This study was published in January 2012 by Indiana University’s School of Public and Environmental Affairs.
The Great Recession officially began in December 2007 and ended in June 2009. A slow recovery is underway, but the severity and extended duration of the downturn have inflicted long-lasting damage to individuals, families, and communities.
This White Paper examines the impact of the Great Recession and its aftermath on poverty in America. Our focus is not only the well-being of the poor but the near poor and the “new poor,” the millions of families who are entering poverty because of the Great Recession’s terrible toll of long-term unemployment. The Paper examines the recent trends in poverty, nationally and in the 50 states, in the context of the well-established risk factors for poverty: age, race and ethnicity, family structure, educational attainment, and employment.
We also examine the performance of America’s “safety net”: the major federal and state programs designed to protect the well-being of low-income Americans. Given the poor fiscal condition of the public sector, we also consider what is likely to happen to funding for the safety net between now and 2017, when the economy is forecasted to reach full employment again. Our principal conclusion is that the well-being of low-income Americans, particularly the working poor, the near poor, and the new poor, are at substantial risk, despite the economic recovery.
1. The Great Recession has left behind the largest number of long-term unemployed people since records were first kept in 1948. More than four million Americans report that they have been unemployed for more than 12 months. Although the official rate of unemployment is declining, much of this apparent progress is attributable to the fact that many adults are giving up on the search for a job. The more telling indicator of an economy’s job-producing performance, the ratio of the number of employed people to the number of working-age adults (the “job-to-people” ratio), has improved only slightly since the Great Recession ended in June 2009. If the long-term unemployed lose their unemployment insurance benefits before the economy produces enough well-paying jobs to approach full employment, the ranks of the “new poor” will steadily swell between now and 2017.
2. Large numbers of Americans are already poor. The official federal measure of poverty and a new “Supplemental Measure,” which accounts for several shortcomings in the official measure, both reveal a sobering fact: poverty in America is remarkably widespread. In 2010, about 46.2 million Americans were living in poverty according to the official measure, or about 15.1% of the U.S. population. The rate of poverty is slightly larger (16%) using the supplemental measure. The five states with the highest rates of poverty are somewhat different according to the two measures (2009): Mississippi (23.2%), Arizona (21.3%), New Mexico (19.6%), Arkansas (19.1%), and Georgia (18.5%), according to the official measure; California (22.4%), Arizona (21.6%), Florida (19.5%), Georgia (18.8%), and Hawaii (18.0%), according to the supplemental measure. The supplemental measure accounts for geographical differences in the cost of living and thus gives more emphasis to poverty in urban areas, where day-to-day living costs, especially housing, are higher than they are in rural areas.
3. The number of people living in poverty is increasing and is expected to increase further, despite the recovery. The proportion of people living in poverty has increased by 27% between the year before the onset of the Great Recession (2006) and 2010. During the same period (2006-2010), the total population of the United States grew by less than 3.3%. The official national estimates of people in poverty have risen each year since 2006: 36.5 million (2006), 37.3 million (2007), 39.8 million (2008), 43.6 million (2009), and 46.2 million (2010). Poverty is expected to increase again in 2011 due to the slow pace of the economic recovery, the persistently high rate of unemployment, and the long duration of spells of unemployment.
4. The recent increase in the rate of poverty has not been uniform across subgroups. The increase in poverty since 2006 has been greater among Hispanics and African Americans than among Whites, greater among children than among the elderly, and greater among female-headed households than other households. More surprising, however, is the growth in poverty among working-age adults, especially younger people between the ages of 18 and 34.
5. Some states have experienced much larger increases in the rate of poverty than other states. The ten states that have experienced the largest percentage point increase in the rate of poverty, since the onset of the Great Recession, are (in rank order) Florida, Nevada, Arizona, Michigan, Indiana, Ohio, California, Connecticut, South Carolina, and Minnesota/North Carolina/Wyoming (tied for 10th). Some large states, such as Texas and New York, have not experienced large increases in the rate of poverty. Other states, such as Mississippi, are not in the top 10 but had consistently high poverty rates before, during and after the Great Recession.
