In his State of the Union address last night, President Obama spoke at length about increased economic disparities in the United States and announced a series of presidential initiatives to make sure that the benefits of economic growth are shared widely. My analysis of our experience since President Johnson declared War on Poverty in his State of the Union Address fifty years ago is that poverty will fall substantially and inequality will decline only if two factors are operating at the same time. First, the economy must be expanding and the unemployment rate must be below 5 percent. Second, government policies must stay focused on helping those among the poor and near-poor who are left behind by economic growth. The problem is that since the early 1970s, during most of the years when the economy was expanding, economic growth was not trickling down to the poor or even to the middle class, and government policies were not doing enough to help those not sharing in the economy’s increased productivity.
The relationship between economic growth and poverty in recent years refutes the view that poverty remains high because the government provides too much aid for the poor, and thus encourages idleness and other dysfunctional behaviors. Poverty would be somewhat lower today if fewer low-skilled men had withdrawn from the labor market and if marriage rates had not declined so much and if there had been less immigration of workers with little education. However, these effects are small compared to the poverty-increasing effects of a labor market that shifted from a quarter century of rapid economic growth following the end of World War II in which a rising tide lifted all boats to almost forty years of slower growth and rising inequality.
Given current economic, demographic and public policy contexts, poverty and inequality are not likely to fall substantially in the near future. However, they can be reduced significantly if policymakers can muster the political will to pursue a range of promising policies, including several that the President proposed last night.
These policies would pursue two fundamental goals. The first is “to make work pay.” Strengthening government regulations that address wages and working conditions (such as raising the minimum wage to $10.10) and government benefits for low-wage workers (such as an expanded Earned Income Tax Credit for childless workers) should allow most full-time workers to avoid poverty. In the aftermath of the Great Recession, there is a pressing need to provide federal funding to subsidize jobs in the public, nonprofit or even private sectors for those who are willing to work but cannot find steady employment either because employers are unwilling to hire the long-term unemployed or because they face substantial employment barriers (e.g., physical health and mental health problems) that make it difficult for them to work steadily.
The second goal reiterates a key goal of President Johnson’s War on Poverty—increased investments in education and training over the life course. The obvious place to start is with expanded early childhood education, as President Obama proposed again last night. He was also on target in calling for educational policies to raise the educational attainment and abilities of poor children, policies to expand their access to higher education, and new training programs to raise the employability of disadvantaged adults.
Implementing the policies President Obama proposed would raise employment and earnings now and increase opportunities for upward mobility for the next generation.