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Journal Issue: The Next Generation of Antipoverty Policies Volume 17 Number 2 Fall 2007

Rewarding the Work of Individuals: A Counterintuitive Approach to Reducing Poverty and Strengthening Families
Gordon L. Berlin

Endnotes

  1. Sheldon H. Danziger and Peter Gottschalk, “Diverging Fortunes: Trends in Poverty and Inequality,” in The American People: Census 2000, edited by Reynolds Farley and John Haaga (New York: Russell Sage Foundation, 2005), pp. 49–75; Hilary Hoynes, Marianne Page, and Ann Stevens, “Poverty in America: Trends and Explanations,” Working Paper 11681 (Cambridge, Mass.: National Bureau of Economic Research, October 2005), prepared for a symposium on poverty for the Journal of Economic Perspectives.
  2. William J. Wilson, When Work Disappears: The World of the New Urban Poor (New York: Knopf, 1996); Kathryn Edin and Maria Kefalas, Promises I Can Keep: Why Poor Women Put Motherhood before Marriage (University of California Press, 2005); Andrew Cherlin, “American Marriage in the Early 21st Century,” Future of Children 15, no. 2 (2005): 33–55.
  3. After 1973, the United States dramatically increased spending on social welfare programs, including the EITC, food stamps, and housing assistance, but these transfers are not counted in official poverty statistics. When alternative measures of poverty that include these transfers but subtract for other expenses (like payroll taxes and work-related child care costs) are used, poverty rates do decline, typically by 1 or 2 percentage points. See Constance F. Citro and Robert T. Michael, eds., Measuring Poverty: A New Approach (Washington: National Academies Press, 1995); and U.S. Census Bureau, The Effects of Government Taxes and Transfers on Income and Poverty: 2004 (2006).
  4. Danziger and Gottschalk, “Diverging Fortunes” (see note 1); Frank Levy, The New Dollars and Dreams: American Incomes and Economic Change (New York: Russell Sage Foundation, 1998).
  5. Frank Levy and Richard J. Murnane, The New Division of Labor: How Computers Are Creating the Next Job Market (New York: Russell Sage Foundation, 2004); David H. Autor, Lawrence F. Katz, and Melissa S. Kearney, “The Polarization of the U.S. Labor Market,” Working Paper 11986 (Cambridge, Mass.: National Bureau of Economic Research, January 2006); David Card and John E. DiNardo, “Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles,” Journal of Labor Economics 20, no. 4 (2002): 733–83.
  6. Autor, Katz, and Kearney, “The Polarization of the U.S. Labor Market” (see note 5).
  7. Peter Edelman, Harry J. Holzer, and Paul Offner, Reconnecting Disadvantaged Young Men (Washington: Urban Institute Press, 2006).
  8. Chinhui Juhn, “Decline of Male Labor Market Participation: The Role of Declining Market Opportunities,” Quarterly Journal of Economics 107, no. 1 (1992): 79–122; Edelman, Holzer, and Offner, Reconnecting Disadvantaged Young Men (see note 7).
  9. Andrew Sum and others, Trends in Black Male Joblessness and Year-Round Idleness: An Employment Crisis Ignored (Chicago, Ill.: Alternative Schools Network, 2004); Edelman, Holzer, and Offner, Reconnecting Disadvantaged Young Men (see note 7).
  10. Edelman, Holzer, and Offner, Reconnecting Disadvantaged Young Men (see note 7); Steven Raphael, “Early Incarceration Spells and the Transition to Adulthood,” in The Price of Independence: The Economics of Early Adulthood, edited by Sheldon Danziger and Cecilia Rouse (New York: Russell Sage Foundation, forthcoming 2007).
  11. Bruce Western, “The Impact of Incarceration on Wage Mobility and Inequality,” American Sociological Review 67, no. 4 (2002): 526–46; Raphael, “Early Incarceration Spells” (see note 10).
