Poverty Day Numbers Show the Need for Higher Wages

This post originally appeared on Spotlight on Poverty and Opportunity.

This morning, the US Census Bureau released annual income and poverty data showing essentially no change in the economic status of low- and middle-income households from 2013 to 2014. Despite an improving economy, the same proportion of Americans is still struggling to make ends meet. This lack of improvement in the poverty rate illustrates one of the chief catalysts behind America’s persistent poverty: stagnant wage growth that has left too many people without the means to support themselves and their families.

The official US poverty rate for 2014 was 14.8 percent. This is slightly higher than the official poverty rate reported for 2013 last year; however, last year the Census Bureau redesigned the survey that determines the poverty rate. For last year’s release, Census used both the new and old surveys in parallel, but only reported the results from the old survey. This year, they released the 2013 values from the new survey, which showed a poverty rate in 2013 of 14.8 percent—the same rate reported for 2014 in this year’s release. In 2014, the share of the population in deep poverty – with incomes less than half the poverty line – was 6.6 percent, and the share of families with income less than twice the poverty line was 33.4 percent.

This is the second year in a row that the Census Bureau’s statistics have shown that 1 in 7 American families – roughly 47 million people – have incomes too low to meet the government’s official threshold for basic subsistence, a measure long recognized as inadequate for assessing true economic need. For 2014, the poverty line for a family of four was $24,418; alternative measures show that families require far higher levels of income to achieve modest economic security, even in the country’s least expensive areas.

While its shortcomings are well-documented, the official poverty line’s primary usefulness is its longevity—it provides a relatively consistent measure since the 1950s. It shows that America’s distressingly high poverty rates are a problem that has persisted, if not worsened, over the past 35 years.

From its inception in the late 1950s until the late 1970s, the poverty rate fell from over 22 percent to less than 12 percent. But since 1980 it has never approached its 1970s lows, with one exception (2000). It has instead hovered between 13 and 15 percent for most of the last three-and-a-half decades. Perhaps most startling is that the 2002 to 2007 economic expansion was the first on record when poverty was higher at the end of the business cycle (12.5 percent) than at the beginning (12.1 percent).

As disturbing as these trends are, they underscore one critical reason why the US has not been more successful in reducing poverty: over the past generation, the vast majority of working households did not share in the benefits of a growing economy and increasing productivity. From 1979 to 2013, US per-capita GDP grew 73 percent and labor productivity rose 62 percent, yet the entire bottom 90 percent of wage earners saw their total annual pay rise by only 15 percent. Those meager gains were largely the result of households working longer hours, not being paid more per hour.

Why does this disconnect between productivity and pay matter in the fight against poverty? Because, for better or worse, the plight of the poor has become increasingly tied to the value of work. Since the 1980s, the bottom fifth of non-elderly households have increasingly relied on work-related income (wages, benefits, and work-based tax credits) as their principal source of income. Such income constituted nearly 70 percent of total income for this group in 2010, up from 57 percent in 1979. In 2013, nearly two-thirds of the working-age poor who could work, did in fact work, and over 40 percent worked full time. Of those who did not work, roughly half were seeking a job.

Yet while work has become more important to poor households, hourly pay for the vast majority of jobs – particularly low-wage jobs – has either stagnated or declined. The lowest-paid 20 percent of workers were actually paid less per hour in 2013 (after adjusting for inflation) than their counterparts were in 1979.

As wages stagnate or decline, it becomes harder for poor households to pull themselves out of poverty through work. This puts more working families near the poverty line and at risk of falling below it. Indeed, had hourly wages grown at the same rate as productivity since 1979, there would have been 7.1 million fewer people in poverty in 2013. And though a significant share of the poor cannot work, raising wages would reduce reliance on the safety net by those who can—freeing resources that could then be repurposed to strengthen poverty-fighting programs.

Our failure to more significantly reduce poverty is not a failure of government interventions. In fact, our safety-net programs have worked quite well in preventing much higher poverty rates. Rather, it is largely the fault of a labor market that no longer adequately rewards work. Our broken labor market forces the tax-and-transfer system to carry an increasingly heavier load just to keep the poverty rate from growing. The poverty rate may be down, and there are worthwhile reforms we should make to our anti-poverty programs, but these programs are fighting an uphill battle if we do not prioritize broad-based wage growth.