Peter Ferrara has conducted a study in which he identifies three demographic factors that have contributed to today's high poverty rate:
- Lower income populations have stopped working: In 1960, nearly 67% of households in the bottom income quintile were headed by working persons. In 1991, 33% of households in the bottom quintile were headed by working persons with only 11% working full time, year round. Today, on 2.7% of Americans working full time and year round live in poverty.
- The "poverty trap" encourages welfare dependency: When those who live in poverty enter the workforce, they are now subject to taxes on their rising income.
- The breakup of the nuclear family: Female-headed households with children have a poverty rate of 44.5%. Married couples with children have a poverty rate of 7.8 %.
What can be done? Ferrara suggests using a "work safety net" approach that reforms all federal programs by making them block grants, like those used in President Clinton's 1996 welfare reforms. Here's how this approach would work:
- Welfare administrators, charities, local business groups, and churches would be responsible for organizing local employers to offer private, minimum-wage job opportunities.
- Every able-bodied American who shows up at the local welfare office would be guaranteed a minimum-wage work assignment for a full day's work.
- Those who live in poverty would be incentivized to take these jobs because they could not receive federal benefits otherwise.
- This approach would eliminate the poverty trap, as increasing income would not reduce benefits. Eventually, these temporary, minimum-wage jobs could lead to permanent employment and associated wage gains, as workers would gain skills and experience, and as new work opportunities become available.
The current federal minimum wage, plus the Earned Income Tax Credit, plus the child tax credit add up to more than the poverty line for every possible family combination in the United States. Viewed in this way, the "work safety net" approach has the potential to eliminate poverty completely in the United States.
Let the discussion begin...
To read Peter Ferrara's study, click on the following link:
"Liberating the Poor from Poverty."