Brookings: Series - Research

Pathways to the Middle Class: Balancing Personal and Public Responsibilities

Isabel V. Sawhill, Scott Winship and Kerry Searle Grannis — Thu, 20 Sep 2012 10:16:00 -0400

INTRODUCTION

The defining narrative of the United States of America is that of a nation where everyone has an opportunity to achieve a better life. Americans believe that everyone should have the opportunity to succeed through talent, creativity, intelligence, and hard work, regardless of the circumstances of their birth. Our leaders share this support for opportunity. In a speech last fall, President Obama said that Americans should make sure that “everyone in America gets a fair shot at success.” Mitt Romney has repeatedly spoken about an opportunity society, where people can “engage in hard work, and pursue the passion of their ideas and dreams. If they succeed, they merit the rewards they are able to enjoy.”

Americans have an unusually strong belief in meritocracy. In other nations, circumstances at birth, family connections, and luck are considered more important factors in economic success than they are in the U.S. This meritocratic philosophy is one reason why Americans have had relatively little objection to high levels of inequality—as long as those at the bottom have a fair chance to work their way up the ladder. Similarly, Americans are more comfortable with the idea of increasing opportunities for success than with reducing inequality. When the American public is asked questions about the importance of tackling each, a far higher proportion is in favor of doing something about ensuring that more people have a shot at climbing the economic ladder than is in favor of reducing poverty or inequality.

One way of thinking about opportunity is in terms of generational improvement in living standards. Among today’s middle-aged Americans, four in five households have higher incomes than their parents had at the same age, and three in five men have higher earnings than their fathers. The extent to which this will be true for today’s children remains to be seen. More importantly, if everyone grows richer over time, but the economic fates of Americans are bound up in their family origins, then in an important sense opportunities are still limited. If a poor child has little reason to believe she can “grow up to be whatever she wants,” it may be of little comfort to her that she will likely make more than her similarly constrained parents. A better-off security guard may still have wanted to be a lawyer.

The reality is that economic success in America is not purely meritocratic. We don’t have as much equality of opportunity as we’d like to believe, and we have less mobility than some other developed countries. Although cross-national comparisons are not always reliable, the available data suggest that the U.S. compares unfavorably to Canada, the Nordic countries, and some other advanced countries. A recent study shows the U.S. ranking 27th out of 31 developed countries in measures of equal opportunity.

People do move up and down the ladder, both over their careers and between generations, but it helps if you have the right parents. Children born into middle-income families have a roughly equal chance of moving up or down once they become adults, but those born into rich or poor families have a high probability of remaining rich or poor as adults. The chance that a child born into a family in the top income quintile will end up in one of the top three quintiles by the time they are in their forties is 82 percent, while the chance for a child born into a family in the bottom quintile is only 30 percent. In short, a rich child in the U.S. is more than twice as likely as a poor child to end up in the middle class or above.

Why do some children do so much better than others? And what will it take to create more opportunity? The remainder of this paper addresses these two questions.

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Pathways to the Middle Class: Balancing Personal and Public Responsibilities

Authors

Isabel V. Sawhill
Scott Winship
Kerry Searle Grannis

Finding a Balance between Personal and Government Responsibility: It’s not Just about Paying Taxes

Isabel V. Sawhill — Tue, 18 Sep 2012 14:42:00 -0400

The media is full of commentary about Mitt Romney’s suggestion that people who do not pay income taxes are lacking in personal responsibility.

My view is that personal responsibility matters. In fact, Governor Romney has cited more than once a Brookings study (done with my colleague Ron Haskins). The study shows that if you do just three things: stay in school at least through high school, don’t have a child until you’re married and over 21, and work full-time, your chances of being poor are only 2 percent and your chances of joining the middle class are 74 percent.

We should expect and encourage this kind of behavior. It is necessary but it is not sufficient. The larger society, including government, has a role to play as well. Are children born to irresponsible parents to blame for their lack of opportunity? Are adults who can’t find a job during a recession at fault? Are the seriously disabled or the frail elderly supposed to fend for themselves?

There was a lot of talk at both the Republican and the Democratic conventions about the American Dream. The difference was that Republicans celebrated the Horatio Algers among us – the Mark Rubios who have pulled themselves up from modest beginnings. Democrats also lauded the upwardly mobile but with a recognition that a Pell Grant to go to a community college or free access to contraceptive services can make a difference.

In the end, neither party was very specific. New research being released by Brookings this week shows that 61 percent of today’s children and young adults can be expected to be middle class by middle age (an income of about $68,000 for a family of four in 2011). But there are large gaps by race, by gender, and by one’s circumstances at birth. A child born into the top income fifth is almost twice as likely to be middle class by middle age as one born into the bottom fifth. Girls do better than boys throughout childhood only to find their prospects diminished when they become adults. African Americans are behind on all indicators of success from an early age and never catch up to whites. Only a third of them can expect to be middle class by middle age.

On the other hand, our data indicate that poor children who stay on track throughout childhood are almost as likely as their more fortunate peers to achieve the Dream. The problem is that too few do. They are much less likely to be school ready at age 5, to achieve important academic and social competencies by age 11, to graduate from high school with good grades and without being convicted of a crime or having a baby as a teen. Would more of these children be successful if they studied hard and stayed out of trouble? Should some parents be doing more to help with homework, teach values, and monitor their children’s activities? Undoubtedly yes. But the evidence also suggests that if we provided more of these children a high quality preschool experience, put better teachers in the classroom, provided more (and more accessible) college aid to well-qualified students from low-income families and more technical training, some of these gaps could be reduced or even eliminated.

The gaps in opportunity are getting larger. Not only is income inequality increasing but so are inequalities in marriage rates, in educational achievements, and in who goes to college. A nation in which these opportunity-enhancing behaviors are, more than ever, associated with the random chance that a child will be born to privileged parents is not a healthy society.

Authors

Isabel V. Sawhill

Image Source: © Darren Hauck / Reuters

The 2011 Poverty Rate: What to Expect and How Long Will It Last?

Isabel V. Sawhill and Kimberly Howard — Mon, 10 Sep 2012 00:00:00 -0400

The Center on Children and Families at Brookings has used a model for the past three years to predict the U.S. poverty rate before the official figure was released by the Census Bureau. As the table below shows, our track record is reasonably good although we caution that predictions are just that and can be wrong.

For the latest year (2011) we predict a rate of 15.5 percent for adults and 22.8 for children[1] (see accompanying figures below). On Sept. 12, 2012 the Census Bureau will release the actual numbers for 2011 and we will be able to compare them to our predictions.

The predicted poverty rate translates to 48.3 million people in poverty in 2011, an increase of 1.6 million people from 2010. For children, we predict an increase from 16.3 million children in poverty in 2010 to 16.9 million in 2011.

The rate for 2011 compares to 12.5 percent of the population that was in poverty in 2007 before the recession began. An increase of 3 percentage points represents over 10 million people, larger than the entire population of New York City.

Poverty rates have not been this high since the early 1960s before the War on Poverty began.

Looking beyond 2011, we predict a rate of 15.6 for 2012 and a rate that remains above 15 percent for the next four years. By 2020, the poverty rate is expected to decline to around 14 percent, but our analysis suggests it will be many years before it returns to anything approaching the rate achieved before the recession began. With cuts in social spending for lower-income families slated to occur over the next decade, the outlook for the poor looks grim.

These increases in poverty are driven primarily by high unemployment rates. These are the primary drivers in our model, which is estimated using historical data and unemployment projections from CBO, OMB, and the Economist Intelligence Unit for future years.[2] When unemployment rates are high, some people fall into poverty as the result of losing a job. Others fail to climb out because of the difficulty of finding work. Unemployment insurance has played an important role in cushioning drops in income. The Supplemental Nutrition Assistance Program (SNAP, formerly Food Stamps), which does not affect official poverty rates but does affect a broader measure of poverty, has also helped the unemployed weather the recession. These programs will almost certainly shrink in 2013 and beyond – further exacerbating the problem of insufficient resources for those at the bottom.

Resources

Blank, Rebecca M. 2009. “Economic Change and the Structure of Opportunity for Less-Skilled Workers.” In Changing Poverty, Changing Policies, Maria Cancian and Sheldon H. Danziger, eds. New York: Russell Sage Press.

Congressional Budget Office. 2012. “An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022.” Washington, DC.

Economist Intelligence Unit. September 4, 2012. Country Report for the United States of America.

Monea, Emily and Isabel Sawhill. 2009. “Simulating the Effects of the ‘Great Recession’ on Poverty.” The Brookings Institution. http://www.brookings.edu/papers/2009/0910_poverty_monea_sawhill.aspx (accessed September 4, 2012).

Monea, Emily and Isabel Sawhill. 2011. “An Update to ‘Simulating the Effects of the ‘Great Recession’ on Poverty.’” The Brookings Institution. http://www.brookings.edu/research/reports/2011/09/13-recession-poverty-monea-sawhill (accessed September 4, 2012).

Office of Management and Budget. 2012. “Mid-Session Review: Budget of the U.S. Government: Fiscal Year 2013.” Washington, DC.

U.S. Census Bureau. 2011. “Annual Estimates of the Resident Population for Selected Age Groups by Sex for the United States: April 1, 2010 to July 1, 2011.” http://www.census.gov/popest/data/national/asrh/2011/tables/NC-EST2011-02.xls (accessed September 7, 2012).

U.S. Census Bureau. 2012. “Poverty Status of People, by Age, Race, and Hispanic Origin: 1959 to 2010.” http://www.census.gov/hhes/www/poverty/data/historical/hstpov3.xls (accessed September 4, 2012).

[1] Given the unusual length and depth of the current downturn, and the fact that there is no historical analogue for which we have data, it is likely that our estimates underestimate poverty and thus are conservative estimates of the number of people affected.

[2] Future poverty rates are predicted based on historical and projected unemployment rates and historical poverty rates. For further explanation of the methodology used to calculate predicted poverty rates, see Monea and Sawhill (2009).

Authors

Isabel V. Sawhill
Kimberly Howard

Image Source: © Eduardo Munoz / Reuters

Is Retaining Students in the Early Grades Self-Defeating?

Martin R. West — Thu, 16 Aug 2012 09:30:00 -0400

Whether a child is a proficient reader by the third grade is an important indicator of their future academic success. Indeed, substantial evidence indicates that unless students establish basic reading skills by that time, the rest of their education will be an uphill struggle. This evidence has spurred efforts to ensure that all students receive high-quality reading instruction in and even before the early grades. It has also raised the uncomfortable question of how to respond when those efforts fail to occur or prove unsuccessful: Should students who have not acquired a basic level of reading proficiency by grade three be promoted along with their peers? Or should they be retained and provided with intensive interventions before moving on to the next grade?

Several states and school districts have recently enacted policies requiring that students who do not demonstrate basic reading proficiency at the end of third grade be retained and provided with remedial services. Similar policies are under debate in state legislatures around the nation. Although these policies aim to provide incentives for educators and parents to ensure that students meet performance expectations, they can also be expected to increase the incidence of retention in the early grades. Their enactment has therefore renewed a longstanding debate about retention’s consequences for low-achieving students.

Critics point to a massive literature indicating that retained students achieve at lower levels, are more likely to drop out of high school, and have worse social-emotional outcomes than superficially similar students who are promoted. Yet the decision to retain a student is typically made based on subtle considerations involving ability, maturity, and parental involvement that researchers are unable to incorporate into their analyses. As a result, the disappointing outcomes of retained students may well reflect the reasons they were held back in the first place rather than the consequences of being retained.

Recent studies that isolate the causal impact of retaining low-achieving students cast further doubt on the conventional view that retention leads to negative outcomes. Much of this work has focused on Florida, which since 2003 has required that many third graders scoring at the lowest performance level on the state reading test be retained and provided with intensive remediation. Students retained under Florida’s test-based promotion policy perform at higher levels than their promoted peers in both reading and math for several years after repeating third grade; they are also less likely to be retained in a subsequent grade. Although it is too soon to analyze the policy’s effects on students’ ultimate educational attainment and labor-market success, this new evidence suggests that policies encouraging the retention and remediation of struggling readers can be a useful complement to broader efforts to reduce the number of students reading below grade level.

Background on Grade Retention

Even in the absence of test-based promotion policies, the extent to which America’s school systems have retained low-performing students in the same grade has varied considerably over time. Proponents of retention have long argued that low-performing students stand to benefit from an improved match of their ability to that of their peers and from the opportunity for additional instruction before confronting more challenging material. They also contend that the threat of being held back and the creation of grade cohorts that are more homogenous in ability could yield benefits even for higher-performing students. In the 1960s, however, concerns that retention hinders the social, emotional, and cognitive development of at-risk students led many educators to call for students to be advanced to the next grade with their peers regardless of their academic performance. Although systematic data are scarce, this push for so-called “social promotion” appears to have reduced the incidence of retention nationwide. Conversely, retention rates increased with the advent of standards-based reform in the 1980s and again in some school systems in the wake of the No Child Left Behind Act of 2001.

The most comprehensive information on the incidence of retention at present comes from just-released data from the U.S. Department of Education’s Office of Civil Rights (OCR). In 2009-10, OCR for the first time included the number of students retained at each grade level as an element of the data it collects at regular intervals from a large share of the nation’s school districts. Although not a complete census, the nearly 7,000 school districts that participated in the OCR data collection serve more than 85 percent of students in American public schools.

The OCR data indicate that 2.3 percent of all students in these districts were retained in the same grade at the close of the 2009-10 school year. However, much of this overall rate reflects retention in high school, when many students fail to accumulate enough credits to advance their academic standing but often repeat only specific courses as a result. Roughly one percent of students were retained in grades K-8, with the largest numbers repeating kindergarten or the first grade. The OCR data also confirm that retention rates are highest among traditionally disadvantaged minorities, who are most likely to suffer from low academic performance. The respective rates for black and Hispanic students were 4.2 percent and 2.8 percent, as compared with just 1.5 percent for whites.

Retaining a student in the same grade is a costly educational intervention, if students (as intended) spend an additional year in full-time public education as a result. Given average per pupil spending of roughly $10,700 (the most recent national estimate), the direct cost to society of retaining 2.3 percent of the 50 million students enrolled in American schools exceeds $12 billion annually. This estimate excludes the cost of any remedial services provided specifically to students repeating a grade, as well as any earnings foregone by retained students due to their delayed entry into the labor market.

It is perhaps surprising, then, that consensus is lacking as to whether retention yields any benefits at all for students that could offset these costs. Critics of retention contend that students are actually harmed by the trauma of being held back, the challenge of adjusting to a new peer group, and reduced expectations for their academic performance on the part of teachers and parents. They also argue that, once in high school, being over-age for their grade makes students more likely to drop out. As noted above, a large majority of existing studies confirm that students who have previously been retained are at elevated risk for low academic achievement and early dropout. Ernest House of the University of Colorado-Boulder concluded in 1989 that “It would be difficult to find another educational practice on which the evidence is so unequivocally negative.”

To the extent that much of the evidence available on a topic suffers from a common flaw, however, a consistency of findings should not increase confidence in their validity. In the case of grade retention, the central challenge facing researchers is to distinguish the effect of being retained from the effects of those factors that triggered the retention decision in the first place. With few exceptions, the available studies of retention have attempted to meet this challenge by comparing the outcomes of retained students to those of equally low-performing, demographically similar students who were promoted. Yet the very fact that a different decision was ultimately taken on whether to retain the student in the same grade casts doubt on the usefulness of these comparisons. For example, educators may be more apt to hold back a student who performs poorly on a standardized test if they believe that the test is an accurate indicator of their true ability than if they believe the student simply had a bad day. Given the stigma associated with repeating a grade, more involved parents may also be less likely to acquiesce in a school’s recommendation that their child be held back. Although speculative, these and many other possible sources of bias make studies relying on standard observational methods an unreliable guide for policy.

Fortunately, recently enacted policies tying retention decisions explicitly to performance on state tests provide an opportunity to generate more rigorous evidence on retention’s consequences for low-performing students. Under these policies, students with test scores just below the standard for promotion face a far greater likelihood of being retained than students who met the standard exactly. And because there is considerable measurement error in individual student test scores, these differences in retention probabilities are nearly as good as would be achieved by randomly assigning low-performing students to be either retained or promoted. By comparing the outcomes of students with test scores in a narrow region around the promotion standard, researchers are therefore able to discern the causal impact of being retained for those students. First used in evaluations of a test-based promotion policy adopted by Chicago Public Schools in the mid-1990s, this quasi-experimental approach to the study of retention has recently been applied in a series of studies of test-based promotion in Florida. Because the Florida policy has served as a model for other states, evidence on its implementation and impact on retained students is of considerable interest.

Test-based Promotion in Florida

In 2002, the Florida legislature mandated that third grade students scoring below level two (of five performance levels) on the Florida Comprehensive Assessment Test in reading be retained and provided with intensive remediation unless they qualify for one of six “good cause exemptions.” The policy’s exclusive focus on third grade reading distinguishes it from many earlier programs with retention gates based on reading and math achievement at multiple grade levels. This focus reflects the accumulation of evidence that acquiring basic reading proficiency in the early grades is critical for later performance across disciplines. Many educators characterize third grade in particular as a key transition point from “learning to read” to “reading to learn.” In reality, this transition is a gradual one and the decision to focus on third grade is in large part a reflection of the fact that it is the lowest grade included in the state testing program.

Florida schools may exempt low-performing students from the retention requirement if they fall into any of the following categories: students with disabilities whose Individualized Education Plan indicates that the state test is an inappropriate measure of their performance; students with disabilities who were previously retained in third grade; Limited English Proficiency (LEP) students with less than two years of instruction in English; students who were retained twice previously; students scoring above the 51st percentile nationally on another standardized reading test; and students demonstrating proficiency through a portfolio of work. In light of these exemptions, calling the Florida policy “test-based promotion” may be a misnomer. It would be more precise to say that, for students not in special education, a low test-score shifts the burden of proof such that educators need to make an affirmative case that the student should be promoted. Across the first six cohorts of third graders impacted by the policy, a slight majority (52.2 percent) of students failing to meet the promotion standard received an exemption.

Even so, the policy sharply increased the number of students held back in third grade. The number of Florida third graders retained jumped to 21,799 (13.5 percent) as the policy was implemented in 2003, up from 4,819 (2.8 percent) the previous year. Consistent with national patterns, the students retained under Florida’s test-based promotion policy are disproportionately black and Hispanic. Black students represented just 22 percent of Florida third graders between 2003 and 2008 but fully 40 percent of those who were retained. Hispanics accounted for 24 percent of all third graders but 29 percent of those retained. The over-representation of blacks and Hispanics among retained third graders reflects the fact that students in these groups are more likely to have reading test scores below the promotion standard. In fact, controlling for reading performance, black and Hispanic students are two percentage points less likely than white students to be retained.

As noted above, the Florida policy also includes provisions intended to ensure that retained students acquire the reading skills needed to be promoted the following year. First, retained students must be given the opportunity to participate in their district’s summer reading program. Schools must also develop an academic improvement plan for each retained student and assign them to a “high-performing teacher” in the retention year. Finally, retained students must receive intensive reading interventions, including ninety uninterrupted minutes daily of research-based reading instruction (a requirement that has since been extended to all students in grades K-5). The degree to which schools comply with these requirements varies considerably across the state. Nonetheless, it is important to note that existing evaluations of the Florida policy capture the combined effect of retention and these additional measures.

The latest research on the Florida policy examines its impact on students retained in 2003 for six subsequent years, by which time students retained only once as third graders had reached eighth grade; students retained in later years are followed for shorter periods of time. The best evidence of retention’s short-term impact on student achievement comes from comparing the performance of retained students in grade four (two years after the retention decision) with that of their promoted peers in grade five, which is possible due to Florida’s use of vertically aligned tests that place the achievement of students in different grades on a common scale. Comparing retained students to promoted students at the same grade level would conflate the effects of retention with any benefits of being a year older. Moreover, in the retention year itself, the test scores of third graders could be inflated due to their prior exposure to the same content and the additional stakes attached to the test.

After two years, students retained under Florida’s test-based promotion policy outperform comparable students who were promoted by substantial amounts in both reading and math. The positive impact of retention on reading achievement is as large as 0.4 standard deviations, an amount which exceeds a typical year’s worth of achievement growth for elementary school students. The impact of retention on math achievement is roughly half as big, perhaps because the remedial services provided to students before and during the retention year focus primarily on reading.

These short-term improvements in achievement, although dramatic, diminish over time and become statistically insignificant by the time retained students reach the seventh grade. The fade out of test score impacts is a common pattern in research on educational interventions, including interventions such as early childhood education and higher-quality kindergarten classrooms which have been shown to generate lasting impacts on such long-run outcomes as college enrollment and earnings. Whether students retained in Florida will also experience long-run benefits remains uncertain. However, it is worth noting that the retained students continue to perform markedly better than their promoted peers when tested at the same grade level and, assuming they are as likely to graduate high school, stand to benefit from an additional year of instruction. These factors may increase the likelihood of enduring benefits.

Third-grade retention in Florida has no impact on student absences or special education classifications, but it sharply reduces the probability that the student will be retained in a subsequent grade. Specifically, retained students are 11 percentage points less likely to be retained one year after they were initially held back and roughly 4 percentage points less likely to be retained in each of the following three years. As a result, students retained in third grade after five years are only 0.7 grade levels behind their peers who were immediately promoted to grade four. This implies that one important consequence of the introduction of the test-based promotion policy was to expedite the retention of many students who would have eventually been retained in a later grade. It also suggests that the costs associated with policies that increase retention rates in the early grades are less than is typically assumed because many of them would have received an additional year of schooling anyway as a result of being retained later in their educational careers.

