The Changing Face of Poverty The NLC Challenge

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The Changing Face of Poverty The NLC Challenge

    Trends, Policies, and Economic Conditions

    Affecting Poverty

    in America’s Cities and Towns:

    A Discussion Paper

    National League of Cities

    September 2004

Dear Municipal Official:

    An increasing number of America’s leaders at both the national and local levels, are beginning to realize that growing inequalities is fast becoming one of the most pressing

    domestic problem facing American communities today.

The most recent statistics from the Census Bureau’s Current Population survey, released

    since the writing of this report (August 2004), indicated that the number of poverty

    increased by 1.3 million last year, while the number of uninsured grew by 1.4 million.

    That means that in 2003, about 35.8 million people or 12.5 percent of the population

    lived below the poverty line and that nearly 45 million people or 15.6 percent of the

    population lacked health insurance. This was the third straight annual increase for both


    Trends, Policies and Economic Conditions Affecting Poverty in America’s Cities and Towns looks at factors that are contributing to growing inequalities in America today.

    This report is a response to the National League of Cities’ Equity and Opportunity Panel whose commission it is to help municipal officials recognize and understand emerging

    challenges in their communities related to these issues and take constructive steps locally;

    and to foster and shape public discussion to meet these challenges.

    This report was produced under NLC’s Municipal Action to Reduce Poverty project with support from the W. K. Kellogg Foundation. Through this project, NLC is exploring

    both issues and solutions related to poverty and economic inequalities in terms of city

    hall roles and capacities.

This report is intended to promote discussion and increase understanding. We welcome

    your reactions, local examples and stories related to this material. Please send these to

    Phyllis Furdell, National League of Cities; 1301 Pennsylvania Avenue, NW; Washington, DC

    20004 or email to

Phyllis Furdell

    National League of Cities

    September 2004



    This paper was researched and drafted by Heather McCulloch, an independent consultant and former Senior Associate at PolicyLink, with consultation from Joe Brooks, Director of Capacity Building and Civic Engagement at PolicyLink and Victor Rubin, Director of Research at PolicyLink. Phyllis Furdell, NLC Project Coordinator, edited and managed the production of the report.

    The authors would like to thank those who reviewed the paper and provided useful comments and suggestions: Hannah McKinney, member of NLC’s Municipalities in Transition Panel on Equity and Opportunity and Vice Mayor of Kalamazoo, MI; Christopher Hoene, NLC Research Manager, William R. Barnes, NLC Director of Research and Municipal Programs, Melissa Assion, NLC Program Development Manager, and Cheryl Glaubinger, NLC Library Assistant.



I. Introduction

Many municipal leaders across the country are struggling to provide the same level of basic

    services with less money while also facing the challenge of growing poverty in their

    communities. The following report aims to provide municipal leaders with the information

    they need to understand and interpret some of the social and economic changes affecting

    their communities and to support informed public discussion about the contemporary

    causes and effects of poverty.

The contemporary wave of poverty in America is driven by a particular set of policies,

    economic conditions and demographic trends, some unique to these times, others not, but

    all of which deserve the attention of local policymakers. The following report provides an

    overview of some of the key economic and demographic trends and policy decisions that

    have been affecting family economic security and the level and nature of poverty in the last

    15 years in America‘s cities and towns. These include welfare reform, changing labor-market

    conditions, growing immigrant population, changes in poverty concentration, scarcity of

    affordable housing, increasing asset poverty, growing cost of health insurance and rising

    consumer indebtedness. While these trends may not be the only ones affecting poverty

    levels in particular communities, many of these trends are already having an impact, to some

    degree, on both the quality of life and economic competitiveness of many cities and towns

    across the country.

Not all of these trends will be equally significant to all localities, but each trend deserves

    consideration in order to determine the kinds of service challenges local leaders may be

    facing in the years ahead. The report provides historical context and current data to enable

    municipal leaders to understand factors that are affecting the scope and nature of poverty in

    their communities. In so doing, it provides local leaders with the information they need and

    questions to ask in order to understand emerging challenges and to begin to articulate

    strategic policy responses that will result in long-term solutions.

