December 10, 2004

STATE POLICIES TO ASSIST WORKING-POOR FAMILIES
 By Liz McNichol and John Springer

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Introduction

For a large and growing number of Americans, having a job is not enough to lift them out of poverty.  This report presents a menu of practical policy options that states can adopt to help working-poor families meet their basic needs and improve their lives. 

The number of people in working-poor families has grown significantly in the last two decades.  In 2003, 13.1 million people, including 7.3 million children, lived in a working-poor family.  (In 2004 dollars, that means their income was less than about $15,000 for a family of three or $19,300 for a family of four.)

In nearly every state, a majority of poor families in which the adults are not retired or disabled have one or more workers.  Table 1 provides data on the extent of work among poor families with children in each state.  Typically, these adults work a substantial number of weeks and hours in a given year.  (Table 1 presents the number of families in which either the head of household or spouse worked a combined total of more than 13 weeks during the year.  Thirteen weeks is the equivalent of one calendar quarter.)

In addition, working families make up a growing share of all poor families.  Between 1989 and 2003, the share of poor families that included a worker rose from 54 percent to 65 percent.

The increase in the ranks of the working poor reflects changes both in the economy and in state and federal policies:

  • The economy.  From the late 1970s to the mid-1990s, the real hourly wages of the country’s lowest-income workers declined or stagnated.  The wages of low-income men remain lower than they were 30 years ago.  The growth of the service sector and the loss of manufacturing jobs resulted in lower-paying jobs for workers with less than a college education.

    In the latter part of the 1990s, the country’s long economic expansion led to high employment rates and rising wages for low-wage workers, which enabled some workers to raise themselves out of the working-poor category.  However, the economic expansion drew even more people into the work force to take advantage of the growing availability of jobs.  Many of these new workers had limited education and skills, and the jobs they obtained paid low wages.

    More recently, the slow economy since 2001 has worsened the problems of the working poor, as the number of jobs has fallen      and real earnings have declined.
  • Improved Work Supports: During the 1990s, federal and state governments increased supports to low-income working families.  This included two significant expansions of the EITC (one in 1990 and one in 1993), expansion in state and federal funding for child care assistance, and the extension of health insurance – through the Medicaid and SCHIP programs – to children in low-income working families.  (Prior to the 1990s, children generally were only eligible for Medicaid if their families were receiving welfare.)  By raising the take-home pay of low-wage workers, helping families afford the child care they needed in order to work, and ensuring that children would not lose health care coverage if the family left welfare, these programs helped families get and keep jobs.
  • Welfare policies. State and federal welfare policies also changed during the 1990s.  Cash assistance programs for poor families placed a larger emphasis on helping families find employment and on reducing the number of families receiving cash welfare benefits more generally.

    The number of families receiving cash welfare benefits fell significantly – dropping by much more than the decline in poverty. Nationally, the number of welfare cases dropped by more than 57 percent from its peak of 5 million in the early 1990s to 2.2 million in 2000.  Studies conducted during this period showed that between half and three-quarters of former welfare recipients were employed shortly after they leave the rolls.  Most, however, earn low wages.

    Despite the economic downturn in 2001, job losses among single mothers, and rising poverty, caseloads continued to edge down nationally in 2002 and 2003.  More recent research has shown that a rising number of former welfare recipients are not employed and there is evidence of a growing number of families that lack both work and welfare benefits.

The jobs that currently are being created are disproportionately concentrated in low-paying industries , and the U.S. economy will continue to depend on a large number of jobs that provide low wages and poor benefits.   For these reasons, policies to assist low-income working families will continue to be needed. 

Such policies can provide valuable help not only to parents, but also their children.  More than two-thirds of the nation’s poor children live in families with one or more workers; these children are poor not because their parents do not work but rather because the jobs available to their parents do not pay enough to allow them to support their families and because stable year-round work often is unavailable to low-income parents.   The large number of poor children in this country is cause for concern because there is strong evidence that growing up in poverty can limit a child’s physical and cognitive development. 

In addition, assisting working-poor families can help slow the long-term increase in income inequality.  Today, the gap between rich and poor is wider than it has been in decades.  Data issued by the Congressional Budget Office show that the income gap in 2000 was the widest it has been since 1979 when CBO first prepared this analysis.  Other data included in a National Bureau of Economic Research study indicate that the income gap is wider than it has been since the 1920s.  Over the last two decades, the incomes of the richest one percent have more than doubled while the incomes of the poorest fifth grew by only nine percent.

