Growth of Extreme Poverty in the US: Is Welfare Reform Largely to Blame?

This article is the fifth in Child and Family’s five article series on the intersection of child and family policy and entitlement programs. For the rest of the series, click here.

As the debate over deficit reduction wages on, entitlement programs continue to face increased scrutiny by American lawmakers. Exempt from budgetary restrictions on discretionary spending, many worry that entitlement programs grow in size each year while proving unsuccessful at promoting independence among recipients. The passage of the Personal Responsibility and Work Opportunity Act (PRWORA) of 1996 ended direct cash transfers and more closely linked benefits to work status.  Two decades later, the impact of these reforms remains hotly debated.

A recent study published in the Social Service Review in June 2013 examines growth in extreme poverty in the United States. The study’s authors find that extreme poverty among families with children in any given month grew by 159.1 percent between 1996 and 2011. Furthermore, the authors argue that a major cause of the growth in extreme poverty was the implementation of PRWORA and the resulting end of cash transfers.

“Rising Extreme Poverty in the United States and the Response of Federal Means-Tested Transfer Programs” is the first American study to examine the impact of PRWORA on people living in extreme poverty. In the paper, researchers H. Luke Shaefer and Kathryn Edin focus on households with children, and define extreme poverty as those households living on two dollars or less per person each day. The government defines poverty for a family of three as living on approximately $17 per person, per day–households in extreme poverty are earning, on average, approximately 12 percent of the income of a family living just below the poverty line.

Using data from the US Census, the authors find that the number of households living in extreme poverty in a given month increased from an average of 636,000 in 1996 to 1.65 million in mid-2011, an increase of 159.1 percent when adjusted for inflation. When benefits from SNAP – the federal food assistance program – are included as income in these estimates, the rise in extreme poverty between 1996 and 2011 drops to 80.4 percent. When the refundable income tax credit and housing subsidies are added, the increase in poverty again drops, this time to 50 percent. These figures indicate that entitlements reduce the number of families living in extreme poverty, but not enough to keep the percentage living in extreme poverty from growing.

Even when adjusting income to include benefits from federal programs, there exists clear growth in extreme poverty among households with children. Is this growth in extreme poverty a result of welfare reform, or is it attributable to other factors such as the Great Recession?

The authors believe that welfare reform is a major contributing factor to the growth in extreme poverty. Prior to 1996, impoverished households with children were eligible for cash assistance. Childless households were not. The authors argue that if welfare reform were not a large factor in the growth of extreme poverty among households with children, they would expect similar growth rates in extreme poverty between the two groups. While childless households did experience a growth in extreme poverty, it was less than half the percentage growth in poverty among households with children.

While the cause of growth in extreme poverty among families with children cannot be conclusively determined, the ameliorating impact of entitlement programs is evident. The authors estimate that entitlement programs prevent extreme poverty for approximately 2.38 million children in any given month.

Policy makers tend to focus attention on those people at risk of falling below the poverty line, often to the detriment of those already living far beneath it. Researchers should pay special attention to this particularly vulnerable group, and policy makers must take note of their findings when making decisions about need based aid.

Feature Photo: cc/(Chris Bastian)