===================================================================== Center for Community Economic Development University of Wisconsin-Extension Community Economics Newsletter No. 309 July 2002 ===================================================================== A Newsletter from the Center for Community Economic Development; Community,Natural Resource and Economic Development Programs, and University of Wisconsin-Extension, Cooperative Extension Service ===================================================================== Poverty Trends in the United States by Steven C. Deller* Economists employ several measures of economic performance including, but not limited to, changes in income levels and distribution patterns, unemployment rates, growth in labor productivity and at the local level changes in property values. One measure that draws significant attention at the national as well as local level is the poverty rate. Although the poverty rate is often criticized as arbitrary it is an important measure because it often defines eligibility for public assistance programs such as food stamps and public housing. The poverty rate is defined as the money income level that is three times higher than a basic food budget. For a single person under age 65 living alone the poverty threshold in 2000 is $8,959 and is slightly lower at $8,259 for a single person living alone over the age of 65. As household size increases the corresponding poverty threshold does not increase in a simple multiplicative manner. For example, a married couple under the age of 65 with no children the poverty threshold is $11,531 and for that same couple with two children under the age of 18 the poverty threshold is $17,524. A family that makes one dollar less than these thresholds is considered poor while a neighboring family making one dollar more, is not considered poor. The official poverty measure considers money income before taxes only and does not include capital gains and noncash benefits such as public housing, Medicaid and food stamps. Perhaps more importantly, the poverty rate does not vary geographically and does not reflect significant differences in cost of living, most notably housing costs. The thresholds are, however, updated annually using the Consumer Price Index to reflect price changes due to inflation. While the thresholds in a limited sense represent families' needs, the official poverty measure should be interpreted as a s tatistical yardstick rather than as a complete description of what people and families need to live. The three-year average poverty rate for 1998-2000 in the US was 11.9 percent of the entire population, about 32.6 million persons. For minorities, however, the three year average poverty rate is much higher: for blacks the rate was 23.9 percent, for Native Americans it was 25.9 percent and for Hispanics the three year average rate was 23.1 percent. Perhaps more important for Black and Hispanics the 2000 poverty rate was the lowest measured since 1959, the earliest year for which poverty data are available. This is one strong indicator that a large number of the previously poor were able to benefit somewhat from the strong economy of the 1990s. Unfortunately, because these poverty data are based on the Current Population Survey, which samples about 50,000 households, the sample is not large enough to make any statistical valid for Native Americans over time. The impact of the strong economy during the 1990s on poverty rates is best illustrated in Figure 1. Since the recession of the early 1990s there has been a sustained downward trend in the percentage of families defined as living in poverty. The poverty rate for families with a female householder and no husband present dropped to a new record low of 24.7 percent in 2000. From 1959, the first year for which data are available, to 1998, their poverty rate had never fallen significantly below 30 percent. Because the poverty status is computed on the family level, if one family member works, the poverty status for all persons in the family is affected. The poverty rate has been consistently falling for people living in families with no workers. But, as more people have become employed, people with no working family members have declined. The poverty rate also fell for people in families with at least one worker, though not as precipitously. Despite these poverty rate declines, having a job, even a full time job, does not guarantee an escape from poverty. In 2000 a greater percentage of the poor had one full-time worker in the family than at the end of the recession in 1993. Geographic variation in poverty rates remains significant. Maryland had the lowest poverty rate for the 1998-2000 three-year average at 7.3 percent followed by New Hampshire at 7.4 percent, Connecticut at 7.6 percent and Minnesota at 7.8 percent. The highest poverty rates are in New Mexico where nearly one-in-five persons live in poverty followed by Louisiana at 18.6 percent, Arkansas at 15.8 percent, Mississippi at 15.5 percent and Texas at 14.9 percent. Wisconsin has one of the lowest poverty rates for the three-year average at 8.8 percent. While these trends in poverty rates looks positively on the performance of the US economy over the past ten years, these data must be viewed as one piece of a complex puzzle. Recall that the poverty threshold is absolute and one dollar of income can distinguish two identical families from being classified as being poor. The poverty threshold is based solely on food budgets and does not consider all-important housing costs. Finally, for computational purposes, only money income is considered, transfers in the form of food stamps or other public assistance programs are not considered. Perhaps the biggest shortfall of poverty measures is that they can mask the growing inequality in income levels throughout the US. * Steven C. Deller is a Professor with the Department of Agricultural and Applied Economics at the University of Wisconsin-Madison/Extension. Issued in furtherance of Cooperative Extension work, Acts of May 8, and June 30, 1914, in cooperation with the U.S. Department of Agriculture. Carl O'Connor, Cooperative Extension, University of Wisconsin-Extension. University of Wisconsin-Extension, U.S. Department of Agriculture and Wisconsin counties cooperating. UW-Extension provides equal opportunities in employment and programming, including Title IX and ADA.