1
Ohio State University
Swank Professor in Rural-Urban Policy
AED Economics OSU
Prepared for the JW Fanning Lecture
December 10, 2010

2

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3
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Source 2009 ACS.
Rural poverty is even more overlooked

Most probably due to its dispersed nature.
I will stress rural poverty for this reason—but describe urban poverty.
I will refer to an excellent report done by UGA Carl
Vinson Institute of Government (2003):

DISMANTLING PERSISTENT POVERTY IN GEORGIA:
BREAKING THE CYCLE


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Fairness/equity: equal opportunity and the American
Dream

Partridge and Rickman (2006)
Children in poor families and neighborhoods:
Poverty can be intergenerational
Successful role models
Peer effects for school
Lack healthcare


High poverty “places” are associated with: more crime, which is ‘bad’ for the economy and society.
less FUTURE economic growth.
4

—cont



Low income citizens have worse health outcomes, or more expensive.
In the global economy, we cannot compete if a large share of our population is not contributing to their fullest capacity.
In this economy, more households are at risk of being in poverty—a weak safety net.
5

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People-based is build soft and hard skills
Education! Training! Help with job search.
Help with migration to rapidly growing areas
Focus on the people who are poor regardless of residence

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Place-based is help places with poor people
Policies designed to fit each place (not ‘one-size-fits-all’)
Tax incentives, wage subsidies, infrastructure
Governance changes to improve economic outcomes

Ex: facilitate job creation in the Black Belt or inner Atlanta

Place and People Policies are inter-tangled
Childcare & transportation to work combine both notions
6


Need People Based! But do we need both? I am Involved in an EU Project on this point.
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7
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Most economists have a disdain for place-based policies.
With some truth, they argue that: even in best case, some benefits trickle to the better off.

Jobs may go to new migrants/residents & commuters, not the intended original residents wasteful pork barrel spending for the elite and politicians encourages a culture of dependency slows migration to areas with strong growth
Harvard Economist Ed Glaeser famously argued to give each
New Orleans resident $200k rather than rebuild.

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Market may not work as efficiently as desired
Moving is costly and people are attached to place.

Commuting is costly

Families are not capital flowing to the “highest return”

People lack information about distant jobs

There can be a coordination failure where business won’t locate in ‘poor’ places even if wages and other costs are low.

Self-fulfilling expectations and a poverty trap.
8

—cont.
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Why get training if there are no nearby jobs?

Local job creation increases the incentives to enter training programs
Place policies can be designed better to help the poor and complement people policies


It is not as though people-based policies have been wildly successful as poverty is stuck at ‘high’ levels.
Place policies should only be used when there is likelihood of success
9


Three measures to quantify poverty ( FGT,1984):
P


1
N
H  i
( z
 z y i )
 z
: poverty line y i
: individual incomes
N
: number of people in the economy
H
: number of poor (people with income below z)
α=0 : Headcount ratio counts the share of population who is below the poverty line
P

0
H
N
10

—cont.

Politicians/media use headcount ratio only, but we should also be interested in how much is needed to reduce poverty
 α=1: Poverty depth or the poverty gap ratio measures the average income shortfall from the poverty line
P
1

1
N
H  i
( z
 z y i )
 α=2: Poverty severity combines information on poverty level and income inequality among the poor.
P
2

1
N
H  i
( z
 z y i )
2
11

—cont.


For developing countries, the WB and UNDP use the thresholds USD1.25 /day for extreme poverty and USD2 for poverty.
12

Most developed countries use a definition of less than ½ of the median household income.
 The poverty threshold changes over time:
As average incomes rise → poverty threshold rises
 Upper middle-class households in the late 19th Century would be poor today.

—cont.
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13
The U.S. uses a 1960s absolute definition that is ad
hoc and does not change over time:
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A federal researcher defined poverty as 3 times the level of income to meet an adequate food budget.
Annually adjusted for family size and then inflation.
The U.S. definition of poverty is very strict.

Being ‘poor’ in 1964 would be ‘really poor’ in 2010.
No cost of living adjustment between rural-urban

Higher housing costs in urban, but higher transportation costs and less access to “big box” stores in rural.
Does not count in-kind transfers (money income)
Experimental ‘supplemental’ poverty measures (considering income after taxes, food, clothing, shelter, utilities)


They are adjusted for inflation each year.
In 2009:

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For a family-unit of 5: $25,991
For a family-unit of 4: $21,954
For a family-unit of 3: $17,098
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Absolute nature of the U.S. definition of poverty implies that I will understate the problem — i.e., I am reporting a 1960s notion of being poor
A place that has high poverty under the official definition has clear economic degradation.
14

15
…and then in Georgia

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U.S. poverty-employment growth link was reestablished in the 1990s
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Strong link in 1960s and early 1970s
Weak between 1973-1993 (high poverty in 1993)
Lyndon Johnson’s War on Poverty was much more successful in the 1960s than it is given credit for.

