Elevated Child Poverty: A Capitalist Problem

The way capitalist market institutions distribute the national income is hostile to child-rearing. This is so for at least two reasons.

First, adding a child to your family increases the amount of income your family needs, including the amount it needs to be above poverty. But capitalist institutions do not respond to this need by distributing more income to families as they add more children, which is what sensible child-friendly and family-friendly distributive institutions would do.

Second, capitalist institutions distribute the least amount of money to workers who are at the normal age of child-having. Left to their devices, then, capitalist institutions will always have child poverty rates that are much higher than the overall poverty rate.

Indeed, we see that in the US. In 2012, the official child poverty rate was 21.8 percent, while the overall poverty rate was 15 percent. This is a child-to-overall poverty ratio of 1.45, which indicates that children are 45 percent more likely to be in poverty than the population in general.

I've written about these basic anti-family problems with market distributive institutions before. Since then, I've tried to think of clever ways to illustrate my point with data. I am still working on that for the first point. Here, I attempt to illustrate the second point that capitalist income life-cycles feed elevated child poverty rates.

Life-Cycle Effect

The life-cycle effect argument is pretty straightforward and obvious once you consider it. People have children when they are young. People receive the lowest amount of market income when they are young. Their incomes then go up later on in life when they receive promotions and raises and whatnot.

I figured that, if this was true, it would also mean that the youngest children have the highest child poverty rates and the oldest have the lowest child poverty rates. This is because (given parenting norms surrounding child spacing and such) the parents of older children are, on average, older as well, meaning they are deeper into their income life-cycle. All else equal, a family with a 15-year-old child in it has had more years to receive promotions and raises than a family with a newborn (obviously sometimes these families overlap, but not typically).

Using the latest 5-year American Community Survey (5% population sample), I calculated the poverty rate for every age from 0 to 17. This was the result:

As you can see, the rates move exactly as you'd expect. At age 0, 25.5 percent of children are in poverty. So, one in four children are born into poverty. At age 1, it inches up a little to 25.8%. I suspect it ticks slightly up instead of down for reasons related to determining the poverty status of a family in the prior 12 months when their kid is less than 12 months old. From there it's down, down, down as the the parents and kids get older and older. At age 15, the child poverty rate bottoms out at 18.2%. At age 16 and 17, you see upticks again, which is likely because 16 is the age at which the Census will categorize you as an adult if you move out, meaning your poverty status will be determined by your own income and not the income of your parents.

So from age 1 to age 15, child poverty rates fall a whopping 30%. This is because of income life-cycles, which are an artifact of the way market institutions distribute income.

Some takeaways:

  1. Blaming parents for the anti-family consequences of capitalist distributive institutions doesn't make much sense. When child poverty rates fall 30 percent over the life cycle, that's an income distribution problem. Moreover, the 30 percent figure can mislead. It's not as if the remaining 70 percent who are impoverished at age 15 were also impoverished at age 0. People move in and out of poverty a lot. Half of all adults will spend at least one year in it.
     
  2. This is utterly crazy from a child development viewpoint. Child poverty in general is, but this particular pattern of it especially. We distribute the least amount of income to people right when their kids are at their crucial development stage. If you are going to throw some kids into poverty, you'd much rather it be the older ones than the younger ones. Capitalist institutions do the reverse.
     
  3. Child benefit programs, like the child tax credit and personal exemption, that pay more benefits to those with higher incomes are similarly crazy. In addition to just broadly giving more benefits to richer families than poorer families, they also end up giving more money to families with older children than younger children for these life-cycle reasons. Yet, younger children are in more need of the money (because they are much more likely to be poor) and it is more important for child development reasons that younger children have it. One way to fix this issue is to have a universal child allowance where families with children aged 0-5 get more benefits than those with children aged 5-17.
     
  4. This is not just about poverty. The fact is that all parents, even those not in poverty, are going to face a similar life-cycle income issue wherein they have the lowest incomes when their kids are young and highest when they are old. This is also bad and counter to everything we know about child development. This makes the case again for a universal child allowance, perhaps with a higher benefit level for young children than old children.
     
  5. The only solution is non-market income supplements of some sort. You are not going to be able to get capitalist firms to pay entry-level workers (aka parents of young children) more money. Nor are you going to force them to pay parents more than single workers. No amount of coaxing or manipulating the market will eliminate the Child Poverty Premium as I think I will begin calling it. 

Conclusion

In closing, I thought it might be useful to compare the child-to-overall poverty ratios globally using disposable income (so income that includes child benefits and the like). Here are the best 5:

  1. Finland - 0.53
  2. Denmark - 0.62
  3. Korea - 0.64
  4. Norway - 0.68
  5. Sweden - 0.68

As you can see, it's the usual suspects plus Korea. In Finland, children are about half as likely to be poor as the overall population. This is because it has a robust network of family benefits. Same with the other usual suspects.

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