The results for low-performing readers in Florida compare favorably to those observed under a similar policy in Chicago that has been studied using similar methods. Introduced in 1995, Chicago’s program combined test-based promotion gates in both math and reading at grades three, six, and eight with mandatory summer school for students failing to meet the promotion standards. These requirements generated small short-term improvements in the achievement of students in grade three but not for those in grade six. Retention in grade eight also increased students’ probability of dropping out, while retention in grade six again had no impact. These mixed results imply that retention requirements do not necessarily translate into gains for retained students. They also suggest that early grade retention may be more beneficial for students than retention in later grades. To the extent that this is true, Florida students retained in the third grade who otherwise would have been retained later may have particularly benefited from the state’s test-based promotion policy.

Policy Implications

Reducing the number of students who do not acquire basic reading skills in the early grades remains an urgent priority for American public education. According to the 2011 National Assessment of Educational Progress, one third of all fourth grade students, and fully half of black and Hispanic fourth graders, fail to demonstrate even a basic level of reading proficiency. Improving on this record will require that states provide students at risk of reading difficulty with access to high-quality early childhood education programs, help districts develop early identification systems so that struggling readers can be targeted for intervention, and take steps to improve the quality of instruction in grades K-2. Although often overlooked, this latter issue is critical given evidence that schools often assign less experienced and less effective teachers to those grades, which are typically excluded from state accountability systems.

Policies encouraging the retention of students who have not acquired basic reading skills by third grade are no substitute for the development of a comprehensive strategy to reduce the number of struggling readers. Yet the best available evidence indicates that policies that include appropriate interventions for retained students may well be a useful component of a comprehensive strategy. There is nothing in the research literature proving that such a practice would be harmful to the students who are directly affected, and some evidence to suggest that those students may benefit. Test-based promotion policies may also create new incentives for educators and parents to improve student reading skills prior to third grade. Interestingly, after the initial spike to 21,799 (13.5 percent) retentions, the number of Florida students retained in third grade fell steadily in the six years following the introduction of its test-based promotion policy, reaching 9,562 (5.6 percent) in 2008. This decline was due primarily to a reduction in the number of students failing to meet the promotion standard.

Test-based promotion policies are most likely to be successful if they are accompanied by specific requirements that retained students be provided with additional, research-based instruction in reading and adequate funding to implement those requirements. The apparently positive effects of the Florida reform reflect the combined effect of retention and the remedial services made available to retained students, and common sense suggests that retention should not imply an exact repetition of what came before. Policymakers must also take care to provide local educators with sufficient discretion to make decisions they believe are in the best interest of the child without compromising the goal of increased accountability and access to focused support. Finally, continued research is needed to document the effects of test-based promotion policies on the long-run outcomes of retained students and on the quality of instruction available to all students in the critical early grades. Evidence on these issues is essential in order to determine how the benefits of test-based promotion policies compare to their costs.

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Is Retaining Students in the Early Grades Self-Defeating?

Authors

Martin R. West

Publication: Center on Children and Families

Image Source: © Lucy Nicholson / Reuters

Making Sense of Income Inequality

Scott Winship — Fri, 03 Aug 2012 00:00:00 -0400

Not long ago, a former colleague asked me to recommend the best accessible reference on income inequality. I immediately suggested Timothy Noah’s 2010 series of essays, “The Great Divergence,” written for his then-employer, Slate. Why, then, do I find Noah’s new book of the same name — an expansion of the award-winning series — so frustrating?

The book largely follows the outline of the series, with its clearly presented statistics on the rise in inequality and Noah’s impressive explication of what social scientists have found regarding its causes. The frustrations come, in part, from the additional space a book provides for Noah to wade into the perilous business of dot-connecting. But even the original series was irksome in the way it (faithfully) conveyed the conventional wisdom about the supposed connections between inequality, economic mobility, and living standards. Both the original series and the new book are fantastic distillations not only of a messy literature on inequality and its causes, but also of a seriously flawed conventional story about their consequences.

Noah is an engaging and informative writer, and the first chapter of the book shows off his skills (even as it reveals the ideological commitments the reader will have to be wary of). It provides an improbably captivating overview of what we know about inequality trends and how we have come to this knowledge. He intertwines this history with a broad account of how living standards and economic security have changed, and it is here that he falls into the traps of convention.

The “Golden Age” of the 1950s and 1960s followed a steep decline in inequality and preceded our modern period of rising inequality. In Noah’s view, “there probably was no better time to hold membership in America’s middle class.” This widely held — but wrong — view reveals the extent to which inequality has come to dominate the evaluative standards by which liberals judge the economy. In fact, the median American family is twice as rich today as it was in 1960, if one takes into account changes in family size, government and employer benefits, and rising immigration. That much of this improvement came before 1979 — even 1973 — hardly negates this central fact. Congressional Budget Office statistics indicate that the median household was 35 percent richer in 2007 than in 1979. The bottom fifth of households was about 20 percent richer.

Noah and other liberals have a series of standard (but flawed) arguments that minimize the extent of this improvement: A huge share of gains since 1980 went to the top 1 percent. Family-income growth hasn’t kept up with productivity increases. Income growth is due solely to wives’ supplementing their families’ incomes. Each of these claims is supported by naïve interpretations of readily available data, but a more careful examination belies them.

Let’s begin with the share-of-gains estimates. Noah plays up a finding that 80 percent of the increase in income from 1980 to 2005 went to the top 1 percent. This is a figure derived from the work of Thomas Piketty and Emmanuel Saez. But their updates in recent years have used a more appropriate adjustment for inflation, and their more recent estimate is not 80 percent but 58 percent.

Also, for a number of reasons, the share-of-gains figure is not as straightforward as it would seem. For example, this figure looks at income gains after adjusting the 1980 numbers to reflect 2005 purchasing power. But if we ask what share of income gains went to the top before taking account of the fact that 2005 incomes bought less for rich and poor alike because of inflation, the answer is that the top received just 28 percent of income gains.

Piketty and Saez garnered quite a bit of attention in their latest update, when they found that 93 percent of the gains from 2009 to 2010 went to the top 1 percent. But the computation they use also found that 49 percent of the gains from 2007 to 2009 went to the top, which is interesting, because the total income received by the top 1 percent fell over those two years — by, on average, half a million dollars. It is a strange statistic that indicates that a group commanded half of all income gains when the data on which it is based shows the group losing income.

As for the income-versus-productivity comparison, that one should be shelved for good, because researchers on both left and right have shown that, when properly analyzed, median family income actually tracks productivity very well. Noah cites a 2005 paper co-authored by economist Robert Gordon to back up his claim, but in 2009 Gordon wrote a widely cited paper showing that median income and productivity actually aligned closely from 1979 to 2007, with the former increasing by 1.50 percent annually and the latter by 1.66 percent. On the other hand, male earnings have lagged behind productivity growth over the past few decades. The simple explanation is that in earlier decades (during the peak union years), male-earnings growth outpaced productivity increases, and the past few decades have seen men’s earnings fall back to earth. (Women’s-earnings growth, meanwhile, has far exceeded productivity increases.)

The recent stagnation of male earnings has led many analysts to argue that middle-class families have stayed economically afloat only because wives increasingly bail out the boat. Noah cites the work of lawyer (and U.S. Senate candidate) Elizabeth Warren. There are three problems with the theory that families’ gains have come from the employment of economically pressured wives. First, all signs are that the embrace of work among wives is part of a longer-term story in which women get to lead more fulfilling lives. In developed countries around the world, birth rates have declined, marriage and parenthood have been pushed off to increasingly older ages, and women have had more educational opportunities. A June 2000 NBC News/Wall Street Journal poll found that just one-fifth of married parents had a wife who worked “to make ends meet” but preferred staying home. Second, husbands’ earnings are likely lower than they would have been because some of them have reduced the hours that they work and changed the type of jobs they take in response to the money their wives now bring in. Finally, husbands’ earnings would be higher today if not for the increased competition from working wives.

Reflecting his misguided view that it’s been downhill for the last 50 years, Noah titles his first chapter “Paradise Lost.” He writes that the political economy of the Golden Age “represents a path that would be abandoned in the late 1970s,” suggesting that paradise was not so much lost as thrown away. But he never provides a convincing case that things might have evolved differently. Economic growth slowed throughout Europe after the 1960s, and median-income growth since 1980 has been no better in Canada, France, Germany, or Sweden than in the U.S.

Noah says we should worry about rising inequality, but he evades the central questions: Do gains at the top really come at the expense of the incomes of the middle and bottom? If they do not, do the gains worsen inequality of opportunity in the next generation? Noah’s discussion hardly even attempts to make the case that inequality matters. Instead, he counters various arguments that inequality does not matter, which he invariably describes as “conservative.” He spends a single paragraph shrugging off the view that absolute living standards are more important to people than equality.

On the question of income mobility, Noah casually dismisses the possibility that having a higher absolute standard of living than one’s parents is more important to Americans than ending up at a higher rank than one’s parents when assessed against peers. But if “absolute mobility” is what really matters to Americans, and if the U.S. looks more impressive than other countries in this regard, then the American Dream doesn’t look quite so delusional, nor ambivalence about inequality quite so misguided. These are empirical questions that have not been answered, but Noah cannot even imagine a story in which Americans’ conceptions of their opportunities are consistent with reality.

Noah closes the book with the obligatory policy-recommendation chapter that so often proves unsatisfactory even when written by genuine policy experts. Noah wants to “soak the rich,” create a public-jobs program, “impose price controls” on colleges, “revive the labor movement,” and “elect Democratic Presidents.” This last recommendation derives from research by Princeton political scientist Larry Bartels claiming to show that the middle class and poor do better when a Democrat is in the White House — research debunked, separately, by National Review contributor Jim Manzi and political scientist James Campbell as dependent on fragile methodological specifications.

In the course of the book, Noah deftly explains the relative roles of discrimination, rising economic returns to education, increased trade and immigration, declining unionization, and public policies in contributing to rising inequality. Where the topics are narrower and more clear-cut, Noah is on firm ground in his presentation of the evidence and his conclusions about where it points. Where they involve broad questions of economic and political power, his ideological presuppositions tend to bring back one’s frustration, even as his writing remains engaging. I learned a lot from Noah’s thoughtful mini-history of the labor movement, even as I marveled at his refusal to concede that there is any legitimacy in corporate concerns about the fairness of the regime that New Deal policy created. His chapter focusing on the unique factors behind the divergence of the top 1 percent from everyone else is particularly well done, but readers who are not inclined to view the top 1 percent as the “stinking rich” will have to get past Noah’s demagogic chapter title.

It is probably too much to ask of an inequality primer that it be engaging and simultaneously transcend the ideological commitments that taint so much treatment of the topic. Inequality, after all, is an issue that inspires even Nobel laureates to make sweeping arguments that academic research does not support. At least Noah writes well. But I do hope that in five years I can refer interested parties to a second inequality primer against which The Great Divergence can be balanced.

Authors

Scott Winship

Publication: The National Review

Image Source: Jim Young / Reuters

Bring Back the American Dream? It’s Not That Hard.

Isabel V. Sawhill — Tue, 17 Jul 2012 13:31:00 -0400

Restoring opportunity in the United States is not terribly complicated. It will require an activist government and individual responsibility. That means a strong focus on job creation right now, combined with efforts to reduce debt, improve education, and strengthen families over the longer-run.

Success on these fronts is undermined not by a lack of knowledge about what to do, but by partisan arguments that ignore the kind of common-sense consensus that might otherwise prevail.

An update of my earlier work on economic mobility in the US, coauthored with Julia Isaacs and Ron Haskins and recently released by the Pew Charitable Trusts, confirms that there is less economic mobility in America than many believe, especially at the top and bottom of the distribution of income and wealth.

A child’s chances of ending up in the middle class or above that level are more than twice as high for those born into an affluent family (the top 20 percent) as for those born in a poor family (the bottom 20 percent).

President Obama has given this issue prominent attention, especially in the speech he gave in Osawatomie, Kan., on Dec. 6 last year. He emphasized the importance of working hard and playing by the rules but stressed that those who do so should have a “fair shot” at the American Dream.

Former Gov. Mitt Romney’s position is not terribly different, although, in deference to his more conservative base, he stresses the need for greater personal responsibility and playing by the rules as the best route to success in life.

In a speech at Liberty University on May 12, again citing Brookings research, he noted that the chance of achieving the American Dream is greatly enhanced if a person does just three things: finishes high school (at least), works full-time, and waits to have children until marriage. Those who do all three things have a 74 percent chance of joining the middle class.

These views are not all that different, and few people would disagree with the need for people to both play by the rules and live in a society that provides a fair shot at climbing the opportunity ladder.

What might this mean in practice? First, more support in the form of infrastructure spending and low taxes (at least for businesses and the middle class) to reduce unemployment in the short-term. Combine that with a grand bargain on the federal deficit for the longer term.

Second, continuing reforms of the education system involving expanded preschool, higher standards, greater accountability, better teachers, and more lifelong learning through community colleges and online learning.

Third, greater media attention and more government and philanthropic support for nongovernmental institutions that are trying to reduce an explosion of unplanned pregnancies and births to single women in their twenties. That surge has now made unwed childbearing the norm for women under 30, more than half of whom give birth out of wedlock.

This agenda, to be sure, barely scratches the surface of possible actions. But because it combines the values of liberals and conservatives alike and calls for both personal responsibility and responsible government policies, it has the potential to restore the kind of opportunity that Americans have long taken for granted as their birthright.

Presidential candidates and members of Congress, are you listening?

Authors

Isabel V. Sawhill

Publication: Christian Science Monitor

Image Source: Eduardo Munoz / Reuters

Middle Class Wealth: It's Not as Bad as It Looks

Scott Winship — Thu, 05 Jul 2012 16:24:00 -0400

Last month, the Census Bureau released its latest data on wealth, updating earlier figures from 2005 to 2010. The numbers confirm findings from a Federal Reserve Board survey showing unprecedented declines in the net worth of the typical American household. The Census figures indicate a drop of 35 percent between 2005 and 2010 in median wealth-the wealth of the household right in the middle-from $103,000 to $67,000. The estimates from the Federal Reserve show a decline of 28 percent between 2004 and 2010. From 2007 to 2010, median net worth declined by an astonishing 39 percent in three years.

This loss of wealth surely hurt many people counting on these funds to pay for retirement, children's schooling, and other needs. Others counted on being able to sell their homes to take advantage of opportunities in other parts of the country but are now underwater on their mortgage and stuck in place. Viewed in context, however, the wealth levels of middle-class Americans are in better shape than these dramatic figures would suggest, though they have not improved markedly over several decades.

In some sense the recent drop in wealth is a mirage, because it reflects the reversal of wealth increases that themselves were illusory. For the vast majority of families, "wealth" essentially means, "home equity". And the relatively high wealth levels of the mid-2000s reflected the inflation of the housing bubble. The bursting of the bubble exposed the wealth gains as having been unreal and produced the sizable declines in net worth revealed in the government data.

How illusory were the earlier wealth gains? In 1998, home prices were right in line with the cost of rental housing by historical standards. By early 2006, they had increased 70 to 90 percent more than rents had. Correspondingly, median non-financial assets increased 41 percent from 1998 to 2007, while median financial assets rose just 1 percent. Only now are home prices approaching the historical norm again relative to rents.

The survey data allows us to compare 2010 to 1998 to evaluate what has happened to net worth if we ignore the inflation and deflation of the housing bubble. Median wealth fell by 19 percent over this period according to the Federal Reserve Board numbers, but was essentially unchanged if the Census Bureau figures are to be believed. Indeed, the Census Bureau estimates suggest that median wealth was roughly the same in 2010 and 1998 as in 1988 and 1984. The Fed survey also indicates that 2010 wealth levels were the same as in 1989.

Obviously it is disappointing that the wealth of the typical household is no higher today than it was a quarter-century ago. Still, median wealth is probably higher today than it was forty years ago. Estimates from the Fed's earlier surveys from 1962 and 1983 are not comparable to the surveys since 1989, but the increase in wealth between the two years was about as robust for the median household as for the average. That fact is useful because macroeconomic data compiled by the Fed can tell us what happened to average wealth over the long run. From 1970 to 1984, it rose by about 15 percent in inflation-adjusted terms. If median wealth rose by the same amount and then remained the same in 2010 as in 1984, then median net worth today remains 15 percent higher than its 1970 level.

It is worth not losing sight of the fact that we are wealthier today, in the wake of a catastrophic collapse in housing markets, than at the height of the "golden years" of post-war economic growth. The magnitude of short-term declines cannot be the sole criteria by which we judge how we are doing. The typical household in the top ten percent of wealth saw its net worth decline by $450,000 between 2007 and 2009, while the typical household in the bottom quarter saw no decline in wealth. We don't worry much about the massive wealth decline of the top ten percent because the median household in that rarified club was still worth well over a million dollars in 2009; conversely, we worry about the bottom quarter despite the recession not affecting its wealth because the median there was under $2,000 even in 2007. In an important sense, it is the levels of wealth that matter, at least as much as whether wealth has fallen or increased.

With this in mind, another consideration that ought to affect how we view wealth levels is the fact that none of the figures above include public and private commitments that most Americans can count on to meet their needs in old age. Research by Federal Reserve Board economists suggests that if the present value of Social Security benefits were included in the definition of wealth, median net worth for adults under age 65 in 2010 would be at least four times higher than indicated by the standard definitions of net worth used by the Census Bureau and the Fed. And this adjustment would still exclude the value that future Medicare benefits will have for most retirees, as well as the value of traditional pensions and retiree health benefits provided by employers.

Finally, it is also worth noting that changes in the median household's wealth do not necessarily reflect the median change in wealth experienced by households. That's because the median household—the one in the middle—is not the same in any two years. From 2007 to 2009, while median wealth declined by 39 percent, the median change in wealth experienced by households followed over the two years was a decline of 18 percent. Over a longer stretch such as 1984 to 2010, even if median wealth is stagnant, most people will experience wealth gains as they age.

None of this context suggests that the last few years—or the last couple of decades—have seen sizable improvements in the wealth levels of the middle class. But over the long run, things are not getting worse. Evaluating whether the similarity of wealth levels over several decades is problematic and would require a better understanding of changes in saving patterns and their causes. What matters is whether middle-class Americans are no better positioned to save today than in the past or whether they increasingly choose to consume goods and services rather than save.

Authors

Scott Winship

Image Source: CHRIS KEANE / Reuters

@ Brookings Podcast: Causes of and Solutions for U.S. Poverty's Continued Rise

Ron Haskins — Fri, 22 Jun 2012 10:51:00 -0400

Year after year, federal spending on poverty programs has been going up, but we still see more and more people who have no margin to guard against unexpected expenses or job loss. At the same time, for different reasons, Americans who are not impoverished have seen their wealth decline sharply. Expert Ron Haskins, co-director of the Center on Children and Families, says the problems are growing deeper, despite increased federal spending on programs to assist the poor. Haskins says everyone must sacrifice, but also says, that people in general, who finish high school, get a job, and get married and delay having children until age 21 are better off.

Video

Solutions to Poverty's Rise in America

Authors

Ron Haskins

Improving The Lives Of Single Moms And Their Kids

Isabel V. Sawhill — Tue, 12 Jun 2012 00:00:00 -0400

Editor’s note: On NPR’s Talk of the Nation, Isabel Sawhill discussed the societal effects of single motherhood with Neil Conan and Philip Cohen.

NEAL CONAN, HOST: [F]or whatever reason, the number of single mothers is going up. What's the best way to improve the prospects for them and their kids?

SAWHILL: Well, I think that there are certain things we should be doing for single parents. I think their biggest need is child care, because most of them are going to have to work. That's almost inevitable if you're a single parent. And what are you going to with your kids while you're at work? Some of them are in low-wage jobs and thus can't afford decent childcare for their kids. So I would say that's a high priority in my book.

CONAN: We heard a cut of tape at the beginning of the show from a woman who needed to get at least eight credits in a college course so she could qualify for the student discount for the childcare that she needed, otherwise couldn't afford because of her fulltime job. That doesn't leave an awful lot of time for a child.

SAWHILL: It doesn't leave much time, and if you are a low-income worker, a very large proportion of your income has to be set aside just to pay your childcare expenses.

CONAN: And this is - as you look at the statistics, it's becoming the new norm for women under 30.

SAWHILL: It is becoming the new norm. Over half, a little over half, right now, of all babies born in America, are born outside of marriage. And so when I wrote the piece for the Washington Post that you mentioned a moment ago, what was concerning is when this does become the new norm, how do we manage?

It's not as if the taxpayers who are in two-parent families can afford to pay for the other half of taxpayers that are in one-parent families. That isn't going to work.

Listen to the full interview »

Authors

Isabel V. Sawhill

Publication: NPR

Combating Poverty: Understanding New Challenges for Families

Ron Haskins — Tue, 05 Jun 2012 00:00:00 -0400

My name is Ron Haskins and I’m pleased and privileged to have the opportunity to testify before the Finance Committee about poverty. Few topics have enjoyed as much attention from federal policymakers over the past half century as poverty and what can be done to reduce it. After a brief review of our success, such as it is, in reducing poverty, I examine the major causes of poverty, trends in spending to help poor and low-income Americans, and strategies Congress has adopted to fight poverty. Poverty has shown great if unfortunate staying power, but we have learned useful lessons about how to fight it.

Poverty Trends

Figure 1 shows poverty trends since the 1960s for the elderly, children, and all people. After some initial progress in the 1960s, and continuing progress for the elderly, the nation has made surprisingly little progress against poverty. The nation’s inability to reduce children’s poverty is especially troublesome. A review of the leading causes of poverty shows why trends in the economy, demography, and education make progress against poverty so difficult to achieve.

