United States Government Accountability Office

GAO Testimony before the Chairman, 

Committee on Ways and Means, House of 

Representatives

POVERTY IN AMERICA

Consequences for 

Individuals and the 

Economy 

Statement of Sigurd R. Nilsen, Director 

Education, Workforce, and Income Security Issues 

For Release on Delivery

Expected at 10:00 a.m. EST 

Wednesday, January 24, 2007 

 

GAO-07-343T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

January 2007

POVERTY IN AMERICA

Consequences for Individuals and the 

Highlights of GAO-07-343T, a testimony Economy 

before the Chairman, Committee on Ways 

and Means, House of Representatives 

In 2005, 37 million people, 

approximately 13 percent of the 

total population, lived below the 

poverty line, as defined by the 

Census Bureau. Poverty imposes

costs on the nation in terms of both

programmatic outlays and 

productivity losses that can affect 

the economy as a whole. To better 

understand the potential range of

effects of poverty, GAO was asked

to examine (1) what the economic

research tells us about the 

relationship between poverty and 

adverse social conditions, such as

poor health outcomes, crime, and 

labor force attachment, and (2) 

what links economic research has 

found between poverty and

economic growth. To answer these

questions, GAO reviewed the 

economic literature by academic

experts, think tanks, and 

government agencies, and reviewed 

additional literature by searching 

various databases for peerreviewed economic journals, 

specialty journals, and books. We

also provided our draft report for 

review by experts on this topic. 

Economic research suggests that individuals living in poverty face an 

increased risk of adverse outcomes, such as poor health and criminal 

activity, both of which may lead to reduced participation in the labor market.

While the mechanisms by which poverty affects health are complex, some

research suggests that adverse health outcomes can be due, in part, to 

limited access to health care as well as greater exposure to environmental 

hazards and engaging in risky behaviors. For example, some research has 

shown that increased availability of health insurance such as Medicaid for 

low-income mothers led to a decrease in infant mortality. Additionally,

exposure to higher levels of air pollution from living in urban areas close to 

highways can lead to acute health conditions. Data suggest that engaging in 

risky behaviors, such as tobacco and alcohol use, a sedentary life-style, and a 

low consumption of nutritional foods, can account for some health 

disparities between lower and upper income groups. The economic research 

we reviewed also points to links between poverty and crime. For example, 

one study indicated that higher levels of unemployment are associated with 

higher levels of property crime. The relationship between poverty and 

adverse outcomes for individuals is complex, in part because most variables, 

like health status, can be both a cause and a result of poverty. These adverse

outcomes affect individuals in many ways, including limiting their 

development of the skills, abilities, knowledge, and habits necessary to fully 

participate in the labor force. 

Research shows that poverty can negatively affect economic growth by 

affecting the accumulation of human capital and rates of crime and social

unrest. Economic theory has long suggested that human capital—that is, the 

education, work experience, training, and health of the workforce—is

considered one of the fundamental drivers of economic growth. The 

conditions associated with poverty can work against this human capital 

development by limiting individuals’ ability to remain healthy and develop 

skills, in turn decreasing the potential to contribute talents, ideas, and even 

labor to the economy. An educated labor force, for example, is better at 

learning, creating and implementing new technologies. Economic theory 

suggests that when poverty affects a significant portion of the population, 

these effects can extend to the society at large and produce slower rates of 

growth. Although historically research has focused mainly on the extent to 

which economic growth alleviates poverty, some recent empirical studies 

have begun to demonstrate that higher rates of poverty are associated with 

lower rates of growth in the economy as a whole. For example, areas with 

higher poverty rates experience, on average, slower per capita income

growth rates than low-poverty areas. 

www.gao.gov/cgi-bin/getrpt?GAO-07-343T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Sigurd R. 

Nilsen at (202) 512-7215 or at 

nilsens@gao.gov. 
Mr. Chairman and Members of the Committee: 

I am pleased to be here today to discuss the important topic of poverty and

its effects on individuals and our economy. My testimony is drawn from 

our report Poverty in America: Economic Research Shows Adverse 

Impacts on Health Status and Other Social Conditions as well as the 

Economic Growth Rate (GAO-07-344), being released this morning. Our 

work looks at what the economic research tells us about the relationship 

between poverty and adverse social conditions, such as poor health 

outcomes, crime, and labor force attachment; and what links economic 

research has found between poverty and economic growth. 

According to the Census Bureau, approximately 37 million people in the 

United States—nearly 13 percent of the total population—lived below the 

poverty line in 2005.1

 This percentage was significantly larger for particular 

population groups, specifically children, minorities, and those living in 

certain geographic areas such as inner cities. The federal government 

spends billions of dollars on programs to assist low-income individuals 

and families.2

 These programs included Medicaid, food stamps, Temporary 

Assistance for Needy Families (TANF), and the Earned Income Tax Credit 

(EITC), to name some of the largest. While some have taken issue with 

Census’ official poverty measure and proposed alternative measures, it is 

generally recognized that poverty imposes costs on the nation as a whole,

not merely in terms of programmatic outlays but also through lost 

productivity that can affect the overall economy.

In conducting our work, we reviewed the economic literature by academic 

experts, think tanks, and government agencies, which we collected from 

searches of various databases, peer-reviewed economic journals, specialty

journals, and books. We also provided our draft report to four external 

reviewers. They are recognized experts who have conducted research and 

published on the topic of poverty and economic growth and whose work

has recommended a variety of approaches and strategies to policymakers. 

We limited the scope of our work by looking at recent studies published 

since 1996, excluding anything older, with exceptions made for work that 

was considered seminal. Thus, our results are not an exhaustive or 

 1

In 2005 the poverty threshold for a family of four was $19,971. 

2

Congressional Research Service, Cash and Noncash Benefits for Persons with Limited

Income: Eligibility Rules, Recipient and Expenditure Data, FY2002-FY2004 

(Washington, D.C.: Mar. 27, 2006). 

