The Director's Corner

Why so much poverty?

The Census Bureau recently released figures showing that approximately one out of every 8 Americans is living in poverty. Although it is difficult to make comparisons across countries, by any account the poverty rate in the United States is extremely high, indeed closer to the poverty rate in Mexico than to the poverty rate in any comparable European country (see recent paper by Timothy Smeeding).

What accounts for such extraordinary poverty in the United States? The reasons are simple:

  • Bad jobs: The United States has relatively more poorly-paid jobs than other countries. The wages in these jobs are so low that, even when household heads are working full-time in such jobs, they will often not earn enough to keep their families out of poverty.
  • Cash and near-cash transfers: Relative to similarly rich countries, the United States spends very little on social insurance, universal benefits, social assistance programs targeted to low-income populations, and other cash and near-cash transfers. The poverty rate remains high in the United States in part because it relies far less on such programs than do other countries.

graph

Recently, the Census Bureau released new figures showing that an alternative poverty measure developed by the National Academy of Science (NAS) yields a poverty rate of 14.1 percent in 2005, as compared to the official rate of 12.6 percent (see report). This alternative measure captures the circumstances of families more accurately because it adds in the value of noncash benefits (e.g., food stamps) while subtracting out medical costs and work-related expenses (e.g., child care). It also corrects for regional differences in the cost of living. Although both the official and NAS rates have tended to trend upward over the last 6 years, the NAS measure does so more consistently and at a higher base level (see figure).

We will be reporting regularly here on the NAS poverty measure as well as the official poverty statistic [more details on the NAS measure]. Additionally, we have provided other poverty and inequality time series on our web site, accessible here.

David Grusky, Director