  12. Cherlin, “American Marriage in the Early 21st Century” (see note 2); Wilson, When Work Disappears (see note 2); Edin and Kefalas, Promises I Can Keep (see note 2).
  13. Danziger and Gottschalk, “Diverging Fortunes” (see note 1).
  14. Paul R. Amato, “The Impact of Family Formation Change on the Cognitive, Social, and Emotional Well- Being of the Next Generation,” Future of Children 15, no. 2 (2005): 75–96.
  15. Cherlin, “American Marriage in the Early 21st Century” (see note 2).
  16. Kathryn Edin and Joanna M. Reed, “Why Don’t They Just Get Married? Barriers to Marriage among the Disadvantaged,” Future of Children 15, no. 2 (2005): 117–38.
  17. Earl Johnson, Ann Levine, and Fred Doolittle, Fathers’ Fair Share: Helping Poor Men Manage Child Support and Fatherhood (New York: Russell Sage Foundation, 1999); Frank Furstenberg Jr., Kay Sherwood, and Mercer Sullivan, Caring and Paying: What Fathers and Mothers Say about Child Support (New York: MDRC, 1992).
  18. Edin and Kefalas, Promises I Can Keep (see note 2).
  19. Andrew M. Sum and Neal Fogg, “The Changing Economic Fortunes of Young Black Men in America,” in The Black Scholar: Journal of Black Studies and Research 21, no. 1 (1990): 47–56; Ronald B. Mincy, ed., Black Men Left Behind (Washington: Urban Institute Press, 2006).
  20. I am grateful to Andrew Sum of Northeastern University for this analysis.
  21. Marcia Carlson, Sara McLanahan, and Paula England, “Union Formation in Fragile Families,” Demography 41, no. 2 (2004): 237–62.
  22. Gregory Acs and Elaine Maag, “Irreconcilable Differences? The Conflict between Marriage Promotion Initiatives for Cohabiting Couples with Children and Marriage Penalties in Tax and Transfer Programs,” New Federalism: National Survey of America’s Families, series B, no. B-66 (Washington: Urban Institute, 2005).
  23. Adam Carasso and C. Eugene Steuerle, “The Hefty Penalty on Marriage Facing Many Households with Children,” Future of Children 15, no. 2 (2005): 157–75.
  24. David T. Ellwood, “The Impact of the Earned Income Tax Credit and Social Policy Reforms on Work, Marriage, and Living Arrangements,” in Making Work Pay: The Earned Income Tax Credit and Its Impact on America’s Families, edited by Bruce D. Meyer and Douglas Holtz-Eakin (New York: Russell Sage Foundation, 2001), p. 157.
  25. Robert Moffitt, “The Effect of Welfare on Marriage and Fertility,” in Welfare, the Family, and Reproductive Behavior, edited by Robert Moffitt (Washington: National Academy Press, 1998); Ellwood, “The Impact of the Earned Income Tax Credit” (see note 24); Acs and Maag, “Irreconcilable Differences?” (see note 22).
  26. Charles Michalopoulos, Does Making Work Pay Still Pay? An Update on the Effects of Four Earnings Supplement Programs on Employment, Earnings, and Income (New York: MDRC, 2005).
  27. Pamela A. Morris, Lisa A. Gennetian, and Greg J. Duncan, “Effects of Welfare and Employment Policies on Young Children: New Findings on Policy Experiments Conducted in the Early 1990s,” Social Policy Report 19, no. 2 (2005).
  28. Lisa Gennetian, Cynthia Miller, and Jared Smith, Turning Welfare into a Work Support: Six-Year Impacts on Parents and Children from the Minnesota Family Investment Program (New York: MDRC, 2005).
  29. Aletha C. Huston and others, New Hope for Families and Children: Five-Year Results of a Program to Reduce Poverty and Reform Welfare (New York: MDRC, 2003); and unpublished eight-year follow-up survey results from the New Hope evaluation.