Criticism suggests that poverty is “impossible” to address
16

Poverty Incidence in the U.S. (1959-2009)
15,0
12,5
10,0
7,5
5,0
2,5
0,0
25,0
22,5
20,0
17,5
1979:
War on Poverty
11.7% population
10.2% families
2009:
14.3% population
12.5% families
1990s Clinton era boom
Share of population below the poverty line
Share of families below the poverty line
17
Source: http://www.census.gov/hhes/www/poverty/histpov/

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In 2009, the overall rate was 14.3% http://www.census.gov/hhes/www/poverty/data/historical/people.html

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Children under 18 years old: 20.7%
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Children can’t work! Not their own fault.
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Intergenerational transfer of poverty
Female headed families: 32.5%
Poverty has a racial/ethnic component.
18

Poverty Incidence in the U.S. : The Gender Bias
35,0
32,5
30,0
27,5
25,0
22,5
20,0
17,5
15,0
12,5
10,0
7,5
5,0
2,5
0,0
55,0
52,5
50,0
47,5
45,0
42,5
40,0
37,5
1969:
38.2% female headed
10.4% total families
2009:
32.5% female headed
12.5% total families
Share of families below the poverty line
Share of female headed families below the povline
19
Source: http://www.census.gov/hhes/www/poverty/histpov/

Poverty Rates by Race/Ethnicity
15,0
12,5
10,0
7,5
5,0
2,5
0,0
27,5
25,0
22,5
20,0
17,5
8,3
24,9
11,1
21,8
8,2
24,3
10,3
20,6
8,2
2005 2006
White-alone (not hispanic)
Asian alone
24,5
10,2
2007
21,5
8,6
24,7
23,2
11,8
9,4
25,8
25,3
12,5
2008
Black alone
Hispanic (of any race)
2009
20

st
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A rising tide should lift all boats!
Yet, the 1980s had the 3 rd longest economic expansion on record, the 1990s was the longest, and the economy grew between 2001-2007.
National unemployment rate can’t fall below zero.
To eliminate high pockets of poverty takes LONG-
TERM growth, better expectations about local prospects, and more skills for the residents.

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Climate for wealth creation is essential
Better local governance and social capacity.
21

4,0
3,5
3,0
2,5
2,0
1,5
1960-2009 Change in Poverty &
Change in Unemployment Rates
-1,5
-2,0
-2,5
1,0
0,5
0,0
-0,5
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
-1,0
Change in Unemployment Rate
Change in Person Poverty Rate
-3,0 22

23

•
•
•
•
•
Rural poverty is somewhat clustered
Low poverty in the Midwest and Northeast
High poverty in the South and West Coast

Persistent High Poverty Clusters

(USDA, 1969-99, 20%+ in every year)

Central Appalachia, Historic Southern Cotton Belt, Rio
Grande Valley and Western Reservations.
Poverty rates are spatially persistent
Large inter-regional variation
24

25

26

High Poverty Clusters
1. Mississippi Delta
2. Central Appalachia
3. Historic Cotton Belt
4. Rio Grande
5. Western Reservations
Low Poverty Regions
1. Upper Midwest
2. Northeast
3. Western regions (not shown)
Source: Partridge, M.D. and D.S. Rickman. The Geography of American
Poverty: Is there a Role for Place-Based Policies?
, Kalamazoo, MI: W.E.
Upjohn Institute for Employment Research, 2006

Same circles as before except:
High poverty in
Central Valley of CA
28
Poverty Rate
0% - 8%
8.01% - 14%
14.01% - 20%
20.01% - 25%
25.01% - 57%
Source: Partridge, M.D. and D.S. Rickman. The Geography of American
Poverty: Is there a Role for Place-Based Policies?
, Kalamazoo, MI: W.E.
Upjohn Institute for Employment Research, 2006

29

Percentage of People by Income to Poverty Ratio, 2009
US Poverty Rate 14.3%,
Up 1% over 2008
GA Poverty Rate 16.5%,
Up 1.9% over 2008.
U.S. Census Bureau,
American Community Survey, http://www.census.gov/prod/2
010pubs/acsbr09-1.pdf

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1.
2.
3.
4.
Georgia has its unique patterns.
The state mostly falls in the South high-poverty cluster
Persistently high poverty in the Black Belt
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Atlanta metro area is vibrant and rich
Relative to US, GA poverty has not changed since 1979
Metro GA on average relative to the U.S. metro areas
Nonmetro GA higher poverty rate compared to the U.S.
Source:
DISMANTLING PERSISTENT POVERTY IN GEORGIA: BREAKING THE
CYCLE
31

32
Source: The University of Georgia – Initiative on Poverty and the Economy.


1.
2.
3.
4.
Georgia has its own unique patterns.
The state mostly falls in the Southern high-poverty cluster
Persistently high poverty in the Black Belt
Atlanta metro area is vibrant and rich

Relative to US, GA poverty has not changed since 1979
Metro GA on average relative to the U.S. metro areas

Nonmetro GA higher poverty rate compared to the U.S.
33

34
Defined areas concerning poverty persistency: large poverty persistence in the
South, the Historic
Cotton Belt
Source: The University of Georgia –
Initiative on Poverty and the Economy.

