Official Poverty Rate Declines in 2015. Can Washington Do More?

Over the last two weeks, important new reports were released with good news for poverty fighters across the country: the official poverty rate dropped from 14.8 percent to 13.5 percent in 2015, and both food insecurity and very low food security significantly declined as well.

The fact that we are just now seeing progress, as caseloads for major assistance programs decrease, illustrates that a strengthening economy that gets more Americans working is the most essential ingredient for fighting poverty.

Still, a larger share of Americans remain poor than before the recession started in 2007, even when factoring in all non-cash and tax-based government transfers. This means turning to strategies than can further push down the poverty level.

That’s where Angela Rachidi comes in. Rachidi studies the effects of public policy and existing support programs on low-income families, and makes a convincing case that our focus throughout policy should be on getting more Americans working.

A small fraction of prime-working age people in poverty work full-time, full-year, which means that for most, the lack of a full-time job, not low wages, seems to be the primary driver of poverty.

In a study Rachidi conducted over the summer, she found that:

The vast majority of working-age adults in poverty, whether measured by the official rate or the supplemental rate, lack full-time work, and more than 60 percent in official poverty did not work for pay at all in 2014. In addition, the majority of children in official poverty were in a family without a full-time worker, and 31.3 percent were in a family with no working adult at all. …

As Rachidi explains, most working-age adults in poverty are not working for reasons unrelated to searching for work. They have to do with health issues and home and family responsibilities. In other words, Americans in poverty are frequently not able to look for work or take a job when one is offered. They are not actually resistant to doing work. Addressing those barriers could do more to pull those sitting on the sidelines back into the labor market. But government solutions to reducing poverty are addressing the wrong problem.

Antipoverty policies—such as minimum wage increases, wage subsidies, increasing job availability (including subsidized jobs), and workforce development efforts like education and training—often focus on the working poor or on those actively searching for work. Efforts like these are not well-suited to those who are not even looking for work.

From disability programs to child care assistance to apprenticeship programs, a host of changes could be made to increase employment among low-income Americans, Rachidi argues. Many of these can occur on the state level, where much of federal aid is doled out to be distributed as statewide officials see fit. This is useful in the sense that regional problems don’t need a top-down diktat from Washington.

Check out Angela Rachidi’s suggestions on how to make work more attractive to Americans.

At the same time Rachidi focuses on solutions to address the reasons people are in poverty, Edward Conard argues in his new book, “The Upside of Inequality: How Good Intentions Undermine the Middle Class,” that Americans should be wary of relying on increased income redistribution to help the lower and middle classes move up.

He dismantles major myths about income inequality’s impact on the middle and working classes, including the following:

The myth that the rich get richer by making the poor poorer. No other high-wage economy has done more to help the world’s poor than the US economy. Regardless, advocates of redistribution press on. Rising income inequality is actually the byproduct of an economy that has deployed its talent and wealth more effectively than that of other economies — and not of the rich stealing from the middle and working classes.

The myth that incentives don’t matter. In an innovation-driven economy, there are large and compounding costs to dulling incentives for entrepreneurial risk-taking. As payoffs for success have risen, entrepreneurial risk-taking has accelerated US growth relative to other high-wage economies with more equally distributed incomes. Because of this growth, today, median US household incomes are 15 to 30 percent higher than those in Germany, France, and Japan.

The myth that mobility has declined. If the success of America’s 1 percent comes at the expense of the middle and working classes, we should see mobility declining. Yet, even with significant immigration, there is little evidence that mobility has declined or that mobility in Scandinavia, the supposed paradise of redistribution, is better than in the United States.

The myth that the success of the 1 percent hurts the middle class. Since the financial crisis, accusations that crony capitalism and the success of the 1 percent slow middle- and working-class income growth have only grown louder. The incomes of the very top of the 1 percent have soared, and the growth of middle-class and working-class incomes has remained slow. Many insist that this gap has increased because the wealthy are rigging a zero-sum game to take what rightly belongs to others. Conard addresses these accusations and explains how income redistribution is what hurts the middle and working classes.

Conard says income inequality is not a bad thing in and of itself. It drives competition and entrepreneurial risk-taking. Likewise, a heavy reliance on redistributing the income of those entrepreneurs undercuts those who are willing to invest in training and hiring lesser-skilled workers.

At the same time, Conard argues, reducing regulatory rules that create instability in the banking sector would encourage risk-averse institutions to reengage, compounding and growing the economy at a faster rate.