6. Since the onset of the Great Recession, the performance of the American “safety net” has been uneven. The entitlement programs, including the Supplemental Nutrition Assistance Program (SNAP – Food Stamps), Medicaid, and Unemployment Insurance have responded robustly to the Great Recession – as unemployment rose and incomes fell, eligibility and participation in the safety net increased. In contrast, other programs, such as Temporary Assistance for Needy Families (TANF) and federal housing assistance, have not responded as effectively to the depressed economic conditions. Although it is more difficult to achieve fiscal control of entitlement programs that operate with mandatory spending, they have been the most responsive aspect of America’s safety net since the unexpected hardships of the Great Recession began.
7. While history is rife with examples of mismanagement and abuse of public funds used for a variety of government purposes, anti-poverty programs may be particularly vulnerable to being placed under the microscope, and perhaps subsequently at risk for budget cuts. Media coverage about incidents of fraud and mismanagement of programs, coupled with budgetary concerns, may negatively affect the future funding of the safety net. Recent efforts to buttress asset tests in federal food assistance, remove millionaires from unemployment insurance, and add in provisions in the 2011 debt-ceiling agreement to reduce fraud and abuse (e.g., under Medicaid and Medicare) are all examples of efforts designed to stem waste, fraud, and abuse in public programs. While evidence indicates that administrative and other mismanagement problems play a larger role in erroneous spending than fraud by program recipients, if these concerns are not handled carefully, there is additional risk that elected officials will respond hastily with reforms of the safety net that may put low-income Americans at additional risk.
8. The adverse effects of the Great Recession would have been much worse had recent policy initiatives not been enacted by Congress. The Obama administration and the Congress have responded with several policy initiatives aimed specifically at protecting the well-being of low-income Americans. Among many actions, they include the 2009 federal stimulus package, which aimed approximately $240 billion of the $787 billion package at low-income populations; a permanent expansion of child health insurance for families with incomes between 133% and 300% of the poverty line; tax cuts designed to assist low-income workers; and a provision prohibiting states from curbing Medicaid access until the new health care reform law supports a large expansion of Medicaid in 2014. As bad as the Great Recession has been for low-income Americans, it would have been much worse without these recent policy actions.
9. The Federal government’s large yearly deficits are creating pressures for spending control that are likely to result in cutbacks of the safety net. The federal government’s deficit in fiscal year 2011 is estimated to be about $1.6 trillion. As a result, the 2011 federal agreement to raise the debt ceiling requires two rounds of cuts in the growth of federal spending. The implementation of this agreement will directly and indirectly put low-income Americans at risk. There are key safeguards in the agreement that exempt federal entitlement programs and cash assistance from cuts. However, other programs in the safety net (e.g., federal housing assistance) are not exempted. If Congress sets aside the 2011 spending agreement on the grounds that national security spending deserves greater priority, then larger cuts in non-defense, discretionary spending may be required. Under that scenario, the safety net for low-income Americans will be placed at even greater risk than it is under current policy.
10. Due to fiscal pressures, states are already making cuts to the safety net, and more are likely in the next several years. With the 2009 stimulus package expired and revenues to state governments recovering slowly this year (due to the sluggish recovery), many states (from Washington and California to Michigan and Florida) are making cuts to unemployment insurance, temporary cash assistance, Medicaid benefits, and other services for low-income Americans. The fiscal pressure on some states may worsen before it eases. The pressure to restrain federal spending may cause Congress to reduce federal fiscal relief for the states, which are already struggling to balance budgets in the face of rising Medicaid costs and depressed revenues. If the federal government places more fiscal pressure on the states, which are required to balance their budgets, then states are likely to consider additional cuts to cash assistance, Medicaid and other safety-net programs. States may also be compelled to reduce funding for tax and educational policies that primarily benefit low-income populations. More state cuts to the safety net should be expected unless the recovery – and the resulting growth rate of state revenues – accelerates.
The dilemmas faced by policy makers in the 2012-2017 period are vexing. The United States cannot afford the current level of government spending, but for a variety of reasons, elected officials are reluctant to pass tax increases. Promoting sustained economic growth, while at the same time protecting the well-being of the poor, the near poor, and the new poor, is the central challenge for the leaders of the United States.
The full text of this report can be downloaded as a PDF here.