Key Policy Takeaways from 30 years of Child Poverty Decline

by Georgia Center for Opportunity | Oct 25, 2022

Key Policy Takeaways from 30 years of Child Poverty Decline

Key Points

Childhood poverty leads to worse educational attainment, worse future labor market outcomes, worse mental and physical health and development, and increased risk of engaging in delinquent behavior.
A reduction in child poverty is tied to government programs which incentivize work.
The key takeaway from the Census data which shows child poverty rates are falling and the Child Trends report which studied the causes of the decline is that, despite massive social safety net expansions, work and self-sustainability still played a larger role in lifting children out of poverty than government spending did.

by Alexander Adams

In a world marred by clickbait media headlines portending disaster, it’s always a relief when some rosy news can sneak its way into a major publication: “Poverty, Plunging” was the title of a recent New York Times newsletter. Fortunately, there happens to be strong backing for such a direct headline: According to a recent report by the firm Child Trends, a nonpartisan research center, in 1991 27.9% of children lived at or below the Census’ Supplemental Poverty Measure. Today, that number has fallen to 11.4%.

This is undoubtedly fantastic news. The research is unequivocally clear: children living in poverty face worse lifetime outcomes on a whole host of measures. Childhood poverty leads to worse educational attainment, worse future labor market outcomes, worse mental and physical health and development, and increased risk of engaging in delinquent behavior. The reduction in child poverty makes the lives of millions of children better off and has positive externalities for everyone in the country.

The Child Trends report asked a few fundamental questions regarding this amazing decline in child poverty, the key one being: what exactly caused this massive decline in child poverty?

According to the media’s portrayal of the report, the reduction was due to expanded social safety net and increased social safety net spending. Another New York Times article on the Child Trends report was headlined: “Expanded Safety Net Drives Sharp Drop in Child Poverty.” Opinion writers at the Washington Post took it a step further, arguing that the decline in child poverty since the 1990s debunks “arguments that…government help must be accompanied with work requirements.”

But does it really?

According to the Child Trends report itself, many of the programs proven to be successful in reducing poverty—the Earned Income Tax Credit (EITC), the Child Tax Credit, the Supplemental Nutrition Assistance Program (food stamps)—have work requirements. The EITC is actually an earnings supplement which has been shown to incentivize work. The expansion of work requirements for welfare programs in the 1990s increased labor force participation, according to research, which translated into more income and less poverty.

In 1991 27.9% of children lived at or below the Census’ Supplemental Poverty Measure. Today, that number has fallen to 11.4%.

The increased post-tax income due to work incentives and requirements has not only reduced poverty and increased income, but has had nonfinancial impacts as well such as improved educational outcomes for children. The Georgia Center for Opportunity has previously published work on the deleterious nonfinancial impacts of nonwork. Figure 1.1 of the Child Trends report also shows that child poverty was stagnant from the beginning of the War on Poverty to the mid-1990s. The decline in child poverty occurred after we replaced our no strings attached welfare system with a system replete with pro-work incentives and requirements (though, work remains to be done).

Given all of this, it should be argued, based on the results of the report, that it was pro-work reforms and expansions to earnings supplement programs which directly promote work and self-sustainability that reduce child poverty — not unrestricted government spending.

Not only that, but according to the Child Trends report itself, the vast majority of the decline in child poverty is attributable to increases in earned income and not expanded social safety net programs. According to the report, child poverty fell 16.5 percentage points — from 27.9% to 11.4% — between 1993 and 2019. In 2019, they argue the child poverty rate would be 44% higher in the absence of social safety net expansions. This means, of that 16.5% drop, approximately 6% can be attributed to social safety net spending and over 10% is due to non-governmental factors.[1]

These other factors represent the effect of earned post-tax income not provided by aid. While the social safety net played a role in material child poverty reduction, we can see that private income played an even larger role in that decline.

At GCO, we promote self-sustainability and work precisely because we understand that work plays a larger role in lifting oneself up from poverty than government aid — and the Child Trends report supports that argument.

