1 Million Pushed Into Poverty By Rising Gas Prices Last Year

A few weeks ago, the Census Bureau released troubling data showing that the U.S. poverty rate jumped from 14.3% in 2009 to 15.1% in 2010, the highest it’s been in 17 years. Now economists from the Peterson Institute report that one third of the increase in poverty over the past year was caused by rising gasoline prices. The U.S. makes up a smaller share of world demand for oil than it did in the past, so, while global oil prices dropped during the height of the recession, they rebounded strongly last year despite America’s continuing economic difficulties. In 2010, the price of crude oil increased 30% and gasoline prices rose by 18%, pushing nearly 1 million people into poverty.

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Studies Show That Getting Low Income Teens To College Requires More Than Just Money

How do we close the gap in college attendance between children from low-income families and those from middle and upper-class backgrounds? Existing research shows that providing financial support is critical to helping students afford college (and feel financially comfortable enough that they choose to attend), but new studies suggest that money alone may not be sufficient.

A cross-national analysis shows that while out-of-pocket educational costs for low-income college students are lower in the U.S. than in Canada, significantly fewer young adults from low-income backgrounds attend college in the U.S. The gap between the share of young adults from the lowest income bracket who attend college and the share from the highest income bracket who attend is about twice as large in the U.S. as in Canada (20 percentage points versus 45 percentage points). This pattern persists despite the fact that educational costs for low-income students are lower in the U.S. than in Canada** and even after controlling for other differences between Canadian and American students. While financial aid is obviously critical to making it affordable for low-income students to attend college, it is not enough to close the gap between low- and high-income students (if it was, we would expect to see a smaller gap in the U.S. than in Canada).

Another set of studies looks at the impact of students’ college savings on their likelihood to attend university. The researchers find that young adults from low and middle-income families who, as teenagers, set aside their own savings to pay for college are almost twice as likely to end up attending school as those who don’t. Further exploration reveals that this finding only holds true for students who, as teenagers, report being fairly certain that they will one day graduate college. For those who report being unsure whether they will graduate from college, saving money for university has no impact on whether they eventually attend.

Both of these studies suggest that financial support, while extremely important, is not enough to close the college attendance gap. Attitudes, self-perception, and other non-economic factors continue to play a role. As advocates press for increased financial aid and funding for programs like CDAs that help young people save for college, they should consider what efforts might complement these financial supports by helping students envision themselves as people who can and will attend college.

The Role of Financial Aid Policy in Shaping Income and Post-secondary Attendance Patterns in the US and Canada
Philippe Belley, Marc Frenette, Lance Lochner // September 24, 2011

Toward a Children’s Savings and College-bound Identity Intervention for Raising College Attendance Rates: A Multilevel Propensity Score Analysis
Washington University Center for Social Development // William Elliott III, Gina Chowa, Vernon Loke // September 2011

** There is a common perception that attending university costs much less in Canada than the U.S., but this is true mainly for students from middle and upper-income backgrounds. While America’s private colleges are much more expensive than Canada’s colleges, when you look at public schools the difference is smaller. In addition, the U.S. government provides more generous financial aid to low-income students, which more than offsets the difference in costs, while Canada provides more generous aid to middle-income students.

Holes In The Safety Net: Welfare During The Recession

Yesterday I wrote about the landmark 1996 welfare reform and its impact over the past 15 years. The reform instituted work requirements and time limits on welfare receipt and changed the way the program was administered. While the new model (TANF) led to some early successes, these have been wiped away by the economic downturn and, perhaps more troubling, the program has proven ill-equipped to buffer families from the harsh impact of the recession.

TANF has responded weakly to the increased need brought on by the recession. From the start of the recession in 2007 through 2010, the national unemployment rate increased by 88% but TANF caseloads grew only 14%. Food stamps (SNAP) caseloads, in comparison, increased 60% over roughly the same time period. Of course, not all unemployed people need the cash assistance TANF offers – they may have their own savings to draw on and/or be receiving unemployment benefits. But in one in four states, TANF caseloads have actually decreased since the recession began, a counterintuitive and harmful trend.

