Poverty Rate Fails to Decline as Income Growth in 1996 Favors the Affluent
Child Health Coverage Erodes As Medicaid for Children Contracts

Poverty failed to decline in 1996, the average income of the poorest fifth of American families dropped, and the proportion of children lacking health insurance rose, according to the Census Bureau's new report on income and poverty trends. The data in the report paint a disappointing picture considering that 1996 was a year in which the economy grew significantly.

The new Census data show that despite economic growth, poverty remained significantly higher in 1996 than in 1989, before the recession of the early 1990s began. In addition, while the income of the typical family rose modestly between 1995 and 1996, the average incomes of the bottom three-fifths of the U.S. population remained below pre-recession levels.

In 1996, only the top fifth of the population had average income above pre-recession levels, the Census data show.

Moreover, income gains were not evenly distributed in 1996. After adjusting for inflation, the average income of the poorest fifth of families fell $210 (or 1.8 percent) in 1996. The average income of the middle fifth of families rose $630, or a modest 1.5 percent. But the average income of the richest five percent of families climbed $6,440, or 3.1 percent. These developments are consistent with a longer-term trend in which gaps between rich and poor have widened and the benefits of income growth have accrued disproportionately to the affluent.

The Census data show that in 1996, the 20 percent of households with the highest incomes received 49 percent of the national income, nearly as much as that received by the other 80 percent of the population combined. The share of income received by the wealthiest fifth of households has been higher than 49 percent only once since the Census Bureau began collecting these data 30 years ago — in 1994, when it stood at 49.1 percent.

In addition, the share of national income going to the top five percent of households rose to 21.4 percent in 1996, the highest level the Census Bureau has ever recorded. By contrast, the shares of income received by the bottom four-fifths of the population were at or very close to all-time lows.

Income inequality in the United States is wider than in any other western, industrialized nation. A recent analysis of data from the highly regarded Luxembourg Income Study found that the gap between the disposable income of high- and low-income individuals was wider in the United States than in any of the other 14 countries examined.

The new Census data also show that a decline in health insurance coverage among children occurred last year, largely as a result of a drop of one million in the number of children insured through Medicaid. "While the exact causes of this decline are not clear," Center director Robert Greenstein noted, "these data suggest that some states paring their public assistance rolls and dropping families from welfare may be removing low-income children from Medicaid at the same time, even though many of those children remain eligible for Medicaid."

"Reports from some states also suggest," Greenstein added, "that as families move from welfare to low-wage work, some children are being dropped from Medicaid in cases where they, too, remain eligible. Improvements appear to be needed in state systems to prevent substantial numbers of low-income children who are eligible for Medicaid from falling through the cracks in the wake of welfare reform and losing their health care coverage."

Trends Over the Business Cycle

Most poverty and income indicators show improvement since 1993. Such improvement would be expected, given that 1993 was a high unemployment year, with the unemployment rate at 6.9 percent. To gain a better picture of poverty and income trends, most analysts would examine trends not just since 1993, when unemployment had only begun to recede from peak recession levels, but over the business cycle as a whole.

When such an examination is conducted, the Census report released today is disappointing. The last business cycle peak was 1989, the final year before the recession of the early 1990s. Unemployment rates were nearly identical in 1996 and in 1989, and the U.S. economy was larger and richer in 1996 than in 1989. But the new Census data show that on average, only affluent Americans were doing better in 1996 than in 1989.

• Despite a drop in the unemployment rate in 1996 and real economic growth of 2.8 percent last year, the number and percentage of Americans living in poverty failed to decline in 1996. At 13.7 percent, the poverty rate for 1996 remained above the 13.1 percent rate for 1989. The 1996 poverty rate was even further above the 11.7 percent rate for 1979, even though the unemployment rate was higher in 1979 than in 1996.

• In addition, while median household income rose modestly from $35,082 in 1995 to $35,492 in 1996, it remained $975 — or 2.7 percent — below the 1989 level.

• The median income of Hispanic households rose more in 1996 — $1,370, or 5.8 percent — than in any other year on record. But most of this gain simply offset a 5.1 percent decline in Hispanic median income in 1995. Even with this improvement, Hispanic median income last year remained $2,650 — or 9.6 percent — below its 1989 level.

If the U.S. economy was larger in 1996 than in 1989, why was the income of the typical household lower and the poverty rate higher? This apparent paradox is explained largely by the fact that the income gains from economic growth over the course of the business cycle since 1989 have disproportionately gone to those at high income levels.

