Outline
Capitalism and Labor Markets
2.
Measuring Poverty
a. Absolute Measurements: pros and cons
b. Relative Measures: pros and cons
3. Returns
4. Problems with CEM…
1.


A word on notes…my slides sometimes contain a lot of text…your
job is not to transcribe, but to summarize ideas in your own words
and jot down notes…that helps you learn
Slides will be put online on a semi-regular basis
Poverty in Perspective


Poverty in America is a relatively new problem
related to Blacks and other minority groups. In the
past, other groups came to America, worked hard
and prospered. They did not experience the sorts of
social problems we now see in poverty stricken areas.
What do you think of this statement? Myth or truth?
Poverty in Perspective

“The “greatest danger” to America’s future is the
“existence of of an ignorant, debased and
permanently poor class in the great cities…The
members of it come at length to form a separate
population. They embody the lowest passions and the
most thriftless habits of the community. They corrupt
the lowest class of working poor around them. The
expenses of police, prisons, of charities and means of
relief, arise mainly from them.”
A Quote About the Poor…


The “greatest danger” to America’s future is the
“existence of of an ignorant, debased and
permanently poor class in the great cities…The
members of it come at length to form a separate
population. They embody the lowest passions and the
most thriftless habits of the community. They corrupt
the lowest class of working poor around them. The
expenses of police, prisons, of charities and means of
relief, arise mainly from them”
1854, Charles Brace. Referencing the Irish of NYC…
Jews in Poverty…

Jewish slums of Lower East Side
 Former

neighborhood of Irish immigrants
500 people per acre on Lower East Side of NYC
 Homeless
poor
families…abandoned kids…desperately
Poverty and Crime

NYC Police Commissioner claims Jews account for ½
the crime in NYC

“…perhaps half of the criminals should be of that race
when we consider that ignorance of language, more
particularly among men not physically fit for hard labor, is
conducive to crime…They are burglars, firebugs,
pickpockets, and highway robbers…” Steinberg, p.113

Prostitution: “…stay away from Allen, Chrystie & Forsyth
St…there is an official flesh trade in the Jewish quarter.”
Steinberg, p.114
Poverty in Perspective…Nothing New…

Researchers estimate that between 1880 and 1910,
between 35 and 47 percent of all Americans lived in
poverty.
50
45
40
35
30
25
20
15
10
5
0
1870 1890 1910 1935 1944 1955 1970 1982 2004
Percent in Poverty
Capitalism

Societies that possess capitalist economies are relatively new to
the planet…


Some date origins to the 16th century
Full blown capitalist societies do not really emerge until the late 19th
century


America post civil war
What sorts of things characterize a capitalist economy?
Capitalism

a form of economic activity in which some people
own the means of production (factories, mines,
hotels, software companies etc.) and in which
others, lacking access to the means of production,
are forced to sell their labor power for a wage in a
labor market.

Production is geared toward the pursuit of profit and is
regulated through market competition.

Profits that are generated belong to the owners of the
means of production.

I know…that’s a mouthful…lets focus in…
The “Labor Problem”


In a capitalist society, human labor (a person's ability to work)
becomes something that is bought & sold, just like blankets, coal or
steel…
Just as farmer sells chicken to gain money…Workers sell
their ability to work to gain $



“Labor for sale…Labor for sale!”
In a capitalist society, a person’s well being/standard of living will
primarily be determined by their participation in the labor market
Given these societal rules…who might we predict will have a low
standard of living?
Poverty and the Labor Market

Given these societal rules…who might we
predict will have a low standard of living?
Poverty and the Labor Market

In a capitalist society, a person’s well being/standard of living will
primarily be determined by their participation in the labor market

People who would like to work but can not find someone to buy their
labor



People who find it hard to sell their labor


Elderly, disabled, single parents , people with few skills
People who sell their labor, but are paid so little they are poor


Unemployed in search of jobs
Currently six people competing for every one job opening
Working poor (most of the poor families in America fall into this category)
People who choose not to sell their labor

Able bodied idle…
Poverty in America

Tables like this raise
many
questions…one of
which is, what
exactly are
researchers
measuring?
Measuring Poverty…

Your readings mentioned an “absolute” measure of
poverty…anyone catch what this is about?
Absolute Poverty

Absolute Poverty

“a truly basic- absolute- needs standard” (Iceland, p.21)

A measurable subsistence level of income or consumption below which
people are deemed economically disadvantaged or deprived (Iceland,
p.21)

A monetary figure below which a “family or person risked being
without adequate shelter, clothes, or food.” (Iceland, p.22)

