More Government Spending Won't Reduce Poverty


More Government Spending Won't Reduce Poverty

By Keith Hall |
Jan 29, 2013

Despite unprecedented levels of government spending to help low-income Americans, a record 46 million people in the United States are living in poverty. In 2011, two thirds of the working-age poor were unemployed for the entire year. Some will argue that more public sector intervention is necessary to reduce poverty. But as we continue to slowly recover from the Great Recession, history shows us that only job gains from stronger economic growth can solve the problem.

A full five years since the start of the recession, the economy continues to underperform. Economic growth has averaged just 2.3 percent growth since the end of the recession in mid-year 2009, not enough to begin a full labor market recovery. There are still more than 100 million working-age people that remain jobless, and wages in 2012 grew at just 1.5 percent, the slowest increase on record and well below the rate of inflation. Based on data from the past two decades, every 1 percent reduction in the poverty rate requires a corresponding 2 percent rise in the share of the working age population with employment.

Since the start of the recession, the number of Americans in poverty has grown by 9 million. This increase has come at a time when government spending on the poor has also reached record levels. In 2011, more than 100 million people lived in households that received some kind of low-income government assistance; spending on these programs at the federal, state, and local level combined now exceeds $1 trillion annually. Government assistance for low-income families now equals a shocking 10 percent of all household spending. 

It has been long recognized that recessions can increase the number of families in poverty, and over the past 20 years it has become clear that the rising and falling poverty rate correlates directly with the jobless rate. The graph below shows this relationship.

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