Health Insurance Trends

Among the disappointing findings in today's report is that the number and proportion of children lacking health insurance increased in 1996 to the highest levels recorded since these data began being collected in 1987. Some 10.3 million children, or 14.6 percent, were uninsured throughout the year in 1996. (In 1995, some 9.6 million children, or 13.6 percent were uninsured.) Among poor children, the proportion lacking health insurance went from 21.4 percent in 1995 to 23.3 percent last year, a statistically insignificant change.

The overall number of children without insurance rose 700,000. This was not due to a decline in employer-based coverage — the number of children with such coverage edged up slightly in 1996, rising from 46.9 million to 47.1 million, as more Americans secured employment in a growing economy. But the number of children covered by Medicaid fell by one million, from 16.3 million to 15.3 million. Thus, the drop in 1996 in the number of insured children appears due almost entirely to a decline in Medicaid coverage.

Did Welfare Changes Play a Role in the Decline in Insured Children?

This drop may be partly related to the substantial decline in the welfare rolls in 1996. Most children whose families leave or are removed from public assistance — particularly younger children — remain eligible for Medicaid under federal law. Information from a number of states, however, indicates that some states are removing children from Medicaid when their families leave public assistance, even though these children generally remain eligible for coverage.

"The disturbing decline in child health insurance coverage suggests that the number of children who are eligible for Medicaid but are unenrolled and uninsured is likely to have climbed last year," Center director Robert Greenstein said. "Simply providing funds through the new child health block grant to make additional children eligible for coverage will not be sufficient to resolve this problem. The Administration and governors need to ensure that states make appropriate modifications in their systems so children who already are eligible for Medicaid — and whose families work their way off public assistance or otherwise lose or are turned away from public assistance benefits — are not denied Medicaid."

The Center's analysis also noted a general weakening in certain features of the safety net for poor families with children in 1996. The new Census data show that means-tested benefit programs removed 400,000 fewer children from poverty in 1996 than in 1995.

The new data also show that the large drop in public assistance caseloads in 1996 was not paralleled by a drop in child poverty. For every 100 children who were poor, 61.4 received cash public assistance benefits in 1995. In 1996, some 57.8 children received public assistance for every 100 in poverty.

One the other side of the ledger, the Earned Income Tax Credit removed 200,000 more children from poverty in 1996 than 1995. The effects on poverty of the EITC and of means-tested, in-kind benefits programs like food stamps are not reflected in the Census Bureau's official poverty rates.⁽¹⁾

Many Low-Income Workers Affected by Stagnant Wages and Lack of Health Insurance

The median wage for full-time male workers fell $282 — or 0.9 percent — between 1995 and 1996, after adjusting for inflation. Median wages for male full-time workers have not risen since 1991 and are now 3.3 percent below their 1990 level.

On the other hand, median wages for full-time female workers did rise in 1996, climbing $549 or 2.4 percent. This wage level is now back to the level it attained in 1990.

With a majority of all poor individuals aged 18 to 54 employed for part or all of the year, wage trends have a significant effect on poverty rates.

The new Census data also show that poor workers are perhaps the single group in the population most likely to lack health insurance. In 1996, some 52 percent of poor, full-time workers — more than half — lacked health insurance throughout the year.

Poverty Rates Down for Minorities, But Remain High Compared to Rates for Non-Hispanic Whites

Poverty rates dropped in 1996 for both African Americans and Hispanics, although these declines were not statistically significant. The poverty rate for African Americans, 28.4 percent, was the lowest level recorded since the Census Bureau began collecting these data in 1959. It remained more than three times higher than the poverty rate for non-Hispanic whites, however, which stood at 8.6 percent.

Persons of Hispanic origin now have the highest poverty rate of any racial or ethnic group, 29.4 percent. The Hispanic poverty rate surpassed the black poverty rate for the first time in 1995. The Hispanic poverty rate was lower in 1996 than in years from 1992 through 1995 but higher than the Hispanic poverty rate for every year from 1973, when the Census Bureau first collected these data, through 1991.

Summary of Poverty and Income Statistics
(Income in 1996 dollars)

End Notes:

1. The EITC and in-kind benefits are not counted as income in these Census reports. Capital gains income, which accrues disproportionately to high-income households and was quite substantial in 1996, also is not counted as income in these Census data.

2. Smeeding, Timothy, "American Income Inequality in a Cross-National Perspective: Why Are We So Different?", Syracuse University, May 1997. The other nations examined were Australia, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Norway, Sweden, and the United Kingdom.

3. The typical high-income household was defined as the household that had more income than all but the most affluent 10 percent of the individuals in the country. The typical low-income household had more income than only 10 percent of the individuals in the country.