Economic Indicators

Already more than a lost decade: Poverty and income trends continue to paint a bleak picture


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The 2011 poverty and income data released this morning by the U.S. Census Bureau are yet another reminder of the continued weight of the Great Recession on U.S. families. Although the Great Recession, which began in late 2007, officially ended in the summer of 2009, the labor market continued deteriorating through early 2010. Thus, today’s release of 2011 data provides income and poverty figures for the first year since 2007 in which the labor market did not weaken substantially. Given the tight relationship between the health of the labor market and incomes for most families, this might lead one to believe that there should have been improvements in the 2011 income and poverty numbers.

MORE: For analysis of health insurance coverage, see Government safety net leads to declining uninsured rates for those under age 65.

However, while the labor market didn’t deteriorate between 2010 and 2011, it also did not significantly improve; it essentially held steady, seeing just enough job growth to keep up with population growth, but not enough to really begin digging out of the hole left by the Great Recession. The average monthly unemployment rate fell from 9.6 percent to 8.9 percent between 2010 and 2011, but that improvement was virtually entirely due to people dropping out of, or never entering, the labor market due to weak job prospects—not to an increase in the share of potential workers who have jobs. The share of “prime-age” workers (age 25–54) with a job held steady between 2010 and 2011 at 75.1 percent. The modest economic growth between 2010 and 2011 barely began to compensate for the losses incurred during the recession. Indeed, the aftereffects of the recession are still being felt through lower incomes for all but the top fifth of the income distribution, and through a poverty rate that remains elevated (it experienced a statistically insignificant decline from 15.1 percent to 15.0 percent between 2010 and 2011).

Furthermore, the disappointing trends of the Great Recession and its aftermath come on top of the weak economy of the 2000s. In the full business cycle from 2000 to 2007, poverty actually increased and, for the first business cycle on record, incomes for those at the middle did not rise. Most of the gains to low- and moderate-income families in the late 1990s have been erased; low- and middle-income families have already experienced more than a lost decade. Further, given predictions of high unemployment for years to come, it is likely we are facing another lost decade. For more on the 2000s and the decades of growing inequality that preceded it, see EPI’s The State of Working America, 12th Edition, released yesterday.

Key findings from the Census Bureau’s report

Poverty

  • The poverty rate was 15.0 percent in 2011, essentially unchanged from 15.1 percent in 2010. The total number of people in poverty in the United States was 46.2 million in 2011.
  • The poverty rate for children was 21.9 percent in 2011, representing 16.1 million kids living in poverty. In 2011, more than one-third (34.9 percent) of all people living in poverty were children.
  • The poverty rate for working-age people (18- to 64-year-olds) hit 13.7 percent in 2011, essentially unchanged from last year’s peak of 13.8 percent in 2010. Poverty among the elderly (age 65 and older), at 8.7 percent, is the lowest rate on record.
  • The poor are getting even poorer. In 2011, the share of the poor below half of the poverty line was 44.0 percent. This means that 6.6 percent of the overall population falls below half the poverty line.
  • Nearly 1 in 10 children (9.8 percent) lived below half of the poverty line in 2011.
  • Non-Hispanic whites maintained far lower poverty rates than any other racial/ethnic group. Hispanics experienced the largest declines in poverty, a drop of 1.2 percentage points between 2010 and 2011.
  • In 2011, over one-third of black children (38.8 percent) and Hispanic children (34.1 percent) were living in poverty. The poverty rate for families with children headed by single mothers hit 40.9 percent in 2011. Of the 7.1 million families with children living in poverty in 2011, 4.2 million were headed by a single mom.
  • Public policy helped to offset worse trends in 2011. If food stamps (SNAP) were added to the Census definition of money income, then 3.9 million fewer people would be in poverty. If the federal Earned Income Tax Credit were added to money income, then 5.7 million fewer people would be in poverty. In 2011, 2.3 million people were kept out of poverty by unemployment insurance, and 21.4 million people were kept out of poverty by Social Security.