The key takeaway from the Census data which shows child poverty rates are falling and the Child Trends report which studied the causes of the decline is that, despite massive social safety net expansions, work and self-sustainability still played a larger role in lifting children out of poverty than government spending did. Further, among the programs which did measurably help the poor, it was policies oriented towards promoting work, not programs without work requirements, which usually had the largest impact.

[1] As the child poverty rate in 2019 was 11.4% in 2019, and it would be 44% higher without social safety net expansions, this means, without social safety net expansions, child poverty would be approximately 16.4% (11.4*1.44 = 16.4). 16.4 (no welfare) minus 11.4 (reality) = 6%. This means approximately 10.5 percentage points of the 16.5% decline in child poverty was due to increases in earned income, and only 6 percentage points due to social safety nets (16.5 – 10.5 = 6).

Eddie’s story: Moving from homelessness to a housing and a stable job

by David Bass | Oct 20, 2022

Eddie’s story: Moving from homelessness to a housing and a stable job

Key Points

Eddie was homeless and living on the streets.
With a home secured, Eddie’s next step was to find more permanent work
Eddie is excited and proud to have taken steps toward building the life he wants.

“I look forward to moving on up.”

That’s how Eddie Craig describes his current career aspirations. He has light in his eyes and hope in his heart, now that he has a steady job and a place to call home. But life wasn’t always so good for Eddie.

Eddie spent nearly five years on the street, homeless and working odd jobs. He earned money by raking and mowing yards, but it wasn’t enough to pay for a place to live. Every night, he slept in his car.

Then, he came to Home For Good, where he got in touch with an advocate named Ms. Terry. One morning, Ms. Terry located his car, where she woke him and introduced herself.

“I heard her tap on the car window one morning. To be honest with you, I thought it was the police, because they were white,” Eddie says. “But I stepped out of the car and found out her name was Ms. Terry. She got my name and everything.”

For about a month, Ms. Terry worked with Eddie to find affordable housing.

“The next thing I knew, she was calling me to tell me I had my own place,” he says. “We went over there and checked it out. I didn’t care what it looked like. She said, ‘You like it?’ I said, ‘Yeah, I like it, no problem.’”

With his housing secure, Eddie’s next step was to find more permanent work. That’s where BETTER WORK Columbus stepped in. Eddie attended a job fair hosted by BETTER WORK. Eddie met Kristin, who went on to help him complete his hiring paperwork and get his questions answered.

“Between BETTER WORK and Home For Good, getting Eddie into housing and a steady job was a team effort,” Kristin says.

Unfortunately, once Eddie was hired at his first job through BETTER WORK, reliable transportation proved to be an obstacle. His employer changed his schedule to another shift, and he couldn’t get to work. Still, he was determined to find another job, so he reached back out to BETTER WORK for help any time he encountered a roadblock.

“He succeeded because he didn’t give up,” Kristin says.

Fortunately, Eddie was able to get connected at a new job with the Marriott Hotel, where he’s happily employed and thriving. Since Eddie doesn’t have a formal education, Kristin and Ms. Terry helped him complete and submit his application paperwork. Along the way, he also got help obtaining the identifying documentation he needed to get hired — items such as his birth certificate, ID, and Social Security card.

“I had to start from the bottom,” he says.

Eddie credits Kristin for the job and Ms. Terry for his escape from homelessness.

“Thank God for BETTER WORK,” says Eddie. “I’m a living witness this has helped me.”

“Thank God for BETTER WORK,” says Eddie. “I’m a living witness this has helped me.”

Eddie’s success story at BETTER WORK is largely attributed to the fact that he had a genuine desire to earn an honest living for himself. He knew others in the homeless community who didn’t share his drive, but he was determined to build a better future for himself.

“I consider myself physically healthy and mentally healthy,” he says. “As far as a paycheck, everybody loves a paycheck.”

For others like Eddie who are looking for a steady job, he offers reassurance that the team at BETTER WORK will take their interests and strengths into consideration during the job search process.

“BETTER WORK is going to help you find what you love to do,” he says. “It won’t just be digging ditches — unless you like digging ditches.”

Ultimately, Eddie is excited and proud to have taken steps toward building the life he wants. And BETTER WORK is proud to have played a part in his story.

