Sheldon Danziger: “Economic growth on its own is no longer a sufficient antipoverty strategy”

Before preparing these remarks, I re-read The Affluent Society and found passages that resonate with the most important research findings and policy contributions of my career. According to Galbraith (1998, 40th Anniversary edition, p. 238), “The most certain thing about this poverty is that it is not remedied by a general advance in income.” That is, economic growth on its own is no longer a sufficient antipoverty strategy.

Explicitly testing this hypothesis was the focus of several papers that I co-authored with Peter Gottschalk in the 1980s, that culminated in America Unequal (1995). This research was supported by the Russell Sage Foundation. We demonstrated that, to quote Galbraith, poverty was no longer being “remedied by a general advance in income,” for two reasons. First, economic growth, especially growth in inflation-adjusted male wages, was much slower after 1973 than it had been in the prior quarter century. Second, “a rising tide was no longer lifting all boats” and earnings inequality and family income inequality were increasing even during economic recoveries.

In 2010, few will find it odd when I assert that poverty will remain high for the next several years even as the economy emerges from recession, because it is now conventional wisdom that economic growth for the last three decades has favored highly skilled professionals and left behind blue-collar and service sector workers. However, in the early 1980s, Gottschalk and I faced a skeptical readership. We even had an informal contest with AAPSS Fellows Rebecca Blank and Alan Blinder who had written that poverty would fall significantly during the economic recovery of the mid- to late-1980s. In contrast, Gottschalk and I expected poverty to fall little because the poverty-reducing effects of growth were being offset by the poverty-increasing effects of rising inequality. The economic history of the past 35 years has proved Galbraith prescient, as the official poverty level never fell below the 1973 level.

Another Galbraith hypothesis—that poverty remained high in our affluent society because “individual inadequacy precludes employment and participation in the general advance (p. 238)”—foreshadows the conclusions of my research on the effects of the 1996 welfare reform on the economic well-being of low-income mothers. Sandra Danziger and I, and several University of Michigan colleagues, developed the Women’s Employment Study that interviewed welfare mothers multiple times between 1997 and 2003. An unexpected finding, confirmed in numerous subsequent studies, is that many low-income mothers have multiple barriers to employment that prevent them from working steadily even when the unemployment rate is low.

Prior to our study, researchers and policy-makers focused on two conflicting hypotheses as primary causes of low employment levels—either (a) welfare mothers were unwilling to take available jobs or (b) spatial and skill mismatches made available jobs unsuitable for or inaccessible to these women. As a result, we had designed and analyzed policies to raise educational attainment and labor market skills and experiences. The Women’s Employment Study analyzed the extent of employment barriers in domains that were not previously studied by poverty researchers and documented high rates of learning disabilities, maternal health and child health problems, mental health problems, such as depression and post-traumatic stress disorder, and experiences of domestic violence. Because these barriers had been neglected, the Work First programs implemented by the states after the 1996 welfare reform primarily provided job search assistance. Agency staff did not provide assessments and referrals to services, such as to health and mental health treatment that might help these women overcome their barriers. As a result, the 1996 reform reduced welfare dependency, but created a new problem—“disconnected mothers,” those who were willing to work, but could not find jobs after being terminated from cash welfare.

Congress will soon consider the re-authorization of welfare reform. It is likely that the debate will address multiple barriers to employment, as our study stimulated additional research and a randomized demonstration focused on the hard-to-employ.

Poverty has increased because of the recession that began in December 2007. Fortunately, the Obama administration has promoted policies that address Galbraith’s concerns and my research findings about both the antipoverty effects of economic growth and the barriers of the hard-to-employ. Many antipoverty policies were included in the American Recovery and Reinvestment Act (ARRA), the 2009 Economic Stimulus. The Act raised Food Stamp benefits, expanded the Earned Income Tax Credit for low-income families with three or more children, subsidized the purchase of health insurance through COBRA for laid-off workers, extended the per capita child credit in the federal income tax to families with earnings between $3,000 and $12,000 per year, extended unemployment insurance benefits and provided states with incentives to modernize their UI programs. Most relevant for welfare reform reauthorization, the ARRA provided emergency funds [that] more than 20 states are using to subsidize temporary public service jobs for those willing to work but [are] unable to find an employer to hire them.

The ARRA reforms are more significant than anything that the federal government has done for the working poor and near poor in decades. However, most of these reforms will expire within a year without Congressional action. And, there is already more discussion in Washington about reducing the deficit than there is about making these policies permanent. If these reforms expire, then poverty and income inequality will remain high in our affluent society even when the economy fully recovers from the “Great Recession.” Galbraith called attention to these problems 50 years ago; his concerns remain relevant today.”