How Poor Are the Poor?

Leslie County, Ky. Credit Luke Sharrett for The New York Times

There is a consensus among poverty experts that over the past 50 years there has been some improvement in the condition of the poor.

“Anyone who studies the issue seriously understands that material poverty has continued to fall in the U.S. in recent decades, primarily due to the success of anti-poverty programs” and the declining cost of “food, air-conditioning, communications, transportation, and entertainment,” David Autor, a professor of economics at M.I.T., wrote in response to my query.

Despite the rising optimism, there are disagreements over how many poor people there are and the conditions they live under. There are also questions about the problem of relative poverty, what we are now calling inequality. Poverty cannot be viewed in isolation from the larger economy. We must take disparities in the way the benefits of growth and productivity are distributed into account.

I set out to ask a number of experts about this in response to a controversial essay published in the current issue of the New York Review of Books, “The War on Poverty: Was It Lost?” by Christopher Jencks, a sociologist at Harvard with unassailable liberal credentials.

Detroit Credit Andrew Burton/Getty Images

Jencks argues that the actual poverty rate has dropped over the past five decades – far below the official government level — if poverty estimates are adjusted for food and housing benefits, refundable tax credits and a better method of determining inflation rates. In Jencks’s view, the war on poverty worked.

The Jencks article and the response among those I contacted reveals how politically explosive and ideologically charged the seemingly arcane debate over the determination of the poverty rate is.

Democratic supporters of safety net programs can use Jencks’s finding that poverty has dropped below 5 percent as evidence that the war on poverty has been successful.

At the same time liberals are wary of positive news because, as Jencks notes:

It is easier to rally support for such an agenda by saying that the problem in question is getting worse than by saying that although the problem is diminishing, more still needs to be done.

The plus side for conservatives of Jencks’s low estimate of the poverty rate is the implication that severe poverty has largely abated, which then provides justification for allowing enemies of government entitlement programs to further cut social spending.

At the same time, however, Jencks’s data undermines Republican claims that the war on poverty has been a failure – a claim exemplified by Ronald Reagan’s famous 1987 quip: “In the sixties we waged a war on poverty, and poverty won.”

Jencks’s methodology is simple. He starts with the official 2013 United States poverty rate of 14.5 percent. In 2013, the government determined that 45.3 million people in the United States were living in poverty, or 14.5 percent of the population.

Jencks makes three subtractions from the official level to account for expanded food and housing benefits (3 percentage points); the refundable earned-income tax credit and child tax credit (3 points); and the use of the Personal Consumption Expenditures index instead of the Consumer Price Index to measure inflation (3.7 percentage points).

Jencks’s conclusion: “The absolute poverty rate has declined dramatically since President Johnson launched his war on poverty in 1964.” At 4.8 percent, Jencks’s calculation is the lowest poverty estimate by a credible expert in the field.

No one casts doubts on Jencks’s expertise. Nevertheless, his conclusion — that instead of the official count of 45.3 million people living in poverty, the number of poor people in America is just under 15 million — understates the scope of hardship in this country.

Other credible ways to define poverty paint a different picture. One is to count all those living with less than half the median income as poor. There are strong theoretical justifications for the use of a relative poverty measure. The Organization for Economic Cooperation and Development puts it this way:

In order to participate fully in the social life of a community, individuals may need a level of resources that is not too inferior to the norms of a community. For example, the clothing budget that allows a child not to feel ashamed of his school attire is much more related to national living standards than to strict requirements for physical survival.

Using one-half of the median income estimates the number of poor people at over 70.6 million, far above the 45.3 million official number, according to Shawn Fremstad, a senior fellow at the Center for American Progress, a liberal think tank.

Timothy Smeeding, a professor of public affairs and economics at the University of Wisconsin-Madison, notes in an email that that “the official poverty line was about half of median income in 1963, but is less than 30 percent of median now because of general economic growth.”

Jacob Hacker, a political scientist at Yale, pointed out to me in an email that using a relative measure shows that the United States lags well behind other developed countries:

If you use the O.E.C.D. standard of 50 percent of median income as a poverty line, the United States looks pretty bad in cross-national relief. We have a relative poverty rate exceeded only by Chile, Turkey, Mexico and Israel (which has seen a big increase in inequality in recent years). And that rate in 2010 was essentially where it was in 1995.

Gary Burtless, an economist at the Brookings Institution, responded by email to my question on the relative measure:

Most Americans are probably relativists when it comes to thinking about poverty today. Even if they acknowledge that the absolute living standards of fellow citizens in the bottom 15 percent of the income distribution have improved over time, they probably think of poverty in terms of the economic and social distance between someone in the exact middle of the distribution and a person who is near the bottom.

