Journal Issue: Health Care Reform Volume 3 Number 2 Summer/Fall 1993
Poverty and the Business Cycle
The rate of poverty among children has fluctuated considerably over the past 25 to 30 years. As illustrated in Figure 1, the child poverty rate fell substantially during the 1960s and early 1970s. Some of this decline may be attributable to the so-called war on poverty which was declared in 1964.3 It is, however, worth noting that the child poverty rate had declined from almost 50% in the late 1940s to under 25% by 1964 so that most of the decline in the poverty rate among children predated the period of the war on poverty.4 The poverty rate among children reached a low of 13.8% in 1969 and has fluctuated to more than 50% above that level in subsequent years. In 1991, the official poverty rate stood at 21.1%. This rate was 7.3 percentage points above the 1969 rate but 0.7 percentage points below the 1983 rate, the highest poverty rate in the past 25 years.1 Because the poverty rate has fluctuated over time, any attempt to examine reasons for the recent increase in poverty among children will be sensitive to the choice of years used in the comparison.
One reason child poverty rates fluctuate is that child poverty is tied to the business cycle. Because the primary source of income for families with children is the earnings of adult household members, fluctuations in employment which accompany cycles of economic expansion and recession cause fluctuations in child poverty (see Figure 1). To uncover the importance of other factors in the growth in child poverty in recent years, it is helpful to control for the effects of these fluctuations in employment. Because both 1980 and 1991 were periods of recession and because unemployment rates were similar in those years (7.0% in 1980 and 6.6% in 1991),5 this note focuses primarily on examining the reasons for the increase in poverty between 1980 and 1991.
The child poverty rate rose between 1980 and 1983 as the unemployment rate increased, and fell from 1983 to 1989 as unemployment declined. It is distressing, however, that the economic expansion of the 1980s was not adequate to reduce the child poverty rate to its 1980 level despite a substantial reduction in the unemployment rate to 5.2% by 1989, the lowest unemployment rate since the early 1970s.5 As a result, the United States entered the recent recession with poverty among children already at a high level.
Many analysts have singled out three factors to explain the rise in childhood poverty: demographic changes, especially the increase in single-parent families; the economy, especially the decline in earnings for men with limited education; and public policy, especially a reduction in the generosity of the social welfare system.6