High concentration of poverty is a threat to our economy

The U.S. Census Bureau earlier this week released a report looking the distribution of poverty geographically across the U.S. economy in 2010. The results are troubling for anyone concerned about creating a more inclusive, dynamic and equitable economy.

The report finds that a quarter (25 percent) of Americans that year resided in an area where at least 20 percent of the population lived in poverty. To put that number in context, the overall poverty rate was just under 15 percent.

To be clear, this isn’t the share of people who themselves are in poverty and who live in high-poverty areas. These data show that 25 percent of all Americans live in high-poverty areas. For Americans living in poverty, the rate is about half.

The concentration of poverty varies quite a bit across regions in the United States as well by education level. But the largest variation in poverty concentration is by race. Seventeen percent of white, non-Hispanic Americans live in a high-poverty area, according to the Census Bureau. Fifty percent of all black Americans live in high-poverty areas. That rate is higher than the rate of white Americans who themselves are in poverty, 38 percent. To put this another way, any black American, in poverty or not, is more likely to live in a high-poverty area than a white American who is actually in poverty. (To learn more about this issue, check out New York University sociologist Patrick Sharkey’s book, “Stuck in Place.)

The consequences of poverty concentration are significant and malignant. Harvard University economists Raj Chetty and Nathaniel Hendren alongside University of California, Berkeley economists Patrick Kline and Emmanuel Saez find that children raised in areas with higher economic segregation are less likely to be economically mobile. Segregation also interacts with primary and secondary education as low-income areas are less likely to have adequate schools, which in turn reduces mobility and human capital development, a key asset for economic growth.

And those are just the economic consequences. As the new Census Bureau report points out, high-poverty areas have higher levels of violence and crime as well as lower quality housing.

Segregation by race and income is nefarious for many reasons. For the people living in these neighborhoods, they are denied access to opportunity. And that lack of opportunity hurts the entire U.S. economy by denying us the fruits of their untapped skills and talents.

To be clear, the Census Bureau data do not include the effects on poverty of tax and transfer programs, such as the Supplemental Nutrition Assistance Program and the Earned Income Tax Credit. According to researchers at Columbia University, these and other programs have put a significant dent in poverty.

These poverty trends in the U.S. economy are troubling, to say the least. Policymakers need to be aware of these disparities, especially when it comes to matters of race, and understand the implications for future U.S. economic competitiveness. Possible policy solutions hinge on grappling with the implications of these data findings.

July 2, 2014



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