“It’s just good to be in the workforce,” he says.

Despite the fanfare, inflation is not conquered

by Erik Randolph | Oct 17, 2022

Despite the fanfare, inflation is not conquered

Key Points

September CPI numbers show inflation is still on the rise.
Core inflation hit a 40 year high.
Local communities are the key to paving the way for economic success.

In September, President Joe Biden prematurely declared victory over inflation as he held a celebration event over the party-line passage of the Inflation Reduction Act that required the Vice President of the United States to cast the deciding vote in the Senate.

Perhaps they were fooled by the Consumer Price Index (CPI) numbers for July and August. In July, the CPI dropped just a tiny bit to 295.271 from the seasonally-adjusted index of 295.328 for June, which rounds to an inflation rate of 0.0%. Although the unadjusted index slightly decreased again in August, the seasonal adjusted number rose by only 0.1% that calculates to 1.4% when annualized.

But, alas, inflation rates typically fluctuate from month to month, and what’s important is the longer-term trend.

When the U.S. Bureau of Labor Statistics released the CPI numbers for September, it became all too clear that we must continue to suffer through rising prices — because inflation has not yet been tamed.

The overall monthly inflation rate rose 0.4% when seasonally adjusted, that is 4.7% when annualized. Yet again, the inflation reading came in hotter than expected, with consensus estimates being around 0.3% for the September reading. The year-over-year inflation rate stands at 8.3%.

Worse, inflation has become ingrained in our economy with no indication that it’s going away anytime soon. Here are a few reasons why we still need to be worried.

1.The core inflation rate hit a 40 year high

The reason economists look at the core inflation rate is to gauge how widely inflation has spread throughout the economy. They get the rate by subtracting the cost of energy and food from the index, but not because energy and food prices are unimportant. But because of their volatility.

The core inflation rate was 6.7% in September over the previous year – the highest it’s been in forty years. It increased 0.6% in September, which calculates to an annual rate of 7.1%. This alarming trend demonstrates just how ingrained inflation has become in our economy.

“But policy is only one piece of the puzzle. The other even more important piece is the community-level response.”

2. Energy prices are down — sort of — but food prices up

One piece of good news is that energy prices went down in September. However, this is of little consolation because the prices are still 19.9% higher than last year and 49.7% higher than two years ago.

There is no good news for food prices. You can’t go to the grocery store anymore without noticing the impact of inflation, and the CPI numbers bear this out. Food prices in general are up 11.2% over last year, or 16.3% higher than two years ago. As anyone can tell you, this is just the general price increase. Consumers can experience higher prices depending on what foods they buy. Cereals and bakery goods are up 16.2% from last year, and dairy products are up 15.9%

Although economists like focusing on core inflation, energy and food prices are necessities that impact most people, especially lower income families and seniors living on fixed incomes.

3. Inflation isn’t going away anytime soon

When reading the tea leaves, there aren’t many indications to expect inflation will abate any time soon. The recent droughts and man-made obstacles to food production, such as Russia’s war on the Ukraine and the irresponsible farm policy changes in the Netherlands, will impact food supply, which, of course, will have a direct impact on food prices and its availability.

As winter approaches the northern hemisphere, the demand for energy will increase. Here again, the war in Ukraine is culpable for disrupting energy supply to Europe. Moreover, not only did the Biden Administration fail to convince OPEC to increase production, but OPEC, which by the way includes Russia, is doing the exact opposite. They are cutting back on oil production.

In the meantime, current U.S. energy policy is more concerned about climate change than energy independence — that we were just two short years ago. The Administration’s release of petroleum from the Strategic Petroleum Reserve did help ease prices, but now the reserve is at the lowest level since 1984. How much lower will the Administration allow it to go?

Because it impacts economic behavior, core inflation is even harder to solve. People – whether acting on behalf of their businesses or as an employee or as a consumer – incorporate their expectations of higher prices into their personal actions. This only fuels inflation more. Consider this fact: Although many businesses are experiencing higher revenue, their costs are also up. Importantly, and unfortunately, for many of them, their profits are down. All these factors exacerbate inflation while slowing economic growth, which harms everyone.

