ERIC ED473893: The Role of Parental Work in Child Poverty. A Report of the Heritage Center for Data Analysis.

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by  ERIC

DOCUMENT RESUME
ED 473 893 UD 035 503
Rector, Robert E.; Hederman, Rea S., Jr.
AUTHOR
The Role of Parental Work in Child Poverty. A Report of the
TITLE
Heritage Center for Data Analysis.
Heritage Foundation, Washington, DC.
INSTITUTION
2003-01-27
PUB DATE
15p
NOTE
Heritage Foundation, 214 Massachusetts Avenue, N.E.,
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Reports Descriptive (141)
PUB TYPE
EDRS Price MF01/PC01 Plus Postage.
EDRS PRICE
*Child Welfare; *Employed Parents; *Employment Patterns;
DESCRIPTORS
Family Income; *Poverty; Welfare Services
ABSTRACT
This report analyzes the relationship between parental
employment and child poverty using two measures of income: money income,
which includes most cash received by the family but excludes a wide range of
welfare aid, and expanded measures of income, which includes food stamps, the
Earned Income Tax Credit, and school lunch subsidies. This measure also
deducts FICA, or Social Security taxes, from income. Results suggest that low
work levels by parents are a major cause of child poverty, as opposed to
parents' low hourly wage rates. While most poor families with children are
"working families," on average, the level of employment in poor families is
quite low. Roughly three-quarters of all poor families with children have
total parental work levels of less than 2,000 hours per year (the equivalent
of one adult working 40 hours per week for 50 weeks). Nearly half of all poor
families with children have less then 1,000 hours of paid employment
throughout the year. Despite the availability of extensive government
support, nearly 4.4 million families with children remain in poverty. The
report concludes that even at current wage rates, child poverty could be
dramatically reduced by increasing the number of hours that parents work
throughout the year. (Contains 13 endnotes.)
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olicy.
THE ROLE OF PARENTAL WORK
IN CHILD POVERTY
ROBERT E. RECTOR AND
REA S. HEDERMAN, JR.
January 27, 2003
CDA03-01
etitageTiotudatiati
214 Massachusetts Avenue, NE Washington, D.C. 20002 [phone] www.heritage.org
NOTE: Nothing written here is to be construed as necessarily reflecting the views of The Heritage Foundation or as an
attempt to aid or hinder the passage of any bill before Congress.
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PYAV
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4)
2
THE ROLE OF PARENTAL WORK
IN CHILD POVERTY
ROBERT E. RECTOR AND REA S. HEDERMAN, JR.
ing parents appear to earn less than the
In discussions about poverty in America,
minimum wage; about one-quarter appear
concern is frequently expressed regarding
to earn less than $4.00 per hour. This
working poor families with children. Many
strongly suggests that, in the CPS, hours of
perceive the working poor as families that
work are over-reported, earnings are
work full-time throughout the year yet still
under-reported, or both.
have incomes below the official federal poverty
levels.
The fact that nearly three-quarters of all
poor families with children have less than
While some poor families fit this profile,
full-time/full-year employment indicates
most do not. Among poor families, when work
that child poverty could be sharply
does occur, part-time or part-year work is the
reduced if adults in these families worked
norm. Examination of data from the U.S. Cen-
more. Indeed, if all currently poor families
sus Bureau's Current Population Survey (CPS)
with children had full-time adult employ-
for 1999 reveals the following:
ment throughout the year (at least 2,000
Among poor families with children, one-
hours), the child poverty rate in the United
quarter to one-third have zero employment
States would be cut by 72 percent.
throughout the year. Over one-fourth of
The increase in work to a minimum of
poor families have full-time employment
2,000 hours per family would nearly dou-
through the year (2,000 or more hours of
ble the average income among families
paid labor) but remain poor. The rest have
with children currently living in poverty.
some employment but less than full-time/
The aggregate income of these families
full-year. Overall, among all poor families
would increase by nearly $36 billion.1 The
with children, the median hours of adult
median income of families with children
employment are between 650 and 1,000
currently living in poverty would rise from
hours per year.
$9,826 to $17,488.
