The official poverty line used in this report reasonably could be described as both an historic accident and an anachronism that understates what a reasonable person would consider "poor." A mother with two children in Boston would have to struggle to pay the rent, buy school clothes, and shop for groceries on $13,000 a year, yet the family would not be described technically as "poor." Not only are many families just slightly above the official poverty line, but these are often the families that work full-time and receive little or no government benefits — and they could be the families most harmed by welfare reform. Accordingly, it makes sense to look at these families whose income places them only slightly above the poverty line.
Weakness in National Poverty Measures
The first official poverty level was established in the early 1960s based on research from the 1950s that showed, on average, households spent one-third of their income on food. From that premise, analysts in the Kennedy administration used three times the "thrifty" food plan — a measure of the lowest-cost means of feeding a family — as an indicator of poverty. Adjusted for inflation since then, the official poverty level has taken on a legitimacy never intended by its originators.
There have been a variety of demographic and economic changes in the decades since the research leading to the original poverty line was undertaken. In the first instance, there are far more two-income households today than previously, with labor force participation among women growing from 37.7 percent in 1960 to 58.9 percent in 1995. Since working outside the home often generates substantial costs — typically including transportation, apparel, and child care — these additional costs for the working poor should be taken into consideration in determining poverty. Moreover, the thrifty food plan does not allow for purchases of prepared meals; providing even a modestly healthy diet on the thrifty fool plan requires significant amounts of time and energy. While that may have been possible with a stay-at-home parent, working parents would have an extremely difficult challenge to prepare meals on this plan while working outside the home and taking care of other family responsibilities.
Similarly, higher taxes — particularly on lower-income families — will reduce a family's standard of living, but are not reflected in the official poverty level. Imagine an extreme situation, where combined federal, state, and local taxes on low-income households grew from, say, 20 percent of income to 50 percent over a few years. Low-income families would surely have less disposable income with which to meet their basic needs, leaving far more people poor in some absolute sense, but the poverty line would have only increased by the rate of inflation. While there has been no tax shift of that magnitude, the burden of the payroll tax that supports social security and Medicare has grown significantly. In 1955 the payroll tax was merely two percent, growing to three percent in 1960. But by the early 1990s, the tax had reached 7.65 percent.12 With the simultaneous decline in corporate taxes paid for by increases in state and local sales and property taxes that have a disproportionate impact on low-income households, it is quite likely that taxes on these families have grown substantially over the last three to four decades, without having this growth reflected in the official poverty level.
As a result of these demographic and economic changes, more than two-thirds of a family's budget must now go toward non-food purchases. Instead of comprising one-third of a family's budget, food purchases now consume an average of just one-fifth of an average family's spending. Using the old formula is out of date and inaccurately reflects the income level needed to maintain an adequate standard of living.
Another problem with the official poverty line is the absence of any accommodation for different costs of living in various locations. All else equal, the use of a single national poverty standard will understate poverty in areas with high living costs and overstate poverty in areas where the cost of living is comparatively low. This is particularly troublesome in Massachusetts, with one of the highest costs of living in the country.
In 1994, for instance, the Commonwealth's cost of living was fourth highest in the nation and second only to New Jersey among the 48 contiguous states. The cost of living differences between Massachusetts and other states can be described in a number of ways. The 1994 cost of living in Massachusetts was:
one-seventh — 13.7 percent — higher than the national average;
one-fifth — 19.1 percent — higher than the national median; and
one-quarter — 24.8 percent — higher than the cost of living for the 10 states with the lowest cost of living.
Very Low-Income Households
As a result of these various analytic shortcomings of the official poverty line, it may be appropriate to consider households slightly above the poverty line to be "poor" in a non-technical sense. To avoid the confusion that could result from various standards of poverty, we refer to the poor as those who fall below the official poverty lines, and those with "very low income" as those whose income is less than 150 percent of the official poverty line. Thus, the standard for very low incomes for a family of four is $24,070. This measure of poverty, while admittedly fairly arbitrary, is less than half the median family income in Massachusetts, a measure suggested by some as the appropriate indicator of relative poverty.13
Using this standard for very low-income families — households whose income is below 150 percent of the official poverty line — provides some striking indications about the relative privations faced by many Massachusetts residents.
Just over one million individuals, or 17.4 percent of all Massachusetts residents, have very low incomes.
As seen in Figure 15, one in seven whites — 14.0 percent — have very low incomes.
More than four in 10 blacks — 43.4 percent — have very low incomes.
Well over half of Hispanics — 58.6 percent — have incomes below 150 percent of the poverty level.
While 65.3 percent of those below the official poverty level are white, the share of all those with very low incomes who are white is 71.8 percent.
In contrast, blacks and Hispanics make up smaller shares of all very low-income households than they do of the officially poor. Blacks comprise 13.6 percent of the poor and 11.5 of the very low income, while Hispanics make up 18.1 percent of the poor but just 13.3 percent of the very low income.
Figure 15
The number of children living in families with very low income grows to 331,000 when we include those up to 150 percent of the poverty line, accounting for nearly a quarter — 23.4 percent — of all children under the age of 18. Of these very low-income children, a significant majority are white:
Whites make up 59.9 percent of very low-income children;
Blacks comprise 17.6 percent of very low-income children; and
Hispanic children are 20.1 percent of the total.
Although most very low-income children are white, the share of all Hispanic and black children whose families have incomes below 150 percent of the poverty line is far greater than for whites (see Figure 16).
One in six white children, or 16.6 percent, are from very low-income families.
Among black children the rate is 61.6 percent.
For Hispanic children, over two-thirds, or 70.7 percent, are from very low-income families. Thus fewer than one in three Hispanic kids grow up in households with anything resembling even modest means.
