Young Adult Choices and Poverty Reduction

Ron HaskinsSenior Fellow, The Brookings Institution

Senior Consultant, The Annie E. Casey FoundationFebruary 19, 2013

2

Overview

• Trends in Poverty and Inequality• Why Are Poverty and Inequality So Stubborn?• Government Spending and Poverty Impacts• Pathways Out of Poverty and Inequality

- Education- Family Composition- Work

3

Trends in Poverty and Inequality

4

Poverty Rates for All Children, Black Children, and the Elderly, 1959-2011

Note: Poverty rates for black children from 1959-1974 are for black children in related families because data for all black children is unavailable over this period.Source: Census Bureau, Poverty Division, CPS ASEC, "Table 3. Poverty Status of People, by Age, Race, and Hispanic Origin: 1959 to 2011.”

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

0

10

20

30

40

50

60

7065.6

38.8

27.321.9

35.2

8.7

Black ChildrenAll ChildrenAge 65 and Over

Beginning of War on Poverty

5

Post-tax, Post-transfer Income in Thousands of 2007 Dollars, by Income Quintile, 1979 and

2007

First Quintile Second Quintile Middle Quintile Fourth Quintile Fifth Quintile Top 1%0

200

400

600

800

1000

1200

1400

15.3 31.0 44.1 57.7101.7

346.6

17.7 38.0 55.3 77.7

198.3

1,319.7

1979 2007

Income Quintile

Th

ou

sa

nd

s o

f 2

00

7 D

olla

rs

(23%) (25%) (35%) (95%) (281%)

Source: Congressional Budget Office, “Average After-Tax Household Income,” available at http://www.cbo.gov/publications/collections/collections.cfm?collect=13. Comprehensive household income equals cash income plus income from other sources, including in-kind benefits. Note: The numbers in parentheses are the percent increase in income between 1979 and 2007.

(16%)

6

Source: Markus Jäntti and others, “American Exceptionalism in a New Light: A Comparison on Intergenerational Earnings Mobility in the Nordic Countries, the United Kingdom, and the United States,” Discussion Paper 1938 (Bonn: IZA, 2006), table 4, p. 18, and table 12, p. 33.Notes: Sons were born around 1958, and earnings of both fathers and sons were observed near age forty. Sons’ earnings are generally measured between 1992 and 2002.

Percentage of Men with Fathers in the Bottom Fifth of the Earning Distribution that Remained in

the Bottom Fifth, by Country

Denmark

Sweden

Norway

Finland

United Kingdom

United States

25%

26%

28%

28%

30%

42%

7

Why Are Poverty and Inequality So Stubborn?

• Work Rates• Wages• Family Composition• Education• Other (Immigration, Technological Change,

International Competition)

8

Government Spending and Poverty Impacts

9

Federal Means-Tested Spending on Biggest Programs, 1962-2011

(Constant $2011)

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

0

100

200

300

400

500

600

700

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Spending on Ten Biggest Means-Tested Programs

Spending Per Person in Poverty

Year

To

tal

Sp

end

ing

, B

illi

on

s o

f C

on

stan

t $2

011

Sp

end

ing

Per

Per

son

in

Po

vert

y, C

on

stan

t $2

011

Notes: This series includes 10 spending sources: Medicaid, SNAP, EITC, CTC where credit exceeds tax liability, SSI, AFDC/TANF, Housing Assistance, Medicare Part D Low Income Subsidy, ESEA Title I Grants to Local Educational Agencies, and Federal Pell Grants. Data on the last two are available starting only in 1980 and include approximately $27 billion in ARRA spending in 2009.Sources: Most spending sources from OMB, Fiscal Year 2013 Budget, Tables 8.5, 11.3, 12.3. Title I and ESEA spending from Department of Education Budget History Table. Medicare data from CMS, 2011 Medicare Trustees Report, Table IV.B11, number for 2011 is estimated. All figures adjusted to constant dollars using OMB total deflator from historical table 10.1. Data on number of people in poverty through 2010 from Census Bureau, 2011 number estimated by Richard Bavier.

10

The Impact of Taxes and Transfers on Poverty Rates Among Single-Parent Families

Source: US House of Representatives, Committee on Ways and Means, 2008 Green Book, Appendix E, Table E-31.Note: The Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) are refundable tax credits designed to help lower income families, particularly single parent families.

Series10

10

20

30

40

50

60

0

10

20

30

40

50

60

39.6

29.9

26.1

34.1

Cash Income Before Transfers

Plus Social Insurance and Means-Tested Benefits

Plus EITC and CTC, Less Federal Payroll and Income Taxes

Total Poverty Reduction

Po

vert

y R

ate

Perc

en

t R

ed

ucti

on

in

Po

vert

y

11

Pathways: Education

12

Median Family Income of Adults Age 30-39 by Education Level, 1963-2011

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Advanced Degree

4-Year College Degree

Some College/2-Year College Degree

High School Diploma/Equivalent

No Degree

Year

Me

dia

n F

am

ily In

co

me

(2

01

1 D

olla

rs)

Source: Income Figures from Brookings tabulations of data from the Annual Social and Economic Supplement to the Current Population Survey, 1964-2012. Adjusted to constant dollars using annual averages of the CPIAUCNS from FRED (https://research.stlouisfed.org/fred2).