Moreover, evidence strongly suggests that
These findings indicate that public promo-
the amount of work performed by poor
tion of higher levels of employment and work
families is substantially over-reported in
among poor parents will substantially reduce
the CPS. When adult earnings are divided
child poverty. By contrast, policies that reward
by number of hours of work reported per-
idleness will increase poverty.
formed by adults, over 40 percent of work-
The mean income of the 4.37 million poor families with children in 1999 was $10,204. After the simulated
1.
increase in hours worked, the mean family income would rise to $18,402.
THE HERITAGE CENTER FOR DATA ANALYSIS
E Chart 1
CDA03-01
Poor Families with Children by Annual Hours of Adult Work*
Percent of All Families With Children That Are Poor
35%
30
27.8%
7.4%
25
20
15
12.2%
11.5%
10.7%
10.5%
-
10
-
5
500-999
1-499 1500-1999
1000-1499
2000 or More Hours
0
Annual Hours of Paid Labor By All Adults Within Each Poor Family
Note: * Money Income Definition.
Source: U.S. Bureau of the Census, Current Population Survey, March 2000.
Recent experience indicates that welfare reform
family with an income below the official poverty
income thresholds. For example, in 1999, the offi-
policies can be extremely effective in increasing
cial poverty threshold was $13,423 for a family of
employment. For example, in 1996, Congress
reformed the traditional Aid to Families with three and $16,895 for a family of four.
Dependent Children (AFDC) program, replacing it
Obviously, the count of poor persons will vary
with a new program called Temporary Assistance
depending on what economic resources are
to Needy Families (TANF). The TANF program
included as part of the family's income. In this sec-
required many adult recipients to engage in con-
tion, we will examine work and poverty using two
structive activities directed toward self-sufficiency
different measures of income. The first is "money
(for example, supervised job search, training, or
income." This is the most common measure of
community service work) as a condition for receiv-
income employed by the Census Bureau; it
ing aid. As a result of these requirements, welfare
includes most cash income received by the family
rolls shrank and employment among single moth-
but excludes a wide range of welfare aid such as
ers soared. Employment of never-married moth-
food stamps, the Earned Income Tax Credit, and
ers, for example, increased by 50 percent. As
public housing.
employment among single mothers grew, poverty
We also analyze poverty using an "expanded
within that group fell by a third.
measure of income" that includes food stamps, the
WORK AND POVERTY AMONG
Earned Income Tax Credit, and school lunch sub-
sidies. This measure also deducts FICA, or Social
FAMILIES WITH CHILDREN
Security taxes, from income.
Each year, the U.S. Bureau of the Census calcu-
Chart 1 and Table 1 both show the level of paid
lates the number of families and persons living in
adult employment among poor families with chil-
poverty. A person is deemed "poor" if he lives in a
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2
2
THE HERITAGE CENTER FOR DATA ANALYSIS
dren in 1999 using the "money income" standard. The share of poor families with no employment
As the chart shows, roughly one-quarter of poor
increases to 32.5 percent in Table 2. The median
hours of work among all poor families falls to 660
families with children had no adult employment
hours per year.
during the year. Approximately one-quarter had
adult employment between one and 999 hours
The differences between Table 1 and Table 2 are
during the year; and another quarter had between
evidence of the effectiveness of some welfare pro-
1,000 and 1,999 hours. Slightly more than one-
grams (especially the EITC) in raising the incomes
quarter had at least full-time/full-year employment
of working families-particularly those with full-
with 2,000 or more hours of paid work. (The fig-
time workers-above the poverty thresholds.
ure of 2,000 hours represents an average of 40
As in Table 1, married-couple families are far
hours of work per week over 50 weeks.)
less likely to have no employment than single-par-
While the level of work among these poor fami-
ent families (15.9 percent compared to 39.7 per-
lies is greater than generally perceived, nearly
cent). Nearly half of poor married-couple families
three in four working-poor families had less than
had more than 2,000 hours of work in the year,
full-time/full-year employment. The median num-
compared to only 12.7 percent of single-parent
ber of hours of work among all the families was
families.2
1,040 per year. The lack of full-time employment
Over-Reporting Hours Worked
was a major factor contributing to poverty.
