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Chapter 12 Poverty, Welfare, and Women

Chapter 12 Poverty, Welfare, and Women. Poverty in the U.S. Welfare programs incentives reform EITC. Measuring poverty. Bureau of the Census 12.1% population is “poor” 2003 official poverty rate where does that come from?. Calculating the poverty rate.

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Chapter 12 Poverty, Welfare, and Women

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  1. Chapter 12 Poverty, Welfare, and Women • Poverty in the U.S. • Welfare • programs • incentives • reform • EITC

  2. Measuring poverty • Bureau of the Census • 12.1% population is “poor” 2003 • official poverty rate • where does that come from?

  3. Calculating the poverty rate • compare HH money income to poverty threshold • poverty threshold • cost nutritionally adequate diet for HH x 3 • $14,824 for adult w/ 2 children (2003)

  4. money income • earned income, interest income • + cash benefits • before taxes • does not include noncash benefits • food, housing, medical care • poverty rate is sensitive to the income measure

  5. criticisms • poverty measure overstates problem • money income does not include non-cash benefits • poverty measure understates problem • HH should only spend 20-25% of budget on food

  6. poverty varies • household type • education • race • sex • age • state

  7. by state, 2002 • New Hampshire 5.8% • New York 14% • New Jersey 7.9% • Pennsylvania 9.5% • Mississippi 18.4%

  8. feminization of poverty • high poverty rate among female-headed HH (28%) • rising number of female-headed HH over past 30 years • over 50% of poor families are female-headed HH

  9. child poverty, 2004 • % of people < 18 living in poverty • 17.2% (all) • 29.4% (Hispanic) • 33.2% (Black)

  10. Why are women more likely to be poor? • more single women have custody of children • women, on average, earn less • mothers, on average, earn less • alimony, child support is spotty • women live longer

  11. Why are people poor? • lack of education, skills • spotty work history • low wages • adverse events—divorce, job loss, disability • bad attitudes? • small % of those in poverty are their for a long time

  12. Do programs to help the poor actually encourage poverty?

  13. What is welfare? • “means-tested” assistance • several different programs • federally and state funded • administered by states • states get wide latitude

  14. housing assistance (HUD) • rent vouchers • subsidized housing • housing renovation • home heating • food assistance • food stamps (dept. of Agriculture) • WIC • school lunch program

  15. medical care • Medicaid • state subsidized health insurance • childcare subsidies • cash assistance • AFDC/TANF • SSI

  16. unemployment compensation • is NOT welfare • have to qualify --work history • funded through payroll taxes

  17. Cost of welfare • 2001 $82 billion • total federal budget = $1.85 trillion • 4.5% of the federal budget

  18. Welfare and work • prior to 1996, • no time limit on benefits • benefits cut (earnings penalty) when recipients work

  19. Welfare and work incentives • welfare is nonearned income • income effect • earnings penalty • makes working costly • substitution effect

  20. recall our time allocation model • decision to work depends on MVT from working • welfare lowers MVT of work • earnings penalty lowers effective wage • welfare acts as nonearned income

  21. with a lower MVT for work, • cut back on work to boost overall utility • allocate more time to leisure, housework

  22. evidence • studies show that AFDC reduces labor supply of its recipients

  23. Welfare Reform • many states experimented with reforms in late 1980s – early 1990s • Federal reform 1996

  24. 1996 Welfare Reform • AFDC replaced by TANF • block grants to states to use as they see fit • not a legal entitlement • time limits • 5 years total • after 2 years, work requirements

  25. limits on benefits for noncitizens • focus on family formation • discourage unwed/teenage motherhood • family caps • child support enforcement • programs that encourage marriage

  26. Evidence • huge TANF caseload decline 1996-1999 • 4.4 million to 2.1 million • success of reforms? and/or • rapid economic growth

  27. studies • 1/3 of decline due to reforms • 1/5 of decline due to economy

  28. impact on marriage • state evidence suggests that work requirements reduce marriage • women more self-sufficient, • women have less time for relationships

  29. EITC • Earned Income Tax Credit • started 1975 • expanded 1990s • EITC is like a negative tax • refundable tax credit to low-income families • up to about $4000/yr.

  30. EITC vs. welfare • family must have earnings • married & single parents eligible • structure rewards works • greater political support • alternative to minimum wage

  31. Impact of EITC • increased LFP among single mothers • but decreases LFP among married mothers in families close to cut-off point • loss of EITC makes work too costly

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