  30. Gennetian, Miller, and Smith, Turning Welfare into a Work Support (see note 28), p. 51; Johannes M. Bos and others, New Hope for People with Low Incomes: Two-Year Results of a Program to Reduce Poverty and Reform Welfare (New York: MDRC, 1999).
  31. U.S. House of Representatives, Committee on Ways and Means, 2004 Green Book: Background Material and Data on Programs within the Jurisdiction of the House Committee on Ways and Means (2004).
  32. To encourage work, the value of the credit rises steeply in the phase-in range, until a two-child family’s earnings reach $11,000 ($7,800 for a single-child family and $5,200 for a childless single); then flattens in the plateau range, until earnings reach $14,400 for a two-child or a single-child family ($6,550 for a childless single); and then gradually declines to zero in the phase-down range, as earnings rise to $35,263 ($31,030 for one child and $11,750 for no child). To help reduce the marriage penalty, the phase-out income target for married couples is several thousand dollars higher than for single-parent families, which translates into a few hundred dollars more per year.
  33. Steve Holt, “The Earned Income Tax Credit at Age 30: What We Know” (Brookings, February 2006); V. Joseph Hotz and John Karl Scholz, “The Earned Income Tax Credit,” in Means Tested Transfer Programs in the United States, edited by R. Moffitt (University of Chicago Press, 2003); Robert Greenstein, The Earned Income Tax Credit: Boosting Employment, Aiding the Working Poor (Washington: Center on Budget and Policy Priorities, 2005); James P. Ziliac, “Filling the Poverty Gap, Then and Now,” Working Paper 2003-06 (University of Kentucky Center for Poverty Research, 2004).
  34. Census Bureau, The Effects of Government Taxes and Transfers on Income and Poverty (see note 3).
  35. Nada Eissa and Jeffrey B. Liebman, “Labor Supply Response to the Earned Income Tax Credit,” Quarterly Journal of Economics 111, no. 2 (1996): 605–37; V. Joseph Hotz, Charles H. Mullin, and John Karl Scholz, Trends in EITC Take-Up and Receipt for California’s Welfare Population, 1992–1999, Working Paper (Institute for Research on Poverty, University of Wisconsin, Madison, 2003); Hotz and Scholz, “The Earned Income Tax Credit” (see note 33).
  36. Bruce D. Meyer and Dan T. Rosenbaum, “Making Single Mothers Work: Recent Tax and Welfare Policy and Its Effects,” in Making Work Pay: The Earned Income Tax Credit and Its Impact on America’s Families, edited by Meyer and Holtz-Eakin (see note 24), pp. 69–115; Jeffrey Grogger, “The Effects of Time Limits, the EITC, and Other Policy Changes on Welfare Use, Work, and Income among Female-Headed Families,” Review of Economics and Statistics 85, no. 2 (2003): 394–408.
  37. Nada Eissa and Hilary Williams Hoynes, “Taxes and the Labor Market Participation of Married Couples: The Earned Income Tax Credit,” Journal of Public Economics 88 no. 9–10 (2004): 1931–58; Eissa and Liebman, “Labor Supply Response to the Earned Income Tax Credit” (see note 35).
  38. Acs and Maag, “Irreconcilable Differences?” (see note 22); Saul D. Hoffman and Laurence S. Seidman, Helping Working Families: The Earned Income Tax Credit (Kalamazoo, Mich.: W. E. Upjohn Institute for Employment Research, 2003).
  39. Hoffman and Seidman, Helping Working Families (see note 38).
  40. Acs and Maag, “Irreconcilable Differences?” (see note 22).
  41. Sar Levitan, Frank Gallo, and Isaac Shapiro, Working but Poor: America’s Contradiction (Johns Hopkins University Press, 1993); Jared Bernstein and Isaac Shapiro, Nine Years of Neglect: Federal Minimum Wage Remains Unchanged for Ninth Straight Year, Falls to Lowest Level in More than Half a Century (Washington: Center on Budget and Policy Priorities and Economic Policy Institute, August 2006).
