Voices of the Near Poor

When the Census Bureau this month released a new measure of poverty, meant to better count disposable income, it began altering the portrait of national need.

The new method, called the Supplemental Poverty Measure, was designed to add in many of the things the old measure ignored, like the hundreds of billions the needy receive in food stamps and tax credits. At the same time, it subtracted the similarly large sums lost to taxes, medical care and work expenses.

One surprising difference with the new measure, outlined in an article today, was the 51 million people with incomes less than 50 percent above the poverty line. That category, sometimes called “near poor,” was 76 percent higher than the official account, which was published in September. (The portion of people under the poverty line, meanwhile, increased by just 5 percent in the new measure.)

About a fifth of the people who appear near poor in the new measure are lifted out of poverty by benefits the old measure ignores, like food stamps and tax credits. But more than half were pulled down into near poverty from higher income levels by taxes, medical costs and work expenses like child care and gas. Taken together with people under the poverty line, a full third of Americans – or about 100 million people – live in poverty or in the economically vulnerable area just above it.

In Washington and its suburbs, the near poor are people with incomes between $31,693 and $47,539 for a family of four with a mortgage. Reporters talked to people in the Washington area this week with incomes in this category. They spoke of the knife-edge quality of their lives, in which one unexpected bill could knock them off balance. Many owned the usual trappings of middle-class life – cars, houses, cellphones and air-conditioners. But payments on those possessions were juggled, often unsuccessfully, depending on the unpredictable tides of their incomes. None saw themselves as poor. Most saw themselves as part of the middle class. But they focused on how hard they had to struggle to remain there.

Here are some of their stories:

Debra Jeje earned about $31,000 last year as a secretary in an emergency room in a hospital in Washington. She struggles to pay her bills, which come to about $2,300 a month, including groceries. She sells Mary Kay make-up for extra income. Gas, health insurance premiums and taxes put Ms. Jeje just above poverty line.

“What stresses me out most is payday,” said Ms. Jeje, who is 50 and has one son living with her. “I don’t have any extra money left over. My salary is less than my bills.”

Her job, she said, pays too little.

“We’re on the front lines,” she said. “There’s stress and headaches and ups and downs in the emergency room. You really feel that you’re worth more.”

Bille Allison, a health care worker with two children, earns $39,000 a year drawing blood at a doctor’s office in Maryland. She qualified for the earned income tax credit last year, bringing her income to $42,000. But work expenses dragged her down. She pays $500 a month for day care for her 4-year-old daughter, $100 a month for bus and train fare to get to work, and $200 a month for health insurance – bringing her income down to about $32,000. Some months she is able to save enough for game tokens and a meal at Chuck E. Cheese for her daughter. Other months she can only afford to pay half her bills. She was turned away from the food stamps office because her income was too high.

“I tried everything, and it’s like, nope, you make too much,” said Ms. Allison, who is 42 and divorced. “They tell you you have to work to get help, but then you work, and you still can’t get help.”

Jennifer Bangura works at Georgetown University Hospital as a cashier. Together with her husband, a driver for a catering company, their family income is just under $50,000, enough to pay a mortgage of $800 on a house she purchased in 1992. But after taxes, medical costs and the gas to get to work, they slip into the category of near poor. Their situation has been made worse by a second mortgage, taken out several years ago to raise money for their daughter’s college tuition. The monthly payment shot up to $2,200, an amount she says is now untenable.

“It’s killing me,” said Ms. Bangura, who is 50 and originally from Jamaica. She said she has been making payments for years and that “to lose it now would tear me apart.”

Jessie Adams, a floor refinisher and his wife, a secretary, together earn about $49,000 – too much to qualify for the earned income tax credit and food stamps, but too little to live without worrying about finances. Taxes and monthly subway commuting costs bring them down into the area of near poor. They own electronics – two flat-screen TVs and an Xbox game console for their 10-year-old – but cannot afford a car or a down payment on a house. Mr. Adams has not taken his family out on a weekend for five months.

“It shouldn’t be like this,” he said. “Two people working full time in the house, we should be able to save, to take a vacation. But it ain’t like that. It just ain’t like that.”

The Lasting Financial Impact of a Layoff

Losing a job you wanted to keep is never a good thing. But for those who lost their jobs during the Great Recession, the long-term consequences will probably be very significant.

According to an economic analysis by the Hamilton Project, a research group in Washington, those laid off from long-term jobs between 2007 and 2009 are likely to lose a total of $774 billion in earnings over the next 25 years, even if they get new jobs.

The analysis of Census Bureau data, conducted by Michael Greenstone and Adam Looney, looks at how the seven million workers who lost jobs they had held for three years or more at the time of the layoff fared in the two years following the job loss.

The graph below shows all workers who lost their job for economic reasons during the worst seven months of the recession and how they have fared since the job loss.

