Who is Poor? What is Poverty?

1. Who is Poor? What is Poverty?

2. Who is Poor? What is Poverty? • Why do we care about Poverty, Inequality, and Discrimination?

3. Who is Poor? What is Poverty? How do you define poverty? 3

4. Who is Poor? What is Poverty? Consider following situations: • A person makes $10,000/yr working minimum wage jobs and lives out of an old station wagon. • Does it matter that he has an MBA and spends most of his time surfing? • A woman lives with her relatively well off but aging aunt in a nice house where she receives free room and board. Much of her time is spent doing chores and escorting her aunt to social functions and outings. Her aunt routinely gives her $100/month for her own expenses. • Does it make a difference if this woman enjoys the time with her aunt or if she is doing it for the money and housing? • An aging widow has lived in a house in Silicon valley for 60 years that is now worth $750K. However, her only source of income is social security, which is barely able to pay for heating the house and subsistence food each month after taxes. • Does it matter if she knows no one outside her immediate neighborhood.

5. Who is Poor? What is Poverty? • What accounts for the distinctions in the above situations? • Is poverty relative?

6. Who is Poor? What is Poverty? • So the question of “how should we measure poverty” is extremely tough. • How does the government measure poverty? • Mollie Orshansky was an economist for the Social Security Admin in the 60s. • She calculated the cost of food for the minimal food plan developed by Dept of Agriculture. • She then used the fact that “most” families spend about 1/3 of their income on food, and multiplied the cost of the minimal food plan by 3. • This became the individual poverty line, with some slight adjustments for family size. • This line has then been simply adjusted using the CPI ever since. • This calculation is made at the census family level (persons related by birth, adoption, or marriage all residing together), so either all family members are poor or none are. • So what are current poverty lines?

7. Who is Poor? What is Poverty? • Current poverty lines (2010) • $10,830 for one person family • $14,570 for two person family • $18,310 for three person family • $22,050 for four person family • What are issues with this measure?

8. Who is Poor? What is Poverty? National Academy of Sciences Report (1995) • Relativeness - Poverty line should be fixed percentage of median consumption of food, clothing and shelter (adjusted for family size) • Employment Expenses - Certain expenses of employment (transportation, child care) should be subtracted from the income used to measure poverty status. • Transfers - Government near-cash subsidies should be included income (food stamps, housing vouchers), as well as imputed rents for homeowners. • Cost of Living Variation - Poverty thresholds should be adjusted for regional variations in prices. • Health expenditures - Medical out-of-pocket expenses should be deducted from income. Why haven’t these recommendations been implemented?

9. Who is Poor? What is Poverty? How do Poverty Rates differ using alternative measures?

10. Who is Poor? What is Poverty? Relative Poverty Measures • Danziger, Haveman, Plotnick (1986) • Official poverty line 46% of median income in 1965, 37% of median income in 1983. • If “official” line had been maintained at 46% of median income, poverty rate would have risen 1.2 percentage pts, but according to absolute measure, poverty fell by 2.1 percentage pts between 1965 and 1983. • In 1993, poverty rate 40% of median income • In 2005, poverty rate back to 36% of median income. • So while official poverty rate fell by 2.5 percentage pts, relative poverty increased by 2.6 percentage pts over this time period. • Should poverty be a “relative” measure? (e.g. ½ of median income)

11. Who is Poor? What is Poverty? • What fraction of population is “poor”? • How have poverty rates changed over time? • What are main correlates to poverty?

12. Who is Poor? What is Poverty?

13. Who is Poor? What is Poverty? • In his 1964 inauguration speech, Lyndon Johnson declared “War on Poverty”, which was the beginning of long-term federal poverty policy, including welfare and unemployment insurance.

14. Who is Poor? What is Poverty?

15. Who is Poor? What is Poverty?

16. Who is Poor? What is Poverty?

17. Who is Poor? What is Poverty? The Dynamics of Poverty • Rebecca Blank, It Takes a Nation • Looked at families over 1979-1991 • Episodes of poverty are fairly frequent, with 1/3 of families having had at least one episode of poverty. • 1/6 were poor 1 - 3 years of the 13. • Only 5 percent of those experiencing poverty (1.5 percent of whole pop) were poor all 13 years. • Does this necessarily imply that “long-term” poverty is quite rare?

18. Who is Poor? What is Poverty? • Let’s build a simple model. • Consider a group of 22 people, • Each has a poverty spell lasting 10 years. • However, each spell starts in a different year, on each year from 1970-1991. • What will long-term (10 years) versus short-term (3 years or less) poverty look like over this time period?

19. Who is Poor? What is Poverty? 1970 1979 1992 1970-1980 1971-1981 1972-1982 1973-1983 1974-1984 1975-1985 1976-1986 1977-1987 1978-1988 1979-1989 1980-1990 1981-1991 1982-1992 1983-1993 1984-1994 1985-1995 1986-1996 1987-1997 1988-1998 1989-1999 1990-2000 1991-2001

20. Who is Poor? What is Poverty? • What else is difficult about measuring persistence of poverty?

21. Who is Poor? What is Poverty? What else is difficult about measuring persistence of poverty? Recidivism (Ann Huff Stevens) – 1/4 of those who leave poverty in a year will be under poverty line in the next. Of those who have been out of poverty 2 years, 1/6 will slip back in poverty the next. So almost 40% of those leaving poverty will be back under poverty line within 2 yrs. Are they “long-term”? 21

22. Who is Poor? What is Poverty? Other Difficulties in understanding and measuring dynamics of poverty? • Data shows that the fraction of a given group of poor people who leave poverty in a given year declines as time goes on. • What does this imply?

23. Who is Poor? What is Poverty? • Suppose there are 2000 poor people in a given year. • State-Dependence (i.e., longer you are poor, harder to leave poverty): • After 1 year - 37.5% chance of leaving poverty; • after 2 years - 35% chance of leaving, • after 3 years – 32.7% chance of leaving, • after 4 year – 30.7% chance of leaving. • Heterogeneity: • 1000 quick-exit types (50% chance of leaving each year) • 1000 slow-exit types (25% chance of exiting each year). • Under each model, what would population look like 1,2,3,4 yrs out under each model? • How does answer to this affect policy?