Wall Street Journal - June 29, 2000
Despite Economic Boom, More Americans Are Likely to Fall Below the Poverty Line
By JACOB M. SCHLESINGER Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- The long economic boom has pushed unemployment to its lowest level in decades, but more jobs don't necessarily mean higher living standards.
A new report shows that an American holding a full-time job in the late 1990s was still as likely to fall below the official poverty line as a similar worker in the 1980s, and more likely to do so than a full-time worker in the 1970s.
"Working full-time and year-round is, for more and more Americans, not enough," the Conference Board asserts in a study titled "Does a Rising Tide Lift All Boats?" "This is not the outcome one would expect from the longest economic expansion in economic history," adds the report to be released Thursday by the New York-based nonprofit business research center.
Some economists said the Conference Board report was flawed because, in using the official government definition of poverty, it ignores the impact of the earned-income tax credit for low-income workers, a program that was significantly expanded in the 1990s. But others said the study still highlights an important point often lost amid the celebratory hype about the current boom: Lower-skilled workers have profited much less than others, and have yet to recover from the sharp erosion of earnings from the mid-1970s through the mid-1990s.
"Much of the reporting on the long boom is ahistorical -- those at the very bottom are gaining, but they haven't gained enough to make up for where they were," said Sheldon Danzinger, a poverty expert at the University of Michigan. Among other reasons, high-paid, unionized manufacturing jobs for unskilled workers have been replaced by lower-paid, nonunion service jobs. Adjusting for inflation, Mr. Danziger said, the average wage for a full-time worker without any college education was 8% less last year than it was in 1972.
According to the Conference Board report, 2.8 million Americans with full-time jobs -- people working at least 35 hours a week, 50 weeks a year -- were living below the poverty line in 1998, the most recent year available. A family of three earning $13,003 or less in pretax income was considered poor that year, the most recent data available.
That meant 2.9% of all full-time workers in 1998 were poor, a sharp increase from 2.5% in 1997 and the highest level since 1994, when the economy was still limping out of the early 1990s recession. Through the first seven years of the current economic expansion, the poverty rate for full-time workers never fell below 2.5%.
The Conference Board researchers, using unpublished Census data, found that the poverty rate for full-time workers stayed almost constant over the past 20 years, with rates hovering between 2.4% and 3.1% in the 1980s. That conclusion tempers other data suggesting that lower-income families fared better in the 1990s than in the 1980s.
By this measure, the 1990s economy looks much worse than the 1970s. In 1973, the poverty rate for full-time workers fell to 2%, and after rising a bit during the mid-1970s oil crisis, fell again to 2.1% in 1978.
The main reason cited by Conference Board economist Linda Barrington, the report's main author, is "the expansion of low-productivity jobs," even as the economy's total productivity has accelerated. The percentage of nonmanagement workers holding manufacturing jobs fell from 30% in 1965 to 15% in 1998, according to the Conference Board. At the same time, "combined employment in the retail and service sectors -- the two lowest paying sectors, on average -- increased from 30% to 48%," the report found.
Marisol Rivera, a full-time maid at a major Hollywood movie studio, has been supporting herself and two small children on about $13,000 per year, just at the official poverty line. With no high-school degree, she said it's the best job she was able to find. Besides, the 21-year-old added, the hours -- from 6:30 p.m. to 3 a.m. -- "mean I don't have to pay for a baby sitter" since her mother can watch the children after she finishes her job.
Ms. Rivera said she and her children aren't starving, but the low pay forces her to live in a cramped apartment, to forsake a car -- she has an hour-long bus ride to work -- and to skip buying the toys her four-year-old wants. "You have to lie and tell them you'll get it tomorrow," she said.
Economists also attribute the persistence of poverty among full-time workers to the erosion of the minimum wage from about $7 per hour in 1969 (in today's dollars) to the current level of $5.15. A single full-time worker earning the current minimum wage would be above the poverty line, but such a worker supporting at least one dependent would be below the poverty line, according to Ms. Barrington.
Gene Sperling, head of the White House National Economic Council and an architect of President Clinton's antipoverty program, challenged the study's findings. It was misleading, he said, to use Census definitions that ignore the earned-income tax credit. The program "has helped push a few million people above the poverty line," he added, citing studies using alternative definitions of poverty.
"Nobody's disputing there's still economic hardship out there," said Mr. Sperling. But poverty for all Americans has fallen sharply through the 1990s while wages and salaries for the lowest-paid workers have jumped, he said. "There's a lot of evidence that the benefits of the expansion have reached out more to the fringes of the work force," he added.
The earned-income tax credit not included in the Census poverty definition does help offset those trends. Ms. Rivera, for example, said she gets about $1,000 back a year in income-tax refunds under the program. Ms. Barrington conceded "that's a serious problem with the official definition of poverty." But she added, the poverty definition also doesn't include Social Security taxes, which would lower take-home income.
The Conference Board report also looks at long-term regional and racial patterns in poverty among full-time workers. For nonwhite workers, the poverty rate was 4.42% in 1998, compared with 2.90% for white workers, including Hispanics. In both the Northeast and the Midwest, the poverty rate for nonwhite full-time workers was higher in the 1990s than in the 1980s. In the South and West, however, the rate was lower in the 1990s than in the 1980s.
The report noted that working poverty rates have fluctuated much more over the past three decades for nonwhites than for whites, which "suggests that regional cycles and shocks affecting the poverty rate of full-time workers have hit nonwhite full-time workers harder than white workers."
That trend may explain differences in long-term economic success between races, the report notes. "Cycling in and out of poverty makes it more difficult to save, accumulate wealth, and carry out long-term personal and financial planning," it said.