The way forward is through local communities

Our nation’s inflationary environment is bad. Everyone knows that. The big question is what to do about it. On the policy front, we need a paradigm shift in Washington, D.C., to focus on enacting policies that encourage private investment, savings, and free trade while cutting back on deficit spending.

But policy is only one piece of the puzzle. The other even more important piece is the community-level response.

Here at the Georgia Center for Opportunity, our focus is primarily on these bottom-up solutions. Our neighbors — particularly those on the economic margins — are suffering from high inflation and need help. That’s where programs like BETTER WORK come in. They help the poor and impoverished get the skills and training needed to find a job and pursue a career, while ensuring they also find safe and affordable housing, reliable transportation, childcare services, and any other essential that’s needed.

We also know that economic prosperity is challenging when your home life is in shambles. That’s why GCO prioritizes healthy family relationships through our Elevate workshops throughout the community and our Strengthen Families Program in local schools. On that note, prosperity is impossible without a good education, so we prioritize policies that will bring the broadest range of educational options to the most people, regardless of their background, income level, or zip code.

The way back from our high inflationary environment is going to be a long trip. But with the right policies in place and with an attitude that prioritizes on-the-ground help for our neighbors, we can lighten the burden for our neighbors during the journey.

We must rein in violent crime to help those who need economic opportunity

by Joshua Crawford | Oct 11, 2022

We must rein in violent crime to help those who need economic opportunity

Originally appeared in the Chicago Sun-Times

Key Points

The rise in crime rates and the following fear around such crimes is impacting the stability of many communities.
Studies have repeatedly found that increases in violent crime reduce economic mobility and hamper private sector job growth.
A city can substantially reduce crime by focusing law enforcement, corrections and social service resources on a relatively small number of people.

The rise and fear of crime

Americans are more worried about crime than they have been in decades. A recent poll found that 8 in every 10 Americans say they worry about crime either “a great deal” (53%) or “a fair amount” (27%).

This fear is driving businesses large and small out of cities and neighborhoods with rising crime rates. By abandoning these high-risk locations, these businesses take with them any job opportunities they provide to poorer residents.

Local and state governments must focus on reducing violent crime, not just as necessary to protect human life but also because doing so is a prerequisite to real economic opportunity in poor communities.

Increased concern about crime has followed a sharp increase in violent crime, especially homicides over the last six years. In 2021, 12 major cities saw their deadliest year on record. Chicago had its deadliest year in a quarter century.

In recent comments to the Economic Club of Chicago, McDonald’s President and CEO Chris Kempczinski noted that out-of-control violent crime, homelessness and drug overdoses in Chicago were negatively impacting both McDonalds’ restaurant locations and corporate recruitment to the city. He’s committed to staying in Chicago, but other companies across the country are already closing down retail locations in areas experiencing surges in crime.

Kevin had just climbed out of the prison system only to be faced with another challenge…finding work and seizing opportunity. Kevin’s inspirational drive to overcome his situation and to pursue opportunity reminds us of the need for systems that expand opportunity to all.

Impact on Business

Starbucks announced it would close 16 locations in Portland, Seattle, Los Angeles, Philadelphia and Washington, D.C., over safety concerns. Walgreens is closing five stores in San Francisco due to rampant crime. Small businesses from Seattle to Minnesota are citing crime as the reason they’re closing their doors.

While large businesses may not be the most sympathetic victims of the nation’s dramatic increase in violent crime, the people this crime hurts the most continue to be those from the most socially isolated and economically disadvantaged communities.

Studies have repeatedly found that increases in violent crime reduce economic mobility and hamper private sector job growth. One study found that changes in the rates of violent crime substantially impacted the economic mobility of children raised in low-income families. As crime went up during childhood and adolescence, their level of economic mobility went down.

Another study found that increases in violent crime cause existing businesses to downsize and discourage new businesses from entering the marketplace. No amount of economic incentives the government can provide will entice businesses to open in dangerous areas with low-recruitment potential. As a result, increasing crime will reduce the economic opportunities for lower-income residents.

A solution exists

Thankfully, while the problem of violent crime is large, it is not insurmountable. But reversing these trends will require understanding how we got here and what works to reduce crime.