Page 1 GAO-07-343T 
historical treatment of the topic. Our review was primarily driven by the 

economic literature focused on the United States either exclusively or 

including other developed nations; studies from other disciplines were 

excluded unless they were captured in either the economic study under 

review or its bibliography. When we refer to poverty in the report, we are 

using an absolute measure, not a relative one. This means that, for the 

most part, the studies we reviewed typically used the official poverty line

published by the Census Bureau as its benchmark. A few of the studies we 

reviewed used relative measures such as the poorest 10 percent of the

population. 

Our work was conducted between October 2006 and January 2007 

according to generally accepted government auditing standards. Because 

we did not evaluate the policies, operations, or programs of any federal

agency to develop the information presented in this report, and because

we are not making any recommendations, we did not seek agency

comments. However, we met with agency officials from the Departments 

of Commerce, Health and Human Services, Justice, and Labor to obtain 

information on research they or others had conducted related to our work 

objectives. 

Economic research shows that poverty is associated with a number of 

adverse outcomes for individuals, such as poor health, crime, and reduced 

labor market participation, and has a negative impact on the economic 

growth rate. Some research suggests that adverse health outcomes are 

due, in part, to limited access to health care as well as exposure to 

environmental hazards and engaging in risky behaviors. The economic 

research we reviewed also suggests that poverty is associated with higher 

levels of certain types of crime. The relationship between poverty and 

adverse outcomes for individuals is complex, in part because most 

variables, like health status, can be both a cause and a result of poverty. 

Regardless of whether poverty is a cause or an effect, however, the 

conditions associated with poverty can work against the development of 

human capital—that is the ability of individuals to remain healthy and 

develop the skills, abilities, knowledge, and habits necessary to fully 

participate in the labor force. Human capital development is considered 

one of the fundamental drivers of economic growth. An educated labor 

force, for example, is better at learning, creating, and implementing new 

technologies. Economic theory suggests that when poverty affects a 

significant portion of the population, these effects can extend to the 

society at large and produce slower rates of growth. Though limited, 

Summary 

Page 2 GAO-07-343T 
empirical research has demonstrated that higher rates of poverty are 

associated with lower rates of growth in the economy as a whole. 

Economic growth is one of the indicators by which the well-being of the 

nation is typically measured, although recent discussions have focused on

a broader set of indicators, such as poverty. Poverty in the United States is

officially measured by the Census Bureau, which calculates the number of 

persons or households living below an established level of income deemed 

minimally adequate to support them. The federal government has a longstanding history of assisting individuals and families living in poverty by 

providing services and income transfers through numerous and various 

types of programs. 

Background 

Measuring the Nation’s 

Well Being: Economic 

Growth and Other 

Indicators 

Economic growth is typically defined as the increase in the value of goods 

and services produced by an economy; traditionally this growth has been 

measured by the percentage rate of increase in a country’s gross domestic 

product, or GDP. The growth in GDP is a key measure by which policymakers estimate how well the economy is doing. However, it provides 

little information about how well individuals and households are faring.

Recently there has been a substantial amount of activity in the United 

States and elsewhere to develop a comprehensive set of key indicators for 

communities, states, and the nation that go beyond traditional economic 

measures. Many believe that such a system would better inform 

individuals, groups, and institutions on the nation as a whole. Poverty is 

one of these key indicators. Poverty, both narrowly and more broadly 

defined, is a characteristic of society that is frequently monitored and 

defined and measured in a number of ways.3

 3

GAO, Informing Our Nation: Improving How to Understand and Assess the USA’s 

Position and Progress, GAO-05-1 (Washington, D.C., November 2004). 

Page 3 GAO-07-343T 
How Is Poverty Defined in 

the United States? 

The Census Bureau is responsible for establishing a poverty threshold 

amount each year; persons or families having income below this amount 

are, for statistical purposes, considered to be living in poverty.4

 The 

threshold reflects estimates of the amount of money individuals and 

families of various sizes need to purchase goods and services deemed 

minimally adequate based on 1960s living standards, and is adjusted each

year using the consumer price index. The poverty rate is the percentage of 

individuals in total or as part of various subgroups in the United States 

who are living on income below the threshold amounts. 

Over the years, experts have debated whether or not the way in which the

poverty threshold is calculated should be changed. Currently the 

calculation only accounts for pretax income and does not include noncash 

benefits and tax transfers, which, especially in recent years, have 

comprised larger portions of the assistance package to those who are lowincome.5

 For example, food stamps and the Earned Income Tax Credit 

could provide a combined amount of assistance worth an estimated 

$5,000 for working adults with children who earn approximately $12,000 a

year.6

 If noncash benefits were included in a calculation of the poverty 

threshold, the number and percentage of individuals at or below the 

poverty line could change. In 1995, a National Academy of Sciences (NAS) 

panel recommended that changes be made to the threshold to count 

noncash benefits, tax credits, and taxes; deduct certain expenses from 

income such as child care and transportation; and adjust income levels 

according to an area’s cost of living.7

 In response, the Census Bureau 

published an experimental poverty measure in 1999 using the NAS 

recommendations in addition to its traditional measure but, to date,

Census has not changed the official measure.8

 4

The U.S. Department of Health and Human Services (HHS) establishes poverty guidelines 

that are similar to the poverty thresholds but are used by HHS and other agencies for 

administering programs, such as determining program eligibility. 

5

Congressional Research Service, Poverty in the United States: 2005 (Washington, D.C.: 

Aug. 31, 2006). 

6

Danzinger, Sheldon, “Fighting Poverty Revisited: What Did Researchers Know 40 Years

Ago? What Do We know Today?” Dec. 4, 2006. 

7

For a summary of the NAS panel recommendations see Congressional Research Service 

Report 95-539, Redefining Poverty in the United States: National Academy of Science 

Panel Recommendations, by Thomas R. Gabe (archived) (Washington, D.C.: 1995). 

8

U.S. Census Bureau, Poverty among Working Families: Findings from Experimental

Poverty Measures (Washington, D.C.: Sept. 2000). 

