September 26, 1996

Improvements in Poverty and Income in 1995 Are Substantial
But Tempered by Disturbing Long-term Trends Affecting Hispanics, Wages, Income Inequality, and Health Care

Click here to read the Center's analysis of 1996 poverty, income, and health data.

The Census Bureau issued data today showing that poverty declined and median income rose in 1995 as the economic recovery continued. The data also show that the poverty rate for African-Americans and the elderly reached the lowest levels on record last year — although at 29.3 percent the African-American poverty rate remains high — and that the degree of extreme poverty in the country registered a significant decline. The Census data reflect a year in which economic growth was not only strong but broad-based, reaching the bottom end of the population and the middle class.

This good news is tempered, however, by four elements of disturbing news in the Census data, according to an analysis of the new data by the Center on Budget and Policy Priorities. The disturbing elements reflect a continuation of long-term economic trends.

• The Hispanic poverty rate failed to show any statistically significant improvement in 1995, remained near its all-time high, and surpassed the African-American poverty rate for the first time. In addition, the median income of Hispanic households fell 5.1 percent in 1995 and has declined 14.6 percent since 1989. The Center said the Hispanic poverty rate is virtually certain to climb and reach record highs in coming years as the provisions of the new welfare bill, which contains severe cuts in basic assistance for legal immigrants, take effect.
  
  
• While income grew for lower- and middle-income households and income inequality lessened slightly in 1995, only the wealthiest fifth of the U.S. population has seen its average income return to pre-recession levels. The average income of each of the bottom four-fifths of the population remains below 1989 levels. By contrast, the average income of the wealthiest five percent of the population was $19,000 higher in 1995 than in 1989, although a portion of this $19,000 is due to changes in Census methodology and not to true income gains.
  
  
• One reason the poverty rate fell was that a larger proportion of the population was working in 1995, certainly good news. But while employment rose, median wages for full-time, year-round workers did not. The median wage earned by women working full time throughout the year fell $337 to $22,497. The median wage of men working full time throughout the year showed no statistically significant change. (One factor contributing to the disappointing trend in wages may have been that employment may have expanded most rapidly among lower-skilled workers who receive below-average wages. That would make the median wage appear smaller.)
  
  
• Despite the increase in employment, there was no improvement in health care coverage. The number of Americans lacking health insurance throughout the year changed from 39.7 million in 1994 to 40.6 million in 1995, although this change was not statistically significant.
  
  The number of people without health insurance has risen steadily since 1987, the first year for which comparable data are available. The number of uninsured rose by nine million from 1987 to 1995 while the proportion of the population without coverage increased from 12.9 percent to 15.4 percent.
  

Black and Hispanic Poverty Rates

At 29.3 percent, the black poverty rate was lower in 1995 than in any year since the Census Bureau began collecting such data in 1966. The Hispanic poverty rate, on the other hand, failed to show any statistically significant improvement last year and surpassed the black poverty rate for the first time.

In 1994, the black and Hispanic poverty rates were statistically the same — 30.6 percent for blacks and 30.7 percent for Hispanics. The Hispanic poverty rate edged down to 30.3 percent in 1995, but this did not represent a statistically significant change from the 1994 level.

The Hispanic poverty rate for 1995 is high compared with the rates in earlier years. The rate never surpassed 30 percent until 1993, hitting all-time highs in 1993 and 1994. The Hispanic poverty rate has been pushed up in recent years by the erosion of wages of low-paid work — a very large share of poor Hispanics live in working families — and probably by immigration as well.

"The failure of the Hispanic poverty rate to show significant improvement in 1995 despite the robust performance of the economy is disturbing," said Robert Greenstein, the Center's director. Greenstein noted that "the severe cuts in basic assistance for legal immigrants included in the recently enacted welfare bill are virtually certain to drive the Hispanic poverty rate to record levels in the years ahead."

Passage of the pending immigration bill, which includes still deeper cuts and additional restrictions on the receipt of such assistance as child care by legal immigrants, would further aggravate this problem, he said.


Trends in Income Gains by Income Groups

Between 1994 and 1995, the average income of households of all income levels rose, although some of the changes were not statistically significant. In addition, income inequality declined, with the share of national income going to middle and low-income households edging upward; some of these changes are statistically significant, while others are not.

When longer-term trends are examined, however, the Census data show that only the most affluent fifth of U.S. households — and possibly only the top five percent — have average income above their level in 1989, the last year before the recession of the early 1990s. The average incomes of all other income groups remains below their 1989 levels.

Since the early 1970s, there has been a marked long-term trend in the U.S. economy toward widening income disparities between the wealthy and other Americans. While changes between 1994 and 1995 moved in the opposite direction and lessened inequality, the change is small and is heavily outweighed by the long-term trend. The following table shows the average income of different income groups for several years: for 1995; for 1994; for 1989, the peak year of the economic recovery of the 1980s; and for 1979, the peak year of the recovery of the late 1970s.

Changes in the early 1990s in Census methodology account for a fraction of the income increase shown in the table for the top fifth and top five percent of households between 1995 and earlier years. On the other hand, these Census data do not include capital gains income, which accrues primarily to the very affluent. The top income groups would be shown to have received much larger average income gains in 1995 if capital gains income were included.