Unable to maintain a “subsistence standard” that is the amount of
money required to survive…” (Iceland, p.36)
Poverty in America
US Government Uses an Absolute
Measure of Poverty


Anyone remember how it was/is determined?
1. Chapter 2 of the Rank book introduces you to a
woman named Molly Orshansky. Who was Molly
and how did she conceptualize poverty. What was
her basic formula for calculating a poverty
threshold?
US Uses and Absolute Measure of
Poverty


Molly Orshansky of Social Security Administration uses “Economy Food Plan”

1955…Cost of food estimated to be 1/3 of after tax income

Took this cost and multiplied it by 3
 Adjusted it for family size

Threshold adjusted annually for inflation using Consumer Price Index (CPI)
Today the Govt. adds up before tax cash income from all sources: earnings,
pensions, interest, rental income, asset income, cash welfare…if below
threshold…household is considered poor.
Absolute Poverty…Why Some Like this
Meaure

Conceptually Easy
 If
people don’t have enough to eat and are
starving…there is little debate that they are in
poverty…
 No
need to compare people to the overall standard of
living in a society…
Absolute Poverty…Why Some Don’t
Like it

Government Definition of Income does not include noncash government benefits designed to help people make
ends meet (p.23-24)

Food stamps, subsidized housing, Earned Income Tax Credit
 The
average monthly Supplemental Nutrition Assistance Program
(Food Stamp) benefit was about $96 per person and about
$215 per household in FY 2007 (http://www.fns.usda.gov/fsp/faqs.htm#9)

When calculate in these benefits there are less poor people than
government statistics suggest
Most Social Scientists Feel Government
Measure is Inadequate



Very Crude and Outdated
 Food budget times 3…no longer adequate formula
 There are actually more poor people than government
statistics suggest
Does not take into account “variation in expenses that are
necessary to hold a job and earn income- expenses that reduce
disposable income.”
 Taxes, transportation costs, cost of child care
Does not account for what it actually cost to live in most
regions…except for Alaska and Hawaii, no geographic
variation…tour-audio

8. The Pathway’s PA table suggests a different
poverty threshold for people living in Delware
County. The table above says a two person family is
not poor if they make more than $14, 570. What
does Pathways PA think it you need to make ends
meet for a two person family such as an adult and
an infant? Base on your answer to number, explain
why there is such a difference in thresholds.
Family of Two…$14,000 or $41,000
Absolute Poverty…Why Some Don’t
Like it

As standards of living change, so do should society’s
conception of what poverty is
(Iceland, p.23)


A developed nation should be concerned with more than
whether its citizen are “Unable to maintain a “subsistence
standard” that is the amount of money required to survive…”
“People are poverty stricken when their income, even if
adequate for survival, falls markedly behind that of the
community.” , John Kenneth Galbraith, economic advisor to
FDR and JFK:
Relative Deprivation?

Sociological concept…heard it before?
Relative Deprivation

Research on jobs satisfaction






Army Air Force has many opportunities for advancement
Military Police has few opportunities for advancement
Military Police happier…compare themselves to others who have not
been promoted while the Army Air Force would compare themselves to
others who had been promoted
Job satisfaction studies have less to do with salaries than with
how people’s salaries compared to others
New Research on Health…The Higher Status your job, the
healthier you are, even controlling for income and other
factors…
So how does it relate to poverty…?
Relative Deprivation

Argument that poverty should be thought of as a relative phenomenon…
“How does an individual or family compare to the mainstream standard
of living”

You don’t need a car, a TV, a computer, an internet connection, a cell phone or
periodic vacation or trip to the zoo to survive…

But if you can’t afford these things, you’re outside the mainstream and at a
relative disadvantage

Socially excluded from mainstream; May lack skills that will be of use in the
job market

“Being relatively poor in a rich country can be a great capability handicap,
even when one’s absolute income is high in terms of world standards.”

Amatya Sen, Noble Prize in Economics, 1998
(Cassidy, p.7)
A Relative Measure

Relative Poverty

“a condition of comparative disadvantage, to be assessed against
some relative, shifting or evolving standard of living” (Iceland, p.21)

“Relative poverty can be defined as comparative economic
deprivation” (Iceland, p.25)

“Those whose resources are significantly below the resources of
others, even if they are physically able to survive, may not be able
to participate adequately in social organizations and relationships,
and thus are incapable of fully participating in society” (Iceland, p.25)
Organization of Economic Cooperation and
Development (OECD)

Relative Measures are more appropriate for rich
nations where most people are not faced with
starvation and death…

“…poverty should be thought in terms of exclusion from
standards of living generally available to others in the
society”
(Iceland, p.26)

Need to measure “deprivation relative to social norms and
standards”
(Iceland, p.36)
So how do you develop a relative measure
of poverty

Median income in 2006 = $48,201
So How Do You Set a Measure?