Background Discussion on Poverty Data

The federal government‘s official statistical measurement of poverty is calculated and

    released by the Census Bureau each September. This number, the federal poverty threshold,

    is based on a formula, developed in the 1960s, that measures the cost of food deemed

    necessary to sustain a basic household diet. The federal poverty threshold is based on the

    cost of foodit does not account for increasing costs of housing, transportation, and

    childcare, or regional cost of living differentials and public benefit transfers. The measure is

    adjusted to reflect annual inflation, but the basic formula has not been changed in over 40 1years. The result is that the statistic does not adequately reflect the number of families 2facing economic hardship.

A family‘s eligibility for many public benefits programs is determined by comparing the

    family‘s pretax cash income with the poverty threshold, which adjusts for family size and composition. For example, in 2001, the poverty threshold for a family of two adults and two 3children was $17, 960.


The poverty level in the United States has fluctuated greatly between 1959 and the present.

    According to the Institute for Research on Poverty at the University of Wisconsin:

    In the late 1950s, the overall poverty rate for individuals in the United States was 22%,

    representing 39.5 million poor persons. Between 1959 and 1969, the poverty rate

    declined dramatically and steadily to 12.1%. As a result of a sluggish economy, the rate

    increased slightly, to 12.5%, by 1971. In 1972 and 1973, however, it began to decrease

    again. In 1973, the poverty rate was 11.1%. At that time roughly 23 million people were


    In 1975 the poverty rate increased to 12.3%. It then oscillated around 11.5% for the next

    few years. After 1978, however, the rate rose steadily, reaching 15.2% in

    1983. Thereafter it remained mostly higher than 13%. In 1993 it reached a new high of

    15.1%, and then began to fall slowly.

    In 2000, 31 million people were poor (11.3% of the population). In 2001, the number of

    poor and the poverty rate both rose as economic difficulties moved into recession; in

    2002, 34.6 million people (12.1% of the population) were poor by the official measure of


Poverty rates differ for different populations. Among children under the age of 18 of all

    races, the number living in poverty increased from 11.7 million in 2001 to 12.1 million in

    2001. The rate, at 16.7%, did not change. The number of elderly persons living in poverty

    increased from 3.4 million in 2001 to 3.6 million in 2002, while the rateat 10.4%

    remained unchanged. The poverty rates among black and Hispanic families greatly exceed

    the average. The poverty rate for whites who were not Hispanic was below the overall

    poverty rate from 1959 through 2002. In 2002, it stood at 8%. The chart below illustrates

    the difference in poverty rates from state to state from 2001 to 2002 and compares poverty

    rates and median incomes from 1992 to 2002.

With this data in mind, the purpose of this paper is to look at emerging trends in recent

    years that are having an impact on the numbers of families living in poverty, where poverty

    is rising and what new factors are contributing to poverty. Not all of these eight trends will be felt equally in all regions or states of the country. However, when developing local

    policies that address the needs of low-income families, municipal officials should consider

    each of these emerging trends to determine whether local policies are adequately addressing

    the problem or need to be changed in order to address changes in the picture of local




II. Key Trends Influencing the Economic Security of Poor


Welfare Reformin Good Times and Bad

Key points:

    ? Welfare rolls have declined dramatically since the mid-1990s.

    ? While welfare reform has been successful at decreasing the number of families receiving public assistance,

    it has not been so successful at moving families out of poverty.

The Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), signed

    into law by President Clinton in 1996, mandated a radical restructuring of America‘s safety

    net. Since then, over 1 million people, mostly women, have transitioned into the workforce, 4primarily into low-wage, low-skilled employment. As a result, welfare rolls have dropped by over 50% nationwideover 90% in some stateswith the vast majority of welfare leavers 5transitioning into unsubsidized employment.