Don’t expect crime to abate with the pandemic. Those who yearn for “pre-pandemic” crime rates ignore that in many cities, these increases began in 2015 when American cities had a more than 10% increase in murder over 2014, and 2016 saw another 8% increase on top of that. Gangs continued to operate unabated during government-ordered lockdowns, and given the retaliatory nature of so much street violence, increased violent crime often begets increased violent crime.

Next, crime, especially serious and violent crime, is concentrated among a very small number of gang members in any given city. Typically, about 0.6% of a city’s population is involved with these kinds of groups, while they’re responsible for 50% of a city’s homicides. It also tends to concentrate around certain areas; about 3% to 5% of specific addresses are responsible for about 50% of a city’s crime.

This means a city — even one plagued by gang violence like Chicago — can substantially reduce crime by focusing law enforcement, corrections and social service resources on a relatively small number of people. Strategies that do so have substantially reduced homicides from Boston, Massachusetts, to Stockton, California.

Failure to do so will only make our poorest neighborhoods poorer. Large and wealthy corporations like Citadel can leave for greener and safer pastures with relative ease. But failure of local and state officials to rein in violent crime will leave those with no means to leave with fewer opportunities to improve their lives.

GCO welcomes Josh Crawford as senior fellow focused on criminal justice reform

by David Bass | Oct 6, 2022

GCO welcomes Josh Crawford as senior fellow focused on criminal justice reform

The Georgia Center for Opportunity (GCO) is excited to announce a new addition to our team! Josh Crawford joins us as senior fellow focused on criminal justice reform.

GCO has long understood the impact the criminal justice system has had on those experiencing the barriers keeping them in poverty. Josh will fill a crucial role in helping add expertise and focus to address these issues.

Josh is a native of Massachusetts. He went to Penn State for his undergraduate degree and then finished law school in Boston. After a brief stint in Sacramento, California, working in the county district attorney’s office, Josh moved to Kentucky to help start the Pegasus Institute, a nonpartisan organization designed to promote opportunity. In addition to serving as executive director of the organization, Josh had a special focus on criminal justice policy.

Josh first encountered GCO during the 2021 State Policy Network annual meeting in Florida. He was impressed with GCO’s work on welfare cliffs and by the principles the organization lives by.

“GCO’s focus on opportunity and upward mobility for the most left-behind members of our communities very much aligns with my own passions,” Josh says. “Additionally, it became clear to me that GCO understands the holistic nature of prosperity and a life well-lived. Prosperity is too-often discussed in merely economic terms. But true prosperity comes from not only financial security but community, family, and the ability to help one’s children lead better and more prosperous lives than the generation before them.”

One of the top policy issues that motivates Josh is public safety: “The freedom to walk to the corner grocery store after dark or to let your kids play outside without fear of victimization is not a universal experience in American cities. In the absence of the most basic assumptions of personal safety, it becomes very hard to encourage economic growth or upward mobility. In fact, multiple studies have found that increases in violent crime depress private sector job growth and opportunity.”

Josh’s role at GCO will focus on criminal justice reforms and the pathways for ex-offenders transitioning out of prison to attach to work to lower their risk of recidivism.

“Reversing the trend of increased violence in American cities will require a combination of policy seriousness and political courage. It is my hope to bring the existing work I’m doing to GCO and expand upon it,” Josh added. “This means focusing attention on everything from policing and sentencing to the physical environment of a city and re-entry policy. The first city and state that gets these policy areas right will see not only huge public safety gains but will become the 21stt century model. Together we can make that a reality.”

Inflation is still raging. Biden’s student loan forgiveness plan will only make it worse

by Erik Randolph | Oct 5, 2022

Inflation is still raging. Biden’s student loan forgiveness plan will only make it worse

Key Points

Year-over-year inflation rate remains high at 8.3%. While the latest monthly number, and the CPI reading from July, show that inflation has stalled, we’re not out of the woods yet.
Reducing fiscal revenue by suspending the loan repayments adds to federal fiscal deficits.
Labor market moral hazards will worsen the situation of students achieving meaningful education and solving the problem of their skills not matching what is needed in the labor market.