Page 4 GAO-07-343T 
U.S. Poverty Rates In 2005, close to 13 percent of the total U.S. population—about 37 million 

people—were counted as living below the poverty line, a number that 

essentially remained unchanged from 2004. Poverty rates differ, however, 

by age, gender, race, and ethnicity and other factors. For example, 

• Children: In 2005, 12.3 million children, or 17.1 percent of children 

under the age of 18, were counted as living in poverty. Children of color 

were at least three times more likely to be in poverty than those who 

were white: 34.2 percent of children who were African- American and

27.7 percent of children who were Hispanic lived below the poverty 

line compared to 9.5 percent of children who were white.9

 AfricanAmerican children represented 15.2 percent and Hispanic children 

represented 19.9 percent of all children under the age of 18 in 2005. 

• Racial and ethnic minorities: African-Americans and Hispanics have 

significantly higher rates of poverty than whites. In 2005, 24.9 percent 

of African-Americans and 22 percent of Hispanics lived in poverty 

compared to 8.3 percent for whites. African-Americans made up 12.5

percent of the total population while Hispanics accounted for 14.7 

percent. 

• Elderly: The elderly have lower rates of poverty than other groups. For 

example, 10.1 percent of adults aged 65 or older lived in poverty. The 

elderly represented 12.1 percent of the total U.S. population in 2005. 

Poverty rates also differ depending on geographical location and for urban 

and nonurban areas. Poverty rates for urban areas were double those in 

suburbs, 17 percent compared to 9.3 percent. Poverty rates in the South 

were the highest at 14 percent; the West had a rate of 12.6 percent, 

followed by the Midwest with 11.4 percent and the Northeast at 11.3 

percent.10

 9

Beginning in March 2003, the Census Bureau allowed survey respondents to identify 

themselves as belonging to one or more racial groups. In prior years, respondents could

select only one racial category. Consequently, poverty statistics for different racial groups 

for 2002 and after are not directly comparable to earlier years’ data. The term “blacks and

white” refers to persons who identified with only one single racial group. The term

“Hispanic” refers to individuals’ ethnic, as opposed to racial, identification. Hispanics may 

be of any race. 

10Congressional Research Service, Poverty in the United States: 2005 (Washington, D.C.: 

Aug. 31, 2006). 

Page 5 GAO-07-343T 
The Role of the Federal 

Government 

The U.S. government has a long history of efforts to improve the 

conditions of those living with severely limited resources and income. 

Presidents, Congress, and other policymakers have actively sought to help 

citizens who were poor, beginning as early as the 1850s through the more 

recent efforts established through welfare reform initiatives enacted in 

1996. 

Over the years, the policy approaches used to help low-income individuals 

and families have varied. For example, in the1960s federal programs 

focused on increasing the education and training of those living in poverty. 

In the 1970s, policy reflected a more income-oriented approach with the 

introduction of several comprehensive federal assistance plans. More 

recently, welfare reform efforts have emphasized the role of individual 

responsibility and behaviors in areas such as family formation and work to 

assist people in becoming self-sufficient. Although alleviating poverty and 

the conditions associated with it has long been a federal priority, 

approaches to developing effective interventions have sometimes been 

controversial, as evidenced by the diversity of federal programs in 

existence and the ways in which they have evolved over time. 

Currently, the federal government, often in partnership with the states, has 

created an array of programs to assist low-income individuals and families. 

According to a recent study by the Congressional Research Service (CRS), 

the federal government spent over $400 billion on 84 programs in 2004 that 

provided cash and noncash benefits to individuals and families with 

limited income. These programs cover a broad array of services: Examples 

include income supports or transfers such as the Earned Income Tax 

Credit and TANF; work supports such as subsidized child care and job

training; health supports and insurance through programs like the State 

Children’s Health Insurance Program (SCHIP) and Medicaid; and other 

social services such as food, housing, and utility assistance. Table 1 

provides a list of examples of selected programs. 

Page 6 GAO-07-343T 
Table 1: Selected Examples of Federal Cash and Noncash Assistance to Low-Income Families and Individuals, Fiscal Year 

2004 

Purpose Program

Federal 

cash outlay Program description

Temporary Assistance for Needy 

Families (TANF)

$10.4 billionaPermits a state to give ongoing basic cash aid to 

families that include a minors or a pregnant woman. 

Work and other requirements must be met. 

Cash aid 

Earned Income Tax Credit (EITC) $37.9 billionb

Provides a refundable credit to workers with and without 

children. 

Food Stamp Program $27.2 billioncProvides certain allotments to individuals for purchasing 

of food items, based upon the individual’s level of 

eligibility/need.

Food and nutrition 

Special Supplemental Nutrition 

Program for Women, Infants and 

Children (WIC)

$4.5 million Provides benefits for low-income mothers, infants, and 

children considered to be at “nutritional risk.” 

Medicaid $176 billion Provides payments to health care providers in full or via 

co-pay for eligible low-income families and individuals 

and for long-term care to eligible individuals who are 

aged or disabled. 

Medical

State Children’s Health Insurance 

Program (SCHIP) 

$4.6 billiond

Provides federal matching funds for states and 

territories to provide health insurance to targeted lowincome children. 

Federal Pell Grant Program $12 billion Provides assistance to undergraduate students who 

meet a certain needs test and are enrolled in an eligible 

institution of postsecondary education. 

Educational 

Head Start $6.8 billione Provides comprehensive services to targeted lowincome children. Services include educational, medical, 

dental, nutritional, and social services. 

Housing Section 8 Low-Income Housing 

Assistance 

$22.4 billion Provides rental assistance through vouchers or rental 

subsidies to eligible low-income families or single 

persons. 

Child Care and Development Block 

Grant (CCDBG) 

Services $6.9 billion Provides funding to low-income parents for child care. 

Social Services Block Grant (SSBG) 

(Title XX) 

$1.7 billion Provides funding to assist states in providing social 

services to eligible low-income individuals or families. 

Jobs Job Corps $1.5 billion Provides no-cost training and education to low-income 

individuals ages 16-24 while providing a monthly 

allowance payment. 

