State Policies to Assist Working-Poor Families
December 10, 2004
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.
|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|
|District of Columbia||12,000||7,000||55%||40%||69%||22,000||13,000|
|* Families in which at least one parent is able to work (under 65 and not both reporting a disability and out of the labor force).
** Because the percents shown are derived from a survey of a sample of families, they are estimates. The confidence interval shows the precision of that estimate. There is a 90 percent chance that the actual percent would fall into the range shown if all families were surveyed.
Note: American Community Survey data from 2002 reflect incomes received in 2001 and 2002.
Source: CBPP tabulations of Census Bureau's American Community Survey from 2002.
These options are grouped into the following areas:
- Wage supplements. A number of states have enacted policies to boost the take-home pay of workers with low-wage jobs. These include state earned income tax credits and other forms of low-income tax relief, state minimum wages that are higher than the federal minimum wage, and earnings supplements for families making the transition from welfare to work.
- Helping low-wage workers meet basic needs and offset work expenses. Recognizing the challenges that low-wage workers face in meeting their families' basic needs, a number of states provide publicly funded health coverage and state-funded housing assistance, as well as transitional food stamp benefits for families moving from public assistance to work. In addition, states often provide child care assistance for low-income parents, and some states provide transportation assistance.
- Assistance with career advancement. When people are able to move up the economic ladder, both they and the economy as a whole benefit. Accordingly, states have created programs to expand workers' access to education and training. States also have promoted Individual Development Accounts, through which low-income families can build assets for high-return investments such as college tuition.
- Income support for the unemployed. As the safety net has begun to focus more on helping families find and hold jobs and less on direct cash assistance, addressing the needs of the temporarily unemployed has become increasingly critical. A number of states have modernized their unemployment insurance systems to take into account the changing nature of work in this country, particularly the growing number of low-wage workers. States have also increased benefit levels in the Temporary Assistance for Needy Families (TANF) program and improved outreach efforts to make TANF a better safety net for low-income workers who are between jobs.
- Improve access to support services. The rules and procedures that govern programs such as Medicaid, children's health insurance, TANF, and child care are often complex and uncoordinated. This makes it difficult for families that are eligible for multiple programs to receive all the benefits to which they are entitled. To address this problem, states are beginning to streamline and integrate their program rules. States also are conducting outreach to inform eligible populations about the availability of important supports such as the Earned Income Tax Credit and publicly funded health insurance.
Relevant Issues Not Addressed in this Report
This report focuses on low-wage workers with children. However, childless adults with less than a college education are also finding it increasingly difficult to make ends meet. Childless adults are eligible for very little government assistance: they do not qualify for federal cash assistance unless they are elderly or disabled, most do not qualify for Medicaid unless they are elderly, and food stamp eligibility for unemployed, childless adults aged 18 through 49 is severely limited.
States could play an important role in closing this gap in the safety net. For example, they could establish programs that provide income support or health insurance to childless adults or resist further rollbacks in programs that are specifically targeted to this population. More information on features of state safety nets that affect childless adults is available from the Center.
This report also does not specifically address immigrant families, who often face particularly high barriers to finding good-paying jobs with benefits. While they, like long-time citizens, will benefit from the policies outlined in this report, states also can take steps to address the specific difficulties of immigrant workers, such as limited proficiency in English and low skill levels. Moreover, states can ensure that support programs such as food stamps, Medicaid and SCHIP, and TANF are available to immigrant families that need them. More information on these policies can be found in the papers on the Center's website.
Finally, with the important exception of state minimum wages, the report does not address state policies that could improve the quality of jobs in the United States. The fact that a large number of jobs pay low wages and provide little or no benefits results from factors that are mostly out of the control of states, such as globalization, the shift to a service economy, and declining unionization. However, states can at least ensure that their policies do not exacerbate the situation. For example, many states that offer economic development subsidies do not distinguish between companies that pay low wages and offer no health benefits and those that bring better jobs. In addition, state policies that serve to restrict the ability of unions to organize effectively may encourage low wages. Two organizations that can provide more information on these areas are the Economic Policy Institute and Good Jobs First.