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Journal Issue: The Next Generation of Antipoverty Policies Volume 17 Number 2 Fall 2007

Rewarding the Work of Individuals: A Counterintuitive Approach to Reducing Poverty and Strengthening Families
Gordon L. Berlin

Explaining Several Decades of Persistent Poverty

During the 1950s and 1960s, the U.S. economy grew robustly, and poverty rates declined. By contrast, the national poverty rate remained largely unchanged throughout the 1980s and 1990s, despite several sustained periods of economic growth. Why?

Low Wages, High Unemployment: Relentless Recession
The explanation for today’s persistent poverty begins with low wages. During the twentyfive years following the end of World War II, earnings marched steadily upward. By 1973, the real weekly earnings of private sector, nonfarm, nonsupervisory production workers stood at $650, more than 60 percent higher than in 1947. As earnings rose, the poverty rate plummeted—falling from 22 percent in 1960 to 11 percent by 1973.3 But by 2004, in a startling reversal, the average production worker’s weekly earnings had fallen to $528 (in inflation-adjusted dollars), a nearly 20 percent decline.4 As a result, officially measured poverty stopped falling and it has hovered between 11 and 13 percent ever since (see figure 1).

What caused this abrupt shift in fortunes? Until 1973, the postwar economy as measured by gross domestic product grew robustly, as did productivity—what a worker could produce in an hour—and these gains translated into rapidly growing wages, earnings, and incomes. People at the low end of the income distribution experienced the largest proportional gains. Unexpectedly, the up-escalator economy ground to a halt after 1973. Output per worker slowed to less than 1 percent a year, and wages and earnings fell. In the face of these declining economic prospects, twoparent families maintained their standard of living by having fewer children and sending both parents into the workforce. Even as the economy recovered from a steep recession during the early 1980s, job growth resumed, but with little or no wage growth for those a the bottom. In addition, a new skills bias began to dominate the labor market, creating high-paying jobs that required a college degree or better and lots of low-paying jobs that required no more than a high school diploma and often less. As a result, economic inequality— the gap between the richest and poorest Americans—widened during the 1970s and 1980s, as earnings for those with college accelerated, while wages for those at the bottom fell in step with the loss of high-paying bluecollar jobs; figure 2 shows the disparity in earnings gains between 1979 and 2004 for high-wage and low-wage men.5

For a brief, shining moment during the “roaring nineties,” increasing wages at the bottom of the wage distribution and declining child poverty appeared to promise that 1960s-like earnings growth would be restored. But that hope was dashed by the 2001 recession. Signaling trouble for all workers, the growth in earnings of college graduates slowed during the 1990s and fell thereafter. The sources of growing inequality changed accordingly—earnings continued to rise at the very top but fell for middle-earners, even as lower-wage workers held their own.6

Further underscoring the stark reality that low-wage work and the relentless recession it signifies are here to stay, the Bureau of Labor Statistics projects that 46 percent of all jobs in 2014 will be filled by workers with a high school diploma or less. The bulk of these jobs—janitor, food service, retail sales, laborer, child care provider, home health aid—are expected to offer either low or very low pay.

The second important part of the poverty story is declining employment rates among men, particularly men of color. Over the same period that wages were falling, employment rates among men were also tumbling— down a startling 20-plus percentage points between 1970 and 2000 for men with a high school education or less and roughly 7 percentage points for those with some college.7 By contrast, as a result of economic necessity, changing norms, and the rise of the service sector, women’s employment rates rose dramatically as more and more women entered the labor market.

Why have men’s employment rates been declining? For some men, employment became less attractive as blue collar jobs evaporated and wages fell.8 The strong economy of the 1990s offers a reverse proof: as wages at the bottom rose, the employment rates of white, black, and Hispanic young men stabilized and began to grow. Even the employment rates of black men aged sixteen to thirty-four rose between 1992 and 2000, as did the rates for young black men (sixteen to twenty-four) with a high school diploma or less (see table 1). But once the boom years were over, the employment rates of black men resumed their downward trend; following the 2001 recession they plunged much as they did during the 1991 recession.9 While the reasons for the dismal position of young black men in the labor market are complex (and include racial discrimination and inadequate basic skills and education, as well as the behavioral changes documented by Lawrence Mead in his article in this volume), a key part of the explanation is the interaction among low wages, the rewards of illegal activity, and strict drug laws, which have resulted in as many as 30 percent of all young black men (and 90 percent of black male high school dropouts) becoming entangled with the criminal justice system.10 Incarceration appears to have its own, independent effect, further worsening and tainting future employment prospects for all ex-prisoners.11

In sum, past success in reducing poverty depended on growing employment and wages for those at the bottom of the earnings distribution. Today, instead, earnings are stagnant. The decline of unions and the power of workers to bargain for higher wages, the reduction in jobs covered by unemployment insurance, and congressional reluctance to increase the minimum wage—thus allowing inflation to erode its value over time—undoubtedly further exacerbated these trends. Without earnings growth, the ability of men without a college education to support a family diminished, making them, in turn, less attractive as marriage partners, according to many experts.12 Indeed, among men aged twenty-five to fifty-four with a high school diploma or less in 2003, a quarter of whites, a third of blacks, and two-fifths of Hispanics did not earn enough to support a family of four above the poverty line.13