In the late 1990s, an expanding economy helped to smooth the transition for earlier welfare

    leavers. From 1992 to 2000, the GDP grew at a 4.3% annual rate; and by 2000 the 6unemployment rate (3.9%) was the lowest it had been in a generation. In the late 1990s,

    real wages increased for most workers, especially the bottom tier of the labor market, 7including lower-skilled, less-educated and minority workers. However, after reaching a low 8of 3.9%, unemployment began to rise in 2000. With more workers competing for available 9jobs, welfare leavers were less likely to find employment. As a result, a recent Urban Institute report revealed that the proportion of families that left welfare without employment 10increased from 50% in 1999 to 58% in 2002.

While many families successfully transitioned into the labor force, recent research shows that

    entering the workforce did not necessarily translate into leaving poverty. According to a

    2003 survey of recent research by the Center on Budget and Policy Priorities, 50-75% of 11families leaving welfare remained poor two to three years later. The majority of families

    who left welfare in the 1990s, whose incomes are above the poverty line, still have very low

    incomes: 90% of leavers have income below 185% of the poverty level, according to state 12studies.

One of the reasons welfare leavers are experiencing difficulties escaping poverty is the fact

    that many are transferring into low-wage jobs with little prospect for advancement. An

    Urban Institute survey of 3,000 employers in 2003 in four large metropolitan areas found

    that most welfare recipients who are hired perform at least adequately, though most earn 13relatively low wages and have limited prospects for advancement.

Questions for municipal officials:

    ? How many people have left the welfare roles in your city or town over the past few years?

    ? What is their current status? Have they escaped poverty?

    ? How many are in danger of falling back into poverty and what are the most pressing needs of this



Labor Market Trends: The Worsening Plight of Low-Wage Workers

Key points:

    ? Since before the mid-1990s, structural changes in the U.S. economy have been increasing the challenges to

    advancement faced by low-wage workers.

    ? A large percentage of low-wage workers are earning poverty-level or near-poverty-level wages, with limited

    prospects for advancement.

The incomes of more than nine million working Americans are lower than the federal 14poverty level. Using a definition of working poor that includes ―families whose incomes

    are less than twice the poverty level and in which adults work an average of halftime or more

    during the year,‖ researchers estimate that one in six non-elderly Americans lives in a 15working poor family. The majority of consistent low-wage earners are women with 16children and with limited education.

Structural changes, already underway before the mid-1990s, have increased the challenges to

    advancement faced by transitioning welfare recipients and other low-wage workers: The real

    wages of workers with a high school education declined dramatically in the 1980s and did

    not start to pick up until the late 1990s; today, they remain lower than they were in the mid-171970s. The country has seen an ongoing loss of well-paid, lower-skilled manufacturing 18jobsover 2 million manufacturing jobs have been lost since 2000. The growing role of

    technology in the workplace has increased employers‘ demand for a highly-skilled, educated 19workforce.

Traditional avenues of advancement like career ladders and seniority are no longer

    assured for low-wage workers or for many other employees. This trend is exacerbated by

    the ongoing decline in unionization which has reduced the bargaining power of low-wage 20workers and decreased their access to health and retirement benefits. In addition, the

    amount of temporary and contract work offering no benefits or job stability doubled in 21the 1990s. Finally, the combination of high levels of immigration and welfare leavers

    entering the low-wage workforce may contribute to increasing the supply of labor and

    decreasing wages at the lower-end of the wage scale.

Questions for municipal officials:

    ? How has the labor market changed in your city or town over the last few years?

    ? What kinds of jobs have been or lost or created? How many jobs have been lost or created?

    ? What are the wages of the jobs created as opposed to the jobs lost?

    ? Do the new jobs provide health insurance, retirement and/or other benefits?

    ? How has the median income of city residents changed over the last few years?


Immigration: The Particular Challenges Facing Immigrant Workers

Key points:

    ? Immigrants comprise an increasing share of the U.S. labor force and a growing share of low-wage


    ? Immigrant workers have limited opportunities for training, education or advancement in the workplace.

Immigrant workers face particular challenges in today‘s workforce. Recent research from 22the Urban Institute in 2003 provides the following data:

    ? Immigrants comprise an increasing share of the U.S. labor force and a growing share

    of low-wage workers. Immigrants are 11% of all U.S. residents but 14% of all

    workers and 20% of low-wage workers.