Causes of Poverty

Work Rates

In the United States, with the important exception of those on Social Security, the only way for most adults and families to avoid poverty is to work. Yet between 1980 and 2009, work rates for men declined from 74.2 percent to 67.6 percent, a fall of around 9 percent. The trend for young black men (ages 20-24) is even worse. Starting from the very low base of 60.9 percent, their ratio declined to the startling level of 46.9 percent, a decline of nearly 23 percent. Work among young black males is a national crisis. [2]

The work rate of women stands in sharp contrast to that of men. In 2007 before the Great Recession set in, 58.1 percent of women were working, a 25 percent increase since 1980. These figures reflect the post-World War II trend of the relentlessly increasing participation by women – including mothers of young children – in the nation’s economy. Equally impressive is the 20 percent rise in work by lone mothers over the same period, a trend that bears directly on child poverty rates because children in female-headed families are four or five times (depending on the year) more likely to be in poverty than children in married-couple families. [3] Even more important for the nation’s poverty rate, work by never-married mothers rose more sharply than that of any other group during the 1990s. These mothers and their children have always been the group most likely to be in poverty, including long-term poverty, in large part because their work rates have been so low. [4] In 1983, for example, only about only 35 percent of never-married mothers worked. After the welfare reform legislation of 1996, their work rate exploded, increasing from 46.5 percent in 1995 to 66.0 percent in 1999, an increase of more than 40 percent in just four years. Equally surprising, after a lengthy period of employment stagnation and decline associated with the mild recession of 2001 and the deep recession of 2007-2009, in 2010 their work rate was still more than 25 percent higher than it had been before welfare reform in the mid-1990s.

The fact that in 2007 – before the Great Recession – the work rates of males and females were 72 percent and 58 percent respectively, combined with the fact that the poverty rate for individuals in families in which no one works is nearly eight times as high as the poverty rate for individuals in families with at least one full-time, year-round worker, shows that there is plenty of room for improvement. [5] This uneven record of maintaining high levels of work is a leading cause of poverty in America. Without high work levels, it will be difficult to mount an effective fight against poverty.

Wages

Wage rates are a second work-associated factor that has a major impact on poverty. Based on data from the U.S. Census Bureau, trends in wages since 1979 can be succinctly summarized. Wages at the 10th percentile fell and then recovered and ended the nearly three decade period almost exactly where they were in 1979. The general trend of wages at the 50th percentile was a slow increase amounting to about a 10 percent rise over the entire period. At the top, by contrast, wages did very well, increasing 32 percent over the period at the 90th percentile. If we were to plot wages higher up in the distribution, they would rise even higher. [6]

In 2007, wages at the 10th percentile were about $8 per hour, more or less where they were in 1979 if inflation is taken into account. Working at this wage for 35 hours a week year round, a person would earn $14,560, $2,145 under the poverty level for a family of three. It is an amazing mathematical fact that 10 percent of all workers will always be at the 10th percentile of earnings or below. Thus, if wages do not improve at the bottom, all single parents with two or more children at or below the 10th percentile – and even many above the 10th percentile – will always be in poverty if earnings are their only income.

Family Composition

In 2009, the poverty rate for children in married-couple families was 11.0 percent. By contrast, the poverty rate for children in female-headed families was 44.3 percent. [7] The difference between these two poverty rates is a specter haunting American social policy because the percentage of American children who live in female-headed families has been increasing relentlessly for over five decades. In 1950, 6.3 percent of families with children were headed by a single mother. By 2010, 23.9 percent of families with children had single-mother heads. [8] That a higher and higher fraction of children live in the family type in which they are about four times as likely to be poor exerts strong upward pressure on the poverty rate. One way to think of the shift to female-headed families is that even if government policy were successful in moving people out of poverty, the large changes in family composition serve to offset at least part of the progress that otherwise would be made. In fact, a Brookings analysis shows that if we had the marriage rate we had in 1970, the poverty rate would fall by more than 25 percent. [9]

Education

There now appears to be universal agreement that the combination of technological advances and globalization have resulted in education being a major factor in determining the employment and earnings of many American workers. [10] Census Bureau data on the relationship between education and family income since the 1960s show that families headed by adults with more education make more money. Some of the differences are huge. In 2009, the difference in median family income between families headed by an individual who dropped out of high school and families headed by an individual with a bachelor’s degree or higher was about $68,600 ($31,100 compared with $99,700). [11] Even more pertinent for examining the causes of poverty, family income for those with less than a college degree has been stagnant or declining for three decades. Without a college degree, 45 percent of the children from families in the bottom fifth of income will themselves be mired in the bottom fifth as adults. By contrast, with a college degree, adult children cut their odds of staying in the bottom fifth all the way down to 16 percent from 45 percent. The odds of making it to the top quintiles indicate similar abrupt changes if youngsters from poor families manage to achieve a college degree. [12]

Despite the great advantages of having a college degree, James Heckman has demonstrated that the high school graduation rate reached its highest level at about 80 percent in the late 1960s and has since decreased by 4 to 5 percentage points. A high school degree is usually required for college admission. Moreover, a significant gap remains between the graduation rate of white students (above 80 percent) and black and Hispanic students (both about 65 percent). [13] Ethnic gaps such as these are a continuing plague on the nation’s social policy.

The four-year college enrollment and graduation rates of students from families with varying levels of income renders the education picture discouraging. Youngsters from higher-income families are more likely both to enroll in and graduate from college than youngsters from poorer families. For example, 79 percent of children whose parents were in the top income fifth enrolled in college and 53 percent earned a four-year degree. But only 34 percent of children whose parents were in the bottom income quintile enrolled in college and only 11 percent received a four-year degree. If education is one of the routes out of poverty, the American educational system seems to be perpetuating poverty and income distinctions as much as it facilitates movement up the income scale.

The effectiveness of the nation’s K-12 education system is cast into serious doubt by comparing the performance of U.S. students with students from other OECD nations. In the most recent version of the Program for International Student Assessment (PISA), the U.S. was tied with two other countries for 27th in math, was 17th in science, and tied for 12th in reading. [14] A recent volume by Claudia Golden and Lawrence Katz of Harvard presents a strong case that past U.S. achievements in international competitiveness were due in large part to the superiority of the nation’s system of universal education and excellent colleges and universities. [15] The U.S. now seems to be mired in a situation in which the nation’s young people are at a level of educational achievement that is inferior to that of young people from many other nations. Thus, not only will the modest educational achievement of many Americans continue to make progress against poverty difficult, but American competitiveness in the global economy seems threatened.

Immigration

Until the recent recession, America had been experiencing one of the greatest waves of immigration in its history. For the past two decades, an average of about one million immigrants has obtained legal permanent resident status in the U.S. each year. [16] In addition, according to the Pew Hispanic Center, in the seven years before the Great Recession, the population of undocumented immigrants grew by an average of a little over 500,000 per year. [17] In a nation that prides itself on being built by immigrants, these large numbers alone are not particularly daunting. However, as George Borjas of Harvard shows, about 20 percent of immigrants have less than a 9th grade education as compared with a little less than 3 percent of non-immigrants. [18] Consistent with the relatively large number of immigrants who lack even minimally adequate education, Borjas also finds a long-term trend toward lower wages among immigrants. In 1940, the age-adjusted average wage of first-generation male immigrants was 5.8 percent above the average wage of non-immigrant males. This figure fell to 1.4 percent above the average wage of non-immigrant males in 1970 and then dropped dramatically to 20 percent below the non-immigrant male wage in 2000. [19]

It comes as little surprise, then, that the poverty rate among immigrants is higher than the poverty rate among native-born Americans. In 2009, the immigrant poverty rate was 19.0 percent as compared with 13.7 percent for native-born Americans. Given that the overall poverty rate for the nation was 14.3 percent, the poverty rate would be lower by about 0.6 percentage points (or around 1.9 million people) if the immigrant poverty rate were the same as the poverty rate for native-born citizens. [20]

Summary

Reflecting on these five major causes of poverty leads one to understand why it has been so hard for the U.S. to make much progress against poverty despite the proliferation of social programs and the substantial increases in spending (see below) since President Johnson first declared war on poverty in the mid-1960s. Declining work rates, stagnant wages, the rise of female-headed families, inferior education, and the arrival of millions of immigrants with poor education and low skills are little engines pushing up the poverty rate. Conditions in the U.S. virtually ensure high poverty rates because the underlying factors that cause poverty have remained very strong. Even so, the nation has done a lot to reduce poverty and has even achieved a few victories as we shall now see.

Trends in Spending on Means-Tested Programs

Many analysts think that the nation could greatly reduce poverty by spending more money on programs for the poor. Figure 2, based on a Brookings analysis of federal budget data published by the Office of Management and Budget, shows that federal spending since 1962 in the ten biggest means-tested federal programs has increased dramatically. Since 1980, by which time all but two of the ten programs that spent the most money in 2011 were in place, spending has increased by about $500 billion, from $126 billion to $626 billion after adjusting for inflation. Similarly, spending per person in poverty between 1980 and 2011 increased from about $4,300 to $13,000 or more than $3 spent per person in poverty in 2011 for every dollar spent in 1980. [21]More recently, means-tested spending increased from about $477 billion to $626 billion in the first three years of the Obama administration, an increase of about 31 percent.

The Congressional Research Service has conducted a study that divides means-tested spending into eight categories (health, cash, nutrition, employment and training, etc.). Health is by far the biggest category of means-tested spending at $319 billion in 2009, around 2.5 times as much as cash programs, the second biggest category. Employment and training at $9 billion is the smallest of the eight categories.

These spending data are for only the ten largest means-tested programs. The Congressional Research Service estimates that in 2009, spending on these ten programs represented about 75 percent of total federal means-tested spending. [22] If that percentage remained roughly the same for 2011, total federal means-tested spending in that year was closer to $835 billion than the $626 billion spent on the ten biggest programs. Even $835 billion is an underestimate of total means-tested spending because state and local governments also spend money on many of these programs. The Congressional Research Service has estimated that state and local governments supplemented federal spending on means-tested programs by around 27 percent in 2004. [23] If we assume that the 27 percent has remained roughly constant, we can estimate that total federal, state, and local government spending on means-tested programs was probably more than $1 trillion in 2011.

On a per-person in poverty basis, that figure represents about $23,700 in spending by federal, state, and local governments. But this estimate should be considered in light of several caveats. The first is that not all of the spending on means-tested programs goes directly to individuals and families. Some of the money is spent on programs, such as the $14.5 billion spent on Title I of the No Child Left Behind Act and the $9 billion in spending on employment and training programs, that provide services rather than direct cash or in-kind benefits to individuals and families. Second, some of the money in programs that provide cash or in-kind benefits directly to households goes to individuals and families that are not below the poverty level. Children in families of up to 200 percent of the poverty level, for example, are eligible for Medicaid or the Child Health Insurance Program (CHIP) in almost every state. [24] Similarly, people in households with incomes up to 130 percent of poverty are eligible for SNAP benefits (Supplemental Nutrition Assistance Program, previously food stamps). In the case of the Earned Income Tax Credit (EITC), in 2010 a single mother with two children could receive benefits if the mother’s income was below $40,964, about 225 percent of the poverty level for this family.

Thus, means-tested spending has increased enormously no matter how it is measured. Although there have been some periods of comparatively rapid growth, such as during the recession of 2007 to 2009, Figure 2 shows that spending has grown almost every year for the last five decades. The increase in spending has been the most rapid in health programs, but cash, nutrition, and several other types of spending have also increased rapidly. Spending per person in poverty has also increased substantially, although not quite as rapidly as total spending. Unfortunately, as we have seen, the high level and remarkable increases in means-tested spending have not led to consistent declines in poverty, although we have learned a lot about what works and what doesn’t, a topic to which we now turn our attention.

Strategies to Reduce Poverty

Although the dramatic increase in federal spending has not led to an overall reduction in the nation’s poverty rate, at least two strategies have been successful in reducing poverty within specific demographic groups. Both should be considered major successes of the nation’s social policy and both could be extended. The first is to give money to people who are not expected to work and the second is to use welfare policy to strongly encourage work and then to subsidize earnings because so many of the poor have low skills and often cannot earn enough to escape poverty.

Before reviewing these and other strategies for reducing poverty, I want to emphasize the importance of individual initiative in reducing poverty and promoting economic success. My Brookings colleague Isabel Sawhill and I have spent years emphasizing the importance of individual responsibility in reducing poverty and increasing opportunity. One of our arguments, based in part on a Brookings analysis of Census Bureau data, is that young people can virtually assure that they and their families will avoid poverty if they follow three elementary rules for success – complete at least a high school education, work full time, and wait until age 21 and get married before having a baby. Based on an analysis of Census data, people who followed all three of these rules had only a 2 percent chance of being in poverty and a 72 percent chance of joining the middle class (defined as above $55,000 in 2010). These numbers were almost precisely reversed for people who violated all three rules, elevating their chance of being poor to 77 percent and reducing their chance of making the middle class to 4 percent. [25] Individual effort and good decisions about the big events in life are more important than government programs. Call it blaming the victim if you like, but decisions made by individuals are paramount in the fight to reduce poverty and increase opportunity in America. The nation’s struggle to expand opportunity will continue to be an uphill battle if young people do not learn to make better decisions about their future.

Strategy 1: Give Them Money

The most straightforward way to help people escape poverty, primarily when they belong to a group, such as the elderly or disabled, who are not expected to work is to give them cash and in-kind benefits that will bring their income above the poverty threshold. The Social Security program, for example, is designed specifically to help the elderly avoid destitution. Although in its early decades it provided benefits that were quite modest by today’s standards, in the early 1970s Congress enacted laws that increased the Social Security cash benefit. [26] These reforms had an immediate impact in driving down the poverty rate among the elderly. Indeed, research shows that virtually the entire decline in poverty among the elderly is accounted for by the rise in Social Security benefits. [27] In addition, nearly all the elderly are covered by the Medicare health program and the poor and low-income elderly are qualified for many other programs including housing and nutrition. If the value of taxes, in-kind benefits (except health insurance), and the imputed return on home equity are taken into account, poverty among the elderly drops even further, from the official rate of 8.9 percent to as low as 5.3 percent. [28]

The strategy of reducing poverty by providing government benefits touches on one of the major fault lines in American politics. As polls consistently show, Americans think able-bodied, non-elderly people should earn their own way. Americans simply don’t like welfare, even when someone calls it by a different name (e.g., “food stamps” or more recently “SNAP”). [29] In 1995 and 1996 during the welfare reform debate, when Republicans were proposing that the cash welfare benefit of lone mothers who didn’t meet work requirements be reduced or terminated and that the benefit be time limited, polls showed that the American public supported these tough policies. [30] Giving money and other goods to the poor might work with the elderly or the disabled, because Americans do not expect either group to work. But it seems likely that simply giving welfare to the able-bodied poor, even if they are single mothers, will never be an effective strategy for reducing poverty in the U.S. because it will be difficult to enact legislation authorizing the necessary spending. [31]

Strategy 2: Increase Work Rates and Work Supports

At the other end of the continuum from policies that give money and other benefits to the poor are policies that encourage work. Well over 75 percent of families with children that lack a full-time, year-round worker are in poverty. [32] An individual or family in the U.S. whose only source of income is welfare benefits cannot escape poverty. [33] It follows that an effective anti-poverty strategy would be to increase work rates. This was precisely the goal of the welfare reform legislation enacted in 1996, which replaced the Aid to Families with Dependent Children program with the Temporary Assistance for Needy Families (TANF) program. Passed on a strong bipartisan basis, and signed by Democratic President Bill Clinton, the new law required individuals to meet work requirements in order to qualify for welfare benefits. Mothers on welfare had to participate in state-designed welfare-to-work programs that provided training, job search assistance, or actual work experience. If the mothers did not participate, states were required by federal law to impose financial sanctions on them in the form of reduced or even terminated cash welfare (although they remained eligible for non-cash benefits). In addition to work requirements and sanctions, the reform law imposed a 5-year time limit on benefit receipt for most mothers who accepted welfare.

After passage of the 1996 reforms, poor mothers entered the workforce in unprecedented numbers. Between 1995 and 1999, for example, there was an increase of more than 40 percent in the number of never-married mothers, the poorest of the poor, who found employment. [34] In large part due to this increased employment of never-married mothers, poverty among all single mothers and their children fell by 30 percent, from a 1991 peak of 47.1 percent to 33.0 percent in 2000, its lowest level ever. Similarly, poverty among black children, who live disproportionately in female-headed families, reached its lowest level ever in 2001. This example demonstrates what is possible if government policy encourages and even pressures adults to go to work and then subsidizes the incomes of those who earn low wages. The combination of work requirements and earned public benefits has the appearance of an approach to reducing poverty that has strong bipartisan overtones.

It is notable that even during and after the recessions of 2001 and 2007 to 2009, work rates among never-married mothers did not return to their pre-welfare reform level. Although their work rates fell from the 1999 peak (and highest ever) of 66.0 percent to 58.7 percent in 2010, the 2010 level is still about 25 percent higher than the pre-welfare reform level of 46.5 percent in 1995. [35] On its face, the strategy of emphasizing work, even by mothers whose education and experience usually limit them to low-wage jobs, results in more mothers working and lower poverty levels than the low employment levels that prevailed during the pre-welfare reform years in which millions of mothers spent many years on the welfare rolls. [36] Further, giving benefits to mothers who work full time in order to help them and their children escape poverty is more politically popular – and therefore sustainable – than giving welfare to mothers who don’t work.

The predominance of low-wage work for poorly educated workers is the reason encouraging work is only half the federal strategy for increasing work rates to attack poverty. Millions of Americans have low-wage and part-time jobs that do not provide them with enough money to support a family at or above the poverty level. If a lone mother worked year-round, full-time at the minimum wage ($7.25 per hour), with no vacations and no time off for illness or to care for sick children, she would earn $15,080, about $2,500 below the poverty level for a mother and two children. Realizing the problem of low wages, and hoping to increase work incentives at the bottom of the wage scale, Congress and three presidents, beginning roughly in the mid-1980s, passed a series of laws that created, modified, or expanded programs that provide cash and in-kind benefits to poor and low-income working families. [37] These programs, often referred to as the nation’s work support system, are structured in such a way that they provide benefits to families that have low earnings. Some of the programs, like the Child Tax Credit and the Earned Income Tax Credit (EITC), provide their benefits only to families with earnings. All of the programs allow at least some of their benefits to flow to families that avoid or leave welfare for work.

Federal policymakers developed the work support system over a period of roughly two decades. [38] If the laws on child care, medical assistance, the child tax credit, and the Earned Income Tax Credit (EITC) had not changed after 1984, a study by the Congressional Budget Office shows that in 1999 working families would have received a mere $5.6 billion in benefits. But because Congress expanded, modified, or created all these work support programs after 1984, in 1999 working families qualified for $51.7 billion in benefits. A more recent estimate of benefits from these programs for working families by Sheila Zedlewski of the Urban Institute shows that between 1996 and 2002, work support benefits grew by 27 percent in real dollars. [39] Since 2002, the EITC has been expanded twice, Medicaid coverage has expanded, food stamps benefits have been reformed to make it easier for working families to get them, and day care funding has been expanded. Federal policy does a lot to increase income and reduce poverty among low-income working families.

The increase in work by single mothers following enactment of welfare reform in 1996 activated the work support system for millions of these families, both those leaving welfare and those who never went on welfare. Work and work support, in short, functioned together to reduce poverty and welfare dependency. Figure 3 provides a clear view of the impact of government programs on children’s poverty rates in families headed by never-married mothers in 1989, before welfare reform, and in 2006, after welfare reform. The raw poverty rate (before any government transfers or taxes) in 2006 was nearly 20 percent lower than in 1989 (39.6 percent vs. 48.3 percent). Undoubtedly, this decline in raw poverty before any government assistance was due to increased work and earnings by these never-married mothers. As shown by the second bar graph in each set, social insurance and non-cash benefits reduced poverty by between 20 and 25 percent in both years. But in 2006, cash benefits provided through the EITC and Child Tax Credit (CTC) sent the poverty rate down another 13 percent while in 1989 the mothers’ work rate was not high enough to attract substantial support from the EITC and CTC. In short, both more work by the mothers and more work support benefits from government contributed to the final poverty rate being almost 40 percent lower in 2006 (26.1 percent) than in 1989 (39.1 percent). [40]

Although controversial, a reasonable implication of these results is that federal policy should encourage work. One way to achieve this end would be to strengthen work requirements in both the SNAP program and the means-tested housing programs. This recommendation is controversial because the 1996 reforms showed that some mothers either do not find jobs or have difficulty holding down a job for an extended period. As often happens in these situations, an argument has broken out among researchers and pundits about whether the finding that many mothers do not retain employment is a major problem. There are two primary facts that are accepted by both sides.

First, the percentage of single mothers who are “disconnected” from both cash welfare and employment has more than doubled since welfare reform was enacted in 1996. Second, the percentage of poor single mothers and children who receive cash welfare from the TANF program is the lowest ever; in 1979, about 82 families were receiving cash from the old Aid to Families with Dependent Children program for every 100 families with children in poverty; by 2010 that number had fallen to 27 families receiving TANF for every 100 families in poverty. [41] One side argues that these data show that these mothers and their children are on the edge of destitution and that policy should be changed so that they can qualify for cash welfare benefits. [42] The other side argues that these mothers are choosing not to work, that they get other means-tested benefits (especially food stamps), and that they usually live with other adults who have income. [43] At the very least, the large number of mothers with very low income who are not receiving cash welfare calls for caution. Caution in this case means that strengthening work requirements in SNAP and housing programs should be done on a limited basis and studied carefully during implementation. Caution may also call for Congressional hearings and studies by Congressional agencies of how states are implementing the work requirements established by the 1996 welfare reform law and the Deficit Reduction Act.

Other Strategies

If giving money to the elderly and incentivizing work combined with supplementing earnings with work support benefits have proven to be effective in reducing poverty, at least four other strategies hold promise for reducing poverty.

