Prosperity Watch Issue 41, No. 4: Recent recoveries fail to bring down poverty rates

A disturbing trend that has been documented at the national level is also occurring in North Carolina:  economic recoveries have taken increasingly longer to bring down poverty rates.  Up until the 1970s poverty rates had moved in sync with indicators of economic growth, that is as the economy grew, poverty declined.  However, a disturbing trend post-1970s has been the breaking apart of the connection between an improving economy and a decline in the proportion of people experiencing economic hardship.

The Center on Budget and Policy Priorities documented the length of time it has taken for the poverty rate to fall once a recovery takes hold ahead of last week’s release of the latest poverty and income data from the U.S. Census Bureau.  In the country as a whole, the recoveries of the 1960s and 1970s brought poverty rates down within one to two years. By the 2000s, the poverty rate has remained elevated for 5 years failing to decline significantly despite improved job growth and income growth. A similar pattern emerges for North Carolina as is evidenced by a look at available data on the past four recessions. Poverty rates have taken much longer to decline in each successive period of official economic expansion.  In fact, the poverty rate failed to decline significantly from the 2001 recession before the 2007 recession hit. In both recessions of the 2000s, poverty rates have actually continued to increase once the official recovery has gotten underway.

There are two main reasons researchers identified for this growing disconnect between poverty and other economic variables.  First, improvements in labor market conditions, primarily measured by the number of jobs and the decline in unemployment, are no longer indicative necessarily of lower levels of hardship.  The unemployment rate can fall because people leave the labor force not just because they move to employment.  It is also the case that the quality of jobs that are created matters for the ability of an increase in the number of jobs to reduce hardship.  In North Carolina, more than 60 percent of the jobs that have been created since the start of the recovery pay average wages that would not move a worker in a family of four above the poverty threshold.   

A second factor in explaining the persistence of high poverty rates is that income growth is not evenly shared despite increased productivity.  In North Carolina, this recovery marks the first time in the past three recoveries that wages have fallen even as the economy has increased its productivity, meaning that workers are not benefiting from their contributions to economic growth.  In addition, income growth has been largely concentrated at the top resulting in growing inequality and the persistence of poverty.

The promise of economic growth is that it will reduce hardship, but recent trends suggest that this is not broadly the case.  In order to ensure the potential for growth to reduce hardship, public policy is critical to ensuring the quality of jobs that are created, that workers are paid a living wage and that productivity is rewarded with increased income.


 

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