35

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1.
2.
3.
4.


The state mostly falls in the Southern high-poverty cluster
Persistently high poverty in the Black Belt
Atlanta metro area is vibrant and rich
Relative to US, GA poverty has not changed since 1979
Metro GA on average relative to the U.S. metro areas
Nonmetro GA higher poverty rate compared to the U.S.
36

37 – Initiative on Poverty and the Economy.


1.
2.
3.
4.
Georgia has its unique patterns.


The state mostly falls in the Southern high-poverty cluster
Persistently high poverty in the Black Belt
Atlanta metro area is vibrant and rich
Relative to US, GA poverty has not changed since 1979
Metro GA on average relative to the U.S. metro areas
Nonmetro GA higher poverty rate compared to the U.S.
38

10
5
0
5
0
1979-2008 Poverty Rates: Metropolitan and Nonmetro
25
U.S. and GA
20
14,7
15
11,6
12,2
12,9
11,9 11,6
12,9 13,5
10
1979     1989     1999
U.S. Metro GA Metro
2008
25 22,5
21
20,3
20
15,9
17,3
14,8
18,5
15,1
15
39
1979     1989
U.S. Non metro
1999
GA Non metro
2008
Source: USDA.

40

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Rural and Urban share many of the same causes of poverty.
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“ Some of the same signs of despair and breakdown that wore out aging American industrial cities in the 1960's have come to the rural plains. Among teenagers, there is now a higher level of illicit drug use in rural areas than in cities or suburbs, …The middle class is dwindling, leaving pockets of hard poverty amid large agribusinesses supported by taxpayers .”
Timothy Egan, “ Vanishing Point; Amid Dying Towns of Rural Plains, One Makes a Stand,”
New York Times (December 1, 2003, Late Edition), p. A1.

“ Fundamental structural changes in technology, markets, and organizations are redrawing our nation’s economic map
and leaving many rural areas behind.
”
Robert D. Atkinson of the Progressive
Policy Institute.
41

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Low wages, weak job growth

Examples:
“ Oakridge, OR was a prosperous timber community of about 4,000 people until its last mill closed in 1990. Many households now struggle in or just above poverty, though they seem determined to remain in their scenic community. Flourishing Eugene could provide employment opportunities, but being 55 miles away limits the ability of Oakridge’s residents to take advantage .”
(Eckholm, 2006, New York Times)

“ Among Appalachia's problems are that it is “too far from big cities to easily attract businesses .”
(Altman)
42

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Jobs requiring lower skill levels are not where the lowskilled workforce resides
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Urban: jobs are in the suburbs and the poor live in central city
Public transport is inadequate
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Discrimination, segregation & zoning limit suburban moves
Does not require racial explanations for this argument.
A rural spatial mismatch of jobs
Jobs are often in the city, but not in the country
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Thin labor markets weakens rural employment matches
Lack transportation, childcare, work supports
Structural change out of primary sector & manufacturing
43

—cont
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A part of the solution to spatial mismatch is placebased policy (along with people-based)


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Argument against spatial mismatch theory is that it is really just ‘selectivity.’
Akin to arguments against place-based policy
E.g., the less able or less motivated choose to live in central cities or in rural high-poverty clusters
E.g., all the local jobs in the world won’t matter because this group generally won’t/can’t work
44

—cont
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P&R (2008) find that job growth especially reduces poverty in high poverty areas:
Central cities, especially with high shares of blacks
High-poverty rural areas

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Exactly the opposite of selectivity: Job growth reduces poverty more in high-poverty areas.
For a central county in large urban areas:

5 yr job growth of 14,000 (1 sd) more jobs per year → roughly 5,000 fewer people in poverty (all else equal)
For a ‘noncore’ rural county:

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5 yr job growth of 627 (1 sd) jobs a year → corresponds to roughly 547 fewer people in poverty. (all else equal)
Even stronger impact in high-poverty rural counties.
45

—cont
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P&R (2007) find that job growth attracts fewer new residents and helps retains long-term residents in more remote areas.

Our conclusion is that place-based policy can be effective in trickling down.
Vigdor (2007): ‘evacuees’ who returned to New Orleans are better off than those who did not.