Immigration. History shows that immigrants are often a hard working and creative group of people who move from their home country specifically because they want to get ahead. [44] In the U.S., however, legislation enacted in 1965 gave preference in admitting immigrants to relatives of those who are already in the U.S., regardless of their education or skill levels. It appears from recent debates that there is now widespread recognition that it would be wise to shift immigration policy to reduce the importance of family relationships in favor of increasing the emphasis on skills and on giving employers more flexibility in allowing valuable employees to stay in the U.S. The hope for legislation to reflect this recognition is being held up, however, primarily by continuing disagreements concerning what to do about undocumented immigrants. If we shifted immigration poverty to place a greater emphasis on education and skills, we would see a shift in the percentage of immigrants who earn higher wages and thereby avoid poverty. In addition, immigrants with higher education and skills would contribute more to the American economy which would in turn contribute to economic growth and increase both employment and tax revenues. There does not appear to be any downside to immigration reforms of this sort.

Reducing Nonmarital Births. One of the engines driving poverty in the U.S. is the fragmentation of families. Around a quarter of children are living in female-headed families at any given moment and about half experience at least some time during their childhood in a female-headed family. When children live in female-headed families, they are at least four times as likely to be poor as when they live in a married-couple family. [45] But poverty is not the only risk faced by these children. Since Sara McLanahan and Gary Sandefur published Growing up with a Single Parent in 1994, [46] social science research has repeatedly shown that children reared in female-headed families are more likely to fail in school, more likely to be arrested, more likely to get pregnant as teens, more likely to have mental health problems and to commit suicide, more likely to get a divorce when they grow up, and more likely to experience other negative outcomes. [47] In addition, as Kathy Edin has shown, these parents tend to separate within a few years, whereupon both the mother and father usually go on to form new relationships. Thus, their children experience a series of changes in household composition as their mothers form new cohabiting relationships. [48] The mother might even have a baby with one or more of these new men, creating a household with complex and often difficult relationships among the adults and usually making it hard for the children to establish a close relationship with their fathers. [49] The point is that life in female-headed families imposes both a high likelihood of poverty and of household instability that can produce negative impacts on child development. [50] If the share of children born into and living in married-couple families could be increased, poverty and childhood education, health, and mental health problems would decline, increasing the human capital of the nation’s children and having a long-term impact on the nation’s poverty rate. [51]

Several programs have proven successful in reducing teen pregnancy. [52] In part because of the prevalence of these programs, the U.S. teen birthrate has declined in all but three years since 1991. [53] It is difficult, however, to be too optimistic about the declining teen birthrate because as the teen birthrate has declined, the nonmarital birthrate for young women in the twenties and early thirties has increased more than enough to offset the decline in the teen rate. [54]

Even so, investments in programs aimed at reducing nonmarital births have been shown not only to actually reduce such births among women in their 20s and 30s, but to save government money. [55] The programs are a mass media campaign that encourages men to use condoms, a program for teens that both encourages abstinence and instructs on the proper use of contraceptives, and expansion of family planning services provided by Medicaid, mostly birth control for low-income females. Similarly, the Obama administration has initiated a number of new evidence-based initiatives that could reduce the number of nonmarital births even more. Additional investments in these programs would reduce the number of nonmarital births and in doing so reduce the nation’s poverty rate. but with 72 percent of black babies, 53 percent of Hispanic babies, and over 40 percent of all babies born outside marriage, there is a long way to go. [56] The nonmarital birth machine that expands poverty and produces children with less human capital than their peers being reared in married-couple families is disrupting and will continue to disrupt the nation’s drive to curb poverty.

Increasing Human Capital. The most basic reason rich nations need welfare programs is because a significant fraction of their populations do not earn enough money to support themselves and their families. Since the 1960s, a major goal of anti-poverty policy has been helping the poor acquire the education and skills needed to achieve earnings that will support a decent standard of living. In other words, the goal has been to create more opportunity for economic and social achievement by helping people improve their human capital, which in turn would increase their earnings and reduce their dependency on welfare. There are four major types of programs that the U.S. uses to develop human capital: preschool programs, K-12 education, post-secondary education, and employment and training programs. All have the potential to increase human capital, thereby making the economy more efficient and competitive while simultaneously providing participants with the education and skills needed to find a productive and rewarding place in the American economy. Here I focus attention only on preschool programs.

No human capital program is so widely believed to be effective as preschool education for children from poor and low-income families. [57] The Perry Preschool Program in Michigan, the Abecedarian program in North Carolina, and the Child-Parent Centers in Chicago have all produced both immediate and long-term impacts on the development of poor children. [58] Similarly, a number of state pre-K programs have shown that they boost the development of preschool children from poor families and increase their school readiness. [59] Reviewers regularly cite these and similar programs to argue that there is rigorous evidence that preschool programs can have broad and long-lasting effects that boost human capital. [60]

Between the federal government and the states, the U.S. now spends around $31 billion on preschool programs (including child care and home visiting), mostly for children from poor and low-income families. [61] At least some of this money is being spent on programs, particularly the state pre-K programs, that are of high enough quality to produce some of the impacts achieved by Perry, Abecedarian, and the Chicago Parent-Child Centers. Unfortunately, a substantial portion of the money is being spent on preschool programs that lack an educational focus or on Head Start (about $7 billion in 2010), which has been shown by a recent random-assignment evaluation to have almost no impacts by the end of first grade. Thus, until the U.S. figures out how to achieve bigger impacts in the programs supported by our current $31 billion in expenditures on preschool programs, it cannot be expected that poor children are going to receive enough of a boost from preschool programs to make a long-term difference in their school performance, employment, or earnings.

Two courses of action now seem desirable. First, the Obama administration is subjecting Head Start to the most important and far-reaching reforms in its history. Each Head Start program is being carefully evaluated; those that fail must re-compete against other willing program operators to retain their funding. This reform should be followed carefully by Congress over the next several years through hearings and assessments from the Government Accountability Office or the Congressional Budget Office. If the Obama reforms improve the average impact of Head Start on school readiness, the school performance of poor children in grades K-12 could improve, increasing the chances that they will succeed in the American economy. Second, Congress should work with states to maintain funding of both state pre-K programs and state child care programs and to help states improve the average quality of child care, much of which is woefully inadequate.

[1] In technical papers, work rates are called “employment to population ratios.” They are calculated by putting the number in the demographic group of interest in the denominator and the number of members of this group who have jobs in the numerator.

[2] Harry J. Holzer, Paul Offner, and Elaine Sorensen, “Declining employment among young black less-educated men: The role of incarceration and child support,” Journal of Policy Analysis and Management 24, no. 2 (2005): pp. 329-350.

[3] For example, in 2009, 11.0 percent of children in married-couple were in poverty compared to 44.3 percent of children in female-headed families. Similarly, in 2008 the poverty rates for children in married-couple families and female-headed families were 9.9 percent and 43.5 percent, respectively. And in 2007, these respective child poverty rates were 8.5 percent and 42.9 percent. U.S. Census Bureau, Detailed Poverty Tables, “POV03: People in Families with Related Children Under 18 by Family Structure, Age, and Sex, Iterated by Income-to-Poverty Ratio and Race: 2007” (http://pubdb3.census.gov/macro/032008/pov/new03_100_01.htm), “POV03: People in Families with Related Children Under 18 by Family Structure, Age, and Sex, Iterated by Income-to-Poverty Ratio and Race: 2008” (http://www.census.gov/hhes/www/cpstables/032009/pov/new03_100_01.htm), and “POV03: People in Families with Related Children Under 18 by Family Structure, Age, and Sex, Iterated by Income-to-Poverty Ratio and Race: 2009” (http://www.census.gov/hhes/www/cpstables/032010/pov/new03_100_01.htm).

[4] As Wu and Stojnic (2007, 7-8) note, during the period between 1975 and 2000, “individuals in never-married female-headed households were roughly 4 to 5 times more likely to be in poverty relative to a randomly chosen individual in the U.S. population; similarly, individuals in never-married female-headed households were, on average, about twice as likely to live below the poverty line as individuals in ever-married female-headed households…” Lawrence L. Wu and Miodrag Stojnic, “Poverty among the Poorest-Poor in the United States: Trends for Never-Married Women and Their Children,” Paper Presented at the Inaugural Conference, Center for Research on Inequalities and the Life Course, Yale University (May 2007). Available at http://www.yale.edu/ciqle/INAUGURAL%20PAPERS/pp070502.pdf.

[5] U.S. Census Bureau, Detailed Poverty Tables, “POV10: People in Families by Number of Working Family Members and Family Structure: 2009”
(http://www.census.gov/hhes/www/cpstables/032010/pov/new10_100_01.htm).

[6] Based on Social Security income records, the top 1 percent of workers earned 12.3 percent of all income in 2004, up from 5.9 percent in 1960. See Wojciech Kopczuk, Emmanuel Saez, and Jae Song, “Earnings Inequality and Mobility in the Untied States: Evidence from Social Security Data since 1937,” Quarterly Journal of Economics 125, no. 1, 2010, pp. 91-128.

[7] U.S. Census Bureau, Detailed Poverty Tables, “POV03: People in Families with Related Children Under 18 by Family Structure, Age, and Sex, Iterated by Income-to-Poverty Ratio and Race: 2009” (http://www.census.gov/hhes/www/cpstables/032010/pov/new03_100_01.htm).

[8] U.S. Census Bureau, Families and Living Arrangements, “Table FM-1: Families by Presence of Own Children Under 18: 1950 to Present” (http://www.census.gov/population/www/socdemo/hh-fam.html).

[9] Ron Haskins and Isabel Sawhill, Creating an Opportunity Society (Washington, DC: Brookings, 2009).

[10] Claudia Golden and Lawrence F. Katz, The Race between Education and Technology (Cambridge, MA: Harvard, 2008).

[11] U.S. Census Bureau, Historical Income Tables, “Table F-18: Educational Attainment of Householder--Families with Householder 25 Years Old and Over by Median and Mean Income” and “Table F-19: Years of School Completed--Families with Householder 25 Years Old and Over by Median and Mean Income” (http://www.census.gov/hhes/www/income/data/historical/families/index.html).

[12] Ron Haskins, “Education and Economic Mobility,” in Julia B. Isaacs, Isabel, V. Sawhill, and Ron Haskins, editors, Getting Ahead or Losing Ground: Economic Mobility in America (Washington, DC: Brookings and Pew Charitable Trusts, 2009).

[13] James J. Heckman and Paul A. LaFontaine, “The American High School Graduation Rate: Trends and Levels,” National Bureau of Economic Research Working Paper No. 13670, December 2007 and James J. Heckman and Paul A. LaFontaine, “The Declining American High School Graduation Rate: Evidence, Sources, and Consequences,” NBER Reporter, Research Summary, 2008, No. 1.

[14] Organization of Economic Cooperation and Development, PISA 2009 Results: What Students Know and Can Do: Student Performance in Reading, Mathematics, and Science, vol. 1 (Paris: Author, 2010). Professor Daniel Koretz of Harvard recommends caution in simply comparing the average PISA scores of American students with the average scores of students from other nations in part because the scores are so variable from test occasion to test occasion. Nonetheless, the performance of U.S. students shows clearly that they are not near the top on any of the subtests. Rather, American students are closer to the average scores for OECD nations than to the top score; see Daniel Koretz, “How Do American Students Measure Up? Making Sense of International Comparisons,” The Future of Children 19, no. 1 (Spring 2009): 37-51.

[15] Golden and Katz, 2008.

[16] Department of Homeland Security, Yearbook of Immigration Statistics: 2010, Table 6 (http://www.dhs.gov/files/statistics/publications/LPR10.shtm).

[17] Pew Hispanic Center, “Unauthorized Immigrant Population: National and State Trends, 2010. Washington, DC: Author, February 2011.

[18] U.S. Census Bureau, “Foreign-Born Population of the United States Current Population Survey - March 2009: Detailed Tables,” Table 1.5 (http://www.census.gov/population/www/socdemo/foreign/cps2009.html).

[19] George J. Borjas, “Making It in America: Social Mobility in the Immigrant Population,” The Future of Children 16, no. 2 (2006): 55–71. More recently, Borjas has noted that there was an unexplained rise in entry wages during the 1990s. See George J. Borjas and Rachel M. Freidberg, “Recent Trends in the Earnings of New Immigrants to the United States” (Working Paper 15406), Cambridge: National Bureau of Economic Research, October 2009.

[20] U.S. Census Bureau, Income, Poverty and Health Insurance Coverage in the United States: 2009 (Washington, D.C.: U.S. Department of Commerce, September 2010), Table 4.

[21] The number of people in poverty in 2011 will not be published by the Census Bureau until next fall. Based on a model designed by Richard Bavier, a former senior official at OMB, that has successfully predicted the poverty level for the past several years, poverty increased by .6 percentage points in 2011, bringing the poverty rate to 15.7 percent in that year. According to the American Community Survey, the population of the United States in 2011 was 306 million. Thus, around 48,042,000 people were poor in 2011. This is the figure I used to compute means-tested spending per person in poverty for 2011.

[22] Karen Spar, “Federal Benefits and Services for People with Low Income: Programs, Policy, and Spending, FY2008-FY2009” (R41625), Washington, DC: Congressional Research Service, January 2011, p. 12.
Domestic Social Policy Division, “Cash and noncash Benefits for Persons with Limited Income: Eligibility Rules, Recipient and Expenditure Data, FY2002-FY2004” (RL33340), Washington, DC: Congressional Research Service, March 2006.

[23] According to the Kaiser Family Foundation, only North Dakota, Oklahoma, Arkansas, and Idaho set the child eligibility level for Medicaid and CHIP below 200 percent of poverty; half the states are at 250 percent or above. See http://www.kff.org/medicaid/upload/7993-02.pdf

[24] The Brookings analysis is suggestive rather than definitive because of something called selection effects. People who at least complete high school, get a job, and get married and wait until age 21 to have babies may differ in other ways that could account for their ability to avoid poverty and join the middle class. There may be four rules, or five rules, or a dozen rules, most of which those who follow the three rules we specify also follow. If this were true, then attributing success to our three rules would be misleading.

[26] Social Security Administration, Social Security: A Brief History (Washington DC: Author, 2005); available at http://www.ssa.gov/history/pdf/2005pamphlet.pdf.

[27] Jonathan Gruber and Gary Engelhardt, “Social Security and the Evolution of Elderly Poverty,” in Public Policy and the Income Distribution, edited by Alan Auerbach, David Card, and John Quigley (New York: Russell Sage Foundation, 2006), pp. 259–87.

[28] U.S. Census Bureau, Definitions 1 and 15 from, “Table 2: Percent of Persons in Poverty, by Definition of Income and Selected Characteristics: 2009,” from the Current Population Survey, Annual Social and Economic Supplement; available at http://www.census.gov/hhes/www/cpstables/032010/rdcall/2_001.htm.

[29] Martin Gilens, Why American’s Hate Welfare (Chicago: University of Chicago, 2000).

[30] R. Kent Weaver, Ending Welfare as We Know It (Washington, DC: Brookings, 2000), Chapter 7; Ron Haskins, Work over Welfare: The Inside Story of the 1996 Welfare Reform Law (Washington, DC: Brookings, 2006), p. 55.

[31] R. Kent Weaver, “The Politics of Low-Income Families in the United States,” in Making the Work-Based Safety Net Work Better: Forward-Looking Policies to Help Low-Income Families, edited by Carolyn J. Heinrich and John Karl Scholz (New York: Russell Sage, 2009).

[32] U.S. Census Bureau, Poverty Division CPS ASEC, “Detailed Tables, Table POV07: Families With Related Children Under 18 by Number of Working Family Members and Family Structure: 2009,” from Income, Poverty, and Health Insurance Coverage in the United States: 2009, (Washington, DC: Author, 2010); available at http://www.census.gov/hhes/www/poverty/data/index.html.

[33] For example, according to Liz Schott and Zachary Levinson, TANF Benefits Are Low and Have Not Kept Pace with Inflation, (Washington DC: Center on Budget and Policy Priorities, 2008); available at http://www.cbpp.org/pdf/11-24-08tanf.pdf; the combined benefits of TANF and Food Stamps (SNAP) remained under 75 percent of the federal poverty line in all but three states in 2008.

[34] The percentage increase is based on our analysis of data from the Annual Social and Economic Supplement to the Current Population Survey. The percentage of never-married mothers employed in 1995 was 47; by 1999, the percentage had increased to 66.

[35] Brookings tabulations of data from the Annual Social and Economic Supplement to the Current Population Survey.

[36] Mary Jo Bane and David Ellwood, “Slipping into and out of Spells of Poverty,” Journal of Human Resources 21, no. 1 (1986): 23.

[37] Carolyn J. Heinrich and John Karl Scholz, editors, Making the Work-Based Safety Net Work Better: For ward-Looking Policies to Help Low-Income Families (New York: Russell Sage, 2009).

[38] U.S. Congressional Budget Office, Policy Changes Affecting Mandatory Spending for Low-Income Families Not Receiving Welfare (Washington, DC: 1998).

[39] Sheila Zedlewski and others, “Is there a System Supporting Low-Income Working Families,” Low Income Work Families Paper 4, The Urban Institute (2006); available at http://www.urban.org/UploadedPDF/311282_lowincome_families.pdf.

[40] Christopher Bollinger et al., Welfare Reform and the Level and Composition of Income, in Welfare Reform and its Long-Term Consequences for America’s Poor, edited by James P. Ziliak (Forthcoming); Robert F. Schoeni & Rebecca M. Blank, What Welfare Reform Accomplished? Impacts on Welfare Participation, Employment, Income, Poverty, and Family Structure, NBER Working Paper 7627, 2000; Robert A Moffitt, The Effect of Pre-PRWORA Waivers on AFDC Caseloads and Female Earnings, Income, and Labor Force Behavior, in Economic Conditions and Welfare Reform, edited by Sheldon Danziger (W.E. Upjohn 1999).

[41] Danilo Trisi and LaDonna Pavetti, “TANF Weakening as a Safety Net for Poor Families,” Washington, DC: Center on Budget and Policy Priorities, March 2012; Pamela J. Loprest, “Disconnected Families and TANF,” Washington, DC: Urban Institute, OPRE Brief #2, November 2011.

[42] Rebecca M. Blank and Brian K. Kovak, “The Growing Problem of Disconnected Single Mothers,” in Making the Work-Based Safety Net Work Better, edited by Carolyn J. Heinrich and John Karl Scholz (New York: Russell Sage, 2009).

[43] Douglas J. Besharov, “Leaving Welfare Without Working: How Do Mothers Do it? And What Are the Implications?” College Park, MD: University of Maryland, Welfare Reform Academy, February 2002.

[44] George J. Borjas, Heaven’s Door: Immigration Policy and the American Economy (Princeton, NJ: Princeton, 1999); Jacob L. Vigdor, From Immigrants to Americans: The Rise and Fall of Fitting In (New York: Rowman & Littlefield, 2009).

[45] Census Bureau, Families, “Table C2: Household Relationship and Living Arrangements of Children Under 18 Years, by Age and Sex: 2010,” available at http://www.census.gov/population/www/socdemo/hh-fam/cps2010.html;” Katherine Magnuson and Lawrence M. Berger, “Family Structure States and Transitions: Associations with Children’s Well-Being During Middle Childhood,” Journal of Family and Marriage 71, no. 3 (2000): 575-591.

[46] Sara McLanahan and Gary Sandefur, Growing up with a Single Parent: What Hurts, What Helps (Cambridge: Harvard, 1994).

[47] Paul R. Amato, “The Impact of Family Formation Change on the Cognitive, Social, and Emotional Well-Being of the Next Generation,” The Future of Children 15, no. 2 (2005): 75-96; Mitch Pearlstein, Shortchanging Student Achievement: The Educational, Economic, and Social Costs of Family Fragmentation (Forthcoming); Haskins and Sawhill, Creating an Opportunity Society, Chapter 10.

[48] Reference Edin study of transitions in Fragile Families study

[49] Kathy Edin, personal communication, April 28, 2011; see https://crcw.princeton.edu%2fworkingpapers%2fWP11-10-FF.pdf.

[50] Sara McLanahan and others, “Strengthening Fragile Families,” Future of Children Policy Brief, Princeton-Brookings, Fall 2010.

[51] Adam Thomas and Isabel Sawhill, “For Richer or Poorer: Marriage as an Antipoverty Strategy,” Journal of Policy Analysis and Management 21, no. 4 (2002): 587-599; Ron Haskins and Isabel Sawhill, “Work and Marriage: The Way to End Poverty and Welfare,” Welfare Reform and Beyond Brief 28, The Brookings Institution (September 2003).

[52] Douglas Kirby, Emerging Answers 2007: Research Findings on Programsto Reduce Teen Pregnancy and Sexually Transmitted Diseases (Washington DC: National Campaign to Prevent Teen and Unplanned Pregnancy, 2007).

[53] The National Campaign to Prevent Teen and Unplanned Pregnancy, “National Birth Rates for Teens, aged 15-19,” (Accessed May 19, 2011); available at http://www.thenationalcampaign.org/national-data/NBR-teens-15-19.aspx.

[54] Stephanie J. Ventura, “Changing Patterns of Nonmarital Childbearing in the United States,” National Center for Health Statistics Data Brief, No. 18, May 2009.

[55] Adam Thomas, "Three Strategies to Prevent Unintended Pregnancy,” Journal of Policy Analysis and Management 31, No. 2 (2012).

[56] Brady Hamilton, Joyce Martin, and Stephanie Ventura, “Table 1: Total Births and birth, fertility, and total fertility rates and nonmarital births, by race and Hispanic origin of mother: United States, final 2008 and preliminary 2009,” from National Vital Statistics Reports: Births: Preliminary Data for 2009 59, no. 3 (2010); available at http://www.cdc.gov/nchs/products/nvsr.htm.

[57] James J. Heckman, “Catch ‘Em Young,” Wall Street Journal, January 10, 2006, p. A14.