States have taken some steps to address the needs of low-income working families.  For example, most states allow families to keep more of their welfare benefits as they make the transition from welfare to work than had been allowed under the old AFDC program and some states provide state tax credits or wage supplements to bolster income.  In addition, 13 states and the District of Columbia have bolstered the incomes of many low-income working families by setting the state’s minimum wage above the prevailing federal minimum wage.  Many states also have worked to broaden access to services vital to low-income working families, such as child care and health insurance.

Yet much more can, and should, be done.  More states could implement programs that have proven successful elsewhere; existing programs could be expanded; and the cutbacks that many states adopted during the recent state fiscal crisis could be restored.

 

The Structure of This Report 

This report outlines a number of policy options that states could adopt to assist working-poor families.  The rationale for each option is followed by a brief discussion of key design issues and examples of states that have adopted these policies.

 This is not meant to be an exhaustive list of state options to assist the working poor.  Nor would every proposal be suitable for every state.  Instead, this report shows the range of measures that are open to states.

Many states will be hard pressed to find resources for these (or any other) new initiatives.  Despite the apparent easing of the state fiscal crisis, state revenues and spending remain at their lowest levels as a share of the economy in years.  States also must replenish reserve funds that were depleted during the fiscal crisis and restore spending cuts imposed to close budget gaps.  In addition, numerous states are burdened by outdated tax structures, which slow state revenue growth over the long term.  However, the measures outlined in this report have only modest costs, and many can be paid for at least partially with federal funds.  Funding issues are examined at the end of each policy brief.

TABLE 1: Poor Families with Children with Parents Working More Than 13 Weeks, 2002
  Number of poor families with children* Number working more than 13 weeks Percent working more than 13 weeks 90 Percent Confidence Interval** Number of people in working poor families Number of children in working poor families
Low High
             
United States 4,813,000 3,209,000 67% 66% 67% 12,663,000 7,295,000
Alabama 103,000 68,000 66% 61% 71% 245,000 134,000
Alaska 7,000 4,000 58% 38% 77% 16,000 9,000
Arizona 106,000 73,000 69% 64% 73% 322,000 191,000
Arkansas 54,000 36,000 68% 61% 75% 136,000 77,000
California 605,000 395,000 65% 63% 67% 1,781,000 1,007,000
Colorado 60,000 44,000 74% 68% 80% 167,000 90,000
Connecticut 30,000 19,000 62% 53% 71% 71,000 44,000
Delaware 9,000 5,000 55% 38% 72% 19,000 11,000
District of Columbia 12,000 7,000 55% 40% 69% 22,000 13,000
Florida 275,000 185,000 67% 64% 70% 728,000 426,000
Georgia 146,000 100,000 69% 65% 73% 376,000 221,000
Hawaii 16,000 10,000 62% 49% 74% 42,000 24,000
Idaho 24,000 20,000 82% 74% 90% 78,000 43,000
Illinois 201,000 123,000 61% 57% 65% 487,000 282,000
Indiana 90,000 62,000 68% 63% 73% 219,000 136,000
Iowa 41,000 32,000 79% 72% 85% 110,000 64,000
Kansas 40,000 30,000 76% 68% 83% 124,000 72,000
Kentucky 83,000 54,000 65% 60% 71% 189,000 101,000
Louisiana 129,000 87,000 68% 63% 72% 332,000 191,000
Maine 20,000 13,000 64% 53% 75% 39,000 21,000
Maryland 59,000 39,000 66% 60% 73% 147,000 88,000
Massachusetts 74,000 44,000 60% 54% 66% 152,000 91,000
Michigan 145,000 92,000 64% 60% 68% 345,000 202,000
Minnesota 53,000 35,000 66% 59% 73% 136,000 82,000
Mississippi 74,000 51,000 69% 63% 74% 195,000 114,000
Missouri 86,000 63,000 74% 69% 79% 232,000 136,000
Montana 18,000 15,000 84% 75% 93% 57,000 31,000
Nebraska 26,000 20,000 77% 68% 85% 68,000 40,000
Nevada 37,000 25,000 67% 59% 75% 108,000 61,000
New Hampshire 11,000 7,000 66% 51% 81% 23,000 13,000
New Jersey 88,000 55,000 63% 57% 68% 212,000 127,000
New Mexico 51,000 40,000 78% 72% 84% 156,000 86,000
New York 328,000 189,000 58% 55% 60% 748,000 429,000
North Carolina