Why the poverty rate continues to rise, in spite of job gains

Prof. Bruce Meyer explains Congress’ role in preventing increases during COVID-19 pandemic

When COVID-19 outbreaks began to escalate early this year, University of Chicago economist Bruce Meyer quickly realized that the pandemic would have a dramatic impact on poverty in the U.S. Since then, he and his colleagues have been tracking the poverty rate in near real-time with a continuously updated dashboard that has received extensive media coverage.

In a recent working paper, Meyer and his co-authors showed how the poverty rate fell in the spring as a result of federal stimulus checks and extra jobless benefits issued at the beginning of the pandemic. Since June, however, the poverty rate has steadily risen, despite job gains—a cause for concern as we head into the winter without new action from Congress.

In the following Q&A, Meyer explains some of his key takeaways from the ongoing project. The McCormick Foundation Professor at the Harris School of Public Policy examines the uneven impact of poverty on children and Black Americans following the loss of COVID-specific benefits, and suggests ways that state agencies and the federal government could improve the delivery of these benefits in the future.

Given that the November jobs report showed slower job gains, what concerns do you have for unemployed individuals and those living in poverty as we head into 2021?

While the unemployment rate has steadily gone down, it hasn’t happened as quickly as some had hoped. And for people who took extraordinary measures to get through the initial shock, the continuation of the downturn is potentially catastrophic. I’m especially concerned for those people who may have run through their savings, borrowed what they could from friends and family and exhausted whatever temporary work options they could find.

Eventually, benefits run out, moratoriums on evictions expire and bills accumulate. All of those things keep happening to thousands of people, even as the unemployment rate falls a little bit more. Given the trends we’ve seen over the last few months, I expect poverty will continue to rise unless there’s a quick recovery or additional extensions of unemployment insurance or other benefits provided to those out of work.

In your opinion, what needs to be done?

Additional unemployment insurance benefits would be a good idea, especially if they’re targeted in an effective way toward those who were most hurt by the pandemic. Additional aid to small businesses that are at risk of closing forever could be beneficial as well.

We also need better systems for distributing benefits. A big part of the problem so far has been the poor performance of the unemployment insurance system, which has been swamped by all the claims. Many states have had a hard time paying out benefits, and there have been a lot of people who have applied for benefits and been denied—often for bad reasons that have to do with paperwork rather than eligibility. Others are waiting on backlogged claims filed months ago.

How have you been able to measure the poverty rate so quickly, and what makes the data unique?

We used data from the Current Population Survey, which is a survey the U.S. Census Bureau has been conducting since the 1940s. It’s been a source of information about the unemployment, poverty and health insurance coverage rates in the United States for decades. Each month, the survey asks a quarter of respondents about their income over the past year, and it was these data that we used to measure poverty.

While self-reported income on a survey isn’t a perfect way to measure poverty, the data are fairly high quality, with two other big advantages: speed and consistency. You get the information three weeks after people are interviewed every month, so it’s an ideal way to evaluate the impact of a cataclysmic event like this pandemic.

And what’s so special about these data is that they’ve been asking this question the same way for 30 years, so you can compare the answers you get now to what people were saying at other points in time, and examine the accuracy of the question by looking at how it compares to other ways people have asked about income and poverty in the past. So having that “yardstick” really makes our study unique, especially relative to surveys that started after the pandemic.

How have state responses to unemployment claims impacted the poverty rate for different people in different places? Have some groups been disadvantaged?

The pandemic has had a disproportionate impact in terms of poverty by race, education and age. Children, for instance, have been impacted more relative to adults. In June, poverty was actually fairly low because the federal government (despite my earlier critique) was extraordinarily quick and generous with pandemic relief in the form of one-time economic stimulus payments and the $600 a month supplement to unemployment insurance. However, many of those benefits expired by the end of July, and since early summer we’ve seen poverty rise. The increase has been larger in states where the unemployment insurance systems are poorly run.

Almost half the people who have fallen into poverty since June have been Black. Adults without college degrees have also been hit hard, as have children. Senior citizens, on the other hand, have been less affected by the pandemic from a poverty standpoint, because it’s really people who lost jobs and their dependents who saw their incomes decrease. If you’re already retired and your Social Security benefits weren’t affected, the economic shock tended to be less severe.

How can state agencies and the federal government do a better job of distributing unemployment benefits going forward?

Part of the reason for the poor performance has been underfunding. The computer systems used by many unemployment agencies were so old that they couldn’t figure out how to make simple changes, like adjusting their formulas such that a person’s unemployment benefits would comprise a higher percentage of their pre-unemployment earnings during the pandemic.

That’s part of what led the federal government to give every claimant a flat additional benefit amount of $600 over the summer. That was a one-size-fits-all policy, which meant it was simple—but “one size fits all” is a marketing fallacy. As we might expect, the $600 was not enough to replace past earnings for some people, while for others it replaced much more than their lost earnings and provided an incentive for them not to go back to work, which isn’t necessarily good either.

So, this is a case where I think the federal government and the states are both to blame. The federal government should have provided more money to states to improve their IT systems and states should have allocated it accordingly.

It’s important to note that we’re talking about a small amount of money for IT upgrades relative to the $100 billion dollars every month that were paid out in unemployment insurance this summer. That’s a staggering number. In the Great Recession, we were spending $100 billion on unemployment insurance per year. So, a little infrastructure building can go a long way toward making the delivery of these benefits more effective.

This work was supported by the National Science Foundation and a group of private foundations, with particular help from the Menard Family Foundation.