What Do the Poverty Numbers Mean?

The Census Bureau’s release of its Income, Poverty, and Health Insurance Coverage report for 2012 reminds us that the United States isn’t just experiencing poverty of income, but also poverty of opportunity. While the headline news is that the poverty rate was statistically unchanged from last year, hovering at around 15 percent, the report’s findings also suggest a bleaker picture about the possibilities of moving up in the current economy.

At a Brookings event this week on the Census’s findings, Ron Haskins made plain the relevance of the poverty numbers to all Americans. The stagnating poverty rate has become a “metaphor for the whole American economy,” because middle-income Americans are no more able to improve their economic position than the poorest among us. While wealth is growing for people at the highest income levels, being highly correlated with the spectacular improvements in the stock market since the recession, everyone else seems to be merely treading water. Earlier this month, Emmanuel Saez, an economist at Berkeley, released a paper on the “uneven recovery from the Great Recession,” finding that the top 1 percent received 95 percent of the income gains since the recession. The income of the top 1 percent grew by 31.4 percent, he found, while everyone else’s grew by next to nothing: 0.4 percent. For the first time ever, according to Ben Landy for The Century Foundation, 50 percent of total U.S. income is going to the highest 10 percent.

What this gives us is an income distribution that is almost unbelievably skewed towards higher income earners, which offers the possibility for fascinating discussions about whether we should reevaluate the way we think about the middle class. Justin King wrote on Tuesday about the surprising conclusions we arrive at if we take the definition of “middle class” at face value: to be middle class is to earn an income around the median income. To earn at the median for a four-person family means that each parent would earn about $33,000 a year. (The median income for a four-person family is $66,000 a year.) So a $15 an hour job is now right in the middle of the “middle class”; 50 percent of “middle class” people are making less than $15 an hour.

Unfortunately, it looks as though this level of earnings isn’t changing any time soon. The slack demand for workers has kept wages low. The Bureau of Labor Statistics maintains that there are three job applicants for every job opening; it’s an employers’ market. And those other applicants who don’t get the job? They face tougher and tougher odds with each passing week without a job. Recognizing what Ben Casselman for the Wall Street Journal called the “scourge” of the recession, the National Employment Law Project launched an effort to help fight the “stigma” of long-term unemployment. And all this disheartening news comes, according to Annie Lowrey for the New York Times, “despite the addition of more than two million jobs last year, soaring corporate profits and continuing economic growth.” The best explanation for why “income for the typical American household did not rise in 2012 and poverty failed to fall” is this continued poverty of opportunity for ordinary Americans, which, as suggested by the findings of a recent summary brief by the Center for American Progress, can be traced back to the late 1960s when the share of income going to the middle 60 percent began its precipitous decline. At that time, the middle 60 percent received over 50 percent of the total national income. Today, it’s around 45 percent.

Two things could help reverse this state of affairs: 1.) a robust safety net to provide immediate assistance so that families can preserve their fragile balance sheets in the short term and not fall further behind; and 2.) a way for families to get ahead by building their own safety net through savings. As for the first, while the overall poverty rate in 2012 was 15 percent, the Census Bureau found that the rate would be reduced to 12 percent if it took into account SNAP and the EITC. That 3 percentage point drop is due entirely to these two programs, not counting other in-kind benefits that many low-income families rely on. Regarding the second, families with savings are much less likely to face economic hardship or fall into poverty following a financial shock.

^{The Impact of Alternative Resource Measures on Poverty. Source: U.S. Census Bureau, David S. Johnson.}

Despite these facts, the House is proposing (in H.R.3102) to cut $40 billion from SNAP, threatening to disturb the already-fragile finances of low- and middle-income working families. The House proposal would also require all SNAP recipients nationwide to adhere to an indefensible and arbitrary asset limit of $2,000. Such a move would reverse the improvements made over the past few years in many states that have significantly raised or eliminated their SNAP asset limit. Instituting such a low limit on the amount of savings families can have to weather financial emergencies is akin to requiring families to choose between putting food on the table today and building the savings that could help them become self-sufficient in the long-run.

We need to help families stay afloat in the short term and allow families to build their own safety net for the long-term. The Census’s poverty numbers make a compelling case for strengthening policies that would achieve these goals.