Energy Low-Income Home Energy Assistance 

Program (LIHEAP) 

$1.9 billion Provides assistance to low-income home owners and 

renters to help meet energy needs such as heating and 

cooling. 

Source: For a full list of federal programs, see Cash and Noncash Benefits for Persons with Limited Income: Eligibility Rules, Recipient 

and Expenditure Data, FY2002-FY2004; Washington D.C. 2006. 

Page 7 GAO-07-343T 
a

Federal outlay figures in table 1 are from fiscal year 2004, as reflected in the CRS report from which 

they are taken, sourced above. Some exceptions apply and are noted. The TANF figure, $10.4 billion, 

is the estimated total of federal and state expenditures combined for only TANF cash aid in fiscal year

2004. This figure does not include other combined federal and state funding for the following: TANF 

child care, estimated at $2.5 billion in fiscal year 2004; TANF work programs and activities, estimated

at $2.2 billion in fiscal year 2004; and TANF services estimated at $6.3 billion in fiscal year 2004. 

b

EITC federal outlay total of $37.9 billion is for fiscal year 2003 as reported in GAO, Means Tested 

Programs: Information on Program Access Can Be an Important Management Tool, GAO-05-221 

(Washington, D.C. March 2005).

c

For more on the Food Stamp Program, see GAO-05-839R, (Washington, D.C.: June 30, 2005). 

d

For more on SCHIP federal outlay figure of $4.6 billion, see GAO-05-839R. 

e

Head Start federal outlay total of $6.8 billion is for fiscal year 2005.

Economic research suggests that individuals living in poverty face an 

increased risk for adverse outcomes, such as poor health, criminal activity, 

and low participation in the workforce. The adverse outcomes that are 

associated with poverty tend to limit the development of skills and 

abilities individuals need to contribute productively to the economy 

through work, and this in turn, results in low incomes. The relationship 

between poverty and outcomes for individuals is complex, in part because 

most variables, like health status, can be both a cause and a result of 

poverty. The direction of the causality can have important policy 

implications. To the extent that poor health causes poverty, and not the 

other way around, then alleviating poverty may not improve health. 

Economic Research 

Links Poverty with 

Adverse Outcomes for 

Individuals Such as 

Poor Health and 

Crime 

Individuals Living in

Poverty Experience Higher 

Rates of Adverse Health 

Outcomes, in Part because 

of Limited Access to 

Health Care, 

Environmental Hazards, 

and Risky Behaviors 

Health outcomes are worse for individuals with low incomes than for their 

more affluent counterparts. Lower-income individuals experience higher

rates of chronic illness, disease, and disabilities, and also die younger than 

those who have higher incomes.11 As reported by the National Center on 

Health Statistics, individuals living in poverty are more likely than their 

affluent counterparts to experience fair or poor health, or suffer from 

conditions that limit their everyday activities (fig.1). They also report 

higher rates of chronic conditions such as hypertension, high blood 

pressure, and elevated serum cholesterol, which can be predictors of more 

acute conditions in the future. Life expectancies for individuals in poor 

families as compared to nonpoor families also differ significantly. One 

study showed that individuals with low incomes had life expectancies 

25 percent lower than those with higher incomes.12 Other research 

 11Centers for Disease Control and Prevention, Health, United States, 2006; 1998 

(Hyattsville, Maryland). 

12Deaton, Angus, “Policy Implications of The Gradient of Health and Wealth,” Health

Affairs, Vol. 21., No.2, March 2002. 

Page 8 GAO-07-343T 
suggests that an individual’s household wealth predicts the amount of 

functionality of that individual in retirement.13

Figure 1: Selected Health Indicators by Poverty Status

0

5

10

15

20

25

Serious

psychological

distress

Difficulty seeing

(even with

correction)

Percent of persons

with any activity

limitation

Self-reported

fair or poor

health

Percent

Source: National Center for Health Statistics, Health, United States, 2006 with Chartbook on Trends in the Health of Americans

(Hyattsville, Maryland: 2006).

Below 100 percent of the poverty line

100 percent - Less than 200 percent of the poverty line

200 percent or more above the poverty line

21.3

23

14.4

6.3

16.3

9.2

14.2

12

7.4

8.8

5.4

1.7

Research suggests that part of the reason that those in poverty have poor

health outcomes is that they have less access to health insurance and thus 

less access to health care, particularly preventive care, than others who 

are nonpoor. Very low-income individuals were three times as likely not to

have health insurance than those with higher incomes, which may lead to 

reduced access to and utilization of health care (fig. 2). 

 13Smith, James, and Raynard Kington, “Demographic and Economic Correlates of Health in 

Old Age.” Demography, Vol. 34, No. 1, 1997.

Page 9 GAO-07-343T 
Figure 2: Percentage of Population with No Health Insurance (Private or Medicaid)

by Poverty Status

0

5

10

15

20

25

30

35

Children

(under 18)

All persons

under 65

Percent

Source: National Center for Health Statistics, Health, United States, 2006 with Chartbook on Trends in the Health of Americans

(Hyattsville, Maryland: 2006).

Below 100 percent of the poverty line

100 percent-149 percent of the poverty line

150 percent-199 percent of the poverty line

200 percent or more above the poverty line

31

10.2

30.8

27.2

15 14.1

16

5.2

Data show that those who are poor with no health insurance access the 

health system less often than those who are either insured or wealthier 

when measured by one indicator of health care access: visits to the doctor. 

For example, data from the National Center on Health Statistics show that 

children in families with income below the poverty line who were 

continuously without any type of health insurance were three to four times 

more likely to have not visited a doctor in the last 12 months than children

in similar economic circumstances who were insured (fig. 3). Research 

also suggests that a link between income and health exists independent of

health insurance coverage. Figure 3 also shows that while children who 

are uninsured but in wealthier families visit the doctor fewer times than 

those who are insured, they still go more often than children who are 

uninsured but living in poverty. 

