Transcript Urban Poverty Issues - مركز الأمير سلمان

Urban Poverty Issues and
Antipoverty programs
Prof. David E. Clark
Weeks #11-12
Why Study Poverty in Urban
Economics?

Spatial concentration
 Urban
vs. Rural
 Central city vs. suburban

The correct policy recommendation depends
on a correct analysis of the problem.
Defining Poverty

One Definition
 An
individual is poor if he/she has little money
income.

Problems with definition
 This
is an absolute measure vs. a relative one
 Considers only money income, but not assets
 Doesn’t consider investments in human capital

More ideal definition
 An
individual is poor if he/she has little money
income, (relative to others in U.S.), few assets, and
no prospect for substantially larger income.
Defining Poverty - Government


Poverty defined by the Social Security
Administration, based on an absolute poverty line
(there are 48 of these depending on family sizes
and number of kids below 18).
Based on the expense associated with a nutritious
meal.
A
survey done in 1950’s established that a nutritious
meal costs approximately 1/3rd of annual budget of
poor.
 Thus, define nutritious diet and multiply by three to get
the poverty line.
Defining Poverty - Government

If your income falls below some threshold,
you are in poverty.
 Most
frequently cited is the line for a family of
4 persons.

There are actually 48 poverty thresholds.
 Look
at Census web site
 http://www.census.gov/hhes/poverty/threshld.html
Components of income

Included - cash income
 Earnings
from W&S
 Social Security, SSI,
public assistance.
 Dividends, interest on
savings and investments
rental income, estates,
trusts, royalties.
 Unempl. comp, workers
comp., vet. benefits.
 pensions, annuities,
alimony, child support,
periodic income

Excluded
 In-kind
transfers (e.g.,
housing and food
subsidies).
 Net worth
 Taxes and other payments.
 Permanent income.
 Does not adjust for underreporting of income,
believed to be high in the
poor.
 No regional variation in
prices.
Inflationary Indexing
Since 1969, the poverty line has been
indexed by the CPI.
CPI overstates inflation. Why?
Implications for measurement of level of poverty?
Who are the poor and where do
they live?
Magnitude of Poverty in the U.S.

Year
1929
1959
1969
1979
1989
2001
#poor
Percent of total
60 mil.
approx. 50%
39.5 mil.
22.4%
24.1 mil.
12.1%
25.3 mil.
11.6%
31.5 mil.
12.8%
32.9 mil.
11.7%
Influence of Definition


Census has been experimenting with alternative
measures of poverty.
Look at web site:


http://www.census.gov/hhes/poverty/poverty01/r&dtable6.html
Using an alternative definition of income that added the
value of means-tested noncash transfers (e.g. food
stamps,housing subsidies, and medicaid) to post-tax
cash income from the private and government sectors
would result in 29.0 million people being poor, and a
corresponding poverty rate of 10.3 percent in 2001.
Profile of Poor: Table 14.3

Who are they?
 Minority
concentration.
 Female headed households
 Heavy burden on children
 Uneducated (below HS degree).

Where are they located?
 Metro
vs. rural
 Central cities vs. suburbs
Look at Underlying Causes of
Poverty
Causality necessary to identify
appropriate public policy to mitigate
problem.
Macro and regional economic stagnation



Evidence suggests that urban unemployment is
heavily influenced by economic growth.
Recessions are increasingly regional in nature.
Minorities suffer most during slow growth periods?
 Earnings

disparity between blacks and whites increases.
Expansionary macro policy can be used.
 Imprecise
policy tool.
 Potential tradeoff with inflation.
Labor Market Discrimination
against Central City Minorities

Earnings functions
nearly always identify
racial differences in
earnings.
earn less
even after controlling
for education and
experience.
 Growth of earnings
lower for minorities as
well.
Earnings
White
 Minorities
Minority
Age
Discrimination Costly
(assuming equal productivity)

White Labor Market

S
W
Minority Labor Market
W
S
WW
WM
D
LW
L
D
LM
L
Potential explanations

Is all else equal?
 Measuring
educational quality
 Measuring effort

Statistical discrimination
 Race
or ethnicity is used as a signal.
 Signal may be efficient.
 Use of approach is clearly inequitable.
Demographic Explanations


Female headed households are more likely to be
living in poverty.
Reasons:
 Most
are single-parent households so full-time work
frequently not possible.
 Female wages lower than male wages
 Only about 1/3 of single mothers receive child support.

