The Market Poverty Rate Is 24 Percent

Every year, the Census puts out two poverty estimates. The first uses the Official Poverty Metric, which counts all cash income from any source excluding tax credits and capital gains. The second uses the Supplemental Poverty Metric, which counts all cash income, tax credits, and the cash equivalent of non-cash benefits. The Census does not, despite frequent confusions to the contrary, estimate market poverty. After reading the reactions to my recent posts about structural poverty, it has occurred to me that the lack of market poverty information is a problem. So I want to help fill in that information here.

Although the Census does not track market poverty, it is easy enough to pull out market poverty figures from the microdata it releases. This is how the OECD constructs its relative market poverty estimates for the United States, for instance.

For our purposes here, "market income" consists of wages, salaries, self-employment income, farm income, private survivor's benefits, private disability insurance benefits, private retirement income, education income (e.g. grants), interest, dividends, rents, child support, alimony, private financial assistance, and the Census' "other" catch-all. This is a liberal definition of market income and even includes a few small things that aren't actually market income (for example, the "other" catch-all includes the Alaska Permanent Fund dividend all Alaskan citizens receive).

Market Poverty Rates

If we use this market income definition against the official poverty lines, this is what we see in 2012 (the official poverty stat for each figure is in parentheses):

  • Poverty Amount: 74 million (versus 46.5 million)
  • Poverty Rate: 23.8% (versus 15%)
  • Child (<18) Poverty Rate: 24.6% (versus 21.8%)
  • Adult (18-64) Poverty Rate: 18.5% (versus 13.7%)
  • Elderly (65+) Poverty Rate: 46.5% (versus 9.1%) 
  • Disabled Poverty Rate: 52.5% (versus 21.3%)

In just about any market economic system, you find persistent poverty patterns, or what we might call "poverty hotspots." Children, the disabled, the elderly, young adults, and the unemployed find themselves with significantly higher market poverty rates and much lower market incomes in general. These patterns hold year after year after year even though, obviously, the individuals that make up the groups Children, Elderly, Disabled, and so on change out.

The reasons these poverty hotspots exist and persist is because of the way markets distribute the national income. That is to say, there are identifiable structural reasons for all of them. For many of these hotspots, we have specific (often inadequate) social insurance solutions in place to deal with them, which is why the market and official poverty rates differ so much for many of these categories. Social Security lifts the elderly out of poverty. SSI and SSDI lifts the disabled out of poverty. Children, unfortunately, do not get much of a boost out of their elevated poverty (they do a bit better when you include the EITC) because, unlike a ton of European countries, we do not have universal cash benefits for children. We easily could have them and they would massively cut child poverty for little, but we don't.

Market Poverty Decomposed

To repeat: 74 million people (23.8% of the population) are in poverty at the market distribution. What follows is a percentage breakdown of who these 74 million people are:

  • Children: 24%
  • Elderly: 27%
  • Disabled: 10%
  • Student: 6%
  • Working: 14%
  • Everyone Else: 18%

For clarification, the way this works is that each impoverished person is only put in one slot. There are, for instance, some elderly poor who are also the disabled poor. But they are counted only under elderly. In effect, then, Everyone Else refers to the adult, non-disabled, non-student, non-working poor. It is important to emphasize that even those people may live with significant others who are working, just not them personally. It is further important to emphasize that even though they have no earnings in 2012, that does not mean they won't have any in future years or never had any in the past.

With that out of the way, really look at these numbers and think about them for a second. Of those impoverished under the market distribution, the super-majority (68%!) are not in categories of people that most people would particularly regard as "deserving" of their poverty (and certainly not the kind of people in need of a life coach). If we include able-bodied adults with earnings, that number shoots to 82% of poor people who are not particularly deserving. If you account for some transient poor and maybe give a little leeway for some young adult poor, the percentage of "undeserving" goes higher still. No matter how you cut it, the vast majority of those impoverished by the market distribution are people who are in "vulnerable populations," a euphemism for "groups the market systematically underserves."

Even when you switch to the Official Poverty Metric, which includes all of those elderly and disability programs, it's still the case that children, the elderly, the disabled, and students make up 61% of the poor, and that non-working, non-disabled, non-student adults only make up 21% of the poor.

Conclusion

The most frustrating thing about poverty (disposable income poverty, not market income poverty) is that it's unbelievably easy to reduce. In newspapers and blogs and even some think tanks, people scratch their heads into bloody messes acting (or maybe genuinely being) puzzled by this as if it is some great policy challenge. American pundits speak about poverty reduction as if it is a new frontier that nobody has ever figured out.

But it's not a new frontier. Other countries have figured it out. Our own country, in its better moments, has figured it out as well. Since 1967, the only thing that has reduced poverty in this country is non-market income. We cut elderly poverty down by over 70% through non-market incomes. We cut disabled poverty rates in half each year (we should do more) through non-market incomes. Super-low poverty countries get that way through non-market incomes as well.

If you want specifics, lately I have been talking about a child allowance program that would cut child poverty in half and overall poverty by a quarter for slightly over 1 point of GDP. Such a program would address the structural child poverty problems discussed above, is extremely common throughout Europe, and is pro-growth in the long run.

No mainstream anti-poverty plan comes anywhere close to these kinds of impacts. This is the kind of very simple stuff that is proven to dramatically reduce poverty, but it's also the stuff nobody wants to talk about, let alone do.

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