Income

  • Between 2000 and 2011, median income for working-age households fell from $63,535 to $55,640, a decline of $7,895, or 12.4 percent.
  • Inequality increased in 2011 as only the top 5 percent of the income distribution saw income gains between 2010 and 2011. The income of the top 5 percent grew by 5.1 percent, compared with a drop of 1.7 percent for the middle fifth (the heart of the middle class).
  • Both the median man working full-time, full-year and the median woman working full-time, full-year saw their earnings drop by 2.5 percent between 2010 and 2011 as persistent high unemployment hurt earnings growth even for those with full-time, full-year work. Over the longer term, between 1973 and 2011, the median woman working full-time, full-year saw her earnings grow from $28,669 to $37,118. Over those same nearly four decades, the median man working full-time, full-year saw a decline in earnings, from $50,622 to $48,202.
  • Racial and ethnic disparities have increased substantially since 2000 due to the fact that racial and ethnic minorities have seen larger declines. The median white non-Hispanic household is now bringing in 7.0 percent less in income than it did in 2000, while the median Hispanic household is now bringing in 10.8 percent less and the median black household is now bringing in 16.8 percent less in income than it did in 2000.

Poverty

As the United States’ poverty rate was essentially unchanged from 2010 to 2011 (declining from 15.1 percent to 15.0 percent), the number of people living below the poverty line held steady at 46.2 million. As Figure A illustrates, poverty tends to follow a cyclical pattern, rising in recessions and falling in recoveries. The last full business cycle, 2000 to 2007, is an exception. The poverty rate increased between 2000 and 2007, from 11.3 percent to 12.5 percent, then continued to rise through the Great Recession, hitting 15.0 percent in 2011. Since 2000, poverty has generally been on an upward trajectory. It is likely, given predictions of the labor market’s future health, that the poverty rate will not return to 2000 (or even 2007) levels for some time.

Figure A Figure A (continued)

Poverty rate for total population and children, 1979–2011

Poverty rate for total population and children, 1979–2011

Note: Shaded areas denote recessions.

Source: Authors’ analysis of Current Population Survey Annual Social and Economic Supplement (CPS-ASEC) Historical Poverty Tables (Table 3) and CPS-ASEC microdata

The poverty rate for children in 2011 was 21.9 percent, higher than the overall rate. The 2011 “children’s poverty rate” represents 16.1 million kids living in poverty. In 2011, more than a third—34.9 percent—of all people living in poverty were children.

Nearly all of the decline in poverty achieved during the business cycle of the 1990s has been reversed. From 1989 to 2000, overall poverty declined by 1.5 percentage points, and child poverty dropped by 3.4 percentage points. From 2000 to 2011, however, poverty increased overall by 3.7 percentage points, and by 5.7 percentage points among children. The large increase in poverty suggests that as anti-poverty policies have come to depend more on paid work as the main pathway out of poverty, the safety net has become less effective in reducing economic hardship when the economy and job market are underperforming.

The poverty rate for working-age people, those 18–64 years old, was 13.7 percent in 2011 (Figure B). This represents a tiny drop from its historical peak of 13.8 percent in 2010. Over the same 45 years (1966–2011) covered in the figure, the poverty rate for persons older than age 65 dropped precipitously, due in part to Social Security payments, which have effectively lifted millions of elderly Americans out of poverty. In 2011, the elderly poverty rate was 8.7 percent, the lowest on record.

Figure B Figure B (continued)

Poverty rate for elderly and non-elderly adults, 1966–2011

Poverty rate for elderly and non-elderly adults, 1966–2011

Note: Shaded areas denote recessions.

Source: Authors’ analysis of Current Population Survey Annual Social and Economic Supplement (CPS-ASEC) Historical Poverty Tables (Table 3)

Figure C displays the share of the poor falling below half of the poverty line from 1975 to 2011. In 2011, 50 percent of the poverty line for a two-adult, two-child family was $11,406. This metric tracks the depth of poverty by measuring those living on half the subsistence rate. In 2011, 44.0 percent of the poor were living below half of the poverty line. As a share of the overall population, this means that 6.6 percent of Americans were living below half of the poverty line in 2011. Turning to the population under 18 years old, nearly 1 in 10 children (9.8 percent) were below half the poverty line in 2011 (not shown).

