Why Are a Record Number of Americans Living in Poverty?

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A family in Detroit eats at a food kitchen (Spencer Platt/Getty Images)

The US Census Bureau is out with its annual report on poverty and incomes today and the results are striking: The number of people living in poverty in the US is at an all time high. The last time this many people were living in poverty in the US was in the late 1950s. In 2009, 43.6 million people lived on the equivalent of less than $5,500 a year. That was up from 39.8 million Americans in 2008. The 2009 number means that more than 1 in every 7 Americans live in poverty. The actual rate was 14.3%, which is the highest that measure has been since 1994, and was up from 13.2% in 2008.

Recessions often produce jumps in the poverty rate. But this one has been particularly bad. Here’s why:

So far, the poverty rate has jumped 1.9 percentage points in the current recession, which started in December 2007. That already makes this the second largest jump in the poverty rate in the past 6 recessions. For instance, in the early 2000s, the last recession, the poverty rate rose a tiny 0.2 percentage points. Only the double dip recession of the early 1980s was worse. That time the poverty rate rose 3.9 percentage points. But even so, the poverty rate in that recession topped out at about 15%. If we were to head into a double dip, a similar jump in the poverty rate could put it this time around as high as 16.3%.

Why is poverty a worse problem in this recession? It comes back to the particularly sticky unemployment problem this time around. Poverty is certainly not helped by jumps in unemployment, but the big driver of poverty is not just joblessness but persistent unemployment. And people loosing their job and not being about to get back into the workforce has been a particularly bad problem in this recession. In August, the percentage of unemployed people who have been out of a job more than six months was 42%. And that was down from a high of 46% in May. That’s much worse than in past recessions. In the early 2000s, the long-term unemployment rate topped out at 22.4%. Even in the early 1980s, the highest that rate hit was 27.6%.

Percent of Workforce that has been out of a Job for more than Six Months (source: BLS)

Second, income equality is a lot worse in the US than it used to be. The Census measures inequality by something called the Gini index. Back at the beginning of the 1980s, the Gini index stood at 0.374. It is now 0.458. That’s a jump of 22%. And when you have more people living on the edges of the income scale, unemployment can quickly push the people on the bottom into poverty.

The problem is these two issues, long-term unemployment and income inequality, while made worse by recessions, are not just recession problems. They are the result of big structural problems in the economy. Recovery or not, high poverty rates may be with us for some time.

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