[58] Craig Ramey, Frances Campbell, and Clancy Blair, “Enhancing the Life Course for High-Risk Children: Results from the Abecedarian Project,” in Social Programs that Work, edited by Jonathan Crane (New York: Russell Sage Foundation, 1998); Lawrence J. Schweinhart, and others, Lifetime Effects: The High/Scope Perry Preschool Study through Age 40 (Ypsilanti, MI: High/Scope Press, 2005); Arthur J. Reynolds, Success in Early Intervention: The Chicago Child-Parent Centers (Lincoln, NB: University of Nebraska Press, 2000).

[59] W. Steven Barnett and others, Effects of Five State Pre-Kindergarten Programs on Early Learning (Rutgers University, National Institute for Early Education Research, 2007); William T. Gormley, Jr. and Deborah Phillips, “The Effects of Universal Pre-K in Oklahoma: Research Highlights and Policy Implications,” The Policy Studies Journal 33, no. 1 (2005): 65-82.

[60] Haskins and Sawhill, Creating an Opportunity Society, Chapter 8; Gregory Camilli and others, “Meta-Analysis of the Effects of Early Education Interventions on Cognitive and Social Development,” Teachers College Record 112, no. 3 (2010): 579-620; Lynn A. Karoly, M. Rebecca Kilburn, and Jill Cannon, Early Childhood Interventions: Proven Results, Future Promise, RAND Corporation (MG-341), 2005

[61] Ron Haskins and W. Steven Barnett eds., Investing in Young Children: New Directions in Federal Preschool and Early Childhood Policy (Washington DC: Brookings and National Institute for Early Education Research, 2010), p. 4.

Authors

Ron Haskins

Publication: United States Senate Committee on Finance

Image Source: Stephen Lam / Reuters

Twenty Years Later, It Turns Out Dan Quayle Was Right About Murphy Brown and Unmarried Moms

Isabel V. Sawhill — Fri, 25 May 2012 00:00:00 -0400

On May 19, 1992, as the presidential campaign season was heating up, Vice President Dan Quayle delivered a family-values speech that came to define him nearly as much as his spelling talents. Speaking at the Commonwealth Club of California, he chided Murphy Brown—the fictional 40-something, divorced news anchor played by Candice Bergen on a CBS sitcom—for her decision to have a child outside of marriage.

“Bearing babies irresponsibly is simply wrong,” the vice president said. “Failing to support children one has fathered is wrong. We must be unequivocal about this. It doesn’t help matters when prime-time TV has Murphy Brown, a character who supposedly epitomizes today’s intelligent, highly paid professional woman, mocking the importance of fathers by bearing a child alone and calling it just another lifestyle choice.”

Quayle’s argument — that Brown was sending the wrong message, that single parenthood should not be encouraged — erupted into a major campaign controversy. And just a few weeks before the ’92 vote, the show aired portions of his speech and had characters react to it.

“Perhaps it’s time for the vice president to expand his definition and recognize that, whether by choice or circumstance, families come in all shapes and sizes,” Bergen’s character said.

Her fictional colleague Frank, meanwhile, echoed some of the national reaction: “It’s Dan Quayle — forget about it!”

Twenty years later, Quayle’s words seem less controversial than prophetic. The number of single parents in America has increased dramatically: The proportion of children born outside marriage has risen from roughly 30 percent in 1992 to 41 percent in 2009. For women under age 30, more than half of babies are born out of wedlock. A lifestyle once associated with poverty has become mainstream. The only group of parents for whom marriage continues to be the norm is the college-educated.

Some argue that these changes are benign. Many children who in the past would have had two married parents could have two cohabiting parents instead. Why should the lack of a legal or religious tie affect anyone’s well-being?

There are three reasons to be concerned about this dramatic shift in family life.

First, marriage is a commitment that cohabitation is not. Taking a vow before friends and family to support another person “until death do us part” signals a mutual sense of shared responsibility that cannot be lightly dismissed. Cohabitation is more fragile — cohabiting parents split up before their fifth anniversary at about twice the rate of married parents. Often, this is because the father moves on, leaving the mother not just with less support but with fewer marriage prospects. For her, marriage requires finding a partner willing to take responsibility for someone else’s kids.

Second, a wealth of research strongly suggests that marriage is good for children. Those who live with their biological parents do better in school and are less likely to get pregnant or arrested. They have lower rates of suicide, achieve higher levels of education and earn more as adults. Meanwhile, children who spend time in single-parent families are more likely to misbehave, get sick, drop out of high school and be unemployed.

It isn’t clear why children who live with their unmarried biological parents don’t do as well as kids who live with married ones. Adults who marry may be different from those who cohabit, divorce or become unwed mothers. Although studies try to adjust for these differences, researchers can’t measure all of them. People in stable marriages may have better relationship skills, for instance, or a greater philosophical or religious commitment to union that improves parenting. Still, raising children is a daunting responsibility. Two committed parents typically have more time and resources to do it well.

Third, marriage brings economic benefits. It usually means two breadwinners, or one breadwinner and a full-time, stay-at-home parent with no significant child-care expenses. Unlike Murphy Brown — who always had the able Eldin by her side — most women do not have the flexibility afforded a presumably highly paid broadcast journalist. And it’s not just a cliche that two can live more cheaply than one; a single set of bills for rent, utilities and other household expenses makes a difference. Though not necessarily better off than a cohabiting couple, a married family is much better off than its single-parent counterpart.

I’ve been studying single mothers since long before “Murphy Brown” was on the air. In a study I co-authored with Adam Thomas, I put them into hypothetical households with demographically similar unmarried men who, in principle, would be good marriage partners. Through this virtual matchmaking, we showed that child poverty rates would fall by as much as 20 percent in an America with more two-parent households.

In later research, Ron Haskins and I learned that if individuals do just three things—finish high school, work full time and marry before they have children—their chances of being poor drop from 15 percent to 2 percent. Mitt Romney has cited this research on the campaign trail, but these issues transcend presidential politics. Stronger public support for single-parent families—such as subsidies or tax credits for child care, and the earned-income tax credit — is needed, but no government program is likely to reduce child poverty as much as bringing back marriage as the preferable way of raising children.

The government has a limited role to play. It can support local programs and nonprofit organizations working to reduce early, unwed childbearing through teen-pregnancy prevention efforts, family planning, greater opportunities for disadvantaged youth or programs to encourage responsible relationships.

But in the end, Dan Quayle was right. Unless the media, parents and other influential leaders celebrate marriage as the best environment for raising children, the new trend—bringing up baby alone—may be irreversible.

Authors

Isabel V. Sawhill

Publication: The Washington Post

Image Source: © Reuters Photographer / Reuters

Reflecting on SNAP: Purposes, Spending, and Potential Savings

Ron Haskins — Tue, 08 May 2012 16:25:00 -0400

In testimony before the House Subcommittee on Nutrition and Horticulture, Ron Haskins discusses the purposes of the SNAP program.

Chairman Schmidt, Ranking Member Baca, and Members of the Subcommittee:

Thanks for inviting me to testify today. It is a privilege to testify before this important subcommittee on the Supplemental Nutrition Assistance Program (SNAP), one of the nation’s most important means-tested programs.

In accord with my discussions with subcommittee staff, I plan to talk about the purposes of the SNAP program, spending on means-tested programs in general and SNAP in particular, and ways that spending on the SNAP program might be reduced. The last section includes a brief discussion of SNAP work requirements.

Purposes of SNAP

SNAP serves three main functions. The first and most important is to increase the ability of the poor to purchase a nutritionally adequate, albeit low cost, diet. Except in cases of fraud, the benefit can only be spent on food by individuals or families that struggle with low income. The average income (not counting the SNAP benefit) of families receiving SNAP is less than $9,000 per year and few families with income over 130 percent of the poverty level (about $18,000 for a mother and two children) receive the benefit. So the program, with some exceptions, is well targeted.[1] In addition, after years of intense effort by the U.S. Department of Agriculture and the state agencies that administer the program, SNAP payment accuracy has improved greatly and is now the highest it has ever been.[2]

A second purpose of the program is to serve as an economic stabilizer. This purpose of the program serves two ends. From the perspective of poor individuals and families, the program is always available when need increases. Because it is an entitlement, every individual or family who meets the benefit requirements – roughly low income and low resources – can count on the benefit. Technically the United States may not have a guaranteed annual income, but in effect SNAP provides a means-tested guaranteed annual income for which every man, woman, and child in the U.S. is eligible if they meet the income and resources test. Thus it is not surprising that the number of Americans who receive SNAP bears a striking correlation with the state of the economy. As shown in Figure 1, when unemployment goes up, so does SNAP; when unemployment goes down, so does SNAP, although in both cases there is a time lag.[3] Next to Unemployment Compensation, SNAP is probably the nation’s most reliable program for helping disadvantaged families during an economic downturn.

SNAP is also a stabilizer from the perspective of the American economy. Because the number of families getting benefits increases as unemployment and earnings fall during economic downturns, the program serves the Keynesian function of boosting spending during a recession, which in turn stimulates the American economy at a moment when stimulus is needed. The SNAP program fills both of these stabilizing functions automatically without the need for more legislation because of its open-ended entitlement funding.

A third function that seems to be less appreciated than the other two is that food stamps supplements the income of working poor and low-income families.[4] Experience with the 1996 welfare reform law shows that many low-income single mothers are capable of finding jobs and working full time, but they tend to have low wages and to live in poverty as a result of their low wages.[5] Sadly, wages at the bottom of the earnings scale have been stagnant or declining for the past three decades, making it increasingly difficult for single mothers – or any other household that depends on the earnings of one low-skilled worker – to escape from poverty even when they work full time.[6] To improve the financial status of these low-income mothers and to increase their incentive to work, Congress has enacted many laws since roughly the mid-1980s that expand or reform the rules of programs that provide cash or in-kind benefits to low-income working families. These programs include the Earned Income Tax Credit, the Child Tax Credit, Medicaid, child care, and of course SNAP. Indeed, this committee and its Senate counterpart, working with the Bush administration, reformed several administrative requirements of the SNAP program in the 2002 Farm Bill to make it easier for states to administer SNAP in cases in which families have earnings. It is widely believed that these reforms led to increased receipt of SNAP by poor and low-income working families. For the foreseeable future, the nation will have millions of low-income single mothers who work and around 25 percent of these mothers and their children will have earnings below the poverty level.[7] Many of them lack the skills to earn more money. As a result, without earnings subsidies such as SNAP, they and their children will live in poverty on a more or less permanent basis despite their work effort.

Combating this problem is the major reason the federal government and the states have developed the work support system. Figure 2, taken from an earlier edition of the Ways and Means Committee’s Green Book, illustrates how effective this system is in helping low-income never-married mothers, the most disadvantaged subgroup of single mothers, get themselves and their children out of poverty. The bar graphs on the left in the first panel are for 1989 before passage of the 1996 Welfare Reform Law; the bar graphs on the right in the first panel are for 2006, a decade after welfare reform. Comparing the first bar graph in each set, it can be seen that the poverty rate for these mothers and children before any government taxes or transfers dropped by nearly 20 percent between the two years (from 48.3 percent to 39.6 percent). That’s because so many more never-married mothers were working in 2006. In the four years following welfare reform, there was a 40 percent increase in the share of these mothers who had jobs, a remarkable performance by any measure.[8] Even so, their earnings alone would have left almost 40 percent of these never-married mothers and their children in poverty in 2006, despite the huge increase in work. When SNAP and other in-kind and social insurance benefits received by the families are counted as income, however, the 2006 poverty rate fell by nearly 25 percent to 29.9 percent. As compared with 1989 when many fewer mothers worked, the combination of increased work and government in-kind and insurance benefits produced a poverty level that was almost 25 percent lower in 2006. Further, when we add the work support benefits that come through the tax code – primarily the EITC and the Child Tax Credit – poverty does not fall at all in 1989 but falls another 13 percent in 2006. The reasons the tax benefits reduced poverty so much in 2006 is that many more of these never-married mothers were working and the tax code benefits are based on earnings.

As shown by the second panel in Figure 2, the work support system reduced poverty by only 19 percent in 1989 but by 34 percent in 2006. Clearly, the work effort of disadvantaged mothers, combined with benefits from the work support system, greatly reduced poverty among these mothers and children.

Other than providing Social Security to the elderly, this combination of work requirements in the cash welfare program (Temporary Assistance for Needy Families) and work supports is the most effective strategy the federal government has developed to reduce poverty. And the best part is that there is something in this strategy for everyone to like because it is based both on personal responsibility and on government help premised on personal effort. I would emphasize for the Subcommittee the important role of SNAP benefits in this poverty reduction. An analysis performed for Brookings using data from the Census Bureau’s Survey of Income and Program Participation (SIPP) showed that of the 1.7 million mothers who supplemented their earnings with SNAP benefits in 2010, the average monthly SNAP benefit of $354 constituted 20 percent of their income. Thus, without SNAP, many more of these families would have been in poverty (as Figure 2 shows). In fact, if the cash value of SNAP benefits is subtracted from the income of families with working mothers, another 1.1 million mothers and their children would fall below the poverty level in an average month in 2010. Moreover, the same SIPP analysis shows that over 40 percent of single moms with incomes between 100 percent and 149 percent of the poverty level received SNAP benefits.[9] It is reasonable to view these single mothers as doing what the public expects them to do by working, many of them full time. Government in turn rewards their work effort by supplementing their earnings and thereby substantially reducing poverty.

Thus, the SNAP program performs many important functions and performs them fairly well. This does not mean that the program cannot be improved or that it would be a huge blow to the poor to reduce spending on the program, depending on how deep the cuts are and how they are engineered. Before considering the search for SNAP savings, we should briefly review spending on SNAP and other means-tested programs.

Spending on Means-Tested Programs and SNAP

The dotted line in Figure 3, based on a Brookings analysis of federal budget data published by the Office of Management and Budget, shows federal spending since 1962 in the ten means-tested programs that spent the most money in 2011, the second biggest of which is SNAP. We estimate that in 2011 about 87 percent of the spending in these ten programs was on entitlement programs, including SNAP.[10] The figure shows that federal spending on poor and low-income Americans has increased enormously. Since 1980, by which time all but two of the ten biggest programs were in place, spending has increased by about $500 billion, from $126 billion to $626 billion after adjusting for inflation. The solid line in Figure 3 expresses the increase in federal means-tested spending as spending per person in poverty. Expressed in this way, over the past five decades, federal spending on major means-tested programs has increased from about $516 to a little more than $13,034 per person in poverty. If we use the figure on spending per person in poverty in 1980, when most of the major means-tested programs were in place, the increase is from about $4,300 to $13,000 per person or more than $3 spent in 2011 for every dollar spent in 1980.[11]

More recently, means-tested spending increased from about $477 billion to $626 billion in the three years of the Obama administration, an increase of about 31 percent. However, the recession that began in December 2007 and the increase in poverty during and following the recession is an important part of the explanation for increased means-tested spending during the Obama administration. Many programs, including SNAP, increased automatically when poverty rose during the recession. In addition, spending on a host of poverty programs, again including SNAP, was boosted still further by temporary provisions in the 2009 American Recovery and Reinvestment Act (ARRA). Yet because the increase in the number of poor people was so high, spending per person in poverty increased by only about 9 percent as contrasted with the 31 percent increase in total spending during the first three years of the Obama administration. In fact, spending per person in poverty actually fell in both 2010 and 2011. Much of the portion of the rise in means-tested spending that was authorized as part of the ARRA expired after 2010, although SNAP benefits are an exception as we will see below.

Three additional points should be made about total means-tested spending by the federal government. First, while it is true that the nation’s major means-tested health programs account for nearly 45 percent of all the means-tested spending today and a little less than half of the increase in means-tested spending since 1980, nearly all the other programs have increased substantially as well. Between 1980 and 2011, for example, the EITC increased from $3.4 billion to $55.7 billion, the Supplemental Security Income program from $15.3 billion to $49.6 billion, and the housing programs from $14.5 billion to $45.9 billion. Second, it should be kept in mind that these spending data are for only the ten largest means-tested programs. The Congressional Research Service estimates that in 2009, spending on these ten programs represented about 75 percent of total federal means-tested spending.[12] If that percentage remained roughly the same for 2011, total federal means-tested spending in that year was closer to $835 billion than the $626 billion spent on the ten biggest programs. Third, states also spend a great deal of money on means-tested programs. In previous testimony before the House Budget Committee, I estimated state spending at about 25 percent of federal spending, which would bring total federal and state spending on means-tested programs to over $1 trillion in 2011.[13]

Turning now to spending specifically on the SNAP program, the dotted line in Figure 4 shows that, like other means-tested programs, spending on SNAP has increased dramatically over the years (all figures given below are in constant 2011 dollars). SNAP spending was $24.2 billion in 1980, $26.6 billion in 1990, and $75.7 billion in 2011. As the solid line in Figure 4 shows, SNAP spending per person in poverty, despite some fluctuations over the years, has increased greatly since 1969. As compared with its previous per-person-in-poverty peak in 1995, this figure had increased from $1,034 to $1,575 by 2011. By either of these measures, SNAP spending has increased over the years.

As mentioned above, the SNAP spending figures for recent years were substantially increased by the ARRA. The effect of the ARRA expansion was to increase the benefit of the average SNAP household by about 15 percent. The ARRA increases translated to increases of $24, $44, $63, and $80 a month for one-person, two-person, three-person, and four-person households respectively, although all these figures have declined since enactment of the ARRA. The cost of the increased benefits was around $57 billion. Although the benefit increases were originally expected to last until 2018, subsequent legislation altered the original ARRA provision so that the across-the-board SNAP increases will terminate in 2014, saving well over $14 billion.[14]

Controlling SNAP Spending
It is no secret that the federal government is facing an unprecedented fiscal crisis. In contrast with the United State Senate, the House has adopted a budget each year for the past two years that, if enacted, would actually reduce the nation’s annual deficit and the amount of debt held by the public as a percentage of GDP. Since 2003, some of my Brookings colleagues and I have been writing about the dramatic threat to the nation’s future imposed by the profligacy of federal spending as compared with federal revenues.[15] One conclusion that I have come to about deficit reduction is that Congress will be more successful if sacrifice is shared – albeit not necessarily equally – by all parts of the federal budget in order to achieve something approaching fiscal sanity. Discretionary spending was a good place to begin, but that well is nearly dry. Now the federal government needs cuts or moderated increases in entitlement spending (especially Medicare) and additional revenues. “Spread the pain” should be the motto of budget cutters. Although I have spent almost all my entire career thinking about, writing about, and working on legislation affecting the nation’s poor, I believe that means-tested programs, including SNAP, must be controlled either by reducing the rate of spending increases or by actual reductions in the amount spent.

In this section I consider four options for moderating or reducing spending on SNAP.[16] The first two options have received attention by both the House and Senate Agriculture Committees and by advocacy groups that defend the SNAP program. Both options would modify a program simplification rule that has a direct impact on the level of SNAP benefits received by many households. The fundamental purpose of SNAP is to augment the food purchasing power of households that may not have enough money to buy nutritious food. To make the determination of how much money the household has to purchase food, SNAP allows households to deduct certain standard expenses from income before computing the eligibility for and level of the SNAP benefit. One of the biggest deductions is the shelter deduction, including spending on utilities. Because documenting utility costs requires lots of paperwork and document verification, states are allowed to have a Standard Utility Allowance that can be claimed by any household that can show it pays out-of-pocket utility costs. Such households are not required to submit all their utility bills each month, thereby saving a lot of hassle for recipients and administrative expenses for states. Another administrative simplification is that households that receive help from the Low-Income Home Energy Assistance Program (LIHEAP) are assumed to be eligible for the Standard Utility Allowance by virtue of the fact that their receipt of LIHEAP demonstrates need. As they often do, states have taken advantage of the LIHEAP simplification rule by giving some households a token LIHEAP benefit of, say, $1 which thereby qualifies the household for the shelter deduction and saves both the recipient and the state lots of administrative hassle.

Two of the cost-savings reforms now in play would modify the Standard Utility Allowance. One proposal would require states that game the system by granting token LIHEAP benefits to provide LIHEAP benefits of at least $10 in order to qualify for the exemption. This proposal would save about $4.5 billion over ten years. A second proposal would repeal the entire LIHEAP-SNAP link so that families that receive the allowance would need to show their utility bills in order to receive the utility portion of the deduction. This proposal would save around $15 billion over ten years. At least part of the savings in both proposals are based on the assumption that some households that have to experience the hassle of showing some or all utility bills would forego the utility deduction. The tendency for some families to accept the lower benefit by avoiding the hassle of showing utility bills would be strengthened by the fact that most of them would still receive a SNAP benefit; the effect of the policy change would be to reduce the size of the SNAP benefit, not to eliminate it altogether for most households. In effect, these proposals save money by reducing the size of the SNAP benefit. Losing part of the SNAP benefit certainly does not help these households, but most of them would still receive a SNAP benefit.

A third policy change that would save money, and one already enacted by the House Budget Committee, would be to convert SNAP to a block grant and reduce the amount of money in the block grant as compared with spending under current law. The Congressional Budget Office (CBO) estimates that spending on SNAP will decline from $80 billion in 2012 to $73[17] billion in 2021[18]as the economy recovers. Thus, funding in the block grant would have to be lower than the amount by which SNAP is already projected to decline.[19] The more general point on block grant funding is that Congress can save a great deal of money by lowering the number of federal dollars in the block grant each year below the CBO spending baseline.

Because the 1996 Welfare Reform Law converted the Aid to Families with Dependent Children program from an open-ended entitlement like the current SNAP program to a block grant with capped funding, the federal government has experience with what happens when states receive block grant funding. The new program created in 1996 was the Temporary Assistance for Needy Families (TANF) program, a block grant of $16.5 billion that gave states enormous flexibility as long as they met program requirements, especially the stringent work requirements, and spent the money on poor and low-income families. Three lessons of the decade and a half experience with TANF should be considered as Congress contemplates a SNAP block grant. The first is that the value of a capped block grant declines every year due to inflation. The $16.5 billion TANF block grant has lost about one-third of its value since the mid-1990s. In the case of the SNAP program, the explicit purpose of converting the open-ended entitlement to a block grant is to save money. Still, in assessing the adequacy of funding in any block grant with capped funding, Congress must take into account the fact that without an inflation adjustment, the value of the block grant will actually decline even faster than whatever annual caps are placed on the block grant.

