Poverty, the macroeconomy, and unions : measurement matters

Abstract

International studies support the notion that higher welfare generosity is the key policy approach to reducing poverty even more so than macroeconomic growth. On the other hand, the US poverty literature has generally found macroeconomic conditions to be central, and welfare benefits to play little to no role in reducing poverty over time. Such ideas have likely played a part in the drastic reformation of welfare assistance from simply a social safety net to a tool to move poor individuals into work. For example, reforms include strict time limits on benefits, requiring active job search or training, and supplementing wages with an "earned income tax credit." Amoung industrialized countries the US has been shown to be an outlier for its low level of welfare generosity and high levels of poverty. Relying on work, and therefore the macroeconomy, as the main force to reduce poverty necessitates a careful understanding of how poverty relates to the macroeconomy. Can jobs reliably provide people with enough income to escape poverty?

This dissertation also concludes that unionization can be a powerful antipoverty tool--at its best, it has a strength comparable to regional GDP per capita--but that its antipoverty relation diminishes among the more typical (as measured by the official measure) poorer subset of the poor.

This dissertation shows that improved poverty measures change our understanding of how the macroeconomy relates to poverty. After accounting for important welfare benefits, it concludes that new welfare policies work exactly as they should. When the economy grows robustly, and unemployment is low, government programs--in particular the EITC--facilitate the "trickle down" effect, strengthening the ability of the macroeconomy to lower poverty. In addition, when the macroeconomy suffers and is unable to reduce poverty rates, government transfers cushion the blow, protecting the near-poor from the weaknesses of the macroeconomy. However, after including essential expenses, some of the previous results no longer hold and become much more complex. These results shed light on the nuanced role that welfare generosity plays in strengthening how poverty and the macroeconomy relate.

After assessing results of previous studies, this dissertation investigates the macroeconomy-poverty relationship in two business cycles--the robust growth of the 1990s and the weaker economy of the early 2000s. It improves on the current literature in several ways: 1) It formally compares an improved poverty measure, the Comprehensive Income Poverty Measure (CIPM), with the more commonly used official poverty measure that fails to include key government transfers, which are an increasingly important part of poor families' incomes; 2) It extends this work to a poverty measure new to this literature: the Experimental Poverty Measure (EPM), which goes beyond including only the important resources of the CIPM by including essential expenses the poor face as well as geographic adjustments for cost-of-living; 3) Finally, it assesses the importance of macroeconomic conditions relative to the institutional context individuals face in their work environment, specifically the level of union membership. Aside from welfare benefits, can job-related institutions further enhance the benefits from work to the poor?