Tuesday, November 17, 2009

The Great Wall of Poverty

For a long time we have seen a stories about people having a hard time getting out of poverty. I have met people who have said getting a better job wasn't worth it. I wondered about that a lot because it didn't make sense.

This graph shows that the gain in pay is not worth the loss of benefits. Look at the graph at some wage levels you need to make nearly 150% of what you are earning to make up of the benefits you are losing.

People are not stupid though they often don't have all the information they need. You are looking at multiple agencies and taxes interacting with each other and you may not know about then in advance. It would be logical to assume you wouldn't end up losing more in benefits then you make you make in money.  The benefits are worth more then the money you make that takes them away.

There is a wall holding the poor in poverty. It is a wall of subsidies and assistance that phase-out due to means testing. It is interesting to see that the "average" American making $42,000/year is smack dab in the middle of all this. Once you clear $50,000 things get much simpler.
"Despite the EITC and child credit, the poverty trap is still very much a reality in the U.S. A woman called me out of the blue last week and told me her self-sufficiency counselor had suggested she get in touch with me. She had moved from a $25,000 a year job to a $35,000 a year job, and suddenly she couldn’t make ends meet any more. I told her I didn’t know what I could do for her, but agreed to meet with her. She showed me all her pay stubs etc. She really did come out behind by several hundred dollars a month. She lost free health insurance and instead had to pay $230 a month for her employer-provided health insurance. Her rent associated with her section 8 voucher went up by 30% of the income gain (which is the rule). She lost the ($280 a month) subsidized child care voucher she had for after-school care for her child. She lost around $1600 a year of the EITC. She paid payroll tax on the additional income. Finally, the new job was in Boston, and she lived in a suburb. So now she has $300 a month of additional gas and parking charges. She asked me if she should go back to earning $25,000. I told her that she should first try to find a $35k job closer to home. Also, she apparently can’t fully reverse her decision to take the higher paying job because she can’t get the child care voucher back (the waiting list is several years long she thinks). She is really stuck. She tried taking an additional weekend job, but the combination of losing 30 percent in increased rent and paying for someone to take care of her child meant it didn’t help much either."
This story is just one example, I've run across it a dozen different ways so don't get caught in the specifics of this one, 'cause you'll miss the forest for the tree. Basically there is a complex system of interaction between various means-tested assistance programs. All are independent and using the same data none are talking to each other.
If it took an economist quite a bit of work to figure this out what chance does a high-school grad have? All they know is that the system is stacked against them so most game it as best they can because they see no way out. Everyone above them is a trust fund baby or have cheated their way around the system. Or at least that is the way it looks from the bottom.

via kottke surf all the links.