The second lesson taught by experience with the TANF block grant is that unless the uses of a potential SNAP block grant funds are tightly specified, states will use the flexibility inherent in a block grant to spend the money for many purposes other than providing food subsidies. In a 2006 report, for example, the Government Accountability Office reported that states “used federal and state TANF funds to support a broad range of services, in contrast to 1995 when spending priorities focused more on cash assistance.”[20] Thus, although TANF was built on a program that focused almost all its resources on cash subsidies for destitute families, states now use TANF funds for child care and early childhood education, child protection, and other social services. Since its inception in the 1960s, the major goal of the SNAP program has been to help families purchase nutritious food. Unless Congress wants to diffuse the use of SNAP funds to other purposes, language in the block grant must be clear that funds can only be spent to help families purchase food or for closely related purposes. Some members of Congress may wish to give states more flexibility in the use of a SNAP block grant, but they should do so with full realization that providing such flexibility to states will result in some of the money being spent on programs that have little or nothing to do with nutrition.

A final way to save money in the SNAP program is to strengthen the program’s work requirements. Indeed, more American must work and earn all or most of their household income if federal and state governments are to move in the direction of fiscal solvency. The current SNAP program has work requirements that look strong on paper. These include the requirement that non-disabled and non-elderly recipients register for work, accept a job if offered, search for work or meet other work requirements that states impose (and are approved by the Department of Agriculture). In addition, recipients cannot quit a job or voluntarily reduce their hours of work to less than 30. A separate provision, often called the ABAWD (able-bodied adults without dependents) rule, recipients between the ages of 18 and 50 who have no dependents must work at least 20 hours per week or they can qualify for SNAP benefits for only 3 months (6 months under some circumstances if they lose a job) in a given 36 month period.[21]

But these requirements do not seem to be rigorously enforced. In fact, the administration has requested that the ABAWD rule be suspended for 2013 (as it was for part of 2009 and 2010). But those who think able-bodied welfare recipients should be required to work may want to strengthen the SNAP work requirements. If the Agriculture Committee decided to move in this direction, at least three changes in federal law would be required. First, federal law should set participation standards stipulating the percentage of non-exempt adults receiving SNAP who must engage in, say, 20 hours of work-related activity each week. The TANF program requires states to meet a 50 percent participation standard and that standard seems reasonable for the SNAP program as well. Second, SNAP would need to impose fines on individuals, including complete disqualification from the program, for noncompliance with work requirements. States already have the authority to impose sanctions, but states must use the sanctions more extensively if they are to have their intended impact. Like SNAP recipients, states that fail to meet their work requirements would also be subject to financial sanction. The goal of sanctions on states is to get them to implement the SNAP work requirements as aggressively as they implemented the TANF work requirements after the 1996 welfare reforms. Third, states will need additional funding to operate their employment programs. The administration has requested $218,873,000 for 2013 to reimburse states at 50 percent to operate their employment and training programs.[22] Although my view is that job search is the most effective use of funds, the SNAP employment and training account currently will pay for job search training and support, workfare, educational activities, and self-employment training. The Agriculture Committee would have to explore the cost of imposing a 50 percent work requirement on states, perhaps phased-in over five years beginning at 20 percent, with the Congressional Budget Office. However, about 60 percent of SNAP recipients would be exempt from the work requirement because of age or disability (in 2010, 47 percent were children, 8 percent were elderly, and 6 percent were disabled).[23] Although there would certainly be up-front costs, in the long run extensive and rigorous research on work requirements in the cash welfare program shows that there would be budget savings for federal, state, and local governments.[24]

Conclusion
As Congress considers savings in means-tested programs in general and the SNAP program in particular, it would be wise to review the costs of policies designed to reduce spending as well as the savings from such policies. Just as policymakers are concerned about costs and benefits when they consider creating new programs, the same review of costs and benefits should be applied to decisions about achieving savings through cuts in existing programs. As we have seen, the SNAP program performs several functions in admirable fashion: it stabilizes individual and family income more reliably than any other means-tested program; it creates a counter-cyclical force in the American economy by automatically rising during periods of increased unemployment and falling as employment recovers; it serves as a work incentive for millions of working families (but not all working families); and it substantially reduces poverty among low-income working families. In my view, it does not follow that the SNAP program should be off the table as Congress struggles to find ways to reduce the nation’s budget deficit. Unless Congress takes action on the deficit now, and especially on government spending, the actions we will be forced to take later will make even what seem like difficult changes in SNAP and other means-tested programs today seem rather modest. At least for now, the achievements of the SNAP program should lead policymakers to keep cuts moderate and to do as little damage as possible to the ways in which SNAP achieves its many purposes. If I could protect individual means-tested programs from the deficit-reducing scalpel (or ax), SNAP would be high on my list of protected programs. But given the seriousness of the budget crisis, and the need to extend program cuts to entitlement spending, the SNAP program should not be completely protected. Even so, because no other program fulfills such a diverse array of worthy goals as effectively as SNAP, cuts should be made with caution.

[1] Congressional Budget Office, “The Supplemental Nutrition Assistance Program,” Washington, DC: Author, April 2013.

[2] Dorothy Rosenbaum, “SNAP Is Effective and Efficient,” Washington, DC: Center on Budget and Policy Priorities, April 2012.

[3] Congressional Budget Office, “The Supplemental Nutrition Assistance Program.”

[4] Because SNAP phases out as earnings from work rise, SNAP also is a work disincentive for some families. Research shows that without SNAP and other means-tested benefits, more people would work and unemployment spells would be shorter. See Casey B. Mulligan, “Means-Tested Subsidies and Economic Performance since 2007,” NBER Working Paper Series No. 17445; Cambridge: National Bureau of Economic Research, 2011, available at
http://www.nber.org/papers/w17445.

[5] Ron Haskins, Work over Welfare: The Inside Story of the 1996 Welfare Reform Law (Washington: Brookings, 2006), Chapter 15.

[6] Gary Burtless and Ron Haskins, “Inequality, Economic Mobility, and Social Policy,” in Peter H. Schuck and James Q. Wilson, eds., Understanding America: The Anatomy of an Exceptional Nation (New York: Public Affairs, 2008), pp. 495-538.

[7] U.S. Census Bureau, America's Families and Living Arrangements: 2011, "Table FG5. One-Parent Unmarried Family Groups with Own Children Under 18, by Labor Force Status of the Reference Person: 2011," available at http://www.census.gov/hhes/families/data/cps2011.html.

[8] Ron Haskins, “Balancing Work and Solidarity in the Western Democracies,” (Berlin: Social Science Research Center Berlin, October 2010).

[9] Richard Bavier, personal communications, May 3-4, 2011.

[10] Housing, Title I grants to local education agencies, and half of Pell Grants were counted as non-entitlement spending. Thus, $545.0 of total spending of $626.2 or 87 percent was entitlement spending in 2011.

[11] The number of people in poverty in 2011 will not be published by the Census Bureau until next fall. Based on a model designed by Richard Bavier, a former senior official at OMB, that has successfully predicted the poverty level for the past several years, poverty increased by .6 percentage points in 2011, bringing the poverty rate to 15.7 percent in that year. According to the American Community Survey, the population of the United States in 2011 was 306 million. Thus, around 48,042,000 people were poor in 2011. This is the figure used to compute means-tested spending per person in poverty for 2011.

[12] Karen Spar, “Federal Benefits and Services for People with Low Income: Programs, Policy, and Spending, FY2008-FY2009” (R41625), (Washington: Congressional Research Service, January 2011), p. 12.

[13] Ron Haskins, Statement to the House, Committee on the Budget, Strengthening the Safety Net, hearing, April 17, 2012, available at http://budget.house.gov/UploadedFiles/haskinstestimony4172012.pdf.

[14] Joe Richardson, Jim Monke, and Gene Falk, “Reducing SNAP (Food Stamp) Benefits Provided by the ARRA: P.L. 111-26 & S. 3307” (R41374), (Washington: Congressional Research Service, August 2010).

[15] Alice M. Rivlin and Isabel Sawhill, eds., Restoring Fiscal Sanity: How to Balance the Budget (Washington: Brookings Institution Press, 2004); Alice M. Rivlin and Isabel Sawhill, eds., Restoring Fiscal Sanity 2005: Meeting the Long-Run Challenges (Washington: Brookings Institution Press, 2005); Brookings-Heritage Fiscal Seminar, Taking Back Our Fiscal Future (Washington: The Brookings Institution and The Heritage Foundation, 2008); Ron Haskins and others, Premium Support: A Primer (Washington: The Brookings Institution, Budgeting for National Priorities Project, 2011).

[16] The Congressional Budget Office has outlined four categories of ways to reducing spending in the SNAP program. These four approaches are to change program rules to reduce the number of people in the program, change rules to reduce benefits, change the way the program is administered such as penalties on states that make overpayments to recipients, and changing the program to a block grant; see Congressional Budget Office, “The Supplemental Nutrition Assistance Program,” (Washington: Author, April 2013), pp. 8-12.

[17] Inflation will erode the value of benefits to around $59 billion in 2022.

[18] Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2012 to 2022 (Washington: Author, January 2012), p. 52.

[19] Congressional Budget Office, “The Supplemental Nutrition Assistance Program,” (Washington: Author, April 2013), p. 4 and Figure 2.

[20] Government Accountability Office, “Better Information Needed to Understand Trends in States’ Uses of the TANF Block Grant,” (GAO-06-414), (Washington: Author, 2006).

[21] Congressional Budget Office, “The Supplemental Nutrition Assistance Program.”

[22] Department of Agriculture, “2013 Explanatory Notes,” available at: http://www.obpa.usda.gov/30fns2013notes.pdf.

[23] Congressional Budget Office, “The Supplemental Nutrition Assistance Program.”

[24] David A. Long, “The Budgetary Implications of Welfare Reform: Lessons from Four State Initiatives,” Journal of Policy Analysis and Management 7, no. 2 (1981): 289-299.

Authors

Ron Haskins

Publication: House Subcommittee on Nutrition and Horticulture, Committee on Agriculture

Image Source: Jessica Rinaldi / Reuters

The Ongoing Impact of Foreclosures on Children

Julia B. Isaacs — Wed, 18 Apr 2012 00:00:00 -0400

Five years into the foreclosure crisis, many American families with children continue to lose their homes through foreclosure. An estimated 2.3 million children in single-family homes have already lost their homes to foreclosure, and even more – 3.0 million children – are at serious risk of losing their homes in the future. Another three million or so children may face eviction from rental properties that undergo foreclosure, suggesting that more than 8 million children are directly affected by the ongoing foreclosure crisis (see Figure 1). As single-family and rental properties continue to enter foreclosure, children face not just the loss of their homes, but also the risk of losing friends and falling behind academically if they are forced to switch neighborhoods and schools.

Children Affected by Foreclosures
Children are the often invisible victims of the foreclosure crisis. Mortgage records do not tell how many children are in owner-occupied homes, and it is even harder to estimate the number of children in rental properties. Yet foreclosure affects not just the homeowner or landlord, but also the children living in the foreclosed properties. This brief combines state-by-state estimates on foreclosures with Census Bureau data on the living arrangements of families with children to generate estimates of the numbers of children affected by the mortgage crisis. It also synthesizes research bearing on the negative effects of foreclosure on children’s schooling and overall well-being and outlines some possible policy responses.

This brief updates the author’s earlier (April 2008) estimate that two million children in owner-occupied homes would be immediately affected by the foreclosure crisis, specifically on foreclosures of subprime loans made in 2005-2006. Nearly four years later, the problem shows no signs of abating. In addition to the more than two million children in owner-occupied homes that already have completed foreclosure, there are even more children – more than three million – in owner-occupied homes at immediate risk of future foreclosure. This new analysis also is the first to quantify the millions of children in rental units affected by foreclosure.

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Julia B. Isaacs

Publication: First Focus/The Brookings Institution

Image Source: © Larry Downing / Reuters

Starting School at a Disadvantage: The School Readiness of Poor Children

Julia B. Isaacs — Mon, 19 Mar 2012 14:27:00 -0400

Executive Summary

Poor children in the United States start school at a disadvantage in terms of their early skills, behaviors, and health. Fewer than half (48 percent) of poor children are ready for school at age five, compared to 75 percent of children from families with moderate and high income, a 27 percentage point gap. This paper examines the reasons why poor children are less ready for school and evaluates three interventions for improving their school readiness.

Poverty is one of several risk factors facing poor children. Mothers living in poverty are often unmarried and poorly educated, they have higher rates of depression and poor health than more affluent mothers, and they demonstrate lower parenting skills in certain dimensions. In fact, the gap in school readiness shrinks from 27 percentage points to 7 percentage points after adjusting for demographic, health, and behavioral differences between poor and moderate- and higher-income families. Even so, poverty remains an important influence on school readiness, partly through its influence on many of the observed differences between poor and more affluent families. Higher levels of depression and a more punitive parenting style, for example, may result from economic stress and so models controlling for these factors may understate the full effects of poverty on school readiness.

In addition to poverty, key influences on school readiness include preschool attendance, parenting behaviors, parents’ education, maternal depression, prenatal exposure to tobacco, and low birth weight. For example, the likelihood of being school ready is 9 percentage points higher for children attending preschool, controlling for other family characteristics, and is 10 percentage points lower for children whose mothers smoke during pregnancy and also 10 percentage points lower for children whose mothers score low in supportiveness during parent-child interactions. These findings suggest a diverse set of policy interventions that might improve children’s school readiness, ranging from smoking cessation programs for pregnant women to parenting programs, treatments for maternal depression, income support programs and expansion of preschool programs.

Preschool programs offer the most promise for increasing children’s school readiness, according to a simple simulation that models the effects of three different interventions. Expanding preschool programs for four-year olds has more direct effects on school readiness at age five than either smoking cessation programs during pregnancy or nurse home visiting programs to pregnant women and infants, the two other alternatives considered.

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Julia B. Isaacs

Image Source: © Lucy Nicholson / Reuters

How Targeted Are Federal Expenditures on Children?

Tue, 13 Mar 2012 00:00:00 -0400

EXECUTIVE SUMMARY

Child poverty rose in 2010 as the nation continued to feel the recession’s effects. Forty-four percent of children were living in families with incomes below 200 percent of the poverty level — up from 42 percent in 2009. Yet, public spending on children may be in jeopardy as Congress debates federal spending cuts and states search for ways to trim their budgets. Policymakers and the public need to know how public resources are being spent to understand who will be affected by potential cuts — and what the long-term consequences of reduced spending and investment could be.

Our annual series of Kids’ Share reports has been tracking how children fare in the allocation of public resources. In this groundbreaking report, the analysis is extended for the first time to examine how spending varies by family income. Arguments exist for targeting scarce federal investments to more disadvantaged children, as welfare and Medicaid programs do, and for subsidizing children through more universal programs, such as public education and child credits. This report does not answer the question of how much we should spend on children at different income levels but rather tracks how spending is allocated.

Our most in-depth analysis focuses on federal expenditures, but we also look at spending by states and localities. We estimate spending on children largely by the amount a family receives because it has a child. Low-income children in this report are defined as children age 18 and younger in families with incomes less than twice the federal poverty level (200 percent of FPL) or about $34,000 for a family of three in 2009.

During the past 50 years, the federal government has devoted a considerable share of spending on children to those in low-income families. Analyses of federal spending in 2009, the most recent year for which income data were available, reveal the following:

Low-income children, who make up 42 percent of the child population, received 70 percent of all federal spending on children in 2009. The federal government spent $291 billion on low-income children in 2009 — more than twice the $127 billion spent on higher-income children.
Federal expenditures on children for health, nutrition, social services, housing, and training are strongly targeted toward low-income children because these programs are largely means tested. We estimate that low-income children receive 99 percent of housing expenditures, 98 percent of expenditures on nutrition, 97 percent of health expenditures, and 94 percent of expenditures on social services.
In contrast, federal education spending is split fairly evenly, with 55 percent going to children in low-income families and 45 percent going to higher-income children.
Spending on children through income security programs, such as cash welfare and Social Security, also is less targeted than most other spending categories, with two- thirds going to low-income children and one-third to higher-income children. While Temporary Assistance to Needy Families (TANF) and Supplemental Security Income (SSI) benefits are heavily targeted to lowincome children, Social Security dependent and survivors benefits are paid out in rough proportion to the child population.
Medicaid is the biggest federal program for low-income children. In 2009, Medicaid spent $68 billion on low-income children, or nearly a quarter (23 percent) of total federal spending on low-income children.
Although low-income children receive the majority of refundable tax credits, higherincome children receive the majority of tax reductions that subsidize children. One reason for this split is that many low-income families do not owe taxes and cannot benefit from direct reductions in taxes.
In-kind benefits are more strongly targeted toward low-income children than are cash benefits. For every dollar spent on lowincome children, 68 cents derives from in-kind benefits such as health, nutrition, housing and education; 19 cents from refundable tax credits; 8 cents from monthly cash benefits; and 6 cents from other reductions in tax liabilities. For every dollar spent on higher-income children, 60 cents comes from reductions in tax liabilities, 22 cents from in-kind benefits, 12 cents from monthly cash benefits, and 6 cents from tax refunds.

State and local spending on children is much less targeted than federal spending. Our estimates suggest that less than half (48 percent) of state and local spending on children was directed to low-income children in 2008, the most recent year for which complete estimates were available. State spending on Medicaid, SCHIP, TANF, child care assistance, child welfare programs, and state earned income tax credits is all heavily tilted toward low-income children, but this is balanced out by state and local spending on education, which supports all children. Our state and local estimates for spending on higher-income children may be conservative because data limitations required us to leave out most child-related tax provisions. We make the cautious assumption that education spending is distributed equally per child across both income groups. A more inclusive estimate of state and local expenditures might find less or no targeting toward lowerincome children.

Although our state and local estimates are rough, we combine them with our federal spending estimates to get a more comprehensive view of public spending by income group. When federal, state, and local spending on children (excluding tax expenditures) are taken together, low-income children receive about twice as much, per capita, as higher-income children. The federal government is the junior partner for public spending on children as a whole — federal money accounts for about one-third of all spending on children; state and local spending accounts for the rest. However, for low-income children, our estimates suggest that the federal government shares costs roughly equally with states and localities (45 percent vs. 55 percent). For higherincome children, on the other hand, about 85 percent of public support is state and local, while only 15 percent comes from federal dollars (not counting tax expenditures).

For several reasons, 2009 may not have been a typical year for federal expenditures on children. The recession likely led to more children qualifying for heavily targeted programs, such as Medicaid and the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) — meaning greater federal expenditures. In addition, the American Recovery and Reinvestment Act (ARRA) of 2009 boosted federal spending through Medicaid, SNAP, and other programs benefiting low-income families. Because the size of the low-income population also was also higher in 2009 than in earlier years, we cannot say whether spending per low-income child in 2009 is higher or lower than other years. It will be important to continue monitoring spending on low-income children as federal and state budgets are cut, especially if effects of the recession continue to linger.

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Authors

Heather Hahn
Julia B. Isaacs
Stephanie Rennane
Katherine Toran
Tracy Vericker

Publication: The Urban Institute and the Brookings Institution

Policy Solutions for Preventing Unplanned Pregnancy

Adam Thomas — Thu, 01 Mar 2012 12:39:00 -0500

Abstract

Unintended pregnancy is a widespread problem with far-reaching implications: almost half of all pregnancies in the United States are unintended, and the women and children involved in these pregnancies are disproportionately likely to experience a range of negative outcomes. I review research on the causes of unintended pregnancy and the impacts of various evidence-based pregnancy prevention policies. I discuss the estimated effects of mass media campaigns discouraging unprotected sex, teen pregnancy prevention programs, and expansions in publicly funded family planning services, and then present new research showing that expansions in these policies would likely lead to reductions in teen and unintended pregnancy, out-of-wedlock childbearing, and child poverty. The research also shows that each dollar spent on these policies would produce taxpayer savings of between two and six dollars. Over the last few years, prudent investments have been made in several proven pregnancy prevention policies. Some of these investments, however, have recently come under attack at the state and federal levels. The findings presented in this brief suggest that policymakers would be wise to expand these programs rather than pare them back.

A Major Societal Challenge

Nearly half of all pregnancies in the United States are unintended, and the parents and children involved in these pregnancies tend to be disadvantaged in a number of ways. For example, Figure 1 shows that unintended pregnancies are disproportionately concentrated among women who are unmarried, teenaged, and poor. Some studies have used sophisticated statistical techniques in an attempt to determine the extent to which pregnancy intentions have a causal effect on maternal and child outcomes. These studies generally suggest that unintended pregnancy and childbearing depress levels of educational attainment and labor force participation among mothers and lead to higher crime rates and poorer academic, economic, and health outcomes among children.

In addition, unintended pregnancy has important implications for public sector balance sheets. For instance, Emily Monea and I estimate that taxpayer spending on Medicaid-subsidized medical care related to unintended pregnancy totals more than $12 billion annually. This figure is substantially more than the federal government spends on the Head Start and Early Head Start programs each year. Unintended pregnancies are also much more likely than intended pregnancies to be terminated. Unintended pregnancies account for more than 90 percent of all abortions—and a substantial majority of Americans of all political stripes support the goal of reducing abortions.

In light of these considerations, policymakers have become increasingly interested in devising strategies for encouraging teens and young adults to take the steps necessary to avoid becoming pregnant until they are prepared to assume the responsibilities of parenthood. This policy brief presents new research showing that several different evidence-based strategies have the potential to reduce unintended pregnancy. The same research also shows that this goal can be attained in a cost-effective way: publicly financed mass media campaigns, comprehensive teen pregnancy prevention programs, and expansions in government subsidized family planning services are estimated to save taxpayers between two and six dollars for every dollar spent on them.