Page 10 GAO-07-343T 
Figure 3: No Visits to Any Health Provider in the Past 12 Months (Children under 18

Years of Age) by Level of Insurance 

0

5

10

15

20

25

30

35

40

45

50

200 percent or

more

100 percent-less

than 200 percent

Below 100 percent

of poverty level

Percent

Source: National Center for Health Statistics, Health, United States, 2006 with Chartbook on Trends in the Health of Americans

(Hyattsville, Maryland: 2006).

All children

Insured continuously all 12 months

Uninsured for any period up to 12 months

Uninsured more than 12 months

15.9

47.4

11.7

17.0 15.7

18.1

12.1

42.9

9.4

12.7

32.8

8.5

Some research examining government health insurance suggests that 

increased health insurance availability improves health outcomes. 

Economists have studied the expansion of Medicaid, which provides 

health insurance to those with low income. They found that Medicaid’s 

expansion of coverage, which occurred between 1979 and 1992, increased 

the availability of insurance and improved children’s health outcomes. For 

example, one study found that a 30 percentage point increase in eligibility 

for mothers aged 15-44 translated into a decrease in infant mortality of 8.5 

percent.14 Another study looked at the impact of health insurance coverage 

 14Currie, Janet, and Jonathan Gruber, “Saving Babies: The Efficacy and Cost of Recent 

Changes in the Medicaid Eligibility of Pregnant Women,” The Journal of Political 

Economy, Vol. 104, No. 6, December 1996.

Page 11 GAO-07-343T 
through Medicare and its effects on the health of the elderly and also 

found a statistically significant though modest impact.15 There is some 

evidence that variations in health insurance coverage do not explain all the 

differences in health outcomes. A study done in Canada found

improvements in children’s health with increases in income, even though

Canada offers universal health insurance coverage for hospital services, 

indicating that health insurance is only part of the story.16

Although there is a connection among poverty, having health insurance, 

and health outcomes, having health insurance is often associated with 

other attributes of an individual, thus making it difficult to isolate the 

direct effect of health insurance alone. Most individuals in the United 

States are either self-insured or insured through their employer. If those 

who are uninsured have lower levels of education, as do individuals with 

low income, differences in health between the insured and uninsured 

might be due to level or quality of education, and not necessarily 

insurance.17

Another reason that individuals living in poverty may have more negative

health outcomes is because they are more likely to live and work in areas 

that expose them to environmental hazards such as pollution or 

substandard housing. Some researchers have found that because poorer 

neighborhoods may be located closer to industrial areas or highways than 

more affluent neighborhoods, there tend to be higher levels of pollution in 

 15Card, David, et. al., “The Impact of Nearly Universal Insurance Coverage on Health Care

Utilization and Health: Evidence from Medicare” National Bureau of Economic Research, 

Working Paper 10365. NBER, March 2004. 

16Currie, Janet, and Mark Stabile, “Socioeconomic Status and Child Health: Why Is the 

Relationship Stronger for Older Children.” American Economic Review, Vol. 93, No. 5, 

December 2003. 

17Additionally, differences in individual health outcomes can sometimes be explained by

other factors that may be associated with poverty, but are difficult to detect, such as risk 

aversion. 

Page 12 GAO-07-343T 
lower-income neighborhoods.18 The Institute of Medicine concluded that 

minority and low-income communities had disproportionately higher 

exposure to environmental hazards than the general population, and 

because of their impoverished conditions were less able to effectively 

change these conditions.

19

The link between poverty and health outcomes may also be explained by

lifestyle issues associated with poverty. Sedentary life-style: the use of 

alcohol and drugs; as well as lower consumption of fiber, fresh fruits, and 

vegetables are some of the behaviors that have been associated with lower 

socioeconomic status.20 Cigarette smoking is also more common among 

adults who live below the poverty line than among those above it, about 

30 percent compared to 21 percent.21 Similarly, problems with being 

overweight and obese are common among those with low family incomes, 

although most prevalent in women: Women with incomes below 130 

percent of the poverty line were 50 percent more likely to be obese than 

those with incomes above this amount.22 Figure 4 shows that people living 

 18While much of the specific biological mechanism by which air pollution might affect 

health is still unknown, some recent research by economists has noted a link between 

pollution and health, especially for infants. Currie and Neidell (2005) find that the decrease

in the level of carbon monoxide in California in the 1990s had a significant effect on 

reducing infant mortality. See Currie, Janet, and Matthew Neidell, “Air Pollution and Infant 

Health: What Can We Learn From California’s Recent Experience?” Quarterly Journal of 

Economics, 120 (3), 2005. Similarly, Chay and Greenstone (2003) find that the reduction in

total suspended particulates due to the 1970 Clean Air Act had a significant impact on 

infant mortality. See Chay, Kenneth, and Michael Greenstone, “Air Quality, Infant Mortality, 

and the Clean Air Act of 1970.” National Bureau of Economic Research, Working Paper No. 

10053. NBER, 2003. 

19Institute of Medicine, Committee on Environmental Justice, “Toward Environmental 

Justice: Research, Education, and Health Policy Needs”, (Washington, D.C.: 1999), p.6.

20Adler, Nancy E., and Katherine Newman, “Socioeconomic Disparities in Health: Pathways

and Policies.” Health Affairs, Vol. 21 No. 2, 2002. See also Deaton, Angus. “Policy 

Implications of the Gradient of Health and Wealth.” Health Affairs, Vol. 21, No.2: 2002. 

21Centers for Disease Control and Prevention, Tobacco Use among Adults–United States, 

2005. Morbidity and Mortality Weekly Report , 2006; 55(42): 1145-1148. Some research 

suggests that part of the reason why smoking rates are higher may be peer effects, 

especially among youth smokers. See DeCicca, Phillip, Donald Kenkel, and Alan Mathios, 

“Racial Difference in the Determinants of Smoking Onset.” Journal of Risk and

Uncertainty. Boston: 2000. Vol. 21, Iss. 2/3; p311. Other studies have shown that 

educational attainment can affect smoking use as well. See DeCicca, Philip, Donald Kenkel, 

and Alan Mathios,”Putting Out the Fires: Will Higher Taxes Reduce the Onset of Youth 

Smoking?” Journal of Political Economy. Chicago 2002.Vol.110, Iss.1; p. 144.

