffers human capital loss in perpetuity and other adverse social and cultural consequences.  Former Prime Minister of India, Atal Behari Vajpayee, once remarked, “Poverty is multidimensional. It extends beyond money incomes to education, health care, political participation and advancement of one’s own culture and social organization.”

Mathur is former chair and professor of economics and now professor emeritus, Department of Economics, Cleveland State University, Cleveland, Ohio.  He resides in Ogden, Utah.

  http://www.huffingtonpost.com/vijay-k-mathur/poverty-trap-and-emerging_b_8958306.html

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