Figure C Figure C (continued)

Share of the poor in “deep poverty,” 1975–2011

Share of the poor in “deep poverty,” 1975–2011

Note: Shaded areas denote recessions.

Source: Authors' analysis of Current Population Survey Annual Social and Economic Supplement Historical Poverty Tables (Tables 2 and 22)

As shown in Figure D, poverty rates and changes in those rates vary dramatically across racial and ethnic groups. Non-Hispanic whites experienced the lowest rate of poverty at 9.8 percent in 2011, while the rates for blacks and Hispanics were more than two-and-a-half times higher, at 27.6 percent and 25.3 percent, respectively. Hispanics experienced the largest declines in poverty, a drop of 1.2 percentage points between 2010 and 2011.

Figure D Figure D (continued)

Poverty rate, by race and ethnicity, 2010 and 2011

Poverty rate, by race and ethnicity, 2010 and 2011

Source: Authors' analysis of Current Population Survey Annual Social and Economic Supplement Historical Poverty Tables (Table 2)

The 2000s have all but erased any gains in reducing poverty in the 1990s. This recession has only exacerbated the damaging trends over the last decade, leaving large shares of some of the most vulnerable populations living below the poverty line. Figure E shows changes over time in poverty rates for particularly vulnerable populationsracial and ethnic minority children, families with children, and single-mother families. From 2000 to 2011, black children experienced a 7.6 percentage-point increase in poverty, reaching 38.8 percent. Hispanic children experienced an increase in poverty of 5.7 percentage points over the same period, reaching 34.1 percent.

Figure E Figure E (continued)

Poverty rates for vulnerable populations, 2000–2011

Poverty rates for vulnerable populations, 2000–2011

Source: Authors' analysis of Current Population Survey Annual Social and Economic Supplement (CPS-ASEC) Historical Poverty Tables (Tables 3 and 4)

Families with children experienced an increase in poverty of 5.8 percentage points between 2000 and 2011, hitting 18.5 percent in 2011. For families headed by single mothers, there was a 7.9 percentage-point jump, from 33.0 percent in 2000 to 40.9 percent in 2011. In 2011, 4.2 million of the 7.1 million families living in poverty were headed by single moms.

The poverty rate and associated trends would have been worse if public policies had not provided a necessary safety net (Table 1). In 2011, 2.3 million people were kept out of poverty by unemployment insurance. That is, unemployment benefits went to families that otherwise would likely have suffered steeper income declines, and in some cases dropped below the poverty line. Social Security is a strong safety net that keeps millions of Americans of all ages out of poverty. In 2011, 21.4 million people were kept out of poverty by Social Security, including 1.1 million children and 5.8 million non-elderly adults.

Table 1 Table 1 (continued)

Role of safety nets in poverty, 2011 (millions of people affected)

All people Children under age 18 Age 18–64 Age 65 and older
SNAP (food stamps)* 3.9 1.7 1.9 0.3
Federal Earned Income Tax Credit* 5.7 3.1 2.6 -
Unemployment insurance benefits** 2.3 0.6 1.6 0.1
Social Security income** 21.4 1.1 5.8 14.5

*This row shows how many people now below the poverty line would be above the poverty line if SNAP and the EITC were counted in the Census definition of money income used to calculate the poverty rate.

**This row shows how many people now not in poverty would fall below the poverty line if unemployment insurance and Social Security benefits were not included in the Census definition of money income used to calculate the poverty rate.

Source: Authors' analysis of Income, Poverty, and Health Insurance Coverage: 2011 Powerpoint

Furthermore, if food stamps (SNAP) were added to the Census definition of money income, then 3.9 million fewer people would be in poverty. If the federal Earned Income Tax Credit were added to money income, then 5.7 million fewer people would be in poverty, including 3.1 million children.

