Bad News on Poverty, Worse to Come

With unemployment continuing to creep up to levels not seen for decades, a lot of focus has been placed on the sheer number of people without jobs. But high rates of joblessness are also pushing more people into poverty. More disturbing still is the fact that they are likely to stay there for a long time. Indeed, the poverty rate will likely remain higher than it was in 2007 for at least a decade.

The most recent data, just released by the Census Bureau, show that the poverty rate increased from 12.5 to 13.2 percent between 2007 and 2008. But this is just the tip of the iceberg; the effects of the recession on unemployment rates — and more specifically, poverty — will be felt for many years to come, according to our analysis. Thus, in the absence of a stronger safety net or more opportunity for those at the bottom, the recession could end up widening income disparities in the U.S. — disparities that were already large, long before the economic meltdown began.

We expect poverty rates to peak at well over 14 percent before finally subsiding again but it will be a very long time before they reach the levels achieved in 2007 – probably at least a decade from now. Although any forecast of this sort is dicey, there is little question that the future is bleak for those at the bottom of the ladder. Fewer job opportunities lead not just to a drop in one’s immediate income, but also to a more permanent scarring of a worker’s economic prospects due to a loss of valuable experience or on-the-job training, less upward wage mobility even for those who manage to hold onto their jobs, and personal discouragement that may affect their health or family life. All of these effects have a disproportionate impact on the most disadvantaged, especially minorities and single-parent families. 

In light of these projections, it is urgent that policymakers refocus their attention on what might be done to mitigate the long-term damage.  Our data show that the safety net measures included in the stimulus package will expire long before the poverty level peaks, probably in 2011 or 2012. But rather than simply expanding the usual programs, we should also use the opportunity to reform the way cash and non-cash assistance is structured so that it encourages and rewards education, work, and stable families. 

With the policy community now focused so heavily on health care reform, the plight of the least advantaged in our society is getting too little attention. Yes, they will benefit from any expansion of coverage under Medicaid, but they also need a job, or lacking that, some form of temporary assistance. In the meantime, the spiraling costs of health care for an aging and politically powerful elderly population threaten to crowd out needed expenditures on lower-income working families and their children. It is time to face up to this fact, get control of health care costs, and reallocate some resources to that segment of the population that is bearing the brunt of this recession and whose economic prospects should concern us all.