Why Our Economy Is Still in ‘Deep Disrepair’
Business + Economy

Why Our Economy Is Still in ‘Deep Disrepair’


A new report highlights the implications of rising poverty, job loss, and greater inequality in America. The social safety net has performed admirably, but is struggling to meet rising poverty and needs. It gets a mixed grade, while the economy gets an “F” for failing to provide enough jobs for the poor. 

For the report, “The State of the Union on Poverty and Inequality 2014,” experts examined labor markets, poverty, the safety net, and inequalities in income, wealth, health, and education.

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“The country’s economy and labor market remain in deep disrepair,” the report states, “whereas our various post-market institutions (e.g., the safety net, educational institutions, health institutions) have a mixed record of coping with the rising poverty and inequality that has been handed to them by a still-struggling economy and labor market.”

The social safety net consists of a variety of government cash and non-cash benefits and programs that assist the poor, says David Grusky, a Stanford University professor of sociology and the director of the Stanford Center on Poverty and Inequality, one of three national poverty centers.

Findings and Implications

  • A failing labor market: The economy is still not delivering enough jobs. In 2013, the proportion of all 25- to 54-year-olds who hold jobs was almost 5 percent lower than in 2007, for both women and men. A full recovery from the Great Recession is unlikely if the economy does not deliver more jobs and better jobs.
  • Rising poverty: The official poverty rate increased from 12.5 percent in 2007 to 15 percent in 2012. The child poverty rate increased from 18 percent in 2007 to 21.8 percent in 2012. A very responsive safety net has held poverty rates down to roughly what prevailed during the weaker recessions of the 1980s and 1990s.
  • A stronger (but strained) social safety net: The safety net is providing a growing share of the support that low-income households need to escape poverty. In 2012, safety net programs provided the third-highest level of such “poverty relief” (i.e., support needed to reach 150 percent of the official poverty line) in the last 25 years.
  • A safety net that increasingly encourages market work: The safety net is doing a better job of protecting households from sharp declines in support when people increase their market earnings. As a result, the safety net is better equipped to encourage or “incentivize” employment. Though this is due largely to the expansion of the Earned Income Tax Credit in the 1990s - a refundable tax credit for low- to moderate-income households - the effect continues today.
  • Increasing income inequality: After mid-2009, most measures of income inequality increased, resuming what has been a nearly relentless growth in income inequality during the last 30 years.
  • Rising wealth inequality: Wealth inequality rose for the first time since the early 1980s. Figures for 2010 indicate wealth inequality is higher than any level recorded in nearly three decades. Also, the Great Recession reduced the net worth of African Americans and Hispanics more than it reduced the net worth of whites.

Health and Education
“The decline in some health outcomes reflects increases in the poverty rate and the characteristically poor health outcomes of those in poverty,” the report reads.

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In education, the academic achievement gap has been closing between black and white Americans over the last 40 years, although “disparities in college completion” have increased over the same period.

The study’s release marks the 50th anniversary of the War on Poverty declared in 1964 during the Lyndon Johnson administration. Because of this anniversary, the scholars behind the new study consider the prospect of a Second War on Poverty.

“The results presented here reveal an economy that is failing to deliver the jobs, a failure that then generates much poverty, that exposes the safety net to demands well beyond its capacity to meet them, and that places equally harsh demands on our health care, penal, and retirement systems,” they write.

What Can Be Done?
The report notes that a conventional approach to poverty might consist of narrow and piecemeal attempts at reform that target not the economy, but the institutions—the safety net, health care, and education—that deal with the “jobs disaster.” Instead, the report suggests a sharper focus on job growth. “It is worth considering whether a no-holds-barred commitment to job-delivering reform might be a more efficient and sustainable way forward.”

This article originally appeared in Futurity.org. Source: Stanford University