Including those who have not yet found work as well as those who did find new jobs, the average earnings of the group were barely half what they were before the workers lost their jobs, falling from $43,700 before to $23,000 two years later. The income numbers do not include unemployment benefits.

Focusing just on those who were able to find new jobs, the study found they were earning an average of 17 percent less than they earned in their previous posts.

Mr. Greenstone and Mr. Looney based their calculations of future losses on research conducted by Steven J. Davis, an economist at the Booth School of Business at the University of Chicago, and Till von Wachter, an economist at Columbia University, which found that workers who lose their jobs during recessions lose an average of $112,100 over their careers.

Mr. Greenstone, an economist at the Massachusetts Institute of Technology, said many of the displaced workers either have no college degrees or have skills that are rapidly being outdated, and therefore need education to get back to work in jobs that will match their prior incomes. The sobering data, he said, “highlights the importance of trying to identify training programs that can help this set of workers so they don’t lose that money.”

This post has been revised to reflect the following correction:

Correction: November 4, 2011

An earlier version of this post misstated the period examined in arriving at an estimate that laid-off workers are likely to lose a total of $774 billion in earnings over the next 25 years. It involves those laid off from 2007 to 2009, not between October 2008 and April 2009.

Behind a Surprising Income Trend

Anyone with detailed knowledge of the annual Census Bureau data on household income may be surprised by the new study Robert Pear describes in today’s Times. From the article:

In a grim sign of the enduring nature of the economic slump, household income declined more in the two years after the recession ended than it did during the recession itself, new research has found.

Between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7 percent, to $49,909, according to a study by two former Census Bureau officials. During the recession — from December 2007 to June 2009 — household income fell 3.2 percent.

DAVID LEONHARDT

Thoughts on the economic scene.

The annual Census data, which is better known than the monthly data that forms the basis of the study, presents a somewhat different picture. It shows that inflation-adjusted median income fell 3.6 percent from 2007 to 2008, more sharply than in any year since. From 2008 to 2010 — a two-year period — income fell 2.9 percent.

Thoughts on the economic scene.

What explains the difference between the two surveys?

For one thing, the monthly data (which goes through June of this year) is more current than the annual data (which ends in 2010) and reflects the economy’s continued weakness.

But there is also a second, more surprising reason for the difference: The annual data may be less reliable in some ways than the monthly data.

The authors of the study, Gordon W. Green Jr. and John F. Coder, point out that people are asked about their prior year’s income a few months into the next year. If the economy has weakened during the window between the end of the year and the survey date, some respondents may incorrectly describe their income from their previous year. Their answers will be affected by the economy’s deterioration, and they will tell the surveyor that they made less the previous year than they actually did.

A similar dynamic happens in surveys about health insurance. When people are asked about their insurance status from the previous year, they sometimes misunderstand and instead describe the coverage they have at the time of the survey.

You can see how this would affect the Census income survey, given that the economy was weakening so much in 2009. When asked about their 2008 income, some instead may have described their 2009 income.

In an e-mail to Mr. Pear, the two researchers offered more detail:

In household surveys, respondents are often asked to report events retrospectively for some given time period. When a respondent forgets the exact dates for a sequence of events, this often results in a known survey bias called “telescoping” in which the reporting of the events is telescoped either forward or backward.

The reference periods between the Census Bureau’s annual estimates of income and our monthly estimates of income are quite different. The Census Bureau’s survey is conducted in February, March and April of a given year and respondents are asked to report their income during the previous calendar year. The reference period for the monthly estimates is the 12-month period immediately prior to when the question is asked. Thus, the Census Bureau’s approach requires people to recollect events over a longer reference period.

We think that a telescoping problem may explain the discrepancy between the Census Bureau’s reporting of annual changes in household income between 2007 and 2008 and our monthly estimates. The Census Bureau reports a sharp drop (3.6%) in the annual amount of median household income over this time period whereas the monthly estimates are relatively flat.

Between January 2007 and the Spring of 2009 (when the Census Bureau collected its annual income estimates for 2008), the unemployment rate (seasonally adjusted) increased dramatically. The unemployment rate was in Jan. ’07 was 4.6%, in Jan. ’08 was 5.0%, in Dec ’08 (the end of calendar year reference period) was 7.3%, and continued to rise into the Spring of 2009 when the Census Bureau conducted its survey: Feb ’09 (8.2%), Mar. ’09 (8.6%), and Apr. ’09 (8.9%)

Now, if some of the respondents to the Census Bureau’s survey in the Spring of 2009 erroneously “telescoped” their current unemployment experience back to the previous year’s calendar income, this could have resulted in a calendar year 2008 estimate for income that was too low, hence producing the 3.6% decline in household income between 2007 and 2008 in the Census Bureau’s estimates. The monthly estimates do not have this telescoping problem to the same degree because the reference period is the 12 months immediately prior to interview and the data are collected in real time. This could explain why the Census Bureau estimates are different than the monthly estimates over this time period.