13

Bottom Second Middle Fourth Top Bottom Second Middle Fourth Top0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

45

28

1712 13 10 12

7 5 4

26

24

2226

16

37

1415

105

16

20

2522

22

26

10 21

23

16

8

18

23

22

24

17

27

2627

23

39 12

1825

10

3731

35

51

Top

Fourth

Middle

Second

Bottom

Parents' Income Quintile

Per

cen

t o

f A

du

lt C

hild

ren

Rea

chin

g

Eac

h In

com

e Q

uin

tile

Adult Chil-dren's Income

Quintile:

Without a College Degree With a College Degree

Chances of Getting Ahead for Adult Children With and Without College Degree from Families of Varying Incomes

Note: Income adjusted for family size.Source: Pew Economic Mobility Project, Pursuing the American Dream: Economic Mobility Across Generations, July 2012, Figure 15.

14

Trends in Performance on the National Assessment of Educational Progress (NAEP) for 13 Year Olds, 1971 or 1978

to 2008

Note: NAEP Scores are on a 0-500 scale. Scale scores for 2004 and 2008 use the revised assessment.Source: U.S. Department of Education, Institute of Education Sciences, National Center for Education Statistics, National Assessment of Educational Progress (NAEP), 1978, 1982, 1986, 1990, 1992, 1994, 1996, 1999, 2004, and 2008 Long-Term Trend Mathematics Assessments.

1971 1975 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1999 2004 20080

50

100

150

200

250

300

350

400

450

500

Reading Math

Year

Sca

le S

core

15

Students in the U.S. in International Comparisons, 2009

Out of 64 countries, the US:• Tied for 24th (with 12 others) in Mathematics• Tied for 19th (with 13 others) in Science• Tied for 10th (with 16 others) in Reading

Various countries that scored higher than the US:

Slovak Republic, Estonia, China, Japan, Slovenia, New Zealand, Finland, and Iceland

Source: Department of Education, Institute of Education Sciences, National Center for Education Statistics, “Program for International Student Assessment (PISA) 2009 Results,” (http://nces.ed.gov/surveys/pisa/pisa2009highlights.asp).

16

Education Investments

• Preschool- Average quality- Head Start

• K - 12- Teacher quality (Race to the Top)- i3 (Foundation Registry)- Literacy

• Post-Secondary- Employment and training- Community college- Four-year college

17

Pathways: Family Composition

18

Percent of Births to Unmarried Women, 1940-2011

1940

1943

1946

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

0

5

10

15

20

25

30

35

40

45

3.8

40.7

Year

Pe

rce

nt

of

All

Bir

ths

Note: Data for 2011 is preliminary.Source: CDC, National Vital Health Statistics.

19

Percent of Children Living with Mothers Only, 1970-2011

19701972

19741976

19781980

19821984

19861988

19901992

19941996

19982000

20022004

20062008

20100

5

10

15

20

25

30

10.8

23.8

Year

Pe

rce

nt

of

Ch

ild

ren

Source: U.S. Census Bureau, Living Arrangements of Children, Table CH-1, available at http://www.census.gov/hhes/families/data/children.html.

20

Differences in Non-marital Births by Mother’s Education and Ethnicity

Non-marital Births, by Ethnicity, 1970-2010

Never-married Mothers, by Education,1968-2008

Source: (Education) Authors' tabulations from the March Current Population Survey; (Ethnicity) Source: National Center for Health Statistics, Table 1-17 Number and Percent of Births to Unmarried Women, by Race and Hispanic Origin: United States, 1940-2000; Rest of Data from National Vital Statistics Reports, Births for each Year, see http://www.cdc.gov/nchs/nvss/new_births.htm.

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

10

20

30

40

50

60

70

80

White

Black

Hispanic

Per

cen

t o

f B

irth

s

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

0

5

10

15

20

25

30

Less than 12 yrs

12 yrs

13 - 15 yrs

16+ yrs

Per

cen

t o

f M

oth

ers

in E

du

cati

on

Cat

ego

ry

21

Family Dissolution During the First Five Years After the Birth of First

Child

Married at Birth of First Child Cohabiting at Birth of First Child0

5

10

15

20

25

30

35

40

45

Per

cen

t w

ith

Fam

ily

Dis

solu

tio

n

39%

13%

Source: Original analysis by the National Marriage Project (UVA) using National Survey of Family Growth data from 2000-2005.

22

19741976

19781980

19821984

19861988

19901992

19941996

19982000

20022004

20062008

20100

10

20

30

40

50

60

40.9

8.8

Female-Headed

Married-Couple

Year

Pe

rce

nt

in P

ov

ert

y

Poverty Rates for Children in Female-Headed and Married-Couple Families,

1975-2011

Source: U.S. Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2011, Historical Tables, Table 4.

23

Investments in Family Composition

• Reducing teen pregnancy• Reducing unplanned births for young adults• Encouraging marriage• Male employment• Churches and civil society

24

What Accounts for Success?

1-2 Norm

s 23%

30%

The Three Norms

•Complete high school

•Work full time

•Wait until age 21 and marry before children

Income Class, by Adherence to Social Norms, 2007

0 Norm

s

77%

4%

Poor (< 100% poverty level)

Middle class and above (> 300% poverty level)

3 Norm

s 72%

2%

Source: Authors' calculations based on the U.S. Census Bureau, Annual Social and Economic Supplement to the Current Population Survey.