Labor Supply and the Poor: Some Facts That Might (or Might Not) Surprise You

June 16th, 2014 at 7:10 pm

It is way too common in this town to run into people who think that poor people are poor because they don’t work.   Influential Congressman Paul Ryan has referred to safety net benefits as “a hammock” that create “poverty trap” and a culture of non-work, a rap as old as poverty itself.  Various critics of poverty programs argue that their benefit structure dis-incentivizes work and are increasingly calling for more work requirements.

I needed to look into the numbers of working poor persons for a project I’m doing and I found the results kind of interesting (h/t: AS and DT).  I suspect everyone brings different priors to this question, but some might be surprised by these results.

In fact, among poor people who are neither kids, elderly, nor disabled, half (49%) worked in 2012, when the unemployment rate was 8.1%.  If you take out those who didn’t work because they were going to school, 57% worked (i.e., among poor, non-disabled adults, 18-64, not in school, 57% worked).

Digging a bit deeper in these numbers, of the 46 million poor people in 2012, about 20 million (43%) were kids (35%) or elderlies (8%).  The other 26 million poor were 18-64.  Of those, about 11 million worked and 16 million did not work (rounding screws up the totals a bit).

However, of those non-working 16 million adults, 5 million did not work due to illness or disability.  So, of the about 21 million, non-disabled poor adults, half worked (and another 3 million did not work because they were in school).

To be clear, it is definitely the case that the poor work less than the non-poor—which is one of the reasons they’re poor, of course.  Among non-poor adults (again, 18-64), 81% worked in 2012 and if you take out non-poor, disabled adults, 85% worked.  So, no question poor adults are less likely to work than non-poor adults.  And some may raise fair questions about how ill or disabled those poor non-workers are who claim that as a reason for sitting out of the job market.

Also, the 18-64 year-old working poor put in fewer hours than the working non-poor.  In 2012, the non-poor worked about 1,900 hours, on average, close to full-time, full-year, while the poor worked about 1,200 hours.

Still, even with these pronounced differences, the idea that the poor don’t work, or work very little, is clearly wrong.  Moreover, in the latter 1990s, when demand for low-wage workers was uniquely strong, employment rates and hours worked among the poor and near-poor reached historical highs (new welfare-to-work rules play a role here as well, but a minor one, according to analysis of that period).

These facts–the numbers of working poor as well as the extent to which such persons have responded to strong labor demand in the past–belie the idea that our safety net is a hammock or that the structure of benefits* prevents the poor from working (which, to be clear, is not saying you’ll never find examples that go the other way; I’m talking averages).  We should certainly promote policies that increase labor market opportunities for those with low incomes.  But we should not assume that they’re deeply disconnected from the job market.

 

*Here, I’m referring to the fact that means-tested benefits often fall as earnings rise.

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11 comments in reply to "Labor Supply and the Poor: Some Facts That Might (or Might Not) Surprise You"

  1. Larry Signor says:

    “…no question poor adults are less likely to work than non-poor adults.”, or are poor adults less likely to be employed at non-poverty wages? Why did the working poor only have 1200 hours of average demand? The working poor are not lazy, there exists very little work for us. Would I work tomorrow? Yes. Is there work for me tomorrow? Probably not. Another day gone. How many more?


  2. Robert Buttons says:

    With everybody working, how do you explain:
    https://twitter.com/Not_Jim_Cramer/status/477527423664132096/photo/1


  3. Decius Brutus says:

    Why do the poor work less than the non-poor? Another reason (beyond the point alluded to by Larry Signor, namely that day laborers and shift workers may not be ABLE to find as many days/shifts as they’d like) may be that, for many of the poor, the cost of childcare, juxtaposed with the low hourly wage, may simply make working uneconomical. In other words, not all of the non-working, able poor are the “undeserving poor” (to use parlance often heard in The District). Rather, the poor may simply be responding to market signals in a perfectly rational manner.


    • Benedict@Large says:

      Securing a day labor contract has a daily overhead of three to four hours (I know; I did this for years) that other kinds of work do not have, making it all but impossible for day laborers to take on second jobs.


  4. Smith says:

    When you look at the table here, the thing that should jump out at you is “Mean Number of Earners”
    http://en.wikipedia.org/wiki/Household_income_in_the_United_States#Household_income
    Not only is it below one until income levels reach $35,000, but it continues to climb as income climbs reaching 2 at $105,000 , which might be made up of two modest $50,000 incomes, but could also be a $90,000 supplemented by a spouse selling real estate earning $10,000.

    The questions I have are
    Among those not in school, what are the major reasons (percentage) for not working?
    1) Single parents with young children? (before age 5, or after school, or July, August)
    2) Lack of work?

    Also what are the reasons for less hours?
    1) Young children needing care? (before age 5, or after school, or July, August)
    2) Lack of full time work available?

    One could also point out the poor suffer disproportionately from ill health and disabilities. But the “blame the poor crowd” could claim life style choices are contributing to that, countered by chicken egg argument over which is cause and which is effect.

    Again, if they are working and poor, is that because of
    a) Low wages
    b) Lack of full time work
    c) Lack of year round work
    d) All of the above, but in what percentages, where, and why

    If they are not working, why?
    If they are ill or disabled, were they also poor beforehand?

    And returning to the original table, how much of poverty is caused by the vulnerability of living in today’s economy as the only potential wage earner in a household?


  5. Perplexed says:

    -”And some may raise fair questions about how ill or disabled those poor non-workers are who claim that as a reason for sitting out of the job market.”

    So I guess “political correctness” only goes so far these days. Calling our system of access to jobs a job “market” is highly insulting to those who would be working if jobs were allocated by markets instead of cartels. The now 100 year old Clayton Act allows this “equal protection” sham to continue unabated. Equal protection is already the law, it just needs to be enforced.


  6. Jay says:

    Jared – I wish you would put the links up to the sources of this information, Very insightful.


  7. jbsay says:

    You have it backwards, the strong labor market for unskilled labor was the result of a suddently larger pool of unskilled labor due to new welfare work requirements.

    The free market will always find a profitable use for an available resource at an affordable price.


  8. Larry Signor says:

    jbsay, Are you really advocating Says law for labor markets??


    • Robert buttons says:

      You are using “Say’s law” in the manner as perverted by Keynes. Actually, he stole a misleading quote form JS Mill’s “Principles of political economy”.

      The law is actually: ” one can only buy with what one has produced”, or, to simplify “products are traded for products”. Which is why an economy cannot be built on paper money.


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