Since the 1970s, the official poverty measure (OPM) has remained relatively constant at around 15 percent. In this same time frame, real GDP growth per person, which is used as a measure of the standard of living, has nearly double. This growth should suggest a decrease in the poverty rates over the decades, but since they have remained relatively constant suggests that there are other factors that have an ascendant stress on the poverty rate. Factors that can put pressure on the poverty rate include, but are not limited to changes in: family structure, economic growth, median wages and benefits provided by safety-net programs. In this memo, I will explain why these factors have caused fluctuations in the poverty rate, but why it has remained
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However, the widening income gap, slow changing minimum wage and the percentage increase of single family homes is counteracting the benefits, resulting in a lack of change in poverty.
Safety-Net programs effect on Poverty
During the War on Poverty in the 1960s, many policies aimed toward helping needy families were implemented. These policies provided benefits to poor families, which should help move people out of poverty. The two types of programs that we can view poverty trends in are; cash welfare and in-kind benefits.
Cash welfare
The majority of cash welfare is intended for needy children; therefore, single parent families receive the most cash benefits. From 1974 to 1994, AFDC was the main cash welfare program until TANF (1994) was implemented. Due to welfare and policy reform and a robust growth of the economy in the Nineties, the amount of cash resources provided to needy families has declined. AFDC benefits decreased by 45 percent since the seventies and TANF has seen a decrease of 30% in over half of the States since being implemented. Therefore, since there are less families receiving cash welfare and the amount of benefits has fallen we would expect an increase in Poverty …show more content…
This is because the CPI is constant and fails to consider that when a good experiences an increase in price, consumers will substitute to a cheaper, but similar good in its place called substitution bias. Research shows the CPI-U (urban consumers) is overestimating the cost of living by about 1 percent a year. So the threshold for the need of resources to get out of poverty keeps increasing.
The SPM uses the CPI-U-RS (research series) and is believed to fixed the problem of overestimating by accounting for substitution bias. The CPI-U-RS shows that price levels have not increased as greatly since the 1970s, and suggesting that poverty rates have slightly decreased.
Summary
The official poverty rate has remained steady, since the 1970s. Although the SPM has shown a decrease in poverty rates because of increases in-kind benefits the decline in cash welfare has offset this decrease. Fluctuations of the OPM happen because each factor is tested and considered independently from the other factors that affect the poverty rate. Since each of these factors are happening consecutively overtime, the poverty rate has remained relatively
However, the widening income gap, slow changing minimum wage and the percentage increase of single family homes is counteracting the benefits, resulting in a lack of change in poverty.
Safety-Net programs effect on Poverty
During the War on Poverty in the 1960s, many policies aimed toward helping needy families were implemented. These policies provided benefits to poor families, which should help move people out of poverty. The two types of programs that we can view poverty trends in are; cash welfare and in-kind benefits.
Cash welfare
The majority of cash welfare is intended for needy children; therefore, single parent families receive the most cash benefits. From 1974 to 1994, AFDC was the main cash welfare program until TANF (1994) was implemented. Due to welfare and policy reform and a robust growth of the economy in the Nineties, the amount of cash resources provided to needy families has declined. AFDC benefits decreased by 45 percent since the seventies and TANF has seen a decrease of 30% in over half of the States since being implemented. Therefore, since there are less families receiving cash welfare and the amount of benefits has fallen we would expect an increase in Poverty …show more content…
This is because the CPI is constant and fails to consider that when a good experiences an increase in price, consumers will substitute to a cheaper, but similar good in its place called substitution bias. Research shows the CPI-U (urban consumers) is overestimating the cost of living by about 1 percent a year. So the threshold for the need of resources to get out of poverty keeps increasing.
The SPM uses the CPI-U-RS (research series) and is believed to fixed the problem of overestimating by accounting for substitution bias. The CPI-U-RS shows that price levels have not increased as greatly since the 1970s, and suggesting that poverty rates have slightly decreased.
Summary
The official poverty rate has remained steady, since the 1970s. Although the SPM has shown a decrease in poverty rates because of increases in-kind benefits the decline in cash welfare has offset this decrease. Fluctuations of the OPM happen because each factor is tested and considered independently from the other factors that affect the poverty rate. Since each of these factors are happening consecutively overtime, the poverty rate has remained relatively