Decades of Gains Over U.S. Poverty At Risk of Being Wiped Out
The escalating coronavirus pandemic could reverse decades of gains in the fight against poverty, as U.S. government aid for the vulnerable dries up.
In the early months of the crisis, the federal Cares Act, which gave an extra $600 a week in unemployment assistance and $1,200 stimulus checks, helped prevent poverty from dramatically deepening. But that lifeline for low-income earners is being cut off.
Unemployment benefits are set to expire for millions of workers in late December and talks over a new stimulus package have stalled -- just as some states reimpose job-hammering lockdowns to halt a surge in cases.
Keeping a flow of government assistance open to poorer families will be crucial to ensure that the recovery from the pandemic doesn’t further exacerbate inequality, according to James Sullivan, an economics professor at Notre Dame University in Indiana.
Economists have described this as the “K-shaped recovery”, in which wealthy Americans are seeing jobs and investments snap back, while the lower-income ranks lag far behind.
“The pandemic is likely resulting in many displaced workers who will need to invest in some retraining in order to find stable employment,” Sullivan said. “Those who are unable to do that are more likely to have to rely on the government safety net and they face greater risk of inter-generational poverty.”
The U.S. government definition of poverty is based on the makeup of each household and it’s adjusted every year.
More-current estimates by Sullivan and Bruce Meyer, an economics professor at the University of Chicago, show that the poverty rate fell between April and June as a result of the Cares Act and then rose again as government aid began to run out and expire.
The study estimates that the poverty rate rose from 9.4% in April to 11.4% in October, with nearly 7 million people plunged into poverty since May. The increase was most pronounced among Blacks, among whom the rate rose 7.3 percentage points from May to October.
While the nation’s economic rebound is continuing, certain parts of the economy are digging out of the rut faster than others.
Low-income adults were the most impacted by coronavirus-related job losses and pay cuts, according to a study by the Pew Research Center. Among lower-income adults, 47% said they or someone in their household either lost a job or took a pay cut. That compares with 42% of middle-income and 32% of higher-income adults who participated in the June 4-10 survey.
Steering stimulus money toward the hardest-hit industries and their workers who are having a difficult time finding jobs elsewhere would drive a more durable recovery, said Gregory Daco, chief U.S. economist with Oxford Economics.
“Since lower-earning families typically have a much higher marginal propensity to spend each additional dollar of income they receive, the economy-wide boost of targeted stimulus to those families is greater than stimulus for higher-income households,” Daco said.
Sophia Reyes’s story exemplifies the struggles of many Americans. She worked temporary jobs before the pandemic, but after having a baby in March, she couldn’t land even those.
The 30-year-old single mother, who lives in Bowie, Maryland, said she stopped receiving coronavirus benefits in August, and she now regularly uses her credit cards for daily expenses.
“Simple stuff like toilet paper, diapers and even cleaning and sanitizing products, I’m unable to get those things easily because I just don’t have the money for it,” Reyes said. “I’m kind of like hanging in the air now.”
Reyes was forced to move in with her parents when she couldn’t keep up with her rent. She started a GoFundMe page with an $11,000 goal to help out with her expenses.
The remaining programs established by the Cares Act are slated to expire in December, including extended unemployment benefits. In addition, student loan payments that were halted by President Donald Trump through the end of the year by executive order will go back into repayment in January, while a nationwide halt on residential evictions expires Dec. 31.
Any new stimulus package will need a “combination of all of the measures that were already put in place and potentially some new ones that help guarantee a comfortable situation for a lot of these low-income families,” Daco said.
©2020 Bloomberg L.P.