Why hasn’t TANF played a greater role in helping people weather the recession? The authors of a new report from the Urban Institute suggest that the ’96 reform may have a lot to do with it. Here’s how:

  1. Welfare reform made it much harder to get benefits. Meeting work requirements is difficult when there are no jobs to be had, and some families may have already exhausted their lifetime benefits eligibility of five years.
  2. Welfare reform changed the funding structure of the program to a fixed block grant whose real value (adjusted for inflation) has declined 28% in the past fifteen years. Because federal TANF funding does not change from year to year in response to need or economic conditions,** benefit levels are low and caseloads must be limited.
  3. Welfare reform gave states significant freedom in determining how to administer the program and set eligibility requirements, and individual states have exercised this discretion very differently. For example, the share of families living below the poverty line who receive TANF ranges from 8% in Texas to 80% in California. During the recession, some states have significantly increased TANF coverage while others have cut their caseloads.
  4. Welfare reform gave states greater flexibility to spend TANF money on items other than cash assistance, such as job development, childcare, and other poverty-reduction measures. While these measures can help create and support jobs, they do not offer immediate assistance to families in crisis. Currently only 39% of TANF funding is spent on direct cash assistance, compared to 73% in 1997.

While the intent of the ’96 welfare reform – to encourage employment and reduce dependence on government assistance – may have worked well during the strong economy of the late 90s, it reduced the ability of the program to provide a robust response in times of economic crisis. How might Congress make welfare a better tool for helping people weather future recessions?

  • Allow welfare recipients the flexibility to participate in job training and education instead of work when jobs aren’t available.
  • Expand TANF funding in times of need and increase funding each year to keep pace with inflation.
  • Provide increased oversight of state welfare policies to ensure states aren’t making harsh cuts when individuals need welfare the most.

What Role is Welfare Playing in this Period of High Unemployment?
Urban Institute // Sheila R. Zedlewski, Pamela J. Loprest, Erika Huber // August 17, 2011

“A safety net built around work – when there is no work”, The Hill
MDRC // Gordon Berlin // August 22, 2011

**While the stimulus created a $5 billion TANF emergency fund, it was exhausted within a year and has not been renewed.

Welfare Reform At 15

Monday marked the fifteenth anniversary of the landmark 1996 welfare reform, passed with support from both the Republican “Contract with America” Congress and President Bill Clinton. Experts and journalists have been weighing in this week on the reform’s successes and failures, particularly during the current recession.

The basic political belief driving the ’96 reform was that giving low-income people money is counterproductive because it encourages dependence on the government and reduces recipients’ incentives to work. The solution? Require welfare recipients to work (or participate in job training/job development) and place limits on how long they can collect benefits. Just as important as the reform’s stricter requirements for welfare receipt were its changes to the structure of the program. While the previous program, AFDC, was an open-ended entitlement with no funding cap, its replacement, TANF, receives an annual block grant of $16.6 billion in federal funding, an amount that hasn’t changed in 15 years. The ’96 reform also gave states more flexibility in how they administer the program.

Impact of the Reform

TANF has indisputably succeeded at one of its goals: cutting the welfare rolls. Welfare caseloads have declined 60% since 1996, even though the number of families in poverty has been increasing since 2000. While conservatives may laud the reduction in welfare cases, it doesn’t mean that fewer people are poor, just that fewer of them are accessing benefits. In 1996, 68% of families living in poverty were receiving welfare, while in 2009, the figure was just 27%.

Expert opinion on the success of welfare reform in actually reducing poverty is mixed: most agree there was a significant impact in the first few years but many argue that these early gains were almost entirely undone in the past decade.