While the United States “has achieved real progress in reducing absolute poverty over the past 50 years,” according to Burtless, “the country may have made no progress at all in reducing the relative economic deprivation of folks at the bottom.”

Burtless’s point goes to the heart of the dispute: How severe is the problem of poverty?

Part of the answer hinges on which measures you use to calculate inflation. Measures that show a higher rate of inflation will increase the number of poor people because the cost of basic necessities rises at a faster clip. A measure that shows a slower rate of inflation will lead to the appearance of reduced poverty levels because the cost of food, shelter and other needs will be lower.

Fremstad, of the Center for American Progress, points to a consequence of Jencks’s use of the Personal Consumption Expenditures index instead of the Consumer Price Index to determine increases in the cost of living. Since the P.C.E. measure provides a lower inflation rate than the C.P.I., the P.C.E. index suggests that the poor can live on even less income than provided for in the official government calculation.

Fremstad notes that using the P.C.E. measure, “an elderly couple was not poor in 2013 if they had an income, including housing and food benefits, equal to $11,300.” Under the C.P.I. measure, by contrast, the same couple was officially poor as long as their income remained under $14,095.

“The vast majority of Americans would say that an elderly couple needs more than $14,095 today to have a minimally decent living standard, and I imagine even more would think that $11,300 is far below minimally decent,” Fremstad noted.

At the same time, two other poverty researchers, Kathryn Edin, a professor of sociology at Johns Hopkins, and Luke Schaefer, a professor of social work at the University of Michigan, contend that the poverty debate overlooks crucial changes that have taken place within the population of the poor.

These changes have produced winners and losers, those who have benefited from two major policy initiatives adopted over the past 20 years, and those who were left behind.

The first policy initiative was the enactment of welfare reform, signed into law by President Clinton in 1996 (the Personal Responsibility and Work Opportunity Act), which limited eligibility for welfare benefits to five years. The limitation has forced many of the poor off welfare: over the past 19 years, the percentage of families falling under the official poverty line who receive welfare benefits has fallen from to 26 percent from 68 percent. Currently, three-quarters of those in poverty, under the official definition, receive no welfare payments.

The second policy initiative was the enactment of expanded benefits for the working poor through the earned-income tax credit and the child tax credit.

According to Edin and Schaefer, the consequence of these changes, taken together, has been to divide the poor who no longer receive welfare into two groups. The first group is made up of those who have gone to work and have qualified for tax credits. Expanded tax credits lifted about 3.2 million children out of poverty in 2013. So far, so good.

The second group, though, has really suffered. These are the very poor who are without work, part of a population that is struggling desperately. Edin and Schaefer write that among the losers are an estimated 3.4 million “children who over the course of a year live for at least three months under a $2 per person per day threshold.”

While Edin and Schaefer address the growing advantage the working poor have over nonworkers, Lawrence Mishel, president of the liberal Economic Policy Institute, raises a different set of issues. He agrees with the general finding that “government programs — transfers and tax subsidies — have helped lift low incomes, and poverty, correctly measured, has fallen.” But focusing on these findings, Mishel argues, diverts attention from the more serious problem of “the failure of the labor market to adequately reward low-wage workers.”

To support his case, Mishel points out that hourly pay for those in the bottom fifth grew only 7.7 percent from 1979 to 2007, while productivity grew by 64 percent, and education levels among workers in this quintile substantially improved.

The effectiveness of government programs rewarding work, according to Mishel, means that in practice, taxpayers “are subsidizing low-wage employers,” who, he wrote, “are not putting in enough relative to the publicly provided social safety net.”

A report by the White House Council of Economic Advisers, “The War on Poverty 50 Years Later,” which was published last year, provides support for Mishel’s case that falling private sector wages are a major factor in the problems of those in the bottom quintile of the income distribution. The following chart, Figure 1, shows that if there had been no new government initiatives after 1967, the poverty rate now would be higher than it was 48 years ago.

With and Without Poverty Programs

How assistance lowers the poverty rate.

The question of how to compare levels of poverty over a half-century remains hotly contested. Jencks argues in his email for consistency:

The poverty line was too low in 1964, and it is still too low today. But if you want to measure absolute progress, you can’t move the goal posts just because you think they were set in the wrong place.

The measurement of absolute progress is a worthy undertaking, but in terms of evaluating the lived experience of poverty and its detrimental effects, it is equally important, if not more so, to explore the relative progress of the poor. The semi-success of government anti-poverty policy has also marginalized and beaten down millions of people. Without understanding relative poverty — and in particular the “small percentage” that falls to the very bottom, almost off the grid — we haven’t really begun to tackle the problem.

Correction: March 26, 2015

The Opinion Pages|How Poor Are the Poor?

The Opinion Pages | Contributing Op-Ed Writer

How Poor Are the Poor?

With and Without Poverty Programs

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