22U.S. Public Health Service, Surgeon General’s Call To Action to Prevent and Decrease

Overweight and Obesity 2001, Washington, DC, pp. 13-14. 

Page 13 GAO-07-343T 
in poverty are less likely to engage in regular, leisure-time physical activity

than others and are somewhat more likely to be obese, and children in 

poverty are somewhat more likely to be overweight than children living 

above the poverty line. In addition, there is also evidence to suggest a link 

among poverty, stress, and adverse health outcomes, such as 

compromised immune systems.23

Figure 4: Percentage of Population Who Have a Sedentary Lifestyle, Are 

Overweight, or Are Obese, by Poverty Status

0

10

20

30

40

50

60

70

Overweight among

children ages 6-11

Obesity among

adults

No leisure time

physical activity,

adults

Overweight

among adults

Percent

Source: National Center for Health Statistics, Health, United States, 2006 with Chartbook on Trends in the Health of Americans

(Hyattsville, Maryland: 2006).

Below 100 percent of the poverty line

100 percent-less than 200 percent of the poverty line

200 percent or more above the poverty line

63.9

66.2 66.1

56.7

53.4

33.4 34.9 34.6

30.6

20 18.4

15.4

 23While access to care, behavior, and environmental factors are some of the most 

commonly offered reasons for the relationship between poverty and health, recent

literature has suggested other alternative theories, of which there is less of a research 

tradition. These include the effect of short exposures to health shocks as a result of 

poverty, such as poor nutrition or increased adrenalin due to higher levels of stress, and 

psycho-social stress that leads to problems with the immune system. See Smith, James P.,

“Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic 

Status.” The Journal of Economic Perspectives, Vol. 13, No. 2, 1999. 

Page 14 GAO-07-343T 
While evidence shows how poverty could result in poor health, the 

opposite could also be true. For example, a health condition could result,

over time, in restricting an individual’s employment, resulting in lower 

income. Additionally, the relationship between poverty and health 

outcomes could also vary by demographic group. 24 Failing health, for 

example, can be more directly associated with household income for 

middle-aged and older individuals than with children, since adults are 

typically the ones who work. 

Economic Research Shows 

an Association between 

Poverty and Crime 

Just as research has established a link between poverty and adverse health

outcomes, evidence suggests a link between poverty and crime. Economic 

theory predicts that low wages or unemployment makes crime more 

attractive, even with the risks of arrest and incarceration, because of 

lower returns to an individual through legal activities.25 While more mixed, 

empirical research provides support for this. For example, one study 

shows that higher levels of unemployment are associated with higher 

levels of property crime, but is less conclusive in predicting violent crime.26

Another study has shown that both wages and unemployment affect crime, 

but that wages play a larger role.27

Research has found that peer influence and neighborhood effects may also

lead to increased criminal behavior by residents. Having many peers that 

engage in negative behavior may reduce social stigma surrounding that 

behavior.28 In addition, increased crime in an area may decrease the 

 24It is not clear whether these adverse outcomes occur with greater frequency among all 

individuals living in households below the poverty line or only among those experiencing 

extreme poverty; those who experience poverty during critical development stages, such as 

infancy or early childhood; or those who experience long bouts of poverty.

25Criminal behavior has been measured by reports to the police in an area, self-reported

crime by individuals in surveys or arrests, as well as other measures. See also Freeman,

Richard, “Why Do So Many Young American Men Commit Crimes and What Might We Do

About It?” Journal of Economic Perspectives, Vol. 10, No. 1: Winter 2006. 

26Raphael, Steven, and Rudolf Winter-Ebner, “Identifying the Effect of Unemployment on 

Crime.” Journal of Law and Economics, Vol. XLIV. 2001. 

27Gould, Eric D., Bruce A. Weinberg, and David B. Mustard, “Crime Rates and Local Labor 

Market Opportunities in the United States: 1979-1997. Review of Economics and Statistics, 

84 (1): 2002. 

28Katz, Lawrence F., Jeffrey R. Kling, and Jeffrey B. Liebman, “Moving to Opportunity in 

Boston: Early Results of a Randomized Mobility Experiment.” Quarterly Journal of

Economics, May 2001. 

Page 15 GAO-07-343T 
chances that any particular criminal activity will result in an arrest. Other 

research suggests that the neighborhood itself, independent of the 

characteristics of the individuals who live in it, affects criminal behavior. 29

One study found that arrest rates were lower among young people from 

low-income families who were given a voucher to live in a low-poverty 

neighborhood, as opposed to their peers who stayed in high-poverty 

neighborhoods. The most notable decrease was in arrests for violent 

crimes; the results for property crimes, however, were mixed, with arrest 

rates increasing for males and decreasing for females.30

Adverse Outcomes, Such 

as Poor Health and Low 

Educational Attainment, 

Lead to Reduced 

Participation in the Labor 

Market 

Regardless of whether poverty is a cause or an effect, the conditions 

associated with poverty limit the ability of low-income individuals to 

develop the skills, abilities, knowledge, and habits necessary to fully 

participate in the labor force, in turn leading to lower incomes. According 

to 2000 Census data, people aged 20-64 with income above the poverty line 

in 1999 were almost twice as likely to be employed as compared to those 

with incomes below it.31 Some of the reasons for these outcomes include 

educational attainment and health status. 

 29However, a challenge that researchers face is that, almost by definition, many individuals 

share the same characteristics in a neighborhood. Therefore, it is difficult to determine

whether it is the characteristic of the individual or the neighborhood that is the source of 

the behavior. 

30Http://www.huduser.org/publications/fairhsg/MTODemData.html and 

http://www.hud.gov/prodesc/mto.cfm . Some economists have used data from the Movingto-Opportunity experiment as a way to attribute causality. Moving-to-Opportunity is a 

research demonstration in which a number of families, chosen randomly, within five public 

housing authorities were given housing vouchers to be used in low-poverty neighborhoods.