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I argue this shows that simply relocating the ‘poor’ to places with
more jobs is insufficient (info problems). And the most able will move back.
He argues that this shows that skills matter more—though he did not consider whether evacuees who returned received more training while they were away.
46

47

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War on Poverty in 1960s was successful
1996 Welfare Reform and its “Work First” showed good things about work supports—but no panacea

48
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Promising international ideas should be tried
Bolsa Família in Brazil or Oportunidades in Mexico p ay families a subsidy when their children attend school and get basic healthcare.
In New York, Opportunity NYC is a privately-funded $63 million pilot CCT program for children education, family health and adult workforce
If implemented in high-poverty places, this could break intergenerational poverty transmission and save more money than having schools to do everything.

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Place-based:

 childcare differs in rural vs central city transportation is more problematic in rural settings

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Provide better access to rural and urban training
Recognize that people will want more training if there are nearby work opportunities
49

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Create targeted zones within and proximate to high poverty/low income areas and reward residents.
State earned income tax credit

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Federal EIC is successful—rewards ‘good’ behavior,
Milton Friedman
State efforts are small: 24 states including DC

GA, or for that matter OH, do not have a state EITC.

50
Federal and state EIC should be more generous for a worker who began the year as a targeted-zone resident

Rewards workers if they move to other areas or stay in zone

Combines people-based migration with place-based policy

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Generous tax incentives in targeted zone—job tax credits above a certain base level
Wealth creation underlies strong regions.
But, subsidize people, not capital investment
The key is the job credits should be tied to place of residence of the workers—i.e., the ‘special’ credit mostly applies to workers from the zone.
51

—cont.
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Regional collaboration to build wealth—JW Fanning was a leader of such efforts
Stronger regions build wealth
Regional governance stops unnecessary competition in metro areas and around regional growth centers.

Strong regional/local gov’ts that provide basic services such as infrastructure and police
Capacity of local gov’ts is important (Labao et al., 2010)

52

Build neighborhood and community institutions to give local citizens a voice
Churches, community groups, youth groups, business groups such as Chambers of Commerce.

—cont.

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

Need to build wealth from within
Tax incentives to bribe outside firms to come are ineffective
Business Retention and Expansion
Support micro-enterprises and micro-lending
Support entrepreneurship

Once expectations about a community change and good institutions are in place, a virtuous cycle of growth can begin.
53

54

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Concentrated poverty is especially damaging


Poverty reduction needs to be a higher priority.


Job growth works in poor places.
55

56
Presentation will be posted at
The Ohio State University, AED Economics,
Swank Program website: http://aede.osu.edu/programs/Swank/
( under presentations)
Swank Program in Rural-Urban Policy

2009 Poverty Rate
2000 Population living in poverty
Poverty rate
Population living in poverty at 50% of the poverty rate
50% poverty rate
Population living in poverty at 150% of the poverty rate
150% poverty rate
Families living in poverty
Family poverty rate
Aggregate income deficit
Average family income deficit
Child poverty rate (Population under age18 living in poverty)
% of the poverty population that is under 18 years of age
Elderly poverty rate (Population over 64 yrs old living in poverty)
% of the poverty population that is over 65 years of age
Georgia
16.5%
United States
14.3%
1,033,793
12.99%
33,899,812
12.38%
488,190
6.13%
1,719,251
15,337,408
5.60%
57,320,149
21.60%
210,138
20.93%
6,620,945
9.88% 9.16%
$1,546,905,600 $47,983,703,500
$7,361.38
$7,247.26
17.14% 16.56%
35.35%
13.55%
9.89%
34.65%
9.86%
9.70%
57
Source: 2000 U.S. Census. Calculated by the Initiative on Poverty and the Economy and 2009 ACS.

58

59 Source: Center for Budget Priorities.

60
State
TABLE 1:
STATE EARNED INCOME TAX CREDITS BASED ON THE
FEDERAL EITC
Delaware
District of Columbia
Indiana a
Illinois
Iowa
Kansas
Louisiana
Maine
Maryland b
Massachusetts
Michigan
Minnesota c
Nebraska
New Jersey
New Mexico
New York d
North Carolina e
Oklahoma
Oregon f
Rhode Island
Vermont
Virginia
Wisconsin
Percentage of Federal Credit (Tax
Year 2007 Except as Noted)
20%
35%
6%
5%
7%
17%
3.5% (effective in 2008)
5%
20%
15%
10% (effective in 2008; to 20% in 2009)
Average 33%
8% (to 10% in 2008)
20% (to 22.5% in 2008, 25% in 2009)
8%
30%
3.5% (effective in 2008)
5%
5% (to 6% in 2008)
25%
32%
20%
4% — one child
Refundable?
No
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Partially g
Yes
No
Yes
Workers Without
Qualifying Children
Eligible?
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No