  42. Edelman, Holzer, and Offner, Reconnecting Disadvantaged Young Men (see note 7); David Card and Alan G. Krueger, Myth and Measurement: The New Economics of the Minimum Wage (Princeton University Press, 1995); David Neumark and William Wascher, “Comment on ‘Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania’ by David Card and Alan B. Krueger,” American Economic Review 90, no. 5 (1998): 1362–96.
  43. Amy Chasanov, “No Longer Getting By: An Increase in the Minimum Wage Is Long Overdue,” Research and Ideas Working Paper (Washington: Economic Policy Institute, 2004).
  44. Sheldon Danziger and Cecilia Rouse, “Introduction,” in The Price of Independence: The Economics of Early Adulthood, edited by Danziger and Rouse (see note 10).
  45. Thomas Brock and Allen LeBlanc, Promoting Student Success in Community College and Beyond: The Opening Doors Demonstration (New York: MDRC, 2005).
  46. Edelman, Holzer, and Offner propose an EITC for singles with a maximum value of $1,500; Reconnecting Disadvantaged Young Men (see note 7). Primus proposes for fathers who owe child support a credit of half the current EITC for single parents; Wendell Primus, “Improving Public Policies to Increase the Income and Employment of Low-Income Nonresident Fathers,” in Black Males Left Behind, edited by Ronald B. Mincy (Washington: Urban Institute Press, 2006), pp. 211–48. The maximum subsidy discussed here of $2,400, about $200 a month, would restore low-end wages to closer to their 1973 level.
  47. Canadians file taxes as individuals for personal income purposes, with special rules governing some forms of “taxable income” when filers are married (for example, the child care expense deduction can be claimed only by the lower-earning spouse, and refundable tax credits to benefit low-income families, such as the Child Tax Benefit and the Goods and Services Tax Credit, where eligibility is family-income based, can be claimed by either spouse). Because of these features, each tax filer is required to report the name and social insurance number of his or her spouse and the net income reported by that spouse; Revenue Canada then cross-references the two tax returns. In addition, a tax filer who has a dependent (in general, a nonworking spouse) can claim a deduction from income that decreases as the spouse’s earnings increase (becoming zero at just over $8,000 in annual earnings).
  48. Adam Carasso, Jeffrey Rohaly, and C. Eugene Steuerle, “Tax Reform for Families: An Earned Income Child Credit,” Welfare Reform and Beyond Policy Brief 26 (Brookings, 2003); Ellwood, “The Impact of the Earned Income Tax Credit” (see note 24), p. 157.
  49. Stephen H. Bell and L. Jerome Gallagher, “Prime-Age Adults without Children or Disabilities: The Least Deserving of the Poor—or Are They?” New Federalism: National Survey of America’s Family, series B, no. B-26 (Washington: Urban Institute, 2001).
  50. Chinhui Juhn, Kevin Murphy, and Robert Topel. “Why Has the Natural Rate of Unemployment Increased through Time?” Brookings Papers on Economic Activity 1991, no. 2: 75–142; Lawrence Katz, “Wage Subsidies for the Disadvantaged,” in Generating Jobs: How to Increase Demand for Less-Skilled Workers, edited by Peter Gottschalk and Richard Freeman (New York: Russell Sage Foundation, 1998); Jeffrey Grogger, “Market Wages and Youth Crime,” Journal of Labor Economics 16, no. 4 (1998): 756–91; Edelman, Holzer, and Offner, Reconnecting Disadvantaged Young Men (see note 7).
  51. For a discussion of these effects, see Edelman, Holzer, and Offner, Reconnecting Disadvantaged Young Men (see note 7).
