One step forward, two steps back - the working poor

American Demographics, Sept, 1997 by William O'Hare, Joseph Schwartz

As the U.S. economy barrels into a new century, new technologies are creating jobs and opportunities unheard of just a few years ago. Between 1989 and 1995, the nation saw steady gains in worker productivity (1 percent a year) and real GNP (up 9 percent), and the stock market continued its bullish growth.

In spite of such positive indicators, though, this rapidly evolving economy is leaving behind a growing pool of people who don't have the skills to get good jobs in today's labor force. These people are working, but they remain below the poverty line. In turn, they are raising a growing share of American children who are starting out with lots of disadvantages, not the least of which is the notion that doing an honest day's work isn't enough.

Among all U.S. children in poverty, 40 percent had at least one parent who worked all year. As a share of all American children, children living in working-poor families (that is, families with incomes below the poverty line despite substantial work effort by one or more parents) increased from 5 percent in 1974 to 8 percent in 1995, according to the Census Bureau.

The causes of working-poor poverty are enormously complex and serve as catalysts for vigorous public-policy debate. However, there is widespread agreement that the lack of employable skills and continued economic globalization are both closely linked to the rise in working-poor families.

"The whole way we do work has changed," observes John Challenger, executive vice president of Challenger, Gray & Christmas, a Chicago-based international outplacement firm. "Work requires more knowledge. The infusion of technology into the workplace is making for a much more educated work force that is much more comfortable with technology and one that is able to adapt to new technology."

Moreover, the advent of free trade and deregulation is causing American companies to increasingly view the world as their playing field. "What distinguishes our work force is the skills that we bring to doing the job," says Challenger. "We see the jobs that require no skills as jobs that can go overseas."

Working But Poor

During the late 1960s, a person working full-time and year-round at minimum wage earned an income above the poverty line for a three-person family. By 1995, someone working full-time all year at minimum wage brought in an income 30 percent below the three-person poverty line.

In order to lift a family of four out of poverty, a full-time, year-round worker now has to earn more than $7.25 per hour, well above the minimum wage. The share of American men earning poverty-level wages rose from 13 percent in 1973 to 21 percent in 1993.

In 1996, the U.S. had 5.8 million children living in working-poor families. Families defined as "working poor" are those in which at least one parent worked 50 or more weeks during the year (or the family received child-support payments from a noncustodial parent), yet the family income was below the poverty line. About half of these parents work full-time--35 or more hours a week. In 1995, the poverty threshold for a family of four was $15,569.

More than half (60 percent) of the increase in child poverty since the mid-1970s is accounted for by children living in families where one parent worked at least 50 weeks during the year. Only 10 percent of the increase is accounted for by families completely dependent on public assistance. In other words, the large increase in child poverty is more closely linked to the increased difficulty in finding a job that lifts a family out of poverty than to dependence on public assistance.

Children in working-poor families defy stereotype. They live in every state. Half live with two parents. They are just as likely to be found in rural areas and suburbs as in inner cities. Most are white.

Children in working-poor families face some special difficulties as a result of their parents' commitment to work. They are less likely to have health insurance than poor children whose parents don't work because they often don't receive Medicaid, yet many of their parents have jobs that don't offer health insurance. In 1996, 26 percent of children in working-poor families lacked health insurance, compared with 18 percent of poor children in families with nonworking parents.

Working-poor parents also face the challenge of finding affordable, adequate child care, just as all working parents do. However, paying for child care is a much greater economic challenge for the working poor: poor families who paid for preschool care for children in 1993 spent an average of 18 percent of household income on that care. Families above the poverty line averaged just 7 percent of their incomes on child care, according to the Census Bureau. "Among the factors that encourage low-income mothers to seek and keep jobs--factors such as more education, training, and transportation--affordable child care is a decisive one," according to the General Accounting Office. As federal welfare reform requires more welfare recipients to work, the demand for quality, low-cost child care will become more intense.