Another Way to See How Family Poverty Works

Last week, I had a post outlining how family poverty works. The upshot is that family poverty is largely driven by the ratio of earners to dependents. Families with lots of earners and few dependents have low poverty. Families with few earners and lots of dependents have high poverty. Another way to see why this is the case is to play around with a hypothetical family, which I do below.

Full Time Workers Only

Imagine a family made up of a single full-time worker. If that worker makes minimum wage, their market income is $15,080. This puts them over the official poverty line for a one-person family, which stands at $12,331.

If you take this one-person family and add a second full-time worker to it, the family's market income goes to $30,160. This is above the official poverty line for a two-person family, which stands at $15,871.

If you take this two-person family and add a third full-time worker to it, the resulting family market income will be above the official poverty line for a three-person family. The same thing is true if you add a fourth, fifth, and sixth full-time worker to the family. A family made up solely of full-time workers can never be in poverty.

Adding Dependents

Because families made up of only full-time workers can never be in poverty, that necessarily means all families in poverty have members that do not work full time. This is to say that all families in poverty have members that are children, retired, disabled, unemployed, students, caretakers, or not working full time for some other reason. In a very loose sense, you could say that individuals who do not work full-time "cause" all of the poverty in society.

When a one-person family with a full-time minimum wage worker adds a dependent (say a disabled relative to their family), they go from being $2,749 above the poverty line to being $791 below the poverty line. Things get even worse if the disabled relative causes the worker to miss hours to provide care.

If this same family adds another dependent (say a child), then they'll go even further in poverty. In all cases, adding a dependent to the family increases the family's poverty line but does not increase the family's income. When the dependent burden gets to be too high relative to the number of earners (and their wage levels), that's how family poverty happens.

Uncertainty

In reality you don't always know whether someone you are adding to your family is going to be a dependent or an earner. Children obviously will be dependents, as will retired people. But when it comes to adults, someone who you add to your family may be an earner now, but find themselves unemployed, disabled, or caretaking later. Indeed, you may find yourself in that in one of those situations in the future.

Longitudinal studies on income dynamics tend to show that people don't find themselves poor year after year after year. Instead, poverty is what happens when lower working class families have bad stretches, which is to say when lower working class families see their dependent burden spike in a given period due to job loss, birth of a child, prolonged illness, or something else that disrupts the work hours they can achieve in non-poor years. Poor families also see wage rate increases as their earners age, which also helps previously poor families get over the poverty threshold in subsequent years.

Fixing the Problem

As I mentioned in my prior post, the left-wing position (which I hold) is that the family poverty problem is best fixed by providing social income for every dependent in society. What I did not mention was just how necessary this kind of solution is, if you actually care about a lot of the things liberals talk about.

If you believe, for instance, that no full time worker should live in poverty, then you must also believe that all nonworkers should receive some kind of social income. This is so because the only reason full-time workers find themselves in poverty is because of the dependents in their family (as demonstrated above). If you do not provide social income for dependents, then the only way you can guarantee that full-time workers won't be in poverty is if you ensure each full time worker receives enough market income to provide for a potentially unlimited number of dependents in their family. Needless to say, this is impossible.

If you believe in massive inequality reduction, then you must also believe that all dependents should receive a good chunk of social income. Closing the wage differential between high and low earners (the usual strategy) can help cut inequality quite a bit, but when identical earners are made to spread their earnings across different numbers of dependents, inequality is still going to be a big issue. Even if wage differentials were closed entirely, a two-earner family with no dependents would find themselves twice as rich, on a per-capita basis, than a two-earner family with two kids. That kind of inequality can only be mitigated by using taxes and benefits to enact a net transfer from families with fewer dependents to families with more dependents.

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