Another group of families acted as the control, and were not given the vouchers. Using 

these data, some economists have compared the outcomes for children whose families 

received the vouchers and those that did not. To some extent, the results have confirmed 

that neighborhood, independent of individual characteristics, affects criminal behavior, but

the results have also been mixed. Using data from the randomized housing experiment, 

Ludwig, Duncan, and Hirschfeld (2001) found that the housing vouchers reduced violent

arrests by teens, but may have increased the number of property arrests. Kling, Ludwig, 

and Katz (2005) also used the Moving-to-Opportunity data, but looked for differential 

effects by gender. The authors found that for females, there were large reductions in the 

amount of arrests for both property and violent crime, when compared to those for the

control group. For males, there were reductions in violent arrests, but proportionally 

smaller than the drops for females. In addition, there were significant increases in the rate

of property arrests. 

31U.S. Census Bureau, Employment Status: 2000, Census 2000 Brief (Washington, D.C., 

August 2003), p.4 

Page 16 GAO-07-343T 
Poverty is associated with lower educational quality and attainment, both 

of which can affect labor market outcomes. Research has consistently 

demonstrated that the quality and level of education attained by lowerincome children is substantially below those for children from middle- or 

upper-income families. Moreover, high school dropout rates in 2004 were 

four times higher for students from low-income families than those in 

high-income families.32 Those with less than a high school degree have 

unemployment rates almost three times greater than those with a college

degree, 7.6 percent compared to 2.6 percent in 2005. And the percentage of 

low-income students who attend college immediately after high school is 

significantly lower than for their wealthier counterparts: 49 percent 

compared to 78 percent.33

A significant body of economic research directly links adverse health 

outcomes, which are also associated with low incomes, with the quality 

and quantity of labor that the individual is able to offer to the workforce. 

Many studies that have examined the relationship among individual adult 

health and wages, labor force participation, and job choice have 

documented positive empirical relationships among health and wages, 

earnings, and hours of work.34 Although there is no consensus about the 

exact magnitude of the effects, the empirical literature suggests that poor 

health reduces the capacity to work and has substantive effects on wages, 

labor force participation, and job choice, meaning that poor health is 

associated with low income. 

 32National Center for Education Statistics, U.S. Department of Education, Dropout Rates in 

the United States: 2004, (Washington, D.C. November 2006), p. 4. 

33Choy, Susan, “College Access and Affordability,” Education Statistics Quarterly, Vol. 1, 

Issue 2, Topic: Postsecondary Education. 

34Several methodological challenges exist in this literature: For example, many of these 

findings could reflect the effect of income on health rather than vice versa. In addition, 

results are highly sensitive to the measures of health that are used, with self-reported

health status subject to several forms of bias, some of which could overstate the 

relationship between income and health, and others of which could understate the 

relationship. For example, individuals who have reduced their hours of work or left the 

labor force may be more likely to report poor health, in order to justify their reduced labor 

supply or because government programs provide incentives to report disability; this would

lead to an upward bias in the estimated relationship between income and health. On the 

other hand, it is possible that higher-income individuals, who on average have greater 

health care utilization, may be more likely to be diagnosed with certain conditions simply 

because of their greater access to health care. This would lead to a downward bias in the

estimated relationship between income and health. 

Page 17 GAO-07-343T 
Research also demonstrates that poor childhood health has substantial 

effects on children’s future outcomes as adults. Some research, for 

example, shows that low birth weight is correlated with a low health 

status later in life. Research also suggests that poor childhood health is 

associated with reduced educational attainment and reduced cognitive 

development. Reduced educational attainment may in turn have a causal 

effect not only on future wages as discussed above but also on adult health

if the more educated are better able to process health information or make 

more informed choices about their health care or if education makes 

people more “future oriented” by helping them think about the 

consequences of their choices. In addition, some research shows that poor 

childhood health is predictive of poor adult health and poor adult 

economic status in middle age, even after controlling for educational 

attainment. 

The economic literature suggests that poverty not only affects individuals 

but can also create larger challenges for economic growth. Traditionally, 

research has focused on the importance of economic growth for 

generating rising living standards and alleviating poverty, but more 

recently it has examined the reverse, the impact of poverty on economic 

growth. In the United States, poverty can impact economic growth by 

affecting the accumulation of human capital and rates of crime and social 

unrest. While the empirical research is limited, it points to the negative 

association between poverty and economic growth consistent with the 

theoretical literature’s conclusion that higher rates of poverty can result in

lower rates of growth. 

Economic Research 

Suggests a Negative 

Association between 

Poverty and 

Economic Growth 

Research has shown that accumulation of human capital is one of the 

fundamental drivers of economic growth.35 Human capital consists of the 

 35Economic models that consider human capital to be a fundamental driver of economic 

growth are commonly referred to as endogenous growth models, although the more

traditional neoclassical model has also been augmented to include the role of human 

capital. Endogenous growth theory posits technological growth as occurring through 

dynamics inside the model. Although there are several competing models, crucial 

importance in each is given to the production of new technologies and human capital. 

While the major point these models emphasize is that human capital is the driving force

behind growth, the actual modeling of the relationship is still a controversial issue in the 

economic literature. Some growth models assert that the driving force behind economic 

growth is the rate of accumulation of human capital, in which the rate of economic growth

is proportional to the rate of accumulation of human capital. Another approach considers 

that high levels of human capital, as embodied in the level of the educational attainment of

the workforce, increases the capacity of individuals to innovate (discover new technology)

or to adopt new technology.

Page 18 GAO-07-343T 
skills, abilities, talents, and knowledge of individuals as used in 

employment. The accumulation of human capital is generally held to be a 

function of the education level, work experience, training, and healthiness 

of the workforce.36 Therefore, schooling at the secondary and higher levels 

is a key component for building an educated labor force that is better at 

learning, creating, and implementing new technologies. Health is also an

important component of human capital, as it can enhance workers’ 

productivity by increasing their physical capacities, such as strength and 

endurance, as well as mental capacities, such as cognitive functioning and 

reasoning ability. Improved health increases workforce productivity by 

reducing incapacity, disability, and the number of days lost to sick leave, 

and increasing the opportunities to accumulate work experience. Further, 

good health helps improve education by increasing levels of schooling and 

scholastic performance. 