Usually some percentage of the median income

Median=mid point

UK 50% of median

Others range from 40% to 60%
So…median income in the US in 2006 was $48,201…

Using the UK formula…Poverty threshold would have been
$24,100.50 instead of $10,400
Relative Poverty, 2005
Outline

Relative Measure of Poverty
 NYC’s


Some Snapshots of the poor
Poverty Compared
 Social

Choice
Market Economies and Liberal Market Economies
As you saw on Tuesday… lots of notes in this class.
Will post slides. As for all the data, don’t need to
that X of poor lived in cities, but will need to know
how levels of urban poverty compare to suburban
poverty
Absolute Poverty

Absolute Poverty

“a truly basic- absolute- needs standard” (Iceland, p.21)

A measurable subsistence level of income or consumption below which
people are deemed economically disadvantaged or deprived (Iceland,
p.21)

A monetary figure below which a “family or person risked being without
adequate shelter, clothes, or food.” (Iceland, p.22)

Unable to maintain a “subsistence standard” that is the amount of money
required to survive…”(Iceland, p.36)
A Relative Measure

Relative Poverty

“a condition of comparative disadvantage, to be assessed against
some relative, shifting or evolving standard of living” (Iceland, p.21)

“Relative poverty can be defined as comparative economic
deprivation” (Iceland, p.25)

“Those whose resources are significantly below the resources of
others, even if they are physically able to survive, may not be able
to participate adequately in social organizations and relationships,
and thus are incapable of fully participating in society” (Iceland, p.25)
Relative Poverty, 2005
Relative Measure Pros…Why some
like it?


Organization for Economic Cooperation and
Development (OECD)
Relative Measures are more appropriate for rich nations
where most people are not faced with starvation and
death…

“…poverty should be thought in terms of exclusion from
standards of living generally available to others in the
society”
(Iceland, p.26)

Need to measure “deprivation relative to social norms and
standards”
(Iceland, p.36)
Relative Measure…Why some
dislike it

Poverty should be seen as an “objective” phenomenon, not
something that changes based on notions of what a decent
standard of living is


Poverty becomes a moving target…harder to confront
Measure can be deceptive…?

Poverty levels might fall during bad times when median income
drops

Poverty levels might rise during good times when median income
rises sharply

Example of Ireland in text (p.27)
Absolute vs. Relative



Some suggests that“…we should accept that there is no definitive
way to decide who is impoverished (Cassidy, p.4)
National Academy of Sciences concluded that the Census Bureau
measure “no longer provides an accurate picture of the differences
in the extent of economic poverty among population groups or
geographic areas of the country.” (Cassidy, p.4)
Solution: Rework a “new poverty threshold…by determining, for a
reference family of two adults and two children, a dollar amount
for food, clothing, shelter and utilities and then increasing that
dollar amount by a modest percentage to allow for other needs
(such as household supplies, personal care, and non-work related
transportation.
(Iceland, p.31)
New York City

The Bloomberg administration is considering
changing the way poverty is measured in New York
City. Why do they feel the need to revise the
poverty threshold? What are they planning to do?
New York City…


In its new formula, the city would set its poverty
threshold at about 80 percent of the median amount
spent by American families on essential goods, which
would include food, rent, clothing, utilities, and a little
extra. Costs would be adjusted to reflect New York
prices.
The city’s formula would take into account the money
families must spend annually on necessities including
rent, utilities and child care. But it would also factor
in the value of financial assistance received, like
housing vouchers or food stamps.
Poverty in NYC 2008…Poverty
rate of 23% or 19%?


Twenty-three percent of New York City residents live in
poverty, according to a new formula unveiled by Michael
Bloomberg yesterday, which he says is more accurate than the
one used by the federal government, which puts the poverty
number for the city at 18.9 percent.
According to the current federal formula, a family of two
adults with two children is at the poverty line if they make
$20,444 or less. Under Bloomberg's formula, that income level
deemed at the poverty level jumps to $26,138. Under the
federal formula, the poverty level for a single adult is
$10,488. Under Bloomberg's, it is $12,114.
(http://www.observer.com/2008/politics/official-
explanation-bloombergs-new-poverty-numbers)
Poverty Rates by Measure, 1999-2000:
Which way should we go? Why?

