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Poverty and Inequality before and after the Great Recession

Poverty and Inequality before and after the Great Recession. Sheldon Danziger H.J. Meyer Distinguished University Professor of Public Policy March 30, 2012 Center for Economic Opportunity New York City. Overview.

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Poverty and Inequality before and after the Great Recession

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  1. Poverty and Inequality before and after the Great Recession Sheldon Danziger H.J. Meyer Distinguished University Professor of Public Policy March 30, 2012 Center for Economic Opportunity New York City

  2. Overview • Historical trends in poverty and income inequality—from a “rising tide lifts all boats,” to a “gilded age of rising inequalities” • Lessons from the Great Recession and the 2009 Stimulus Act • Implications for reducing poverty and inequality in the next decade

  3. After the 1973 oil-price shock • Poverty rises during severe recession of early 1980s • Poverty falls, but not back to 1973 level because less-educated workers no longer benefit from economic growth • Inequality increases rapidly • Effective safety net only for elderly

  4. Note: Percentage point change between 1973 and 2010 in parenthesis.

  5. The Great Recession • Recession was long—from December 2007 through June 2009 • Recession was deep—about 6% of all jobs were lost • Labor market crisis • Financial crisis • Housing market crisis

  6. Note: Percentage point change between 1973 and 2010 in parenthesis.

  7. The American Reinvestment and Recovery Act--Stimulus • Was economically successful, but too small in hindsight, given the depth and length of the Great Recession • Kept recession from being worse & poverty from increasing even more • Was poorly-explained by the President, badly-reported by the media • Became a political failure that fed Deficit Mania

  8. ARRA Expanded Programs for the Poor & Unemployed • Increased Food Stamp benefits • TANF Emergency Jobs Program • Expanded EITC and per child tax credit for low-income families • Massive expansion of Unemployment Insurance, up to 99 weeks • Pell Grant Expansion • Head Start/Early Head Start expansions

  9. Economists on the both the right and the left agree that the stimulus raised output and employment …state and local purchases fell below their normal trend path, dragging down the economy compared to their normal effect….and offset(ing) the federal stimulus more than fully. Taken together, all levels of government were retarding recovery. Robert Hall. Stanford, Fall 2010, Daedalus …fiscal policy sits idle, paralyzed by extreme partisanship, tarred by a successful public relations campaign against the 2009 stimulus bill and consumed by fears of large budget deficits. Our real deficit problem…lies in the future, not the present. Alan Blinder, Princeton, Oct. 25, 2010, Wall St. Journal

  10. Slow recovery from the Great Recession • ARRA kept recession from being deeper and lasting longer • Safety net spending on low-income families increased dramatically • Yet, 2011 Unemployment Rate of about 9% and 2010 Poverty Rate of 15.1%

  11. Michigan Recession & Recovery Study • From Jan. 2007-March 2011 • 41% of all respondents were unemployed in at least one month • 23% were unemployed in 12 + months • 38% were employed in all months • 23% were behind on rent or mortgage or in foreclosure • 13% had been evicted, homeless or moved in with others

  12. Hardships at 2011 interview • 23% were behind on utilities • 18% lacked health insurance • 20% needed to see a doctor, but could not afford to do so • 10% of Mortgage holders were behind on payments • 26% of Renters had been behind at some time since 2009/2010 interview • 7% were in danger of being evicted

  13. Current Economic Climate • Unemployment is falling but expected to remain high for several more years • Real wage growth for less-educated workers is unlikely • Income & wealth inequalities at highest level since the 1920s • States are cutting social programs and public sector jobs • Deficit Mania threatens safety net as we know it

  14. Ellwood noted the problem in 2000: • “We worry that the early apparent successes in welfare reform hide increases in insecurity….If we are reluctant to leave families with children without some form of safety net and equally reluctant to simply pay welfare benefits without some expectation of work in return, public work programs may need to be an important part of the mix sometime in the future.”

  15. Policy Recommendations • Make permanent ARRA’s Food Stamp and Unemployment Insurance changes • Establish a subsidized jobs program for the long-term unemployed • Expand EITC for childless low-wage workers • Let Bush tax cuts expire

  16. Responses to Safety Net’s Critics • Labor market changes, not failure to take available jobs, are primary reason poverty and unemployment remain high • Safety net programs reduce poverty without large distortions in work and family choices • Modest tax increases reduce poverty and inequality without disrupting the market economy

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