Figure 16
Expanding the universe of those who have very low incomes up to 150 percent of poverty has a considerable impact on the elderly. A number of factors, including the growth of Social Security benefits and the increasing prevalence of pensions, have caused the poverty rate among the elderly to fall over the last several decades. In the quarter century between 1968 and 1993, for instance, the national poverty rate among the elderly was more than cut in half, falling from 25.0 percent in 1968 to 12.2 percent in 1993 (see Figure 17).14 But while programs like social security have reduced poverty among the elderly, there remains a large number of seniors who live just above the official poverty line. Here in Massachusetts, while only 12.6 percent of elderly households are below the official poverty line, that rate more than doubles to 31.9 percent when including those up to 150 percent of the poverty line. Thus, despite dramatic success in reducing poverty among senior citizens, nearly the income of one in five is just slightly above the official poverty line and nearly one in three can be classified as having very low incomes.
Figure 17
Educational Attainment Among Those with Very Low Incomes
Not surprisingly, adults with incomes less than 150 percent of the poverty line have higher formal education than those below the official poverty line, but not as high as the population at large. What at least some will find surprising, though, is that nearly three-quarters of very low-income families are headed by someone with at least a high-school diploma, and one in six have at least a four-year college degree (see Figure 18).
28.2 percent have not received a high school diploma or GED.
34.9 percent have a high school diploma or its equivalent, but no further formal education.
20.6 percent have received some post-secondary education.
16.4 percent have at least a bachelors degree.
Figure 18
Work Experience of Families with Very Low Incomes
A solid majority of those families whose incomes place them above the official poverty line but less than 150 percent of the poverty line — those who could be called the near poor — work during the course of a year. While just under half of all poor families in Massachusetts or 47.7 percent have at least one adult worker, six out of seven near-poor families — 86.4 percent — have at least one worker. (See Box on page 38 for a description of one of these families.)
As discussed above, the poverty rate for individuals in households in which there is at least one worker present is 4.7 percent. When considering working families with income up to 150 percent of the poverty rate, however, 9.6 percent or 450,000 have very low incomes. That is, nearly one in 10 people who live in families with a worker present have very low incomes and face significant financial hardships.
As might be expected based on other poverty data, the share of those in working families with very low incomes is much greater among racial minorities than among whites (see Figure 19).
Among whites, 7.9 percent of those in working households have very low incomes.
Among blacks, over one-quarter of those in working households — 26.2 percent — have very low incomes.
Among Hispanics, more than one in three of those in working households — 36.4 percent — have very low incomes.
Figure 19
As seen in Figure 20, the rates of children living in very low-income families with a worker is even greater than for the population at large. Among children, 14.4 percent are in very low-income families, compared to 9.6 percent of the general population.
Among white kids, 11.2 percent of those in working families are in very low-income families.
Among black kids, 44.3 percent of those in working families are in very low-income families.
Among Hispanic kids, 46.4 percent of those in working families are in very low-income families.
These last two points deserve emphasis. Poverty and economic privation are typically considered a function of an inability or unwillingness to work. Yet for black and Hispanic children, nearly half of those who live in families with an adult worker present have incomes that, while not necessarily poor in a technical sense, are at best meager. This fact of poverty and near-poverty despite work must send a troubling message to minority children.
Figure 20
Finally, it is helpful to look at the sources of income for those with very low incomes. The annual income of families below 150 percent of the poverty line is, on average, about $8,012.
The bulk of that income, $4,863 or 60.7 percent, comes from earnings.
Just $1,446, or 18.0 percent, comes from public assistance. Thus families with very low incomes receive over $3 in earnings for every $1 they receive in public assistance.
Unemployment insurance benefits account for $272 or 3.4 percent of their income.
An additional $168, or 2.1 percent of their income, comes from child support.
PROFILE:Jackie and Peter Roberts Jackie and Peter Roberts are both 28 years old. They are lifelong Northampton residents, and currently live there with their two sons, ages six and four. Peter works as a boat mechanic in season earning $400 per week, but gets laid off every October. Since Peter typically waits a month or so before receiving his first unemployment payment in the fall, the family has applied for AFDC for about a month each year for the past several years. They pay $400 per month plus heat for an unsubsidized apartment. While receiving AFDC, Jackie and Peter also receive $385 per month in food stamps which they use to stock up on non-perishable food for the winter. The family has medical coverage when Peter is working. When living on unemployment the boys are covered under Mass. Health, but Jackie and Peter have no medical insurance. At the time of this interview, Jackie had a herniated disc but no medical insurance to cover treatment or surgery. |
12. The 7.65 percent rate reflects the employee's share of the payroll tax. The employer also pays a 7.65 percent rate, an amount that economists typically believe is actually passed on to the employee in the form of lower wages. Since the growth in the employer's share of the payroll tax is reflected in the slow growth of wages, however, this change would already be incorporated into the relative prevalence of poverty.
13. In the recent report Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, Citizens for Tax Justice estimated the 1996 income range for non-elderly married couples in the middle quintile — that is, with 40 percent of married couples above them and 40 percent below — to be between $52,000 and $65,000. If the median income for married couples is the midpoint of that range, it would be $58,500. Alternatively, data from Massachusetts Statistics of Income: 1992 Individual Income Tax Returns — the most current available — suggest that the median income for all joint filers, including elderly households, would be around $49,000. Either way, the standard of 150 percent of the poverty line is below half the median.
14. This drop was in spite of the fact that 1993 poverty rates were elevated as a result of the recession of the early 1990s. Richard May, 1993 Poverty and Income Trends, Center on Budget and Policy Priorities, March 1995.