Rising Single Parenthood and Declining Marriage
These tectonic economic shifts coincided with inexorable erosion in the cultural norms associated with marriage and out-of-wedlock childbearing. Today, nearly half of all marriages end in divorce, a phenomenon that knows few class distinctions, and a third of all births occur out of wedlock. As a result, the share of all families headed by a single parent has nearly doubled from 13 percent in 1959 to 26 percent today. As one disheartening consequence, more than half of all American children will likely spend part of their childhood growing up in a single-parent family. Many will be poor; the poverty rate for singleparent, female-headed families with children under age eighteen is about five times higher than the rate for married couples (38 percent as against 7 percent in 2004)—in part because a single mother is more likely to have limited education and skills and thus low wages, and in part because she is trying to support her family on one income rather than two. Although the reasons why this is so are still hotly debated, evidence convincingly demonstrates that, as a group, children who grow up in single- parent families have diminished life prospects, faring worse on a wide range of economic, social, emotional, and cognitive outcomes than similarly situated children who grow up in two-parent families.14

Cohabiting couples, a rapidly growing family type that now accounts for about 40 percent of all nonmarital births, typically have more resources than single-parent households. But they are still more likely to be poor than married- couple families, and they are often unstable— about a quarter of cohabiters split within a year of the birth of a child.15 Interviews with so-called “fragile families” near the time of birth suggest that many of these couples expect to marry.16 Few will do so.

Even though marriage rates in low-income communities are uncommonly low, marriage remains an ideal for the poor and near poor, as for all Americans. In surveys and ethnographic interviews, poor men and women aspire to the emotional and social benefits of marriage. At the same time, they consistently cite economic barriers (unemployment, low wages, involvement with the criminal justice system) and relationship issues (principally infidelity) as primary reasons for not marrying.17 In their ethnographic account of poor women in Philadelphia, Kathy Edin and Maria Kefalas find keen support for marriage but trepidation that it will add another mouth to feed without a commensurate increase in resources.18 Lending support to these statements, as shown in figure 3, marriage rates for men (including African American men) generally rise as earnings go up—although this is somewhat less so for Hispanic men (not shown).19

Moreover, the link between earnings and marriage persists even after controlling for race, ethnicity, age, education, and other variables.20 Indeed, one study of unmarried couples who recently had a child together found that the likelihood of subsequent marriage increased as men’s annual earnings rose.21 Nevertheless, the decline in men’s earnings is but one of a complex web of factors, including changing cultural norms and the increasing economic independence of women, that have altered the now outmoded model of marital specialization that pegged men as breadwinners and women as homemakers. Together, these factors have boosted the number of female-headed households, increasing in turn the number of families living in poverty.

Tax and Transfer Penalties
America’s social welfare system was designed almost exclusively to meet the needs of poor families with children—a majority of which are now female-headed, single-parent households. Today, the bulk of these benefits support parents when they work. Outside of food stamps, few comparable work supports are available for childless individuals; indeed, the only public systems that focus predominantly on able-bodied men who are not living with children are criminal justice and child support enforcement. Adding insult to injury, by treating income jointly, the tax system penalizes some couples when they do marry, especially couples who earn like amounts and have combined annual earnings between $20,000 and $30,000.22 As they begin to lose eligibility for food stamps and health benefits, such as Medicaid and the State Children’s Health Insurance Program, and cross over to the phase-out range of the earned income tax credit, they can lose as much as a dollar in benefits for every dollar increase in income.23 In a vicious cycle, once people are married, the same high cumulative marginal tax rates penalize additional work effort.

Policymakers have taken several important steps over the past decade to reduce the disincentive to work and marry—for example, by increasing the generosity of the EITC for married couples, time-limiting welfare receipt, toughening up child support enforcement, and requiring fathers to live with children and jointly report income when claiming the EITC. As a result, some poor families are better off if they marry now, but penalties remain for others. As David Ellwood explains, any program targeted at “low-income working families, where low income is based on the combined income of the family, . . . [will create] incentives for a working single parent to remain single.”24 Nevertheless, available evidence is mixed about exactly how these disincentives have affected work or marriage, with earlier studies finding no effects and more recent studies finding some effects, especially for working, unmarried couples where both parents earn similar amounts—the group facing the largest penalties.25

Although it is daunting to try to measure precisely the effects of tax and transfer policies on behavioral decisions, in the end a lowincome working mother is left to make an unfathomable and discomfiting decision about marriage—weighing the uncertain contribution of a potential spouse against the relative certainty of the benefit package she would lose. Fairness argues at the very least for “do no harm” tax policies that maintain an even playing field for all.