What has been happening to this over time?
 Very
strong growth
Spatial Mismatch between Jobs
and Employment

Poor are concentrated in cities.
 McKinney
and Schnare (1989 Journal of Urban
Economics) find that overall patterns of
integregation have improved slightly over
period 1960-1980.
 Primarily
due to mobility of black households into
higher income neighborhood strata where exposure
to whites is greater.
 Within neighborhood income strata, no change.

Jobs increasingly decentralizing.
Income constraints

However, look at evidence from Margo
article.
 Holding
constant other factors, nonwhites more
likely to live in central city.

Study by Kain (1985) showed that if
location choices were exclusively by
nonracial factors, we would expect twice as
many blacks living in suburbs.
Prejudice and Discrimination
Prejudice is an attitude based on race;
Discrimination is an action where people
treated differently based on race.
 Question:

 If
blacks prefer to live near whites, even if
whites don’t prefer to live near blacks, why
don’t we observe leap-frogging behavior?
 Possibly tied to discrimination in housing
markets.
Evidence on Housing Discrimination?

Some evidence that white buyers, renters,
borrowers have been treated differently
historically than black counterparts, although
improvements have been noted.
 Fair
housing audits are used for real estate agents,
landlords, lenders.
 Steering behavior by real estate agents may be based
on using race as a proxy for preferences of individuals
(i.e., statistical discrimination).

Again, discrimination is costly to seller, landlord,
lending institution.
Exclusionary Zoning

Exclusionary zoning has also had an effect on
residential land use.
 Although
it has been argued that this is used to
protect home owners from incompatible land uses
and fiscal free-riding, it keeps minorities out.

Techniques:
 Minimal
square footage, minimum lot size,
minimum frontage, etc. excludes low income from
neighborhoods.
Regardless of cause, segregation
exists.
Look at the consequences!
Does spatial mismatch explain
poverty?
Evidence has been mixed.
 Some (e.g., Ellwood) point to racial factors
as alternative factors.
 Others Ihlanfeldt, Sjoquist, Leonard suggest
that it is an important influence.
 Next time, we look at Ihlanfeldt article.

Public Policy

Since the Great Society, spending on antipoverty policies has increased dramatically, and
its level in 1987 was over $100 billion.
 There
are many anti-poverty programs, and we cannot
do justice to the literature in a short presentation.
 We examine just a few actual policies.

Focus is on understanding broad economic
issues.
Macroeconomic Policy

Goal is stimulate the demand side of the local
labor market
 Low
income households (especially minorities) suffer
relatively more during recessions.

Macroeconomic expansionary policy is too broad
a brush to apply to specific geographic regions.
 May

conflict with other macroeconomic goals.
General policy direction - avoid deep national
recessions.
Stimulating Local Job Growth


Alternatively, local policy makers can stimulate
local demand for labor.
Bartik (1993) “Who Benefits from Local Job
Growth: Migrants or the Original Residents”
Regional Studies, 1993, Vol. 27(4), 297-311.
 Approximately
1/4 of new jobs from local growth
increases the labor force participation rates of local
residents.
 Minorities benefit most from growth.
 Higher wage industries provide greater employment
benefits for local residents.
Hysteresis Effect
Bartik argues that job growth has LR effects
on unemployment and participation rates
due to hysteresis effects.
 SR job experience increases human capital
for local residents.

 Acquired
skills increase self-confidence and
reputation from employers.
 Local residents more employable in LR.
Training Programs


This type of program is aimed at the supply side of
the labor market.
Goal is to develop skills that increase earning
capacity of the poor.
 Predominating
notion during the 1960’s.
 Strong growth in 1960’s, moderate growth in 1970’s,
decline during 1980’s and 1990’s.

Some welfare reforms give limited training to
current welfare recipients.
Ashenfelter (1978)
Orley Ashenfelter wrote a paper which
appeared in Review of Economics and
Statistics, in 1978.
 Examined workers completing governmentsponsored job training course in 1964.
 Examined panel data to analyze the incomes
earned through a 5 year post-training period.

Findings
Compared trainees with a control group
 Findings:

 Courses
produced increase in the earnings of all
trainee groups in period immediately following
course completion.
 Increase for both white and black women was
$300-$600 per year (in about 1970), and did not
decrease in 5 years after training.
 Increase for men was similar, but fell by 50%
over the 5 year period.
Other insights in literature
Primary success is on programs which
target youth.
 Some success in raising earnings for
women.

