No. 44 December 2004
Child Poverty and Welfare Reform: Stay the Course
- The child poverty rate has always been higher than the poverty rate of the total population or of the population aged 18–64 because the ratio of earners to total family members is likely to be lower in families with children. The poverty rate is the percentage of the population living in a family or a household whose income is below the “poverty threshold,” a measure of the income level believed to be adequate to cover basic needs. The poverty threshold increases with family size and varies somewhat by family composition. The concept of basic needs, however, is bound to be highly subjective. For a discussion and critique of the current level, see June O’Neill, “Poverty, Programs and Policies,” in A. Anderson and D. Bark, eds., Thinking About America: The United States in the 1990s, Hoover Institution, Stanford University, 1988. A committee of the National Academy of Science (NAS) has proposed a revision of the poverty measure. See Constance P. Citro and Robert T. Michael, eds., Measuring Poverty: A New Approach, NAS, NRC, 1995. The report has been controversial. See the dissent by John F. Cogan, a committee member.
- Between 1992 and 1996, the maximum annual EITC supplement for a single mother with two or more children increased from $1,747 to $4,015 (in constant 2001 dollars), a gain of 130%. The maximum benefit for a single mother with one child increased by only 45%. After 1996, the maximum EITC benefit for both types of families remained roughly constant in real terms.
- The “full income” measure includes: noncash income from employer contributions for health insurance; the market value of housing subsidies, food stamps, and school lunch; the fungible value of Medicare and Medicaid; and the amount of energy assistance received. We also include an estimate of the EITC received and we deduct federal and state income taxes and Social Security payroll taxes.
- Full income, in principle, is a better measure of economic well-being, but it is also more difficult to estimate. The Current Population Survey (CPS), which is the basic source for our income measures, reports whether various benefits are received. But not all benefits are included. (For example, information on receipt of WIC benefits is not included.) More important, however, is that the estimates of the value of many of the benefits are likely to be quite rough. The value of food stamps is fairly accurate, but the measure of the value of housing subsidies is based on limited information. The value of medical benefits is particularly difficult to assess because the value to the recipient may differ considerably from the cost of the benefit to taxpayers. The Census uses the concept of fungible value, which assumes that people with very low income would place little or no value on medical benefits. We use the Census Bureau’s valuations of noncash benefits in Figure 2 and in Appendix Figures A1 and A2 which display trends in poverty rates using the “full income” measure, separately by race and by type of family.
- 5. Not shown in Figure 4 are the poverty rates for the small groups of children living with single fathers or with adults other than a parent. About 4.6 % of children now live with a single father, up from about 3.5% in 1995. Based on household cash income, their poverty rate declined from 21% in 1993 to 16% in 2002.
- See June O’Neill and M. Anne Hill, Gaining Ground, Moving Up, Civic Report No. 35, Manhattan Institute, March 2003.
- For example, in 1995, in 62% of AFDC units the youngest child was under age six. See U.S. House of Representatives, Committee on Ways and Means, Background Material and Data on Programs Within the Jurisdiction of the Committee on Ways and Means (1998 Green Book), Table 7-23, pp. 446–447.
- Two married parents are not necessarily two biological parents. Adoptions and remarriages account for some proportion, but the CPS does not provide these details.
- Based on data tabulated from the CPS/ORG, in the period 1994–2002, about 80% of the children who do not live with a parent live with a relative and of those with relatives, a grandparent is present in about 60% of the cases. Among those living with nonrelatives, about 40–50% are reported as living with foster parents. Children under the age of six are less likely to be living without a parent present.
- See, for example, James P. Smith, “Assimilation Across the Latino Generations,” American Economic Review 93, no.2, 315–319, May 2003.
- Data that we tabulated from the National Longitudinal Survey of Youth 1979 cohort (NLSY79) show that 29% of women college graduates had never had a child by ages 35–43, and 30% of those who did have a child waited until they were over 30 to have their first child. By contrast, among women of the same age group who had no more than a high school education, 11% never had a child and only 6% of those with children waited until they were over age 30 to have their first child.
- We also carried out the analyses using the 2002 regression coefficients as the basis for the estimate. The results were very similar because the regression coefficients proved to be highly stable over time.
- See Dave M. O’Neill and June E. O’Neill, Lessons for Welfare Reform, Upjohn Institute, 1997; Ann Huff Stevens, “Climbing Out of Poverty, Falling Back In: Measuring the Persistence of Poverty over Multiple Spells, Journal of Human Resources 34, no.3, 1999: 557–588
- See Ted Joyce, Robert Kaestner, and Sanders Korenman, “Welfare Reform and Non-Marital Fertility in the 1990s: Evidence from Birth Records”, in Advances in Economic Analysis & Policy 3, no.1, Article 6, 2003 (Berkeley E-Journals in Economic Analysis and Policy).
- The link between welfare reform and employment is well established. See, for example, Robert A. Moffitt, “The Transitional Assistance for Needy Families Program,” in Robert A. Moffitt, ed., Means-Tested Tranfer Programs in the United States, University of Chicago/NBER, 2003.
- The legislation currently contemplated in both the House and Senate welfare reform reauthorization bills apparently would raise total hours significantly. However, they would raise required hours of “direct” or “actual” work—as opposed to training and other “qualifying activities”—from 20 to 24 hours a week, with lower requirements for those with children under age six in the Senate bill. See the discussion of the provisions of the reauthorization bills in Ron Haskins and Paul Offner, “Achieving Compromise on Welfare Reform Reauthorization,” Brookings Institution Policy Brief, Welfare Reform and Beyond #25, May 2003.
- It is probably necessary to reconfigure the percentage of the State caseload required to participate in work activities. That requirement has two parts—a basic percentage, which is 50% under current law—and a credit for the percentage by which the caseload has declined over past years; currently, one-percentage-point reduction in the 50% requirement for each one-percentage-point decline in the caseload since FY95. The caseload reduction credit is important because it is clearly desirable to give states the incentive to promote self-sufficiency off welfare at least as much as work activities on welfare. However, the caseload has plummeted in most states since 1995, and using 1995 as the basis for the credit has grown less and less relevant. Both the House and Senate bills would raise the basic percentage gradually to 70% by 2008 and provide an offsetting credit. Where they diverge is in the terms of the credit. The House retains a simple credit for caseload reduction similar to the current one but restricted to recent years. (But it gives a “super achiever” credit to states with caseload reductions of more than 60% between 1995 and 2001.)
The Senate version is much more complex and appears to be unworkable. It would confine the credit only to families who are employed after leaving welfare, a status that can be difficult and costly to determine if individuals move out of state or become self-employed. It would fail to give credit for women who leave welfare to marry or go back to school, and it would give bigger credits for those with higher earnings. It then adds an odd and unwieldy element to allow credit for families who are off welfare but once were on welfare short-term and had some earnings or received child-care or transportation subsidies. The Senate bill then adds a cap on credits in case all of this gets out of hand.