Why Has the Poverty Rate Not Fallen Since the Early 1970s?

Between the end of World War II and 1973, the percentage of Americans living in poverty fell by half. Since then, however, the overall poverty rate has remained largely unchanged. Why didn’t poverty continue to decline? As the figure below shows, in the 25-year period following the end of World War II, earnings marched steadily upward. By 1973, the real weekly earnings of private sector, nonfarm, nonsupervisory production workers stood at $650, more than 60 percent higher than in 1947. As Frank Levy has observed, it was as if all of America was on an up-escalator, each year higher than the previous. As earnings rose, the poverty rate plummeted — falling from 22 percent in 1960 to 11 percent by 1973.

But then the up-escalator came to a grinding halt, earnings stagnated, and then fell, ending down nearly 20 percent by 2004. Poverty followed suit — holding in a relatively steady range for the next 30 years. Men with a high school diploma or less were hardest hit by this decline in earnings.

The causes of this 30-year decline in earnings include sweeping technological and globalization changes that have placed a premium on higher education, demographic changes that have produced a generation less prepared for college than the previous one, the decline of collective bargaining and unionization, and the erosion of the value of the minimum wage.

In recent testimony presented before the House Ways and Means Subcommittee on Income Security and Family Support, MDRC President Gordon Berlin argues that a compelling body of evidence points to potentially effective solutions — both short term and long term — for alleviating poverty related to low earnings today and the intergenerational transfer of poverty tomorrow. In the short term, enhancing the Earned Income Tax Credit (EITC), especially for single individuals, and indexing the minimum wage to inflation could be an effective strategy for boosting employment and earnings and reducing poverty. In the long term, evidence-based investments in educational reform — from pre-kindergarten classes to community colleges — should equip the next generation with the skills they need to obtain high-paying jobs.

Of course, we still have much to learn about how to scale up even the most promising short- and long-term interventions. Would earnings supplements, which have been tested mostly with women, have long-term employment effects on men? Would an educational reform that works in a few schools or districts be able to be replicated effectively on a large scale?

In another presentation, Berlin explains how short- and long-term two-generation strategies are interdependent: For example, providing enhanced work supports to adults to move families out of poverty today can have positive effects on young children’s school performance — and should provide a strong foundation for long-term efforts to prevent poverty tomorrow through improved educational opportunities for poor children.

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