Absolute Poverty
 Unable
to maintain a
“subsistence standard” that
is the amount of money
required to survive…”
25
21.1
20
15
13.8
11.3
Poverty
10
5

0
Absolute
NAS
Relative
Relative Poverty

“…poverty should be thought in
terms of exclusion from standards
of living generally available to
others in the society.
The “Labor Problem”


In a capitalist society, human labor (a person's ability to work)
becomes something that is bought & sold, just like blankets, coal or
steel…
Just as farmer sells chicken to gain money…Workers sell
their ability to work to gain $



“Labor for sale…Labor for sale!”
In a capitalist society, a person’s well being/standard of living will
primarily be determined by their participation in the labor market
Given these societal rules…who might we predict will have a low
standard of living?
Poverty and the Labor Market

Given these societal rules…who might we
predict will have a low standard of living?
So now we have a measure…let’s look at
who the poor are and dispel some myths

Most poor people live in inner cities?
Where do the Poor live?

2000
42 percent in inner city
 36 percent in suburbs
 22 percent in small towns and rural areas



American FactFinder
2005:For First Time, Poverty Shifts to the Suburbs Newsweek Society - MSNBC.com

Currently, 38 million Americans live below the poverty line, which the federal
government defines as an annual income of $20,000 or less for a family of
four. But for the first time in history, more of America's poor are living in the
suburbs than the cities—1.2 million more, according to a 2005 survey.
So now we have a measure…let’s look at
who the poor are and dispel some myths

Most poor people are in female headed families…usually very
large families.
Family Structure
Myths about Family Size

Family Size for Families on Temporary Aid for
Families in Need (TANF)
 Avg.
1.9 kids
 78%
have two or less
 49 % have 1 kid
 28% have 2
So now we have a measure…let’s look at
who the poor are and dispel some myths

Most poor people minority group members.
Who are the poor?
2007: Poverty By Race
24.5
25
21.5
20
15
10
9.8
8.2
5
0
White
Black
Hisp
Asians
Poverty
So now we have a measure…let’s look at
who the poor are and dispel some myths

Most poor families do not have anyone in the labor market.
Work and Poverty

The Work History of Families in Poverty, 2000
Work History
No full time worker
1 full time worker
2 or more full time workers

2000
46.1%
44.5%
9.4%
Source: US Census; Poverty in the US, 2000 (2001: Table C) in Kerbo, p.259
Working…but poor.

Most poor families have at least one worker:


61% of poor families had at least one worker in 2005 (4.6
million families) http://www.epi.org/publications/entry/webfeatures_viewpoints_econ_oppty_and_poverty
Overall, 63% of U.S. families below the federal
poverty line have one or more workers, according to
the Census Bureau. They're not just minorities, either;
nearly 60% are white. About a fifth of the working
poor are foreign-born, mostly from Mexico. And the
majority possess high school diplomas and even some
college -- which 30 years ago would virtually have
assured them a shot at the middle class. (Business Week
MAY 31, 2004)
Another fact to note…Education
25
22.2
20
15
10
9.2
Poverty
5.9
5
3.2
0
<H.School High School
Some
College
College

2. Rank notes that poverty can be reduced, and
offers the case of elderly poverty in America as an
example. Please describe the trend regarding
elderly poverty and explain the reasons for this
trend. Be sure to cite statistics from the text as
evidence in your answer.
Lowering Poverty…

Government policies (Social security was key) led to
a major reduction in poverty among seniors

4. Is the poverty rate in the US higher or lower to
comparable nations around the world?
Absolute Poverty, mid-1990s
15
source: Iceland, p.63
15.6
13.6
13
11
9
7
6.3
5
Poverty
4.3
3
1
0.3
-1
US
UK
Sweden
Norway
Lux
Relative Poverty, 2005
Absolute Child Poverty, 2001
20
18
16
14
12
10
8
6
4
2
0
(source: Iceland, p.66)
18.5
12.4
Child Pov
3.7
2.8
1.1
US
Germ
Swed
Norway
Lux
Child Poverty, Relative Measure
Children in Single Mother
Families: Percent Poor, 2003
30
30
25
22
20
Poor
Extremely Poor
15
10
6
5
5
2
2
0
US
Finland
Sweden


4. Is the poverty rate in the US higher or lower to
comparable nations around the world?
What does Ranks suggest are the main reasons for
this discrepancy? Be sure to incorporate a cite from
the text in your answer



4. Is the poverty rate in the US higher or lower to
comparable nations around the world?
What does Ranks suggest are the main reasons for
this discrepancy? Be sure to incorporate a cite from
the text in your answer.
Weaker Safety Net…More low wage jobs
Capitalism, Society and “Safety
Nets”

