May 24, 2007

Rising Economy And Welfare Reform Didn't Hurt The Poor

A study by the CBO of a fifteen-year period shows that the poorest 20% of American families received the most benefit from economic growth. Earnings increased for this economic stratum by 78%, more than three times the increase of the next three quintiles (via Memeorandum):

It's been a rough week for John Edwards, and now comes more bad news for his "two Americas" campaign theme. A new study by the Congressional Budget Office says the poor have been getting less poor. On average, CBO found that low-wage households with children had incomes after inflation that were more than one-third higher in 2005 than in 1991.

The CBO results don't fit the prevailing media stereotype of the U.S. economy as a richer take all affair -- which may explain why you haven't read about them. Among all families with children, the poorest fifth had the fastest overall earnings growth over the 15 years measured. (See the nearby chart.) The poorest even had higher earnings growth than the richest 20%. The earnings of these poor households are about 80% higher today than in the early 1990s.

What happened? CBO says the main causes of this low-income earnings surge have been a combination of welfare reform, expansion of the earned income tax credit and wage gains from a tight labor market, especially in the late stages of the 1990s expansion. Though cash welfare fell as a share of overall income (which includes government benefits), earnings from work climbed sharply as the 1996 welfare reform pushed at least one family breadwinner into the job market.

Earnings growth tapered off as the economy slowed in the early part of this decade, but earnings for low-income families have still nearly doubled in the years since welfare reform became law. Some two million welfare mothers have left the dole for jobs since the mid-1990s. Far from being a disaster for the poor, as most on the left claimed when it was debated, welfare reform has proven to be a boon.

In fact, solid gains can be found among all levels of American economic strata. The worst performance over this period was an 18% gain in earnings by the middle 20%, which equates to an $8,500 increase in purchasing power -- after inflation. The top quartile showed a 54% increase, with the rich getting richer, but the rising tide lifted all boats -- and the smallest most of all.

How did this happen? Welfare reform and low unemployment returned people back to the workforce. Both acted to pressure employers to raise wages as the economy greatly expanded the number of jobs. The efficiencies of the American production model finally started delivering the better-scale jobs, and everyone moved up, especially the low-wage workers.

The findings by the CBO are rather remarkable. Female-headed households saw earnings double over this period as the number of them earning primarily through employment went up a third. The EITC helped, and it also kept pressure on qualifying households to earn through jobs rather than welfare. It demonstrates that the best welfare program is a paycheck.

This shows that a lightly managed capital market, a restriction on the crippling effects of government handouts, and a reduction in the tax burden creates more opportunities for all wage earners, including and especially those at the bottom. We have the data to show that we are on the right track, and that expansive and expensive government programs do not work.


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Comments (9)

Posted by Charles | May 24, 2007 8:55 AM

What is shows is that, if you pick the right time to start and the right data to focus on, you can make the numbers tell you what you want to hear.

Take a look at Jonathan Chait (
or Joe Gandelman (
for more information.

Posted by Lightwave | May 24, 2007 9:03 AM

These findings in fact should be the front page on every newspaper in the country. They won't be. Since Bush took over and improved the economy over Clinton's so called "record boom" it's been the story of the century so far.

It affirms the mythbusting of the biggest myth of them all: the need to raise the minimum wage in this country. The market has already done this. The family of four trying to get by on a minimum wage? Doesn't happen.

That's not to say everything is perfect, but as Ed pointed out we are on the right track with lowered taxes and a pro corporate system. The market is hitting records almost weekly. The S&P 500 is going to start breaking records as well.

The Democrats are going to choke all that off if they are allowed to have the White House. Taxes, inflation, unemployment will all double for no other reason than to punish the free market under their plans.

And why are we even talking about Edwards? With the blogger flap, the haircut, and his crazy socialism, isn't he politically dead at this point, even to the Dems?

Posted by Michael Smith | May 24, 2007 9:23 AM

76% percent of poor households have air conditioning. By contrast, 30 years ago, only 36 percent of the entire U.S. population enjoyed air conditioning.

46% of all poor households actually own their own homes. The average home owned by persons classified as poor by the Census Bureau is a three-bedroom house with one-and-a-half baths, a garage, and a porch or patio.

Only 6 percent of poor households are overcrowded. More than 66% have more than two rooms per person. The average poor American has more living space than the average individual living in Paris, London, Vienna, Athens, and other cities throughout Europe. (These comparisons are to the average citizens in foreign countries, not to those classified as poor.)

Nearly 75% of poor households own a car; 30% own two or more cars.

97% of poor households have a color television; over half own two or more color televisions.