Ron Haskins, an architect of the legislation now at the Brookings Institution claims it has “been quite successful.” He points to increased employment among women with low-education levels and reductions in child poverty in the first five years after the reform. But many claim these early gains were a product of the booming economy of the late ‘90s more than welfare reform. As LaDonna Pavetti at the Center for Budget and Policy Priorities shows in the graph below, the employment gains among women have steadily disappeared since 2000.

On the poverty front, the percentages of children (20.7%) and families (12.5%) living in poverty in 2009 were almost exactly the same as in 1996 (20.5% and 12.2% respectively). The rates were, however, lower before the current recession began. In 2007 they were 18.0% for children and 10.8% for families, better than in 1996 but not as good as 2000.

The Heritage Foundation, who played a significant ideological role in shaping the ’96 legislation, offers an interesting take on the reform’s success. They claim the spirit of the reform – discouraging dependency and encouraging work – is no longer being implemented and that’s why it hasn’t worked, though they don’t offer much concrete proof of this perspective.

To me, the evidence suggests that during the strong economy of the late 1990s, stricter eligibility requirements and more flexibility in program administration helped encourage some poor people to work and lifted some families out of poverty. But a good part of these gains were undone when the economy slowed and jobs became scarcer in the 2000s. And when the economy collapsed in late 2007, not only were previous gains lost, but the new welfare model was ill-equipped to help families who were struggling in the recession.

I’ll have a post tomorrow on this last point, exploring how welfare has (or hasn’t) worked during the current recession.

TANF at 15: A Weak Safety Net Getting Weaker
TANF at 15, Part I: How Well Does It Provide Income Support for Poor Families?
TANF at 15, Part II:  How Have States Spent Their TANF Dollars?
Center on Budget and Policy Priorities // LaDonna Pavetti // August 19 – 24, 2011

The 15-Year Anniversary of Welfare Reform (video)
Brookings Institution // Ron Haskins // August 22, 2011

What Does Poverty in America Really Look Like?

What does it mean to be poor in America? Living on the street and eating meals at a soup kitchen? Or in a run-down house or apartment with little furniture inside? The poverty line for 2011 – $22,000 for a family of four or $11,000 for a single person – doesn’t sound like much. But a new Heritage Foundation report on what conditions in low-income households actually look like might surprise you:

  • 43% of low-income households own their own home
  • 73% own a car
  • 98-100% have a fridge, television, stove and oven
  • 78% have air conditioning

In addition, low-income families aren’t that far behind the rest of America in terms of owning non-essential electronics like stereos, computers, DVD players, and even video game systems. Looking at this graph and knowing that one-fourth of Americans have no emergency savings sort of makes you question where everyone’s priorities lie.

But quality of life is about a lot more than whether you have a coffeemaker or dishwasher in your house. Heritage’s purpose with all of this is to call into question our definition of poverty by demonstrating that low-income families in the U.S. are living much better lives, in some ways, than most people in the rest of the world and throughout U.S. history. Extreme material deprivation is no longer very common in the U.S., which is something to celebrate. Instead of taking this to mean that poverty isn’t a problem anymore, we should recognize that our current challenges are less visible and harder to fix, but no less important. What poverty in America really looks like is poor health outcomes, lower life expectancy, reduced educational opportunities, higher rates of crime victimization, and a host of other challenges. In other words, there’s still plenty to be concerned about.

Furthermore, even though the vast majority of low-income families in America aren’t homeless or starving, the number that are is not insignificant. The data Heritage cites in its report show 1 in 68 poor people are homeless on any given night and 6% report instances in the previous 4 months when there wasn’t enough food to eat in their household (more recent USDA statistics show slightly higher rates). In a country with a GDP of $47,000 per capita, which puts us on the worldwide top ten list, the fact that this kind of stuff still exists at all, no matter how rare, is depressing.

Air Conditioning, Cable TV, and an Xbox: What is Poverty in the United States Today?
Heritage Foundation // Robert Rector and Rachel Sheffield // July 18, 2011

How Poor Are America’s Poor? Examining the “Plague” of Poverty in America
Heritage Foundation // Robert Rector // August 27, 2007