US Working-Age Poverty Hits a Record High: What it Means for the Budget Debate

Adding to the gloom from recent labour market data, the Census Bureau reported today that the poverty rate among working-age Americans hit a record high in 2010. Last year some 13.7 per cent of the U.S. population aged 18-64 years fell below the poverty threshold of $22,314 for a family of four. That was up from 12.9 per cent in 2009, also a record. The Bureau has reported working-age poverty figures since 1966, at which time the rate was 10.5 per cent.

As the following chart shows, the poverty rate for children also rose, although it has not yet reached its all-time peak. The poverty rate even ticked up slightly, to 9.0 per cent from 8.9 per cent, among the elderly population. However, poverty among senior citizens, who were the poorest segment of the population in the 1960s, departed only slightly from its long downward trend.

There is every reason to believe that the worst is yet to come. The rising working-age poverty rate is presumably linked to the sharp increase in long-term unemployment. The percentage of unemployed who have been out of work for six months or more has been stuck well above 40 per cent throughout the faltering recovery. At times long-term unemployment has been nearly double the previous post-World War II peak. The lag in reporting unemployment data is much shorter than for the annual poverty numbers. Already, long-term unemployment has averaged 44.2 per cent of all unemployed in 2011, up from 43.3 per cent in 2010. That in itself suggests that the working-age poverty rate for 2011 is likely to be even higher when the report finally comes out next September.

Moreover, as the next chart shows, another ominous trend is at work. Until the 1991 recession, the poverty rate was essentially a coincident indicator. (In saying that, we count the 1980-82 double-dip recession as a single event.) Then things changed. Poverty did not peak until two years after the recession that ended in 1991, and not until three years after the recession that ended in 2001. The most recent recession officially ended in mid-2009. If the lagging pattern holds up, it would not be surprising to see poverty rates continue to rise not only in 2011, but in 2012 and perhaps beyond.

None of this bodes well for the ongoing budget debate. Almost everyone now admits that it will be impossible to close the budget gap without doing something about social security and Medicare entitlements. One of the most frequently-voiced proposals is to delay the eligibility ages for one or both of those programs, perhaps indexing them to longevity. However, if an ever-growing share of the working-age population is living in poverty, how are they to save enough to bridge the gap to retirement benefits that recede ever farther over the horizon? Quite the opposite. Those who find themselves thrown into poverty in their late working years will be clamoring for earlier, not later retirement. An already difficult problem has just become even harder to resolve.

Originally posted to Ed Dolan’s Econ Blog at Reproduced by permission.

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