Income: Another bleak year for most families

From 2010 to 2011, median household income, adjusted for inflation, fell from $50,831 to $50,054, a decline of $777, or 1.5 percent. Working-age households—those with a head of household younger than 65 years old—experienced somewhat larger declines because they are more exposed to the labor market and therefore most likely to be negatively affected when the labor market is weak. The median income of working-age households fell from $56,850 in 2010 to $55,640 in 2011, a decline of $1,210, or 2.1 percent.

Figure F shows real median income over the last three decades for all households and, starting in 1994 when the data became easily available, for working-age households. A key point here is the comparison between business cycles. From 1979 to 1989, real median income for all households grew $3,097 (from $47,527 to $50,624); from 1989 to 2000, it grew $4,217, (from $50,624 to $54,841). But for the first time on record, over the 2000–2007 business cycle, incomes did not rise, but fell slightly, from $54,841 to $54,489. And with the weak labor market over this period, the real median income of working-age households fell significantly, from $63,535 to $61,355. This means that working families are weathering the current economic downturn on the heels of one of the worst economic expansions on record.

Figure F Figure F (continued)

Real median household income, 1979–2011 (2011 dollars)

Real median household income, 1979–2011 (2011 dollars)

Note: Working-age households are households where the householder is less than 65 years old. Shaded areas denote recessions.

Source: Current Population Survey Annual Social and Economic Supplement Historcial Income Tables, Table H-5: "Race and Hispanic Origin of Householder--Households by Median and Mean Income: 1967–2011."

These figures show that 2011 was but another year of income declines in more than a decade of declines: From 2000 to 2011, median income for working-age households fell from $63,535 to $55,640, a decline of $7,895, or 12.4 percent.

In 2011, only households in the top 5 percent of the income distribution saw income gains, as shown in the first panel of Figure G. The top 5 percent saw an increase of 5.1 percent, while the middle fifth (the heart of the middle class) saw a decline in income of 1.7 percent. Income inequality thus increased in 2011, an echo of what happened over entire period of the Great Recession and its aftermath from 2007–2011. Between 2007 and 2010, though the middle and bottom sections of the income distribution were hit harder, households in all parts of the income distribution lost ground. However, the income increase for the top 5 percent in 2011 essentially fully restored the income of the top 5 percent to its pre-recession (2007) level. The rest of the income distribution is still far below where they were before the recession started, as the second panel of Figure G shows. For example middle-fifth household income remains 8.0 percent below where it was in 2007. The figure shows very clearly how the damage caused by the recession was felt much more strongly among low- and moderate-income households. It is also important to note that the rise in inequality over the last four years compounds roughly three-and-a-half decades of rising inequality. For more on these decades of rising inequality, see EPI’s State of Working America, 12th Edition.

Figure G Figure G (continued)

Change in household income across the income distribution, 2007–2011

Change in household income across the income distribution, 2007–2011

Source: Current Population Survey, Annual Social and Economic Supplement Historical Income Tables ; Table H-3, "Mean Household Income Received by Each Fifth and Top 5 Percent."

Figure H shows that the persistent high unemployment has dampened earnings growth even for those who have full-time, year-round employment. In 2011, the median man working full-time, full-year experienced a drop in real earnings of 2.5 percent, from $49,463 to $48,202. The median woman working full-time, full-year also saw a 2.5 percent drop, from $38,052 to $37,118. Looking over a longer horizon, the trends are stark. Between 1973 and 2011, the median woman working full-time, full year saw her earnings grow from $28,669 in 1973 to $37,118 in 2011. Over those same nearly four decades, the median man working full-time, full-year saw a decline in income, from $50,622 to $48,202.

Figure H Figure H (continued)

Real earnings for workers, by gender, 1973–2011 (2011 dollars)

Real earnings for workers, by gender, 1973–2011 (2011 dollars)

Note: Shaded areas denote recessions.