The accumulation of human capital can be diminished when significant 

portions of the population have experienced long periods of poverty, or 

were living in poverty at a critical developmental juncture. For example, 

recent research has found that the distinct slowdown in some measures of 

human capital development is most heavily concentrated among youth 

from impoverished backgrounds. When individuals who have experienced 

poverty enter the workforce, their contributions may be restricted or 

minimal, while others may not enter the workforce in a significant way. 

Not only is the productive capability of some citizens lost, but their 

purchasing power and savings, which could be channeled into productive 

investments, is forgone as well. 

In addition to the effects of poverty on human capital, some economic 

literature suggests that poverty can affect economic growth to the extent 

that it is associated with crime, violence, and social unrest. According to 

some theories, when citizens engage in unproductive criminal activities 

they deter others from making productive investments or their actions 

force others to divert resources toward defensive activities and 

expenditures. The increased risk due to insecurity can unfavorably affect

 36In general, economists regard expenditures on education, training, medical care, and so 

on as investments in human capital. Collectively, theoretical growth models suggest 

economic growth results from improvements in human capital as embodied in the skills 

and experience of the labor force; from expansion of physical capital in the form of plant 

and equipment; and from progress in science, engineering, and management that generates 

technological advance. While many variables have been empirically tested, only a few have

been accepted as being statistically significant in explaining growth. The role of human 

capital is now almost universally regarded as being indispensable in this respect. 

Page 19 GAO-07-343T 
investment decisions—and hence economic growth—in areas afflicted by 

concentrated poverty. Although such theories link poverty to human 

capital deficiencies and criminal activity, the magnitude of their impact on 

economic growth for an economy such as the United States is unclear at 

this time.37 In addition, people living in impoverished conditions generate 

budgetary costs for the federal government, which spends billions of 

dollars on programs to assist low-income individuals and families. 

Alleviating these conditions would allow the federal government to 

redirect these resources toward other purposes. 

While economic theory provides a guide to understanding how poverty 

might compromise economic growth, empirical researchers have not as 

extensively studied poverty as a determinant of growth in the United 

States. Empirical evidence on the United States and other rich nations is 

quite limited, but some recent studies support a negative association 

between poverty and economic growth. For example, some research finds 

that economic growth is slower in U.S. metropolitan areas characterized 

by higher rates of poverty than those with lower rates of poverty.38 Another 

study, using data from 21 wealthy countries, has found a similar negative 

relationship between poverty and economic growth.39

Maintaining and enhancing economic growth is a national priority that 

touches on all aspects of federal decision making. As the nation moves 

forward in thinking about how to address the major challenges it will face 

Concluding 

Observations 

 37Human capital deficits experienced by some impoverished individuals cannot always be 

attributed to experience of poverty. In some cases, low education attainment and poor 

health, although associated with poverty, may actually be caused by some other factor that 

is also responsible for poverty. In this case, poverty would be a symptom rather than a

cause (i.e., poor health, poor choices, or addiction may erode human capital potential and 

cause poverty). Similarly, most poor people do not commit crimes, and those that do may 

be motivated by forces unrelated to their incomes. 

38The relationship is not always statistically significant in all regions. Statistical 

insignificance in some cases might be more attributable to data issues such as sample size 

or multicollinearity rather than an indication of nonrelationship between poverty and 

income growth in various regions. See S. Dev Bhatta, “Are Inequality and Poverty Harmful 

for Economic Growth,” Journal of Urban Affairs, 22 (3-4): 2001. This study provides, 

arguably, a better comparison group than cross-country studies, since metropolitan 

statistical areas in the United States are at relatively similar stages of development. 

39Voitchovsky, S., “Does the Profile of Income Inequality Matter for Economic Growth? 

Distinguishing between the Effects of Inequality in Different Parts of the Income 

Distribution.” Journal of Economic Growth, Vol.10.: 2005. 

Page 20 GAO-07-343T 
in the twenty-first century, the impact of specific policies on economic 

growth will factor into decisions on topics as far ranging as taxes, support 

for scientific and technical innovation, retirement and disability, health

care, education and employment. To the extent that empirical research 

can shed light on the factors that affect economic growth, this information 

can guide policymakers in allocating resources, setting priorities, and 

planning strategically for our nation’s future. 

Economists have long recognized the strong association between poverty 

and a range of adverse outcomes for individuals, and empirical research, 

while limited, has also begun to help us better understand the impact of 

poverty on a nation’s economic growth. The interrelationships between 

poverty and various adverse social outcomes are complex, and our 

understanding of these relationships can lead to vastly different 

conclusions regarding appropriate interventions to address each specific 

outcome. Furthermore, any such interventions could take years, or even a

generation, to yield significant and lasting results, as the greatest impacts 

are likely to be seen among children. Nevertheless, whatever the 

underlying causes of poverty may be, economic research suggests that 

improvements in the health, neighborhoods, education, and skills of those 

living in poverty could have impacts far beyond individuals and families, 

potentially improving the economic well-being of the nation as a whole. 

This concludes my statement, Mr. Chairman. I would be happy to respond 

to any questions that you or other members of the committee may have. 

Page 21 GAO-07-343T 
Page 22 GAO-07-343T 

Contact and Acknowledgments 

Sigurd R. Nilsen, (202) 512-7215 or nilsens@gao.gov

Kathy Larin, Assistant Director, and Janet Mascia, Analyst-in-Charge, 

managed this assignment. Lawrance Evans, Ben Bolitzer, Ken Bombara, 

Amanda Seese, and Rhiannon Patterson made significant contributions 

throughout the assignment. Charles Willson, Susannah Compton, and 

Patrick DiBattista helped develop the message for the report and 

testimony. 

GAO Contact 

Acknowledgments 

In addition, Doug Besharov, Dr. Maria Cancian, Dr. Sheldon Danziger, and 

Dr. Lawrence Mead reviewed and provided comments on the report on 

which this testimony is based. 

(130636) 
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