Poverty remains a pressing problem in the United States. Many of the 36 million Americans in poverty are working, but full-time work at the minimum wage does not provide enough income to escape poverty. This paper offers a three-part strategy to reduce poverty and strengthen growth across the income spectrum. First, the most effective antipoverty policy is to help people find a job that pays enough to support a family. This paper’s principal focus is on programs to reward and facilitate work. Second, a broader set of policies is necessary to prepare people to succeed, by investing in human capital and other critical needs. Finally, public policies should provide a more robust safety net and a set of social insurance policies to help people rebound if they do experience economic hardship, and reduce the likelihood of their falling below a certain economic level at any point. Together, these policies can raise the living standards of struggling families and allow everyone to share in our nation’s prosperity.
After falling sharply from the 1960s to the 1970s, the nation’s poverty rate has since crept back up in an uneven pattern: declining for periods in the late 1980s and mid-to-late 1990s before climbing up again starting in 2000. The increase in the poverty rate between 2000 and 2006 is especially notable because it is the only period on record when a strong rate of aggregate economic growth has coincided with an increase in impoverishment. At the same time, the persistence of inner-city poverty was made even more vivid by the indelible images of the devastation following Hurricane Katrina.
The failure to make sufficient progress against poverty over the past thirty years is inconsistent with our nation’s commitment to equal opportunity and economic mobility. Furthermore, this failure also harms the economy more broadly. Harry Holzer, Diane Schanzenbach and colleagues have estimated that the cost of children growing up in poverty is about $500 billion per year, nearly 4 percent of GDP. That cost includes the lost potential for productivity, the high cost of crime, and the rising cost of health care (Holzer et al. 2007). Addressing poverty is not just a moral imperative—it is also an essential part of a broader strategy to make growth stronger and more sustainable.