"Raise poverty line to reflect economic reality"
Newsday
September 18, 2007
By John E. Schwarz

Senior Fellow John Schwarz explains why the official poverty measure fails to reflect the reality of this nation's working poor.

Raise poverty line to reflect economic reality

By John E. Schwarz

John E. Schwarz is a senior fellow at Demos, a national public policy organization in Manhattan, and the author of "Freedom Reclaimed."

Last week, a group of religious leaders launched MICAH - the Mobilized Interfaith Coalition Against Hunger - a yearlong effort to address poverty on Long Island. The effort comes on the heels of the release of the nation's most recent poverty figures.

For the millions of Americans struggling to make ends meet despite news of economic growth, the Census Bureau numbers released late last month may have been encouraging. They show that the poverty rate dropped last year for the first time since President George W. Bush took office. About 36.5 million Americans were living in poverty, down 0.3 percent from the previous year.

But in Suffolk County the poverty rate rose, from 4.8 percent to 6.5 percent, while in Nassau the 5.2 percent rate remained unchanged.

And regardless of where you live, there are reasons to be worried: The official poverty measure belies the reality of working-poor Americans who don't fit neatly into the government's outdated formula.

The official poverty measure originally considered "income adequacy," especially the ability of individuals and families to afford the bottom level of the prevailing standard of living. It identified how many Americans were beneath the bottom of that scale. The first poverty figures, published four decades ago, were right on target. But since then, the measure has been updated only for inflation. It doesn't reflect the real, basic costs of the living standard we experience now.

The measure today reports how many 2007 dollars it takes to live at the 1955 poverty level, the base year for the first measurement. That year, many American families still had no private telephone or a car.

Applying the same formula as the poverty measure does, but using 2007 as the base year rather than 1955, the updated poverty line today would be $34,000 annually for a family of four - instead of the $20,000 that the official measure currently dictates.

When it was first applied, the poverty line stood at just about 50 percent of the median family income - as is currently the case for most of the world's developed nations and would be the case here, too, if the poverty measure had been updated appropriately. Instead, in the United States the official poverty threshold has fallen to barely 29 percent of the $69,000 median income for a family of four.

The implications of our nation's misleading poverty line are enormous. It drives the argument that people can pull themselves out of poverty by finding a steady job, regardless of the wage. Nationwide, two earners must earn about $10.50 per hour to attain the $34,000 in income necessary to avoid poverty. Yet, more than 40 million employed Americans - nearly 30 percent of all workers - are in jobs paying beneath that wage, many of them well beneath it. In sharp contrast, according to the outdated official poverty measurement, only 8 million workers are paid beneath a poverty wage.

The artificially low measurement diminishes the income ceiling for assistance from federal and state programs, including the earned-income tax credit, food stamps, housing assistance, Medicaid and more. It means that many steadily employed Americans facing real economic hardship get very little help - or none at all - from public programs. Such income ceilings are significant; for example, in 2006 an estimated 448,000 Long Islanders lacked health insurance.

Finally, a mistaken poverty line assists in keeping the minimum wage low - now, barely over $6 per hour nationally and $7.15 in New York State. By a valid poverty measure attuned to the household economy of 2007, pay falling beneath $10.50 per hour is a poverty wage. Not coincidentally, $10.50 per hour is the current minimum wage in our world peers, including Great Britain and the Netherlands.

Had it been adjusted simply to reflect the real rise in the base productivity of our workers over the past two decades, our own minimum wage would be well over $10 per hour today.

Of course, even that is inadequate in high cost-of-living areas like Long Island. According to the 2007 Long Island Index, two earners of a family of four would each need to make $20.78 per hour in order to meet their basic needs.

The country's poverty measure masks the true economic conditions that American workers and families face. More than 40 million Americans are earning poverty wages. Another 20 million are right on the edge. On Long Island between 1996 and 2005, real incomes for the bottom 10 percent actually dropped 1 percent, while they rose in double digits for the top 10 percent.

It's estimated that more than 300,000 Long Island workers are on the edge of, or below, a $10.50-per-hour wage. Another 500,000 workers are just on the cusp of, or below, the minimum to adequately cover the basics.

This widening income gap is a symptom of a larger problem, and we must examine the economic realities that hardworking Americans actually confront. That is the essential first step to changing those realities and making our country the nation it claims to be, one in which all workers can attain a decent and dignified living through work.