  52. The Canadian Self-Sufficiency Project increased employment 19 percent, earnings 23 percent, and income 14 percent; the less generous Minnesota program increased employment 13 percent, earnings 5 percent, and income 8 percent; and the New Hope program increased employment 7 percent, earnings 5 percent, and income 5 percent.
  53. It could play a similarly necessary but not sufficient role for the employment interventions that Mead proposes in his article in this volume for chronically unemployed men involved in the justice system.
  54. Calculations from the 2005 March supplement of the U.S. Census Bureau’s Current Population Survey (CPS) by the Center on Labor Market Studies, Northeastern University. The CPS underestimates EITC receipt, suggesting that these eligible population estimates overstate the number of eligibles.
  55. Of the 58 million working Americans with income below $31,030 in 2004, 48 million worked full time (thirty hours a week or more) when they worked (44 million of whom met the thirty hours a week for twenty-six-weeks eligibility requirement), and 10 million worked part time. Twenty-three million did not work at all.
  56. This assumes that individuals worked thirty hours a week or more for at least twenty-six weeks out of the year and had total income of less than $31,030. While the plan proposes a quarterly accounting period— that is, thirty hours of work per week, on average, over three months—the estimates use “worked at least twenty-six weeks in the last year” as a proxy. Current Population Survey estimates of new eligibles, prepared by the Center for Labor Market Studies, are available from the author on request. In short, net costs subtract current EITC payments as reported in the CPS. Recall that new credit parameters are a 25 percent subsidy phase-in rate until income reaches $7,800 and a 16 percent phase-down beginning at $14,400 and ending at $26,587. A 34 percent subsidy rate was used to calculate costs for married family heads, a group whose joint income was too high for the existing family EITC but who would become eligible if income were treated on an individual, not joint, basis. Because most full-time workers work full year, relaxing the “weeks worked” criterion from twenty-six weeks to five weeks only increases the total cost to $32.5 billion. The assumptions used to derive these estimates most likely result in an overstatement of the potential number of beneficiaries: people receiving disability payments or who were otherwise unable to work were not excluded; the estimates assume that all those who worked thirty hours and twenty-six weeks in the past year would qualify; no savings were calculated for any increase in work effort that might occur; and, as noted earlier, the CPS underestimates EITC receipt.
  57. The Canadian Self-Sufficiency Project increased the share of nonworkers who moved to qualifying fulltime work by about 7 percent, and a best estimate from both the SSP and New Hope of the effect of moving from part-time to full-time work might be in the 10–15 percent range, if one averages the effects for the applicant and recipient groups in SSP and considers the composition of the sample in New Hope.
  58. Danziger and Gottschalk, “Diverging Fortunes” (see note 1).
  59. Ian Dew-Becker and Robert J. Gordon, “Where Did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income,” Working Paper 11842 (Cambridge, Mass.: National Bureau of Economic Research, December 2005).
  60. See Steven Pearlstein, “Solving Inequality Problem Won’t Take Class Warfare,” Washington Post, March 15, 2006, p. D1. Pearlstein estimates that the top 10 percent of the income distribution received an extra $750 billion as a result of its increased share of national income.
  61. By comparison, Edelman, Holzer, and Offner estimate a $9.8 billion annual cost for a more narrowly targeted credit for singles that includes a maximum payment of $1,500 and has no full-time work requirement, but includes a plan to reduce marriage penalties by not counting 50 percent of the lower-earning spouse’s wages when eligibility for the current family EITC is calculated. See Edelman, Holzer, and Offner, Reconnecting Disadvantaged Young Men (see note 7).
  62. Levy and Murnane, The New Division of Labor: How Computers Are Creating the Next Job Market (see note 5); Alan S. Blinder, “Offshoring: The Next Industrial Revolution,” Foreign Affairs 85, no. 2 (2006): 113–28.
  63. Edin and Reed, “Why Don’t They Just Get Married?” (see note 16).
  64. Other examples include the SIME/DIME Negative Income Tax Experiments.