 Less

success with men.
Earnings (wage*hours) increased by
increasing hours.
Strengths and weaknesses

Strengths
 Politically

Have rebounded as a result of welfare reform.
 Some

more attractive than others
evidence of cost effectiveness
Weaknesses
 More
expensive than other policies
 If supply of skills increases and demand is low, may not
be effective
 Requires coordination of demand and supply side.
Income Support Programs

Examples of direct income transfers
 Public
assistance includes AFDC, SSI for aged and
blind, Veterans Pensions, General assistance.
 Social insurance includes Social Security,
unemployment insurance, workers compensation,
veterans compensation

Rationale:
 The
person him/herself is the best judge as to how to
increase utility.
Welfare loss from payments-inkind vs. payments-in-cash
Food
Direct income support parallel
shifts the budget line
F**
F*
U1
O*
O**
U2
Other Goods
Scenario #1: High food consumers
Payment-in-kind shifts
only a portion of budget
line.
Food
No consequence for
heavy food consumers
F**
F*
U1
O*
O**
U2
Other Goods
Scenario 2: Low food consumers
Food
U1
U2
U3
Preferred location
F**
F*
O*
O**
Other Goods
There is some empirical support
for Scenario #2
Smeeding (1982) found each dollar of
foodstamps was worth $0.97 to recipients.
Blanchard et. al. (1982) found replacement of
food stamps with cash transfers did not effect
food consumption.
Public Welfare

AFDC is probably the most publicly visible
income support program.
 Means
tested
 Payment made by federal government.
 Can be augmented by state government
 Average
payments vary substantially between states.
e.g., in a year when Calif. average payments were
$553/month, Alabama awarded $114/month.
Consequences
Purported welfare migration between states
 Destabilizes families

 Benefits
are removed when earnings reach a
particular level.

Disincentive to work
Labor-Leisure Choice
Income
Slope of budget line=dI/dleisure
I1
La1
Leisure
Labor
Impact of Welfare on Budget
Constraint
Income
wage=0
Assumes 100%
takeback rate
IBreakeven
IG=Income grant
Leisure
Labor
Equilibrium point
Income
Assumes 100%
takeback rate
IG=Income grant
Leisure
Labor
Are those who don’t work lazy?
Why not simply reduce takeback
rate?
Breakeven point







Define Ie=earned income
t=takeback rate
Grant is taxed at Ie*t
Breakeven point is thus the point where Ie*t=IG.
Solving for I gives: Ie=IG/t
Thus, if t=1.0 then breakeven I=IG
If t=0.5, then Ie=IG/0.5=2*IG
Evidence on Welfare Impacts

There is a substantial literature here and we
simply provide overview here.
 Work
disincentives fairly well established.
 Strong evidence of destabilization of families.
 Mixed evidence on welfare migration
Welfare reforms

Wisconsin was pioneer
 e.g.,

W2, Edfair
Current reforms
 Phase
out for income guarantee.
 Required
work participation after 24 months of
assistance
 Assistance eliminated after 60 months
 Period
of training and child-care assistance
Has welfare reform been
successful?

Timing of reforms was fortunate
 Lengthy
expansion during 90’s
 Welfare rolls fell substantially
52% decline (94 –99)
 Still concentrated in largest cities

 Market

effects
Will lower the market wage for low-skilled
• Bartik (1998) estimates up to 8% drop in earnings for low-skilled
women.
 Effect
on incentives
Problem of Urban Ghettos

Two policies have been suggested
 Dispersal
 Development
Dispersal arguments

Ghetto is a place that is fundamentally ugly, and
it fosters activities that are considered
“unacceptable” in nonghetto areas.
 Ghetto
represents a negative externality for the
MSA.
 Ghetto aggravates and accentuates urban problems.

Problems of the Ghetto:
 Spatial
Mismatch, and Blight-flight process only
makes the situation worse.
 Low educational quality in city schools.
Policy Proposal: Ghetto
Dispersal
Improve efficiency of labor market
(informational systems for suburban jobs).
 Create suburban housing glut for low
income.
 Suburbanize even if its at the expense of
integration.
 Subsidize suburban schools to take ghetto
residents.

Counter-arguments

Dispersal is not feasible.
 Disruptive
to integration goals.
 Creating mini-ghettos will only create new
pockets of poverty in the suburbs.

Development of ghetto is preferable.
Case for Development:
Economic
Multiplier effects.
 External agglomeration economies

 One
success lowers costs to others in region.
Demonstration effects
 Leadership effects

 Keep
your most talented and ambitions in the
community.
Political Case for Development
Source of leadership for political struggles.
 Foster interaction between races.

 Less

likely to have backlash.
Politically more feasible.
 Viewed
as self-help.
Development Techniques
Greenhouse industries
 Pool resources in CDC’s.
 Enterprise Zones

Cutler and Glaeser Article
“Are Ghetto’s good or Bad?”
Quarterly Journal of Economics,
1997, p. 827 -872