    ? Immigrants' hourly wages are lower on average than those for native-born workers,

    and nearly half earn less than 200% of the minimum wage, compared to one-third of

    native workers.

    ? Immigrant workers are much more likely than non-immigrants to have dropped out

    of high school (30 versus 8%) and are far more likely to have less than a ninth-grade

    education (18 versus 1%).

    ? Three-fourths of all U.S. workers with less than a ninth-grade education are


    ? Nearly two-thirds of low-wage immigrant workers do not speak English proficiently,

    and most of these workers have had little formal education.

Welfare reform and other labor market conditions are resulting in increasing hardship for 23immigrant families because PRWORA tied benefits more directly to citizenship. Forty

    percent of low-wage immigrant workers (3.4 million workers) are illegal and thus ineligible

    for most federally-funded job-training and work-support programs. The law includes

    provisions that would deny most forms of public assistance to even most legal immigrants

    for five years or until they attain citizenship. These restrictions have severe implications for

    immigrant families who do not have access to income supports or social services.

Questions for municipal officials:

    ? What is the immigrant population of your city or town and how has it changed in the last decade or

    from 1990 to 2000?

    ? Is this population more likely to be unemployed or underemployed?

The Spatial Dimension: Changes in the Regional Distribution of


Key points:

    ? Concentrated poverty declined in America’s inner-cities in the 1990s but rose in many suburban areas.

    ? Concentrated poverty has declined markedly in the Midwest, but it has risen significantly in the West.


Over several decades, researchers have demonstrated an inverse relationship between the

    levels of concentrated poverty and indicators of well-being in neighborhoodsas poverty

    becomes increasingly concentrated, indicators of well being (such as the level of

    unemployment, the share of people with a high-school degree, the share of households 24 Researchers and policymakers became alarmed by receiving public assistance, etc.) decline.

    a dramatic increase in the concentration of poverty between 1970 and 1990 in central cities 25of many metropolitan areas. Apart from sheer numbers, the concentration of the very poor in such neighborhoods contributed to making both family and social problems more

    intractable. In contrast, the period from 1990 to 2000 saw a dramatic decline in

    concentrated poverty and an improvement in indicators of well being in high-poverty 26neighborhoods in many parts of the U.S.

During the 1990s, the number of people living in high-poverty neighborhoods (defined as

    having more than 40% of families below the poverty line) declined by 24% or 2.5 million 2728people. Concentration declined primarily in central cities and rural areas. But researchers

    report an increase in high-poverty tractsfrom 11% in 1980 to 15% in 2000in the 29suburbs of the largest 100 metropolitan areas. The percentage of poor people living in the 30suburbs increased from 46% in 1990 to 49% in 2000.

The share of African Americans in high-poverty neighborhoods decreased from 30% in

    1990 to 19% in 2000 and the concentration of poor African Americans in rural areas 31declined in 29 states in 1990s. The share of all high-poverty tracts that were predominantly white or black decreased from 1990 to 2000 but the share that was Hispanic increased (from 3213% to 20%).

On a national basis, the concentration of poverty also shifted among geographic regions.

    The Midwest exhibited the greatest change as concentrated poverty decreased from 36% in 331990 to 26% in 2000. In the Northeast, the rate of concentrated poverty dropped only 34slightly (from 31% to 30%). The only region to see an overall increase in concentrated poverty was the West, mostly in Los Angeles and metropolitan cities in California‘s Central 35Valley.

More recently, the poverty rate in the Midwest increased from 9.4% in 2001 to 10.3% in

    2002. The poverty rate in the Northeast, South and West remained unchanged between 362001 and 2002.

These new metropolitan patterns of the distribution of poor households and neighborhoods,

    especially the growth of low-income suburban communities, has become more widely

    recognized in recent years, but most mechanisms of public policy have yet to catch up with

    the change.

    Questions for municipal officials:

    ? Where do the poor predominantly reside in your city? Are there pockets of concentrated poverty?

    ? Has the poverty rate changed in your city or town? Has the distribution of poverty shifted within

    your municipality from one neighborhood or census tract to another?

    ? How does this compare to neighboring municipalities?


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