Source: Current Population Survey Annual Social and Economic Supplement Historical Income Tables, Table P-41, "Work experience- All Workers by Median Earnings and Sex: 1987-2011," and Table A-4, "Number and Real Median Earnings of Total Workers and Full-time, Year-Round Workers by Sex and Female-to-male Earnings Ratio: 1960–2011."

Disparities in income between blacks and other groups grew in 2011, with the median African American household seeing its income decline 2.7 percent from 2010, compared with a 0.5 percent drop in income for the median Hispanic household and a 1.4 percent drop for the median white non-Hispanic household (see dollar changes in Figure I). The weak labor market of the 2000–2007 business cycle, along with the Great Recession, have wiped out all improvements in median black income since 1994, all improvements in median Hispanic income since 1997, and all improvement in white non-Hispanic median income since 1996. The median white non-Hispanic household is now bringing in 7.0 percent less in income than it did in 2000, while the median Hispanic household is now bringing in 10.8 percent less and the median black household is now bringing in 16.8 percent less in income than it did in 2000.

Figure I Figure I (continued)

Real median household income by race, 1989–2011 (2011 dollars)

Real median household income by race, 1989–2011 (2011 dollars)

Note: Shaded areas denote recessions.

Source: Current Population Survey Annual Social and Economic Supplement Historical Income Tables, Table H-5, "Race and Hispanic Origin of Householder--Households by Median and Mean Income: 1967-2011."

Conclusion

The new data on income and poverty underscore the ongoing consequences of the economic downturn. The labor market is the core building block of family incomes—persistent high unemployment means family incomes drop and poverty rates remain high. The Census Bureau’s report shows that much of the income and anti-poverty gains made in the 1990s have been more than erased due to both the weak business cycle from 2000 to 2007 and the lasting effects of the Great Recession.

Unfortunately, the pain is not over. The lost decade of the 2000s is likely to be followed by another lost decade. The unemployment rate is not expected to drop below 7 percent until 2016 and is not projected to hit pre-recessionary levels for many years to come (Figure J). Furthermore, as illustrated by the multiple dotted lines in the figure, in recent years the Congressional Budget Office has consistently moved the job recovery further into the future.

Figure J Figure J (continued)

Unemployment rate and projected unemployment rate, 2000–2022

Unemployment rate and projected unemployment rate, 2000–2022

Note: Dotted lines show unemployment projections from the stated year's CBO Budget and Economic Outlook. Shaded areas denote recessions.

Source: Authors' analysis of Congressional Budget Office's The Budget and Economic Outlook (2009, 2010, 2011, 2012)

Given the continued slack in the labor market for the next several years, family incomes are expected to stay below the 2000 level by 2018—resulting in nearly another lost decade (Figure K). This is an underappreciated economic disaster.

Figure K Figure K (continued)

Change in real family income of the middle fifth, actual and predicted, 2000–2018

Change in real family income of the middle fifth, actual and predicted, 2000–2018

* Path of income growth projected by a model based on the relationship between income growth and the unemployment rate from 1948 to 2010.

Note: Data are for money income.

Source: Authors' analysis of Current Population Survey Annual Social and Economic Supplement Historical Income Tables (Table F-2, F-3, F-5) and analysis based on forecasted unemployment rates from The Budget and Economic Outlook: Fiscal Years 2012 and 2022 (Congressional Budget Office, 2012) and Moody's Analytics MyEconomy.com

Furthermore, higher unemployment and lower family incomes result in higher poverty. Between 1959 and 1973, poverty fell as the economy grew. If that trend had continued, the poverty rate would have approached zero by the 1980s. Rising income inequality stymied the relationship between a growing economy and declining poverty. Over the last three decades, rising inequality has flattened incomes for low- and moderate-income Americans.

For a comprehensive examination of how we got to where we are today, including additional details on income, poverty, economic mobility, wages, jobs, and wealth, see EPI’s The State of Working America, 12th Edition, released yesterday.

—Research assistance by Natalie Sabadish and Hilary Wething

See more work by Heidi Shierholz and Elise Gould