Since President Obama took office, lawmakers have made a number of sensible investments in evidence-based pregnancy prevention strategies. However, a recent wave of activity at the state and federal levels—most notably, Congress’s attempt to defund Planned Parenthood and several states’ efforts to do the same—threaten to reverse much of this progress. The evidence reviewed here suggests that public officials would be wise instead to expand their investments in this area.

What’s Behind the Problem?

The reasons behind the high rate of unintended pregnancy can be organized into three broad categories. First, many young women and men lack sufficient motivation to avoid becoming pregnant until they are ready to do so. This fact is partially the result of changes in cultural norms over time: attitudinal data show that there is now substantially less stigma surrounding premarital sex and out-of-wedlock childbearing than was the case a few decades ago. Motivation to avoid pregnancy is also reduced by the pervasive sense among young women in many low-income communities that there are few attractive alternatives to motherhood available to them. Qualitative studies have found that such women often believe their life prospects to be so limited that they anticipate facing few significant economic or social consequences as a result of becoming pregnant before they are married.

A second factor that contributes to unintended pregnancy is that some individuals who are motivated to avoid pregnancy are handicapped by a limited understanding of how to realize their good intentions. For example, survey data consistently show that teens and young adults are woefully misinformed about how to use various methods of contraception, about how safe and effective those methods are if used correctly, and about the importance of using such methods consistently.

A third contributing factor to the high rate of unintended pregnancy is that the costs of the most effective forms of contraception are sometimes prohibitive and/or access to them is limited. Some highly effective and long-acting reversible contraceptive methods (such as intrauterine devices) are comparatively expensive and can only be used if a young woman has access to a health care provider. Although surveys show that individuals tend not to list limited access or high cost as explanations for their failure to use effective contraceptive methods, I present evidence in the next section that increasing access to subsidized contraception has a notable effect on rates of unintended childbearing.

In sum, the prevalence of unintended pregnancies can be attributed to the fact that many teens and young adults lack the motivation necessary to avoid becoming pregnant; that some individuals are well motivated but are poorly informed about how best to protect themselves from an unplanned pregnancy; and that some of those who are armed with good intentions and the proper information contend with limited access to affordable and effective forms of contraception.

Proven Policy Solutions

Fortunately, public policy has been shown to affect all three of these factors. Regarding the lack of motivation to avoid unintended pregnancy, there is a growing body of evidence suggesting that well-designed mass media campaigns can persuade some young men and women to avoid unprotected sex. Evaluations of these campaigns often compare a treatment city that was exposed to a given campaign with a control city that was not. Most of the campaigns in question encouraged condom use. Taken as a whole, the evaluation literature on these campaigns suggests that they changed the behavior of somewhere between 3 and 6 percent of their target populations. Although this may sound like a small effect, the results reviewed below show that a national media campaign has the potential to produce notable impacts on rates of unintended pregnancy and child poverty in a cost-effective way.

Insufficient knowledge about how to avoid unintended pregnancy is most commonly addressed via pregnancy prevention programs targeted on teens. These programs assume any number of forms: some are classroom based, others incorporate a strong youth development component, and still others rely heavily on parent involvement. However, their common thread is that they all focus at least in part on providing participants with information about how to protect themselves from unplanned pregnancy. The most successful programs tend to emphasize sexual abstinence as the only foolproof option while also educating participants about how to use various methods of contraception. Many of these programs have been evaluated using random assignment, which is the gold standard among the techniques available to policy researchers. Although there is enormous diversity in the findings from these evaluations, some of the best designed interventions produced reductions of 15 percent or more in rates of sexual activity and increases of 25 percent or more in rates of contraceptive use.

Abstinence-only sex education programs are also designed to discourage teens from having risky sex. The bulk of the high-quality research literature on these programs suggests that they have little effect on the behavior of the individuals who participate in them. A partial exception to this rule can be found in a recent study conducted by John Jemmott, a professor at the University of Pennsylvania, and his colleagues. This study—which used random assignment to evaluate an abstinence-only intervention implemented in an unnamed northeastern city—found that the intervention substantially reduced the frequency of sexual initiation among program participants. It should be noted, however, that this program was implemented only for children who were in their preteens or their very early teens. On the whole, there remains little compelling evidence to date that abstinence-only programs can affect the sexual behavior of most teens or of young adults.

Turning to the third reason for the high incidence of unintended pregnancy, there is strong evidence that expansions in access to publicly subsidized family planning services can affect rates of contraceptive use and unintended childbearing. Family planning services (including the provision of contraception) are made available to low-income women via Medicaid. Eligibility for these services has historically been limited to women who are pregnant and to mothers whose incomes place them below a very low threshold. Since the mid-1990s, however, the federal government has granted waivers to about half the states allowing them to serve all income eligible women—regardless of whether they are pregnant or have children—and in most cases allowing states to raise their income eligibility thresholds as well. A recent and well-designed study by Economists Melissa Kearney of the University of Maryland and Phil Levine of Wellesley College used quasi-experimental methods to explore the effect of expanded eligibility for subsidized family planning services in waiver states on women’s contraceptive use. The authors concluded that these expansions resulted in a reduction of about 5 percent in the number of sexually active adult women who fail to use contraception at a given act of intercourse. They also found that the expanded family planning services produced reductions of about 4 percent in the number of births to teens and about 2 percent in the number of births to nonteens.

The bottom line is that the research community has produced solid evidence that public policies can reduce rates of unintended pregnancy. But are they worth the investment of public dollars needed to pay for them?

Policies Are Cost-Effective

The research findings reviewed above were incorporated into a series of benefit-cost simulations of a nationally implemented mass media campaign, a nationwide teen pregnancy prevention program geared towards at-risk youth, and expansions in Medicaid-funded family planning services within states that were not granted family planning waivers by the federal government. These analyses were performed using a cutting-edge simulation model that was developed at the Brookings Institution for the purpose of simulating the impact of policy changes on family formation outcomes. The model is described in greater detail in Box 1.

Table 1 summarizes the key results from these simulations. While the teen pregnancy prevention program is estimated to have the largest effect on the pregnancy rate among teenagers, the expansion in access to subsidized family planning services is estimated to have the largest effect on unintended pregnancy rates overall. The mass media campaign is estimated to have the largest effect on out-of-wedlock childbearing and on the number of children born into poverty. The simulation results indicate that children born into poverty would be reduced by 2.2 percent under the media campaign; by 1.4 percent under the teen pregnancy prevention program; and by 1.8 percent under the Medicaid expansion. These estimates correspond with reductions of 23,000, 15,000, and 19,000 respectively under the three policies.

The bottom portion of the table presents estimates of the cost of each program and of the taxpayer savings that each one would produce. Because of limitations in the relevant data, taxpayer savings are measured only in terms of the amount that would be saved on publicly subsidized medical care for pregnant women and on a variety of means-tested benefits provided to children under the age of five. The prevention of unintended pregnancy would probably also reduce government expenditures on the criminal justice system, on means-tested benefits for older children and adults, and on a range of other spending programs not incorporated into this analysis. Had sufficient data been available to allow for a more complete accounting of the taxpayer savings that would be generated by these policies, my estimates of the monetized benefits of these policies would be even larger.

Even given the relatively conservative approach taken here, the three programs’ estimated benefits substantially exceed their estimated costs. The benefit-cost ratios listed in the final row of the table show that the three interventions would produce public savings of between two and six dollars for each tax dollar spent. Due in large part to the fact that the Medicaid expansion and mass media campaign have lower costs per member of their target populations than does the more intensive teen pregnancy intervention, the benefit-cost ratios for the former two programs are higher than for the latter one. In other simulations whose results are documented in a longer paper but are not shown here, changes were made to some of the key assumptions underlying these analyses in order to test the sensitivity of their results. Under most of these alternative specifications, the core finding persisted that these policies would produce more in taxpayer savings than would be required to fund them.

The key message of these results is that each program would generate a substantial net savings for taxpayers at the same time that it helps to reduce child poverty and avert teen and unintended pregnancies. All three policies are thus a win-win proposition for taxpayers and for the populations they serve.

Charting The Way Forward

Policymakers have begun to make prudent investments in effective strategies for reducing unintended pregnancy. For example, the Patient Protection and Affordable Care Act (ACA) passed in 2010 contains a provision that gives most states the option of expanding eligibility for Medicaid family planning services without having to go through the cumbersome federal waivers process. This provision is relevant for states that do not have family planning waivers and for a subset of waiver states that could implement further expansions of their programs under the new option. It is now up to individual states to determine whether to avail themselves of the option to raise their eligibility thresholds. Since the passage of the ACA, seven states have thus far done so. With many states facing tight budgets and tough fiscal choices, governors and legislatures may be more inclined to reduce expenditures on social programs than to expand them. But the evidence reviewed here suggests that this is precisely the right time for strapped states to implement expansions in their Medicaid family planning services, since such a move would likely generate budgetary savings in short order.

Separate provisions in the ACA also provide $75 million in annual funding for evidence-based interventions to reduce teen pregnancy and restore $50 million in annual funding for abstinenceonly programs. While the latter provision has little evidentiary support, the research discussed in this brief suggests that the former provision is smart public policy. The funding for evidencebased programs in the ACA complements an additional $110 million in discretionary funding for competitive grants to support both the replication of teen pregnancy prevention programs that have been shown to be effective and the implementation and evaluation of new interventions that have yet to be studied carefully. The Obama administration and Congress deserve credit for showing the foresight to allocate resources to these programs, which are rooted in a rich body of evidence demonstrating their efficacy and their cost-effectiveness.

Unfortunately, there have been no major publicly financed media campaigns discouraging unprotected sex in recent years (there is an ongoing federally funded campaign to highlight the prevalence of AIDS, but it does not place great emphasis on the importance of avoiding risky sexual behavior). Public officials should consider funding such an effort, perhaps using the widely hailed anti-smoking Truth Campaign—which was found to have had a substantial effect on smoking behavior—as a model.

The good news, then, is that progress has been made in implementing two of the three costeffective strategies discussed here. The bad news is that this progress has recently been threatened. Over the past year, lawmakers at the federal level and in some states have attempted to eliminate public funding for Planned Parenthood. The leaders of these efforts argue that taxpayer dollars should not be used to subsidize an organization that provides abortions. However, federal funding for abortion is prohibited under nearly all circumstances. The public support that Planned Parenthood receives instead pays for its other activities—most importantly, its contraceptive services. A handful of states have already succeeded in eliminating part or all of their funding for family planning services. The irony is that these efforts will likely lead to increases in the number of unintended pregnancies and therefore in the number of abortions.

In addition, five states have thus far declined to accept federal funding for evidence-based teen pregnancy prevention programs. Accepting and spending these funds would not impose any costs on states. Indeed, for reasons documented in this brief, these funds would likely generate taxpayer savings at both the federal and state levels even as they reduce teen pregnancy rates.

Overall, then, policymakers deserve a mixed report card. The relevant evidence suggests that state and federal lawmakers would be wise to maintain or even increase their investments in proven pregnancy prevention strategies rather than reduce their efforts in this area. One hopes that the strength of that evidence will ultimately carry the day.

Conclusion

The research reviewed in this brief shows that evidence-based pregnancy prevention interventions are public policy trifectas: they generate taxpayer savings, they improve the lives of children and families, and they reduce the incidence of abortion. These cost saving policies are particularly well suited to the current fiscal climate, in which state lawmakers are struggling to balance their budgets and the federal government is grappling with a yawning debt that is projected to increase in the years to come.

Placing a greater focus on these policies also has the potential to steer the public debate in a more productive direction. Much attention and energy has been devoted over the past decade to promoting marriage as a strategy for reducing the number of children growing up in single-parent families. However, marriage promotion programs have a mixed record at best—only one locally implemented program has thus far been found by a rigorous evaluation to have notable effects— and they are still in the research and development phase as a result. On the other hand, there is a wealth of evidence to suggest that meaningful reductions in single parenthood can be achieved via expansions in policies that curb unintended and out-of-wedlock childbearing.

In summary, the strategies reviewed in this brief—mass media campaigns discouraging unprotected sex, evidence-based teen pregnancy prevention programs, and expansions in publicly subsidized family planning services—merit broad support among public officials at all levels of government. In light of the prevalence of unintended pregnancy and the personal and societal costs that such pregnancies pose, policymakers would do well to invest further in these strategies.

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Authors

Adam Thomas

Welfare Reform Worked

Ron Haskins and Peter H. Schuck — Tue, 28 Feb 2012 10:32:00 -0500

The primary election campaign has intensified a justified concern about inequality in America: People at the top are rising much faster than everyone else. Even low-income Americans consider relatively high levels of inequality acceptable if they have a decent opportunity to improve their condition. But because they may work fewer hours and at stagnant wages, their gains are very limited.

Among the poor, surprisingly, never-married mothers have gained the most in recent decades. Their story shows the best way to reduce poverty and inequality: by encouraging individuals to work more and by supplementing their earnings with tax credits, child-care subsidies and other benefits for low-income working parents.

Until the mid-1990s, never-married mothers seldom worked outside the home, had poverty rates of over 60% and were at least five times more likely than married-couple families to be poor. Then in 1996, congressional Republicans and President Clinton collaborated on a welfare reform law requiring adults on welfare, including never-married mothers, to work.

When Clinton signed the law, many of his strongest political supporters reviled him for entering into "a pact with the devil." They predicted that poor women and their children deprived of welfare would die in the streets. Any employment gains, they insisted, would vanish in the first economic downturn.

The data refute these dire predictions. In fact, according to Census Bureau data, between 1996 and 2000, the percentage of never-married mothers in jobs increased by about a third (to 66%), while the poverty rate for these mothers and their children declined by about a third (to 40%). For the poorest of the poor, this large an improvement based on their own efforts was unprecedented. Since then, two recessions have reduced these gains somewhat; their employment rate is down to 58.7% (still better than for women generally) and their poverty rate is up to 49.3%.

Yet even in the worst recession since the Depression, more are employed and they are less poor than they were before the 1996 law. In fact, researchers Bruce Meyer of the University of Chicago and James Sullivan of Notre Dame have found that if all the work-based benefits given to low-income workers were included — such benefits are mostly ignored by the official poverty measure — the incomes of these mothers and children would be even higher and their poverty rate even lower.

The reasons for this policy success are clear, suggesting some lessons for the future. The 1996 law created strong incentives, both positive and negative, for the most uneducated, untrained and unpromising welfare recipients to join the workforce. As shown by their high employment rates, poor mothers responded to these incentives even more resourcefully than most policymakers had expected despite their often chaotic domestic circumstances. The federal law meshed well with many experimental state and local welfare-to-work programs, helping states pay for job search and readiness, health insurance, child care and other vital work support services.

Most politicians did not cave in to the intentionally inflammatory "dying in the streets" rhetoric; instead, they figured that the program could hardly be worse than the status quo of welfare dependency and that many of the poorest of the poor would end up better off. Both Congress and the states resisted the temptation to cut and run once the recipients' situations improved; the governments largely maintained their efforts over time, mindful of how fragile these gains could be. Knowing the failures of many earlier welfare-to-work programs designed to reduce welfare dependency, government tried something new and stuck with it. Even today, virtually every state still runs a strong welfare-to-work program, in part because the programs are relatively inexpensive.

The gains from the 1996 welfare reform and other work-related subsidies are certainly no cause for smugness. Even after 15 years, the law's incentives have not yet lifted all mothers and their children out of poverty — not by a long shot. After all, many who have benefited from the program are stuck in low-wage jobs, and others still don't work at all. Many are so disabled that no program or personal desire to work will enable them to hold decently paying jobs. Still, the never-married mothers — and single mothers more generally — have clearly improved their and their children's living standards and prospects, and interview studies show that they express pride in these gains and in their status as workers. Over time, they may be able to progress further as they accumulate job skills, experience and work habits, and as the economy improves.

Entrenched, multi-generational poverty is arguably America's greatest domestic enemy today. Our first priority should be figuring out how to reduce it permanently by increasing work and human capital among the poor. Welfare reform shows what is possible. This is not only just; it is also the only enduring way to reduce poverty and inequality.

Authors

Ron Haskins
Peter H. Schuck

Publication: Los Angeles Times

Assessing Income Inequality, Mobility and Opportunity

Scott Winship — Thu, 09 Feb 2012 00:00:00 -0500

Editor's note: The below is Scott Winship's testmony for the Senate Budget Committee's hearing on inequality, mobility, and opportunity. Video of Winship's testimony is available at the Senate Budget Committee website, starting at the 62:15 mark in the full hearing video.

Thank you for the opportunity to testify today on the important issues of inequality, mobility, and opportunity. I want to note at the outset that while I am a Fellow at the Brookings Institution, my testimony today is solely on my own behalf. Brookings does not normally take policy positions as an institution.

The facts of income inequality and mobility are nonpartisan. They are incomplete and subject to revision. But in order to guide policy, facts must be as accurately understood and conveyed as possible. Doing so is often difficult not only because the world is complicated, but because new evidence routinely appears to muddy the picture we previously managed to discern.

The facts also leave room for interpretation as to how problematic they are, but often times neutral facts are asserted as problems. Other facts are wrongly thought to be problematic only if they exhibit deterioration. But for something to be a problem, it does not have to be getting worse. On the other hand, just because something claimed to be a problem is growing more common over time does not demonstrate that it is really a problem. With these considerations in mind, let me briefly summarize the facts around income mobility and inequality in the United Sates.

Broadly speaking, there are three ways to think about intergenerational income mobility.^[1] We can ask whether members of one generation end up ranked similarly to the way their parents' income ranked them. If parents are in the bottom fifth of households, ranked by income, how likely is it that their children will also be in the bottom fifth when they are the same age? Note that the "bottom fifth" might be a better-off group in the future than it is today. Another way to assess mobility is to see whether children tend to end up better off than their parents in absolute terms-whether they have higher incomes than their parents (after taking into account increases in the cost of living), regardless of where they or their parents ranked against their peers. Households can experience upward mobility in this sense even if their rank is no higher than that of their parents. Finally, we can consider the extent of mobility by asking how far apart children end up given how far apart their parents were. If one parent has twice the income of another, by what factor will their children's incomes differ? This last way to approach the question of mobility combines concerns about rank and absolute income gains.

The extent of mobility-in any of these senses-may be assessed in three different ways. First, we can ask whether things have gotten worse. The Administration and others on the political left have argued that income mobility has diminished over time.^[2] However, the evidence points to very small changes since the mid-twentieth century-small enough that we do not have the technical requisites to detect them confidently or consistently.^[3] My own estimates suggest that upward mobility from poverty to the middle class among today's late twentysomethings is about what it was for the previous generation. Roughly 50 to 55 percent of those who started out poor reached the middle class by age twenty-seven.^[4] The exception to this pattern of minimal change in mobility is that upward mobility in the absolute sense of being better off than one's parents has risen. For instance, I estimate that 47 percent of late twentysomethings today have already outpaced the incomes their parents had when the kids were 15 years old. In the previous generation, just 41 percent did. In short, if the benchmark against which we judge our mobility is past levels, we do not appear to have much of a problem.

A second way to assess our current mobility levels is to compare ourselves with other nations. In the sense of how much parental income gaps translate into future child gaps, the U.S. tends to have less mobility than most European countries and other English-speaking nations. A comparison to Canada is illustrative. Consider a man who earns twice what his neighbor earns. In Canada, that man's son can be expected to earn 25 percent more than the neighbor's son. In the U.S., the figure is 60 percent.^[5]

However, evidence on earnings mobility in the sense of where parents and children rank suggests that our uniqueness lies in how ineffective we are at lifting up men who were poor as children. In other words, we have no more downward mobility from the middle than other nations, no less upward mobility from the middle, and no less downward mobility from the top. Nor do we have less upward mobility from the bottom among women. Only in terms of low upward mobility from the bottom among men does the U.S. stand out.^[6] This distinctive pattern presents complications for accounts that explain American immobility by pointing to our policies or our economic system. Further muddying the picture is the complete lack of evidence on cross-national differences in the extent to which children outpace parents in absolute terms.

As a third way of assessing the extent of mobility in America, we can use the criterion of former Supreme Court Justice Potter Stewart, who said of a very different sort of problem, "I know it when I see it." That is, apart from the question of whether things are getting worse or how we compare to other countries, we may just believe that there is not enough mobility. That is a difficult case to make if the question is one of sufficient absolute mobility; eighty percent of forty-year-olds before the recession were better off than their parents were at the same age.^[7]

However, the picture, I would argue, changes if we consider the sufficiency of upward mobility in terms of where one ranks. Research conducted by my Brookings colleagues, Julia Isaacs, Isabel Sawhill, and Ron Haskins for my former colleagues at the Pew Economic Mobility Project shows that a child starting out in the bottom fifth of incomes has only a one-in-three chance of being solidly middle class (escaping the bottom two-fifths) as an adult.^[8] She has only a 17 percent chance of ending up in the upper middle class (the top two fifths). To be sure, even failure to reach the "middle" so defined may still translate into higher living standards than the middle enjoyed in the past if there is sufficient absolute mobility. But poor children face long odds and limited opportunity if they want to be able to "grow up to be whatever they want," to use an expressed aspiration many of us, I suspect, heard from our parents.