Table 2 presents the same data using the
The number of families that work a substantial
expanded definition of income. With the inclusion
number of hours during the year yet remain poor
of the EITC, food stamps, and school lunches in
appears surprising. Indeed, examination of the
calculating income, the number of poor families
data strongly suggests that work levels shown in
with children falls significantly-from 5.4 million
Tables 1 and 2 are significantly over-reported.
in Table 1 to 4.4 million in Table 2. Since many of
Throughout the CPS data on poor families,
the added welfare benefits supplement the wages
there is a significant discrepancy between reported
of low-income parents, the share of poor families
hours of work and reported earnings. As Table 3
with over 2,000 hours of employment falls from
shows, when total adult annual earnings in a poor
27.8 percent in Table 1 to 23.5 percent in Table 2.
CDA03-01
Table 3
Apparent Hourly Wage Rates of Parents in Poor Families with Children
Annual Hours of Adult Work in Family
2000 or more
1500-1999
500-999 1000-1499
1-499
All Poor Families
Col %
Col %
Col % Col % Col %
Col 9/0
Above Minimum Wage
48.15
63.56 66.90
63.84 58.68 57.58
Below Minimum Wage
42.42
41.32
36.16 33.10
36.44 51.85
100.00
100.00
100.00 100.00
1 00.00
1 00.00
Note: Workers reporting no hours or earnings are not considered in this table. Money Income Definition.
Source:
Heritage calculations from the U.S. Bureau of the Census, Current Population Survey, March 2000.
One factor that contributes modestly to poverty among working families is larger family size. Since the official poverty
2.
income threshold increases with family size, families with more children need to earn more to keep the family's income
above poverty. Poor families with children, on average, have 2.2 children per family. Poor married couples tend to have
more children than poor single mothers (2.6 compared to 2.1). Poor families that report no adult work have fewer chil-
dren (2.0), while poor families that report over 2,000 hours of work have, on average, more children (2.5).
THE HERITAGE CENTER FOR DATA ANALYSIS
Table 4
CDA03-01
I
Apparent Hourly Wage Rates in Working Poor Families
Poor Families with Children with 2000
Poor Families with Children
or More Hours of Reported Adult Work
with any Reported Adult Work
Apparent Hourly
Wage Rate
Percent Percent
Cumulative Percent
Cumulative Percent
Number of Families Number of Families
$0
30,620
0.78
21,448
0.78
1.43 1.43
$.01 to 1
4.52
3.74
147.083
7.86
96.751
6.43
$1 to 2
9.60
77,054
199,697 5.08
5.12
12.98
$2 to 3
236,797
20.94
6.02 7.96
15.62
119,661
$3 to 4
414,215
9.96
26.15 30.89
10.53
149,725
$4 to 5
41.76
294,737
613,835
50.49
19.60
15.61
$5 to 6
67.96
57.20
606,858 262,763
17.47
15.43
$6 to 7
551,375 71.22
82.16
213.506
14.02 14.20
$7 to 8
92.50
394,076
81.24
10.02
155,567
10.34
$8 to
87.42
4.48
242,819 67,362
6.18
96.98
9
$9
over
494,814
100.00
3.02
100,00
12.58
45,361
Total
3,932,190
1,503,935
100.00
100.00
Note: Figures based on Money Income Definition.
Source: Heritage calculations from the U.S. Bureau of the Census, Current Population Survey, March 2000.
family are divided by the reported hours of adult
and 51 percent report wages below $5.00 per
work during the year, 42 percent of poor working
hour.
families appear to have adult wage rates below the
One possible explanation for these low wage
federal minimum wage of $5.15 per hour. This
rates would be self-employment. Individuals who
phenomenon is especially pronounced among
run their own small business may well have effec-
poor families that report over 2,000 hours of adult
tive earnings below the minimum wage, especially
employment during the year. Within that group,
during start-up years. However, the CPS data show
52 percent reported effective wage rates that were
that only 7.5 percent of working adults in poor
below the minimum wage.
families are self-employed. Among poor families
reporting over 2,000 hours of employment, the
Table 4 shows the same data in a different form.
level of self-employment is higher but still not
The left half of the table shows the effective wage
rates (annual earnings divided by annual number
great: 16.5 percent.
of hours worked) of adults in poor families.