We already noted the following: “


Market is chief source of well being


In capitalist society labor (one’s ability to work) is a commodity that is sold for a
wage (income) which is used to buy food, shelter, clothing, child care, health care,
etc.
Family is another source of well being


“In a capitalist society, a person’s well being/standard of living will primarily be
determined by their participation in the labor market BUT different societies possess
different institutional arrangements that will also impact well being/standards of
living”
Kin help each other by pooling money, transferring money, passing money on, and
by providing services such as child care
Government can be another source of well being

Role of government in insuring well being will vary, for instance government might
provide universal access to child care as a right
Capitalist Democracy: Politics Can
Replace Markets

Social Market Economies vs. Liberal Market Economies
Capitalist Economies are Embedded in
Larger Societies


Different societies possess different institutional arrangements
that will impact things like inequality and poverty
Liberal Market Economies (Can think Free Market)

Limited government regulation, few universal government programs and
more means tested public assistance programs



Free day care for low income, the rest purchase in market
Limited child allowances for children provided to low income household
Social Market Economies supplement labor market with social
wage

Significant government regulation, many universal government run social
insurance programs


Free day care for all citizens
Generous Child allowances provided to all from government
Different Capitalist Economies Employ Different
Institutsions

Public Assistance

Means tested programs designed mainly for the poor


(Marger: 213)
Targeted programs designed for certain populations
Means tested

income tested… “person or family has to earn below a certain amount to
qualify”
(Iceland 2003: 126)

Social Insurance

Programs that provide cash or benefits to all eligible citizens


(Marger: 213)
Universal programs
Social wage

the share of a nation’s resources that is distributed according to social rather
than strict market criteria.
Capitalist Economies are Embedded in
Larger Societies


Different societies possess different institutional arrangements
that will impact things like inequality and poverty
Liberal Market Economies (Can think Free Market)

Limited government regulation, few universal government programs and
more means tested public assistanceprograms



Free day care for low income, the rest purchase in market
Limited child allowances for children provided to low income household
Social Market Economies supplement labor market with social
wage

Significant government regulation, many universal government run social
insurance programs


Free day care for all citizens
Generous Child allowances provided to all from government
Capitalist Democracy: Politics Can
Replace Markets

Social Market Economies vs. Liberal Market Economies
Spending Levels of Social Programs Vary

They are the result of decades long political
struggles between unions and business, and
different political parties.
Social Welfare Spending,
(as pct. of gross national product)
40
35
30
25
20
15
10
5
0
Sweden
Neth
Den
Fran
Germ
Italy
UK
US
Spending Levels of Social Programs Vary


They are the result of decade long political
struggles between unions and business, and
different political parties.
Regardless of the outcome, all social spending
comes from taxes.
Funding the Welfare State: Household
Tax Wedge, 2003



4. Is the poverty rate in the US higher or lower to
comparable nations around the world?
What does Ranks suggest are the main reasons for
this discrepancy? Be sure to incorporate a cite from
the text in your answer.
Weaker Safety Net…More low wage jobs…more
on this next week....but for now note the following
Persistent Problem…the low wage
labor market in America



“America’s bottom end workers fare worse than their
counterparts in other industrialized countries. Comparable
German workers earn more than twice as much” (Iceland, 2003)

Bottom 10% of US workers earn 37% of US median wage

Other industrialized countries earn 60-76% of median wage
How would this reduce poverty?
Why do you think this is the case…why would a janitor here
make 37% of the median and a janitor in Germany make
70%?
Persistent Problem…the low wage
labor market in America


“America’s bottom end workers fare worse than their counterparts in other
industrialized countries. Comparable German workers earn more than twice
as much” (Iceland, 2003)

Bottom 10% of US workers earn 37% of US median wage

Other industrialized countries earn 60-76% of median wage
Unions are weaker in the United States so low wage workers have less
bargaining power


They simply can’t demand as much
Employment and wages are less regulated in US liberal market economy,
we are a more laissez faire society (elbow society, cowboy capitalism)


Extension laws in Germany extend Union contracts to all firms in sector
France has higher minimum wage that is linked to inflation
Low Wage Labor markets
Sweden
Pct.
Unionized
‘98
91%
Italy
Germany
Canada
44%
29%
37%
Netherlands
Australia
26%
35%
UK
US
33%
15.4%
US
Germany
Italy
England
Canada
Denmark
Belgium
Sweden
Poverty
Reduction
-28.5%
-65.5
-64.7
-50
-50
-72.1
-80.6
-80.4
Next…


The “Fluidity” of poverty
Structural Underpinnings of Poverty