In September, the U.S. Bureau of Labor Statistics announced that the Consumer Price Index (CPI) rose 0.1% in August. However, the year-over-year inflation rate remains high at 8.3%. While the latest monthly number, and the CPI reading from July, show that inflation has stalled, we’re not out of the woods yet.

There are warning signals, including worldwide drought and continued energy disruptions, that inflation is not yet tamed. Moreover, Federal Reserve policy is refusing to allow the price level to come back down, meaning that most households will continue to contend with higher prices and lagging income growth.

Meanwhile, the administration in Washington is taking steps that will only worsen the inflationary environment by its fiscal policy that relies on overspending absent adequate revenue. An unexpected part of this is President Biden’s new plan to forgive up to $20,000 in student loans for households making up to $250,000 a year.

We’ve already written about how this policy will end up hurting the poor and working class. But from a strictly economic perspective, the blanket student loan forgiveness action by the president raises two additional fundamental concerns.

Deficit spending

Reducing fiscal revenue by suspending the loan repayments adds to federal fiscal deficits. Currently, the federal government is not running surpluses with a manageable national debt as if the federal government is in a financial position to be generous. The government itself is in a financial straitjacket where it must continue to borrow to pay for its expenses, and the interest payments on the national debt continues to grow not just from the additional borrowing but also from rising interest rates. Like a family with a large and growing minimum payment on credit card debt, it is crowding out other budget priorities.

Although no economist knows how much more debt the U.S. economy can withstand, there is widespread agreement among them across the political spectrum that worsening deficit spending only aggravates inflationary pressures. We may say that taxpayers will eventually pay for the loan forgiveness, but the reality may be that we will pay for it sooner with higher inflation.

Paying through inflation rather than taxes is regressive, impacting lower income Americans the most. Consider the Tax Policy Center estimate that 57% of households paid no federal income taxes in 2021 with many receiving a net gain instead. The Tax Policy Center expects that the percent of non-paying households will drop to about 40% over the next few years, consistent with pre-pandemic levels. Why is this important? Because it shows how an inflationary policy, instead of a fiscally sound policy, impacts low-income Americans worse.

Labor market moral hazards

Second, it presents moral hazards that will worsen the situation of students achieving meaningful education and solving the problem of their skills not matching what is needed in the labor market.

The moral hazards will come about because given the history of entitlements in this country, once we begin on the path of creating a new entitlement, it opens the door for expanding that entitlement. Are not other students just as deserving of having their debt paid for now and in the future? And what about the past? Why not raise the thresholds so even more debt can be forgiven? What we’re creating here is an entitlement that has moral hazards. Even the expectation of future loan forgiveness will cause behavioral changes with the same moral hazards.

The first hazard is with the students themselves. Choosing a career and what to study is a major life decision where one must weigh the benefits and costs. Already we have a problem with many students making bad decisions and studying things that will not help them develop the skills they need in finding good paying jobs. Installing a system where the cost of education is now paid for with other people’s money will give them yet another reason to rationalize their poor education decisions. While the debt of that education may be forgiven, the opportunity costs will be unforgiving because you can’t turn back the clock and erase the consequences of those bad decisions.
The second hazard is with the post-secondary educational establishments themselves. Government involvement with guaranteed student loans already exacerbates the outrageous tuition price hikes we’ve witnessed over the past 50 years. Having the government now forgiving student debt will only reduce the financial incentives for higher education to rein in its exorbitant costs.
Finally, where are the incentives for institutions of higher learning to adjust their content to match the needs of society and the economy? As the incentives are eroding for students to carefully choose what to study and for the educational institutions to rein in their costs, the arrangement provides yet another reason for academia to justify the assortment of degrees they offer and the courses they teach. Already we are witnessing a disconnect between the content of what students have studied with what they will need to be successful in their careers.These students typically learn this hard lesson once they graduate and are faced with the realities of life. This flaw in the education system is a contributing cause of the great mismatch between what skills and education people have and the skills needed by employers that fuels the economy. Our economy is currently suffering from this problem, which now will only grow worse.