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My Two Cents

Worsening poverty

Chris Farrell Apr 12, 2009

The recession is hitting the poor. One indicator is that low-income employees are being handed pink slips at a rapid pace. The unemployment rate of workers age 25 and older without a high school diploma was 13.3% in March, up from 9.5% a year ago. The unemployment rate of less educated workers is significantly higher than the overall unemployment rate of 8.5%. The unemployment rate for workers age 25 and older with a B.A or higher is 4.3%.

The Sunday New York Times had a story about state and local governments cutting back on services to the vulnerable and poor. The budget cuts were being made even if the spending reductions made no fiscal sense long-term. It isn’t right that the bottom third of the income spectrum takes a disproportionate hit when state and localties slash their budegts in recessions. The Obama Administration’s fiscal stimulus package should ameliorate some of the damage, but not enough.

Late last year, the Center on Budget and Policy Priorities tried to guesstimate how much the current downturn would impact the poor. They assumed that the relationaship between unemployment rate and the poverty rate of the past three recessions will remain the same during this downturn. They ran three scenarios: An unemployment rate of 8%, 8.5% and 9%. The number of poor Americans could increase by 7.5 million to 10.3 million, the number of children in poverty could rise by 2.6 million to 3.3 million, and the children in deep poverty–living below half the official poverty line–could jump between 1.5 million and 2 million. Here’s a chart of those figures.

Problem is, even the worst case scenario is probably optimistic. The unemployment rate is already at 8.5%, and there are more job losses to come. It’s extremely likely that the jobless figure will breach 9% and a 10% unemployment rate is surely possible. As Business Week economist James Cooper points out, the downturn in the labor market is fast becoming the worst since the 1930s. “Of the 5.1 million jobs lost since December 2007, 72% have disappeared in only the past six months, with more losses to come,” he writes in the latest issue of the magazine.

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