78% percent have a VCR or DVD player;

62 % have cable or satellite TV reception.

73% percent own microwave ovens, more than half have a stereo, and a third have an automatic dishwasher.

Virtually everyone has a telephone.

Virtually all of the poor have plenty of clothing; very few people freeze in the winter.

They all have access to free public education.

They all have access to free medical care at emergency rooms.

They all have access to inexpensive food through the food stamp program. In fact, the single biggest health problem among the poor is obesity.

On the average, they work less than 1000 hours a year, which is about 20 hours per week.

John Edwards is right, there are indeed two Americas: there is one America that is working and paying taxes, and there is another America that is largely sitting on its butt living off the other half. And what John Edwards and all the Democratic politicians want to do is to further punish the working and tax-paying group by taking more of their money to give to the sitting-on-their-butt group.

Posted by TyCaptains | May 24, 2007 3:25 PM

I won't argue that there are many, many welfare queens out there and that a overhaul to the system would be nice but some of your points aren't as rosy as them seem.

1> "Free medical care at emergency rooms" - by law, only EMERGENT care needs to be provided. So it's not as if they're going to get immunity shots for preventative medicine.

2> Your point about access to inexpensive food and obesity go hand-in-hand as healthier foods are often out of reach for those on food stamps.

Note that I'm not arguing that their poor health conditions are solely caused by what they can afford.

Posted by T Stephens | May 24, 2007 3:35 PM

In response to Mr. Smiths comment that there are two Americas, one that is working and paying taxes and the other that is largely sitting on the butts and living off the other half.
I apparently according to Mr. Smith must fall into the sitting on your Butt half. I am a divorced single mother of 2 children under the age of 10. I am a full time college student and I work as a home care aid. I make less that $7. 50 an hour and work limited hours to fit around my class schedule and my childrens schedule so that I am the one raising them not a daycare center. I recieve help from the state programs, these programs barely make a dent. Some of their programs are poorly managed and they dont help in areas that they should. I asked for help with daycare so that I could attend college so that I can get a job that will support my family in a decient manner and keep me off they system for the remainder of my life and they told me NO they dont help with that but if I would quit college and go back to a fast food job they would help me with daycare.
Mr.Smith do you think that because a person is poor they should be denyed health care and limited only to Emergancy care? Are they to be denied prevative care? Who pays the Emergency bills? The cost of ER care is much higher than the cost of preventive care.
Mr. Smith I challenge you to live on the money that I live on for 6 months and see how well you fair.I recieve $310.00 in food assistance for a family of 3, I recieve $742.00 in child support, and $358.00 a month from my job.
We have very few luxuries, our big extra is a computer and the internet which I use on a daily basis for my school work and the cell phone that keeps me in touch with my employer and school and Drs if my children become ill. We don't have cable and yes we have air conditioning but I can not afford to use it so we dont.
Mr. Smith if more people like you would lobby for better managment and practical reforms of the system insted of appearing to rant about how well the poor in America have it, maybe the system would be in better shape.

Posted by MarkW | May 24, 2007 4:29 PM

Healthy food is not expensive. Never has been.

Fruits and vegetbles are not expensive.
Flour is not expensive.
Milk and bread are not expensive.

The myth that the poor are fat because they can't afford to eat well has no basis in fact.

The poor are fat, because, like in all other areas of their lives, the poor make bad decisions.

Posted by TyCaptains | May 24, 2007 8:28 PM

Here's a simple challenge for you to try for a measley two weeks.

Subsist off of the weekly allowance of Food Stamps your state provides. See just how easy it is.

This isn't to state that yes, oftentimes the poor made choices that led them there but it's just as true that many times they don't have an easy life either.

Posted by davejoch | May 25, 2007 12:10 PM

You should all actually take a loook at the document. It's nothing fancy.

Also, it should be noted that while the poorest 20% had higher earnings growth than the highest, actual income was highest among the wealthiest. I am all for balance, but let's actually be balanced. The poor are less poor, the middle class is levelling off, and the rich are much richer.

Posted by James I. Hymas | May 25, 2007 3:25 PM

On the other hand there's this news story, reporting on an economic mobility study sponsored by the Pew Charitable Trusts:

A generation ago, American men in their thirties had median annual incomes of about US$40,000 compared with men of the same age who now make about $35,000 a year, adjusted for inflation.


To be sure, U.S. household incomes rose during the same period although the main reason is because there are more full-time working women, a new report on the project said.

So, gee, imagine how much better off the poor would be if their kids worked, too!

[I can't find the actual CBO report, though ... only the usual blogosphere total reliance on the MSM. Does anybody have a link to it?]