The most plausible explanation of the low effec-
Among families with any reported adult employ-
tive wage rates among the working poor is that,
ment, over one-fourth have effective wage rates of
among that group in the CPS, employment has
less than $4.00 per hour, and 42 percent have
been slightly over-reported and earnings have
effective wage rates of less than $5.00 per hour.
been somewhat under-reported. Overall, the num-
The right half of Table 4 shows effective wage
ber of families who work full-time/full-year and
rates among poor families that report over 2,000
remain poor is almost certainly significantly lower
annual hours of adult employment. Of these, some
than the figures shown in Tables 1 and 2.3
31 percent report wages below $4.00 per hour,
To calculate the number of hours of work an individual performs during a year from Census data, it is necessary to multi-
3.
ply the self-reported number of weeks of work during the year by the self-reported average hours of work per week. Since
the figures provided are imprecise, an over-reporting of total work can readily occur.
5
7
THE HERITAGE CENTER FOR DATA ANALYSIS
Reducing Child Poverty by Increasing Work
adult earnings divided by the total annual adult
hours of work.) If the effective hourly wage rate
Since nearly three-quarters of poor families with
shown in the CPS was less than the federal mini-
children have less than full-time/full-year employ-
mum wage of $5.15 per hour, hourly earnings
ment, it follows that child poverty can readily be
were increased to equal the minimum wage. Thus,
cut if the work levels in these families are
every family in the simulation had imputed earn-
increased. This section seeks to answer the follow-
ings equal to at least $10,300 (2,000 hours of
ing question: How much would child poverty be
work times $5.15 per hour).
reduced if all poor families with children had at
To measure the effects on poverty, the analysis
least one adult who worked full-time throughout
used the expanded definition of income that adds
the year?
the value of the EITC, food stamps, and school
To answer this question, we simulated an
lunch subsidies to conventional "money income."
increase in hours worked using the CPS data file.
Welfare benefits from the Temporary Assistance to
In this simulation, for each poor family with less
Needy Families and Supplemental Security
than 2,000 annual hours of adult employment,
Income programs were assumed to be eliminated
adult employment was increased to the 2,000
by the earnings increase. Any current payments
hour level and adult earnings were increased in a
from unemployment insurance, worker's compen-
corresponding ratio. Thus, for example, if a family
sation, and disability or retirement income were
reported 1,000 hours of work yielding $6,000 in
also eliminated from family income.
earnings, the simulation would increase the hours
The values of the EITC and FICA taxes were
of work to 2,000 and the earnings would be
adjusted to correspond to the earnings increase
increased proportionally to $12,000.
within the family Food stamp benefits were also
The simulation assumed that work is increased
adjusted to match the increase in earnings within
to 2,000 hours per year per family, not 2,000
the family; however, not all families who were eli-
hours per worker. Thus, for families with more
gible for food stamps were deemed to receive them
than one adult, the simulation did not assume that
under the simulation. At present in the United
each adult would work 2,000 hours; rather, the
States, only around 70 percent of the poor families
total employment level for all adults in the house
with children who are potentially eligible to
combined was raised to 2,000 hours. For example,
receive food stamps actually get them.5 The simu-
one parent might work 1,500 hours while the
lation assumed that this under-utilization of food
other worked 500 hours during the year.
stamp benefits would continue. Therefore, it was
If the effective adult hourly wage rate in the
assumed that, after the simulated earnings
family was reported to be greater than the mini-
increase, approximately 30 percent of families who
mum wage in the CPS data, the reported hourly
were still eligible for food stamps would not
wage was retained in the simulation. (As above,
receive them.6
the effective hourly wage rate equals total annual
The value of a family's benefits from the food stamp program and from the Earned Income Tax Credit is a function of the
4.
family's earnings. We have recalculated the expected value of benefits from these two programs based on the adjusted value
of earnings in the family. As a result of the earnings adjustment, each single parent with two children would typically have
a minimum annual income of $16,123. This represents $10,300 in earnings, $3,816 from EITC, $2,030 from food stamps,
and $765 from school lunches, less $788 in FICA taxes. The poverty income threshold for this family was $13,423. Thus,
a family of three working full-time at the minimum wage would typically have a total income 20 percent above the poverty
level. However, as noted in the text, not all families who are eligible to receive food stamps actually get them. Under the
simulation, the minimum annual income for a family of three who did not get food stamps would be $14,093. This repre-
sents $10,300 in earnings, $3,816 from EITC, and $765 from school lunches, less $788 in FICA taxes. This sum would be
5 percent above the poverty income level.
