URBAN ECONOMICS

C. Poverty

Poverty budget - minimum food budget * 3

Ex. - 2002 poverty budgets

1. Poverty characteristics (Source:  U.S. Census Bureau)

2001 Poverty Population   Persons in Poverty (1000s)   Poverty Rate (%) All Persons   32,907   11.7           Race and Hispanic Origin         Non-Hispanic White   15,271   7.8 Black   8,136   22.7 Asian and Pacific Islander   1,275   10.2 Hispanic   7,997   21.4           Age         Over 65   3,414   10.1 Under 18   11,733   16.3           Residence         Outside metropolitan area   7,460   14.2 Inside metropolitan area   25,446   11.1 Inside central cities   13,394   16.5 Outside central cities   12,052   8.2           Type of family         Married couple   2,760   4.9 Female-headed   3,470   26.4 White   1,939   22.4 Black   1,351   35.2 Hispanic   711   37.0           Education Level         No high school diploma   6,447   22.3 High school graduate   5,628   9.6 Some college   3,025   6.6 College graduate   1,625   3.3

• Female-headed households - divorce, births to single mothers
  

- Must balance work and child care

- Women earn lower wages than men

- Many do not receive child support

• Working poor - over half of all poor families have at least one worker who works some of the time (part-time employment, low wages, underemployment), one-fifth have a full-time worker

2.  Concentration of poverty

a.  Sorting

• Sorting by demand for local public goods, demand for housing, willingness to pay for better educational peer groups
  
  
• Low income => low levels of local public goods, small houses, less favorable school peer groups
  
  
• High income => high levels of local public goods, big houses, more favorable school peer groups

b.  Concentration in central cities

(1)  Public transportation more available in central cities

• Public transportation => slow, low monetary costs
  
  
• Low income => low opportunity cost of time, limited income

(2)  More generous redistribution policies - subsidized housing, income transfers

c.  Spatial mismatch - jobs in suburbs, poor in central cities, contributes to poverty

• Employment growth lower in central city neighborhoods

• Longer commutes => higher unemployment

• Transit not oriented towards central city-to-suburb commute

• Lack of cars a problem

3. Consequences of sorting and segregation

a.  Income sorting

• Less spent on schools in poor neighborhoods
  
  
• Drug problems, crime, family instability, health problems, language difficulties, weak educational support and preparation in poor neighborhoods
  
  
• High dropout rates, lower education quality, low test scores

b.  Racial segregation

 

• Lack of role-models a problem

c. Public policy

(1) Eliminate barriers to integration

• Enforce fair-housing laws
• Reduce exclusionary zoning
• Spread low-income housing policies throughout region

(2)  Dispersing central city residents

• Pros - jobs in suburbs, break up concentrations of poverty (negative externalities), more positive role models

• Cons - communities disrupted, poorest left behind

(3)  Developing the central city - "Black Capitalism," enterprise zones (lower taxes, worker training subsidies, exemptions from local regulations)

• Pros - communities maintained, central city remains significant

• Cons - market forces working against central cities, residents may not have the right skills

4.  Labor market discrimination

• Different wages for equally productive workers

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• Differences in hours worked, education, experience, and location explain much of gap in wages, rest due to discrimination by race and gender

• Discrimination penalty shrinking over time

5.  Poverty and public policy

a.  Cash payments

• Aid to Families with Dependent Children (AFDC)

• Supplemental Security Income (SSI) - aged, blind, disabled

• General Assistance (GA)

b.  In-kind payments

• Medicaid - medical care for the poor

• Food stamps - coupons that can be exchanged for food

• Housing assistance

• School lunches

c. Welfare reform

(1)  Personal Responsibility and Work Opportunity Reconciliation Act of 1996

• AFDC abolished

• Block grants to states - Temporary Aid to Needy Families (TANF)

• After 24 months of assistance, recipients must participate in employment, training, community service, etc.

• Lifetime maximum of 60 months of assistance

• Child care subsidies for working parents

(2)  State results

• Reform leads to higher expenditures

• Expenditures for medical care, child care, and transportation needed for programs to be successful

(3)  Consequences

• Welfare caseloads reduced
  
  
• More single mothers employed
  
  
• Net increase in income
  
  
• Number of families in deep poverty (< half of poverty level) increased - 40% of former recipients not working
  
  
• Incomes for bottom fifth decreasing - average wage is $7 an hour

(4)  Questions

• What happens in an economic downturn?
  
  
• Will human capital translate into higher wages later?
  
  
• How will family structure be affected?

(5)  Labor market impact

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