Keith Hall is a senior research fellow at the Mercatus Center at George Mason University, and former commissioner of the Bureau of Labor Statistics.
Despite unprecedented levels of government spending to help low-income Americans, a record 46 million people in the United States are living in poverty. In 2011, two thirds of the working-age poor were unemployed for the entire year. Some will argue that more public sector intervention is necessary to reduce poverty. But as we continue to slowly recover from the Great Recession, history shows us that only job gains from stronger economic growth can solve the problem.
A full five years since the start of the recession, the economy continues to underperform. Economic growth has averaged just 2.3 percent growth since the end of the recession in mid-year 2009, not enough to begin a full labor market recovery. There are still more than 100 million working-age people that remain jobless, and wages in 2012 grew at just 1.5 percent, the slowest increase on record and well below the rate of inflation. Based on data from the past two decades, every 1 percent reduction in the poverty rate requires a corresponding 2 percent rise in the share of the working age population with employment.
Since the start of the recession, the number of Americans in poverty has grown by 9 million. This increase has come at a time when government spending on the poor has also reached record levels. In 2011, more than 100 million people lived in households that received some kind of low-income government assistance; spending on these programs at the federal, state, and local level combined now exceeds $1 trillion annually. Government assistance for low-income families now equals a shocking 10 percent of all household spending.
It has been long recognized that recessions can increase the number of families in poverty, and over the past 20 years it has become clear that the rising and falling poverty rate correlates directly with the jobless rate. The graph below shows this relationship.
The Census Bureau's new Supplemental Poverty Measure tells the same story. In this measure, they redefine poverty to take into account the value of government assistance such as nutrition, housing, or energy cost assistance. The Bureau's new poverty measure also includes “necessary” expenses such as income and payroll taxes, childcare costs, and the cost of medical care and health insurance premiums. They find that under this new definition, an even larger 50 million people are in poverty and over half of those did not work during the year.
To reduce poverty, policymakers need to address the root cause and focus on policies that encourage job creation. More government spending is not the answer. The high rate of spending has not prevented the poverty rate from reaching record highs. While advocates may argue that maintaining record-high government spending will help address poverty, years of data shows that the United States needs a more robust economic recovery to increase the number of available decent-paying jobs.
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