Randy Rosso, Trends in Food Stamp Program Participation: 1994 to 1999, U.S. Department of Agriculture, Food and
5.
Nutrition Service, Office of Analysis, Nutrition and Evaluation, October 2001, pp. 143-136.
The procedures for allocating receipt and non-receipt of food stamps are described more fully in the Appendix.
6.
THE HERITAGE CENTER FOR DATA ANALYSIS
THE IMPACT OF
The anti-poverty effects of increased adult
work were slightly stronger among black fami-
INCREASED PARENTAL WORK
lies than among white families. Among blacks,
Charts 2, 3, and 4 show the dramatic effects of
the percentage of families with children that
the simulated increase in work and earnings on
are poor was cut by 75 percent, from 23.6 per-
poverty.7
cent to 5.9 percent. Among white families,
increased work cuts the poverty rate by 72
Prior to the increase in work, 11.6 percent of
percent, from 9.2 percent to 2.6 percent. (See
families with children were poor. When work
Chart 4.)
within the family is increased to 2,000 hours
(the equivalent of one individual working full-
The increase in work would nearly double the
time for a full year), the percent of families in
median income of poor families with children.
poverty falls to 3.2 percent. This represents a
Prior to the increase in hours worked, the 4.37
72 percent drop in poverty. (See Chart 2.)
million poor families had a median annual
Prior to the increase in hours worked, some income of $9,826. After the increase in hours
worked, these same 4.37 million families
4.37 million families with children lived in
would have a median income of $17,488.
poverty. If work within each poor family were
increased to 2,000 hours, only 1.20 million
The increase in work to a minimum of 2,000
families would remain poor. The increase in
hours per family would nearly double the
hours of work would remove some 3.17 mil-
mean income among the 4.37 million families
lion families from poverty. (See Chart 3.)
with children currently living in poverty and
Chant
CDA03-01
ra,
Effect of Increasing Parental Work on Child Poverty (By Family Type)*
Percentage of Families with Children
30%
26.7%
0 Current Poverty Rate of Families with Children
O Poverty Rate if Level of Total Adult Work in the
25
Family is Raised to 2.000 Hours Per Year
20
15
11.6%
10
5.0%
5
3.2%
2.4%
Married-Couple Families
All Families with Children
Single Parent
with Children
Note: *Using Expanded Definition of Income.
Source: Analysis based on U.S. Bureau of the Census, Current Population Survey, March 2000.
All the figures in Charts 2, 3, and 4 and all the figures in the text that refer to reductions in poverty and increases in
7.
income utilize the expanded definition of income.
a
7
THE HERITAGE CENTER FOR DATA ANALYSIS
IS Chart 3
Con03-0 1
Effect of Increasing Parental Work on Child Poverty: Families Removed from Poverty*
Millions of Families with Children
5.0
4.37 Million
4.5
-
4.0
-
3.5
-
3.17 Million
3.0
-
2.5
-
2.0
-
1.5
-
1.20 Million
1.0
-
0.5
-
Poor Families with Children if
Current Poor Families
Number of Families with Children
Total Adult Work is Raised to
with Children
Escaping Poverty Through
Full-Time/Full-Year Employement Full-Time/Full-Year Employment
Note: *Using Expanded Definition of Income
Source: Analysis of U.S. Bureau of the Census, Current Population Survey, March 2000.
2 Chart 4
CDA034)1
Effect of Increasing Parental Work on Child Poverty (By Race)*
Percent of Families With Children That Are Poor
25%
23.6%
Current Poverty Rate of Families with Children
III
Poverty Rate if the Level of Total Aduk Work in
-
the Family Were Raised to 2000 Hours per Year
20
-
15
11.6%
-
10
9.2%
5.9%
-
5
3.2%
2.6%
White Families
All Families
Black Families
Note: *Using Expanded Definition of Income.
Source: Analysis of U.S. Bureau of the Census, Current. Population Survey, March 2000.
8
10