What about income inequality? Many on the political left, including the president's Council of Economic Advisors chair, have argued that rising inequality has hurt the middle class and poor.^[9] The evidence of such an impact is exceedingly thin.^[10] In part, that is because only one kind of inequality has risen markedly. Within "the 99 percent", inequality has grown only modestly, if at all. According to research by Richard Burkhauser and his colleagues, after taking into account the value of employer-sponsored and federally provided health insurance, the person at the 90th percentile (richer than 90 percent of Americans) has about six times the household income of the person at the 10th percentile (poorer than 90 percent of Americans).^[11] In concrete terms, it is roughly the difference between having $80,000 and having $12,000 to $15,000. The six-to-one ratio held in the early 1990s, and it was probably not much lower in the mid-1980s. It is almost certainly the case that in the late 1960s the ratio was no lower than four, and it was probably closer to five.^[12] Furthermore, these figures do not attempt to make adjustments for the research finding that the cost of living has risen less for the poor and middle class than for upper-income households, which would make the increase in "90/10" inequality even smaller.^[13]

Unlike inequality within the 99 percent, inequality between the 99 percent and the top 1 percent has risen a lot (though not just in the United States).^[14] The top 1 percent received 24 percent of all income in 2007 compared with 10 percent in 1980. But there is very little evidence to suggest that the gains at the top have come at the expense of other Americans. Income concentration at the top fell quite a bit between 2007 and 2009, dropping down to 18 percent of all income received, but that hardly translated into gains for everyone else.^[15] Why should increases in income concentration necessarily translate into losses for everyone else? The size of the economic pie can grow in such a way that everyone gets a bigger slice despite the top getting a bigger share of the pie.

Consider that Mark Zuckerberg, founder of Facebook, stands to make five billion dollars cashing out stock options this year.^[16] How would the typical American end up better off if the Facebook IPO were to fall through so that Zuckerberg could not exercise his options? Or if the IPO does go through, will the typical worker be better off in 2013, because Zuckerberg will not realize the windfall he did in 2012?

American inequality levels are viscerally bracing, but one still has to make the case that they are undesirable. Consider two men, one of whom makes over 200 times the other. Should we be concerned about the poorer man? What if I told you that the two men in this example are Zuckerberg and poor Mitt Romney (who made just $22 million in 2010)?^[17] Romney made over 400 times the typical American household in 2010.^[18] Should we be concerned about that household?

What really matters is how the poor and middle class are doing and how much opportunity they have. Income growth has slowed, but research by Burkhauser and his colleagues and by Bruce Meyer and James Sullivan has shown that median household income still rose by as much as 35 or even 55 percent over the last 30 years.^[19] There were even small gains during the "lost decade" of the 2000s, prior to the Great Recession. While the gains since 2000 have more or less evaporated, that the typical household is-at worst-at the same level as in the boom years of the late 1990s is disappointing but hardly alarming. Meyer and Sullivan's research also shows that incomes at the bottom have increased robustly over the past 30 years, contrary to what official income trends show. By 2009, the household income at the 10th percentile-the household poorer than 90 percent of the others-was only about a third lower than that of the median household in 1980, after adjusting for inflation.

Just because living standards have improved does not mean that the lives of the poor are comfortable. Meyer and Sullivan find (roughly) that the household at the 10th percentile gets by on $20,000 a year, or under $1,700 a month. That is hardly luxurious. For a good working definition of "insecurity," consider the one in five household heads who reported that sometime in 2010 they worried about whether they would run out of food before they could afford to buy more.^[20] But if the circumstances of the poor are problematic that is because of poverty, not because of inequality.

The problem with most discussions of income mobility and inequality is that they do not distinguish between good and bad mobility or between good and bad inequality. A world of perfect mobility, as the researcher/writer Reihan Salam has noted, is "one in which no matter how hard you work to provide your children with every advantage in life, they're just as likely to sink to the bottom of the heap as to rise to the top."^[21] No one should find that ideal attractive; some immobility reflects behaviors we want to encourage or discourage. Similarly, in a world of perfect equality, there would be no rewards for hard work or risk. That would cripple economic growth and hurt everyone.

The issue of economic growth points to the central importance of absolute mobility-of ensuring that children do at least as well as their parents, and ideally much better. Economic growth is the best antipoverty policy we have and the best path to a prosperous middle class, as evidenced by the broad gains of the postwar boom years, to say nothing of the late 1990s. High-end inequality was flat during the former period but rising during the latter.

In the short run, the hard reality is that American consumers are wary of spending, banks wary of lending, and businesses wary of hiring. With the bursting of the housing bubble, a significant minority of the population is in the red, and their weak position is inhibiting the national confidence we need to return to pre-recession growth levels. If we had weathered a normal recession, fiscal stimulus in the form of spending or tax cuts might have been sufficient to dig out of our hole. But recessions preceded by financial crises are different. The amount of stimulus it would take to swiftly restore growth is inconceivable given the historically high deficits we face.

Thankfully, we appear to be turning a corner, so the question increasingly appears to be how to speed up the recovery rather than how to avoid a double-dip recession. The way to do so, in my view, is to facilitate private efforts to put overleveraged homeowners back in the black. That would restore consumer demand, detoxify the problematic mortgage-backed assets lingering on the books of banks, and rejuvenate lending. Importantly, it could be done in a way that did not undermine personal responsibility on the part of borrowers.

A second easy way to promote short-term growth is not to talk down the economy. Political scientist Dan Wood and his colleagues found that the degree of optimism or pessimism in presidential speeches between 1978 and 2002 had a detectable effect on consumers' sentiment about the economy and unemployment, which in turn affected economic growth.^[22] I worry that the interest from one side in framing this year's presidential and senate campaigns around overdrawn themes of inequality and diminished opportunity for the middle class will affect perceptions of the economy's strength.

In the longer term, economic growth will require that we get projected deficits under control. That means containing the growth of entitlement spending, through policies like the Wyden-Ryan Medicare reform proposal. It also means policies to promote innovation, entrepreneurship, and international competitiveness.

For some, it may be tempting to focus policy solely on economic growth to the exclusion of addressing limited upward mobility in terms of rank. But keep in mind all those kids who are unlikely to grow up to be whatever they want. Economic growth alone cannot be expected to increase upward mobility out of the bottom, which Indiana governor Mitch Daniels has called, "the crux of the American promise." Many children face challenging barriers to mobility. Two thirds of African American children experience neighborhood poverty rates the level of which only six percent of white children see.^[23] It is certainly true that many parents do a poor job promoting opportunity for their children, but children do not choose their parents. As children age, they must increasingly take responsibility for decisions that limit their future opportunities. Yet who among us remembers our adolescent years as a period of peak rationality?

Policies to promote upward mobility from the bottom could take the form of investments in education, coupled with reforms to school governance and incentives to promote accountability. They might include reforms to safety net programs to encourage independence, work, marriage, and savings. More ambitiously, child savings accounts could be seeded and family contributions matched on condition that any federal contribution must be used for higher education or a wedding, available only to young adults who avoid run-ins with the law and teen parenthood, or else forfeited back to the Treasury. Senator Sessions has supported a version of child savings accounts in the past; I believe that done well, the strategy could transform the expectations and aspirations of poor children and their parents, easily paying for itself over the long run.

Once again, thank you for the opportunity to testify this morning. I look forward to answering any questions you may have.

Footnotes

[1] For an earlier summary of economic mobility in America, see my essay, "Mobility Impaired," National Review, November 14, 2011.
[2] See, for instance, President Obama's December 6, 2011 speech in Osawatomie, Kansas.
[3] I summarize the evidence in my critique of the president's speech-see "The President's Suspect Statistics," National Review Online, January 2, 2012.
[4] The estimate depends on whether people who report household incomes less than or equal to $0 are included. "Poor" in these analyses means being in the bottom tenth of incomes; "middle class" means an income of at least half the median. Parental income is assessed at age 14 to 16, and the incomes of adult children are assessed twelve years later, at ages 26 to 28.
[5] See Miles Corak (2010), "Chasing the Same Dream, Climbing Different Ladders," Pew Economic Mobility Project (PDF).
[6] See Markus Jantti et al. (2006), "American Exceptionalism in a New Light," Institute for the Study of Labor (IZA) Discussion Paper No. 1938 (PDF).
[7] See Julia Isaacs, Isabel Sawhill, and Ron Haskins (2008), "Getting Ahead or Losing Ground," Brookings Institution for the Pew Economic Mobility Project (PDF)
[8] Ibid.
[9] See Alan Krueger's January 12, 2012 speech at the Center for American Progress (PDF).
[10] See my critique of Krueger's claims-"Closing Arguments in the Great Gatsby Curve Wonk Fight of 2012," originally published at Reihan Salam's blog, The Agenda, on National Review Online's website.
[11] These conclusions are based on two papers coauthored by Burkhauser, one with Kosali Simon (2010), "Measuring the Impact of Health Insurance on Levels and Trends in Inequality," National Bureau of Economic Research Working Paper 15811 and one with Shuaizang Feng and Stephen P. Jenkins (2009), "Using the P90/P10 Index to Measure U.S. Inequality Trends With Current Population Survey Data," Review of Income and Wealth 55(1): 166-185.
[12] Ibid and Jencks et al. (2010), "How Has Rising Economic Inequality Affected Children's Educational Outcomes?" Working Paper.
[13] Christian Broda and John Romalis (2009), "The Welfare Implications of Rising Price Dispersion," Working Paper.
[14] See the World Top Incomes Database.
[15] See the data compiled by Stephen Kaplan, building on the work of Thomas Piketty and Emmanuel Saez.
[16] Richard Waters, "Facebook chief faces tax bill of $1.5bn," Financial Times, February 3, 2012.
[17] Richard Rubin and Jesse Drucker, "Romney's 13.9% Tax Rate Shows Power of Investment Tax Preference," Bloomberg, January 25, 2012.
[18] Median household income in 2010 was $49,445. See http://www.census.gov/newsroom/releases/archives/income_wealth/cb11-157.html.
[19] Burkhauser, Larrimore, and Simon (2011), "A 'Second Opinion' on the Health of the American Middle Class," National Bureau of Economic Research Working Paper 17164 and Meyer and Sullivan (2011), "The Material Well-Being of the Poor and the Middle Class Since 1980," AEI Working Paper 2011-04 (PDF).
[20] Coleman-Jensen et al. (2011), "Statistical Supplement to Household Food Security in the United States in 2010," United States Department of Agriculture Economic Research Service.
[21] Reihan Salam, "Going Nowhere," The Daily, November 29, 2011.
[22] B. Dan Wood, Chris T. Owens, and Brandy M. Durham (2005), "Presidential Rhetoric and the Economy," Journal of Politics 67(3): 627-645.
[23] Patrick Sharkey (2009), "Neighborhoods and the Black-White Mobility Gap," Pew Economic Mobility Project.

Authors

Scott Winship

Publication: Senate Budget Committee

Stop Feeling Sorry for the Middle Class—They’re Doing Just Fine

Scott Winship — Tue, 07 Feb 2012 10:24:00 -0500

Commentators were right to point out that Mitt Romney committed a flagrant gaffe last week. Unfortunately, they were only half-correct in identifying the offense. Yes, Romney was impressively inartful in announcing that he was “not concerned about the very poor” because “we have a safety net there,” managing to upset both liberals (for his apparent insensitivity) and conservatives (for his apparent satisfaction with a welfare state they believe promotes dependency). But another objectionable part of Romney’s statement went mostly unremarked upon—namely, his declaration that his paramount concern was the economic circumstances of the middle class.

The idea that 90 or 95 percent of Americans are struggling may have achieved the status of conventional wisdom, but that doesn’t mean it’s correct. Indeed, it ultimately functions as a distraction: The attention we insist on paying to the overstated problems of the middle class come at the expense of the more critical challenges facing the poor.

Certainly a great number of Americans are in the throes of economic hardship and anxiety, and we should not be cavalier about the real crises they face: Things are significantly worse than they were before the Great Recession. But conventional accounts of how the broad middle is doing systematically overstate economic insecurity. For example, over 40 percent of those who were unemployed at the end of 2011 had been jobless for 27 weeks or more, a fraction unseen between the Great Depression and the Great Recession. But this figure is based on a statistical snapshot taken during one week. The long-term unemployed are captured in these snapshots month after month, the equivalent to churchgoers who never miss service.

In contrast, those with brief spells of joblessness cycle into and out of unemployment. They constitute a relatively small share of the unemployed at any point in time but a large share of all of those experiencing unemployment over longer periods. The briefly jobless are like occasional churchgoers who might attend a wedding here or a funeral there or who faithfully show up at Christmas and Easter. On any given Sunday, committed churchgoers dominate, but considering everyone who attended service during some year, they may be swamped by infrequent attendees. Reflecting these dynamics, over the past four years, no more than one in ten workers has experienced a spell of unemployment lasting 27 weeks. Similar claims about middle class families struggling with retirement security, debt problems, and other economic troubles are also overstated, as I’ve described in National Affairs.

Accounts of income stagnation or decline are likewise flawed. Income growth has slowed, but research by Richard Burkhauser and his colleagues and by Bruce Meyer and James Sullivan has shown that median household income still rose by as much as 35 or even 55 percent over the last 30 years. There were even small gains during the “lost decade” of the 2000s, prior to the Great Recession. While the gains since 2000 have more or less evaporated, that the typical household is—at worst—at the same level as in the boom years of the late 1990s is disappointing but hardly alarming. Accordingly, statistics show that middle class anxiety, contrary to many press reports, has been relatively muted: In mid-2010, half of Americans said their financial situation was better or no worse than before the recession, while just 16 percent said they were in “much worse shape”. These are not numbers to inspire cheers, but they do not paint a picture of a drowning middle class. Instead, they suggest focusing on a small minority who could use some help.

Meyer and Sullivan’s research also shows that incomes at the bottom have increased robustly over the past 30 years, contrary to what official income trends show. By 2009, the household income at the 10th percentile—the household poorer than 90 percent of the others—was only about a third lower than that of the median household in 1980, after adjusting for inflation. The increase was due to expanded generosity of federal cash and noncash benefits—the safety net that Romney trumpeted. Burkhauser’s research, too, shows that the federal safety net has effectively raised the living standards of the poor over time.

But there are two good reasons for focusing on the economic problems of the poor. First, just because living standards have improved does not mean that the lives of the poor are comfortable. Meyer and Sullivan find (roughly) that the household at the 10th percentile gets by on $20,000 a year, or under $1,700 a month. That is hardly luxurious. If you want a working definition of “struggle” or “insecurity,” consider for a moment the one in five household heads who reported that sometime in 2010 they worried about whether they would run out of food before they could afford to buy more.

A second reason for worrying about the poor is the restricted opportunities of low-income children. As I have argued in the pages of National Review, the U.S. is singularly ineffective at lifting poor children into the middle class as adults (poor boys, actually—we are as effective as other nations at lifting up poor girls). If you are reading this, chances are good that you are in the top two-fifths of the income distribution or can expect to be there at age forty. Just 17 percent of kids raised in the bottom fifth will make it there. Based on historical patterns, your own kids will have a 60 percent chance of doing so if they start out in the top two fifths.

Here the concern of conservatives about complacent satisfaction with the safety net—Romney’s included—is relevant. Our safety nets might simultaneously lift the poor out of destitution yet discourage the upward mobility of poor children. They may provide a floor but impose a ceiling, through inefficient incentives related to work, marriage, and saving. Furthermore, much of the left does not want to confront the important issues of family instability, criminality, and personal responsibility in limiting life chances.

At the same time, much of the right is reluctant to acknowledge the role of luck in determining one’s economic fate. Many conservatives are too ready to accept inequalities in adulthood that reflect decisions kids’ parents made and the decisions of kids themselves during the notorious period of irrationality that we call “adolescence.” We need more conservatives willing to experiment—using federal dollars—to figure out how to get more poor kids the greater skills that are prerequisites to economic independence and comfort in today’s economy.

Whether politicians ignore the poor and pander to the middle class or scare the middle class into thinking they are as bad off as the poor, the result is likely to be the same. Most of our policies will continue to be mis-targeted, as analyses by the Pew Economic Mobility Project and CFED have demonstrated. In turn, they will explode the deficit, leaving less money to promote upward mobility among the poor. And those policies that take the form of tax breaks for investing in savings or education will further price the poor out of markets for mobility-promoting assets—whether higher education or homes—by subsidizing investment the non-poor would have made even without tax incentives. Think “mortgage interest deduction”.

In fact, complacency about how well the poor are doing and scare-mongering targeted at the middle class both have the potential to reduce support for policies that would disproportionately help the poor, which would be a tragic irony for liberals who think they are promoting class solidarity by playing up the woes of middle-income Americans. Let us hope that 2012 might feature a real debate—and not only among the presidential candidates—over which economic problems merit the most attention in a nation that cannot afford to help everyone.

Authors

Scott Winship

Publication: The New Republic

The Obama Administration's Mobility Claims and the "Great Gatsby Curve"

Scott Winship — Fri, 20 Jan 2012 00:00:00 -0500

Editor's Note: This opinion piece first appeared on January 17, 2012 as a guest post on National Review Online's domestic policy blog, The Agenda.

Several researchers have misinterpreted my point in criticizing Krueger’s mobility claims from last week. Here it is, stated as clearly as I can muster: Krueger was deceitful in his claim that the middle class is shrinking, and the Great Gatsby Curve is remarkably weak evidence that mobility is declining.

Let me start with the second objection to the Krueger claims, related to the now-famous Great Gatsby Curve. My assessment has been the subject of quite a bit of criticism from Miles Corak, my Brookings colleague Justin Wolfers and others. Miles and Justin basically accuse me of not knowing my stuff, making arguments that weaken my own casse, and trying to muddy up Krueger’s evidence indiscriminately to cast doubt on it. Harsh, Heather.

I’ve outlined my detailed objections to the evidence at length, but there is more to say.

To review, Krueger plotted inequality against immobility across ten countries, computed the best-fitting line through the points, and then used this Great Gatsby Curve to estimate that today’s children will have less mobility than their predecessors. I want to emphasize for the record that I am agnostic on the questions of whether economic inequality robustly correlates with economic imobility across nations and whether economic inequality causes economic immobility. What I did assert in my critique of Krueger’s figures is that for purposes of projecting whether mobility is on the decline or not, extrapolations using the Great Gatsby Curve are “uninformative”. The approach is an exceedingly weak one, which replaced the even-more-flawed approach from the president’s Osawatomie speech. The specific way that Krueger implemented the approach also has specific weaknesses (such as using inequality measured in adulthood rather than in childhood).

Justin made the colorful charge that my criticisms of the Gatsby Chart’s imprecision actually strengthen Krueger’s and Corak’s case. Wolfers apparently thinks I am arguing that all or some of the ten points in the Gatsby Chart are measured imprecisely, such that they are equally likely to be too high or too low, too far left or too far right. He also appears to think that I am arguing that the perfectly estimated best-fitting line would be flat, indicating no relationship between inequality and immobility.

If I were arguing both of these points simultaneously, I would indeed be inadvertently strengthening the other side’s case. This would be embarrassing. Since I am actually making neither argument, it is just frustrating, since most of Justin’s readers will assume he is right and will not end up reading this post. So to be clear, I am arguing that the Gatsby Curve is too imprecise for worthwhile estimates of the trend in American mobility. It may be too flat (if most of the error in the points is of the equally-likely-to-be-high-low-left-right variety). But it may be too steep. Many of the issues I have raised do not necessarily imply that the Gatsby Curve is too steep—Justin is just wrong about this.

Let me illustrate dramatically with two examples. The economic theory that Miles cites regarding why inequality might affect mobility is most logically applied using wealth inequality data rather than income inequality data. For five countries where there are comparable wealth Gini coefficients (see Table 3), the Gatsby Curve (using Miles’s immobility figures and the wealth Ginis from roughly 2000) really is flat. The correlation is 0.01, while the correlation using income Ginis from roughly 2000 is 0.64. (Ask me if you want the spreadsheet.)

For another illustration of how imprecise Gatsby Curves are for this sort of exercise, take a look at the last three rows of Jo Blanden’s Table 5. The rows provide 18 estimates of mobility-inequality correlations, using 6 different sets of mobility estimates and 3 different income Ginis. If Miles and Justin are right, these 18 estimates should be similar. But they instead range from -0.15 to 0.87. That is to say, the Gatsby Curves are all over the place. (And, yes, I realize that the Ginis are measured at different times, but as I noted, Krueger is using Ginis for the wrong time (adulthood instead of childhood). Miles and others have not found this objection compelling up to this point.)

If the Administration wants to say, “There is a relationship across countries between inequality and mobility, so that would lead us to expect that with rising inequality there will be less mobility,” that’s less objectionable, in a sense, than trying to nail down a point using the Great Gatsby Curve, giving the illusion of precision. However, the claim would still be weak, for a number of the reasons I have laid out. Better yet would be to just say, we have too little mobility and to support it with the comparatively rock-solid evidence on levels of American mobility. That is, one does not have to tie insufficient mobility to inequality, and one does not have to show that mobility is declining to argue that it is insufficiently high.

Noah Smith is the only person who has attempted to defend Krueger’s claim that the middle class has shrunk, which obscured the point that it has shrunk by his definition because more people are now richer than middle class. Noah claims that this claim isn’t deceptive at all, that it is narrowly true and illustrates a point about rising inequality. Brad DeLong gleefully approves.

Give Noah the point that in a narrow sense, the middle class as Krueger defines it has shrunk. Was Krueger being deceitful? Summarizing the chart that showed a declining middle class, he said, “we have more families falling into either extreme end of the distribution, and fewer in the middle.” No—we have more families falling into one extreme end, and it is not the low end, it is the high end. For that matter, the upward mobility estimates from the Osawatomie speeech used the same constricted definition of middle class: upward mobility from poverty to richer-than-middle class did not count as upward mobility in those estimates. There is absolutely no reason to be substantively concerned about whether the poor have less oportunity to make it to the middle class but no further.

I hope readers have found this debate to be informative, and I am grateful to Reihan for letting me crash here for a few days. I have spent too much time on it this week to continue, barring some response that I feel compelled to defend myself against. I share Justin’s hopes that the Gatsby Curve will spark a lot of additional research on this question—I’ll certainly be pursuing some of it.

Authors

Scott Winship

Publication: National Review Online