AS AMERICA’S economy continues its recovery from the Great Recession, the official poverty rate has fallen—from 15.9% of the population to 13.4% in 2017.  This is still a couple of percentage points higher than it was a decade ago.  But in another hopeful sign, new measures of extreme poverty—defined as living on $2 a day or less—suggest it is much lower than previously thought.  This is inconvenient for those on both the left and the right.  It suggests that the welfare reform of the 1990s did not, as previously believed, much increase extreme poverty and that America’s safety net works better than is often argued.  It also suggests arguments that poverty at home is as bad as poverty elsewhere in the world are overblown. 

Previous estimates of extreme poverty have suggested it was concentrated amongst single parent families.  These households bore the brunt of a major bipartisan reform in 1996, which made welfare payments conditional on recipients trying to find work and ruled that no one could receive them for more than five years.  According to Kathryn Edin and Luke Schaefer, sociologists, survey evidence suggests the number of households with children living on less than $2 cash per person per day climbed from 600,000 in 1997 to more than 1.4m in 2010.  Even including the Supplemental Nutritional Assistance Programme, once known as food stamps, which was designed to ensure that poor American families have enough to eat, the numbers appeared to have increased from below half a million in 1996 to 800,000 in 2010. 

The $2 poverty line is broadly comparable to the World Bank’s global $1.90 “extreme poverty line.”  It is a fraction of the official, income-based, poverty line in America, which is set at $21,330 for a family of three—or about $19 a day.  Those earlier estimates of extreme poverty, suggestive of widespread destitution, prompted Angus Deaton, a Nobel prize-winning economist, to propose redirecting US foreign aid to America’s poorest people. 

The new poverty estimates, by Carla Medalia from the Census Bureau and Bruce Meyer from the University of Chicago, tell a rather different story.  They combine data from surveys and from government agencies.  That helps overcome two problems from estimates that use survey data alone: respondents often under-report the benefits they get and sometimes they mis-report other income. 

Looking at all individuals’ survey-reported household income, about 2.6% report living on less than $2 a day.  But when other benefits, under-reported earnings and other assets are factored in, that falls to 0.57%.  Add in data from programme administrators on under-reported transfers including the earned income tax credit, social security payments, housing assistance and the Supplemental Nutritional Assistance Programme and the proportion falls to 0.11% percent, or around 336,000 people. 

The adjustments also suggest extreme poverty isn’t concentrated among families.  On a survey-reported basis that excludes in-kind payments households with children make up the considerable majority of the extreme poor.  But once the adjustments are made, poverty is almost exclusively concentrated amongst single, childless households. 

While the additional data sources certainly make the numbers more reliable, the analysis, as with previous estimates, excludes the homeless—half a million or more Americans.  And some of the assumptions regarding data adjustments are arguable—including that benefits are worth the same as cash, that hours worked will necessarily pay at least the minimum wage and that households with considerable asset wealth will not be income-poor.  On the other hand, the results exclude administrative data on some big transfer programmes including unemployment insurance, veteran’s benefits and worker’s compensation, which collectively spend over $200bn a year. 

The new evidence is important for two reasons.  First, it suggests that extreme poverty cannot have risen significantly after welfare reform.  The numbers living on $2 a day remain low and are not amongst those targeted by the reform measures.  Second, the big gap between market income and consumption spending thrown up by the new research suggests that safety net programmes are doing their job of keeping people from utter destitution. 

The overall impact of welfare reform continues to be debated.  Research by Hilary Hoynes and Diane Schanzenbach, economists, suggests safety-net spending on families with incomes below the official poverty line has fallen from 87% of the total in 1990 to 56% in 2015, while per-child spending on families without earnings has declined since 1990.  And even if the number of Americans living on $2 a day is in the thousands, rather than over 1m, it is still too high.