Peoria Got a Raise

CATHERINE RAMPELL

Dollars to doughnuts.

In the first quarter of this year, the average weekly wage in the United States increased by 5.2 percent, to $935, compared to the same period last year. But in Peoria County, Ill., workers received an average raise of 18.9 percent, to $944.

Dollars to doughnuts.

That’s according to a report released Thursday by the Bureau of Labor Statistics on employment and pay for the 322 largest counties.

The county with the biggest cut in average weekly wages was Williamson County, Tex., where wages fell 3.8 percent, to $953.

In raw dollar figures, New York County (Manhattan) once again had the highest average weekly wage, at $2,634, and the biggest raise, at $222 (9.2 percent).

The county with the biggest increase in employment was also in the Midwest: Elkhart County, Ind., which gained 6.2 percent more jobs over the year, compared to the national average of 1.2 percent job growth. Elkhart County was primarily buoyed by manufacturing, which added 5,125 jobs over the year (12.4 percent).

On the other hand, Sacramento County, Calif., lost the highest percentage of jobs of all the major counties. Its employment fell by 1.6 percent year over year.

The Education Bonus and the Gender Gap

We at Economix have been fairly persistent in demonstrating why college is worth it. Say it together, now: you are overwhelmingly likely to earn more.

A new study from the Census Bureau confirms that the more education you get, the better off you are. A worker with a professional degree will receive median annual earnings nearly four times those of a worker with just a high school diploma, for example, and 87 percent higher than those of workers with bachelor’s degrees. (A post by our colleagues at SchoolBook also looks at the findings.)

But though the study concludes that education is the most important determinant of future earnings, the impact of demographic factors is still significant among those with comparable education levels. And even discounting other considerations, the gender gap is striking.

The Census study, by Tiffany A. Julian and Robert A. Kominski, looked at lifetime earnings for a typical worker from 25 to 64, and came up with estimates measured in 2008 dollars.

Among full-time, year-round workers, white men with professional degrees make nearly 49 percent more in lifetime earnings than white women with a comparable education level. The gender gap is narrower for blacks with professional degrees: black men with professional degrees earn 24 percent more in lifetime earnings than their female counterparts.

That gap is still pronounced at the bachelor’s degree level, where white men working full time and year round earn 40 percent more than white women with the same level of education. Black men with bachelor’s degrees earn 13 percent more than black women who also hold bachelor’s degrees.

Hispanic women appeared at the biggest disadvantage. Among those full-time, year-round workers with professional degrees, white men make 104 percent more than Hispanic women over their working lifetimes.

Still Playing Catch-Up, Across the Economy

Given that the downturn began nearly four years ago, and that the population has grown significantly since then, the economy should instead be bigger than it was before the financial crisis. But Calculated Risk, a finance blog, makes a good observation: On most major measures of economic health, the economy is still worse today than it was before the recession began.

CATHERINE RAMPELL

Dollars to doughnuts.

Here’s a chart I’ve put together showing the percentage changes in several important economic indicators since the start of the recession in December 2007. The categories are: overall economic growth (gross domestic product), jobs (nonfarm payrolls), personal income (without transfer payments from the government, like unemployment benefits), the length of the workweek, personal spending, and industrial production.

Dollars to doughnuts.

As you can see, all of these categories but one are still below where they were when the recession began. Industrial production is by far the worst off, since an index of this activity is nearly 8 percent below its level in December 2007. Second-worst is employment; today there are 5 percent — or about seven million — fewer payroll jobs than there were when the recession began.

Inflation-adjusted personal income and gross domestic product are still below the last business cycle peak, as is the average work week.

The one major indicator shown that is (barely) above its level at the start of the recession is inflation-adjusted consumer spending. Much of that growth has been subsidized by government transfer payments, however. And to further rain on this parade, remember that if the economy were healthy, consumer spending would probably be much higher today than it was before the recent recession. Just take a look at the longer-term trend:

Is Deflation Back?

Deflation has returned.

CATHERINE RAMPELL

Dollars to doughnuts.

For the first time in a year, consumer prices fell in June, according to a new report from the Commerce Department released Tuesday. The price decline was driven by energy declines, and is just one month’s data point, but even so, the figure is worrisome. The Federal Reserve pays close attention to this price index (more so, reportedly, than to the Consumer Price Index released by the Labor Department); and you may recall that part of the reason the Federal Reserve engaged in quantitative easing was the threat of a deflationary spiral.

Dollars to doughnuts.

The Commerce Department’s report delivered other bad news, too.

Nominal personal income increased by just 0.1 percent in June — and the increase was due to higher government transfer payments (like unemployment benefits) and capital gains income, not wages and salaries.

In fact, private wage and salary income fell in June.

None of these facts bode well for growth in the third quarter of this year, given that the economy is so dependent on consumer spending. And the austerity measures created by the recent debt ceiling deal look unlikely to make things better.