Wednesday, November 23, 2011

Millions Caught by the Social Safety Net

Copyright, The New York Times Company

Despite the severe recession, relatively few people saw their living standards fall into poverty, thanks to the social safety net.

According to the Center for Budget and Policy Priorities, the percentage of the United States population living in poverty increased by 0.6, to 15.5 in 2010 from 14.9 in 2007.

The poverty measure refers to resources available to families, accounting for the taxes they pay and subsidies they receive. Considering all that happened in the economy over those three years, 0.6 percentage points is quite a small change. Measures of the poverty rate typically change more than that over any three-year interval.

The study found that many people were technically above the poverty line in 2010, although their incomes were low, because they received government assistance like unemployment insurance, food stamps and refundable tax credits. The government assistance permitted them to have living standards above poverty, even while their market incomes were below the poverty line.

Were it not for government assistance, the study found, the recession would have pushed 4.2 percent of the population into poverty, rather than 0.6 percent.

One interpretation of these results is that the safety net did a great job: For every seven people who would have fallen into poverty, the social safety net caught six. Perhaps if the 2009 stimulus law had been a little bigger or a little more oriented to safety-net programs, all seven would have been caught.

Another interpretation is that the safety net has taken away incentives and serves as a penalty for earning incomes above the poverty line. For every seven persons who let their market income fall below the poverty line, only one of them will have to bear the consequence of a poverty living standard. The other six will have a living standard above poverty.

The safety net was not as effective before the recession began. As I explained in my last two posts, government assistance programs have not only supported more people but become more generous, thanks to changes in benefit rules since 2007.

Of course, most people work hard despite a generous safety net, and 140 million people are still working today. But in a labor force as big as ours, it takes only a small fraction of people who react to a generous safety net by working less to create millions of unemployed. I suspect that employment cannot return to pre-recession levels until safety-net generosity does, too.

1 comment:

TGGP said...

What do you think of this?