Print-Friendly Version    

The median income of U.S. households was $46,326 in 2005, below the 2000 level, and 12.6 percent or 37 million Americans were poor, with incomes below $19,806 for a family with two children under 18. Some 16 percent of US residents, about 47 million people, did not have health insurance in 2005. Overall, the highest-income 20 percent of US households received over half of US income, and the number of poor Americans has remained stable at 37 million.

The US unemployment insurance system has since 1935 provided cash payments to workers who lost their jobs. States administer the program under federal guidelines, collecting $41 billion in 2004 to provide an average $262 a week to 8.8 million jobless workers for up to 26 weeks (employers pay up to almost six percent of the first $7,000 in worker earnings to cover the cost of the program).

However, tightening eligibility standards mean that less than a third of the jobless today get UI benefits, even though the average duration of unemployment rose from 12 weeks in the 1970s to 16 weeks today. Proposals to reform the UI system focus on using UI to provide a subsidy to laid-off workers who take lower-wage jobs and to cover the self-employed.

Minimum Wage. The federal minimum wage has been $5.15 an hour since 1997. A worker employed 2,000 hours at $5.15 would earn $10,300, or less than the poverty line for an individual. Average hourly earnings have increased slower than productivity, helping to explain rising corporate profits.

By mid-2006, 21 states had raised their minimum wages above the federal minimum wage, and initiatives to raise minimum wages were on the ballot in 10 states. The House approved a bill that would raise the minimum wage to $7.25 an hour by June 2009. Senate Democrats blocked it in August 2006, saying that it included too many tax breaks for the wealthy. The real value of the federal minimum wage was at its peak in the decade between the late 1960s and late 1970s.

The Chicago City Council in July 2006 approved an ordinance on a 35-14 vote requiring "big box" stores, like Wal-Mart and Home Depot, to pay a minimum wage of $10 an hour by 2010 and provide at least $3 an hour worth of benefits. Retailers said the ordinance would slow job creation; supporters said a living wage was needed to reduce the ranks of the working poor. The mayor vetoed the ordinance, and a few council members changed their votes, so the measure ultimately failed. The Illinois state minimum wage is $6.50 an hour.

Wal-Mart, with 1.3 million employees is the largest US private employer. In October 2006 Wal-Mart announced plans for a cheaper, more flexible work force by capping wages, using more part-time workers and scheduling more workers on nights and weekends when stores are busiest. About 1,900 of Wal-Mart's 4,000 stores are open 24 hours.

Wal-Mart had about 20 percent part-time workers in the past; it now has 30 percent part-timers, and their share is rising, with the wage and benefit savings offsetting the lack of experience among part-timers, according to experts. Capping the wages of permanent workers may promote turnover, speeding up the shift to part-time workers. In an October 2005 memo, Wal-Mart noted that an employee with seven years experience costs 55 percent more than an employee with one year's experience, with no difference in productivity.

In October 2006, a Philadelphia jury concluded that Wal-Mart must pay $78 million to its current and former Pennsylvania employees for not paying them when they worked through rest breaks and worked off the clock. Wal-Mart said it would appeal the verdict. In December 2005, a California jury ordered Wal-Mart to pay employees who did not take 30-minute meal breaks; Wal-Mart is appealing that decision.

Health. Some nine million children lack health insurance, but most live in two-parent families in which at least one parent is working but does not obtain coverage from the employer or does not choose to participate in the plan offered by the employer.

In most states, families with incomes up to twice the federal poverty level - for a family of three, $33,200 in 2006 - can enroll their children in the State Children's Health Insurance Program, or SCHIP, a federal and state government-sponsored plan to aid people whose incomes exceed the limit for Medicare. About six million of the nine million uninsured children would qualify for some government-sponsored insurance program, but many families are unaware of the programs.

A federal judge overturned Maryland's Fair Share Health Care Fund Act in July 2006, which would have required employers with more than 10,000 workers in the state to pay at least eight percent of their payroll for health-care coverage for their employees or pay a penalty to the state's health-insurance program. Eight non-government entities in Maryland employ more than 10,000 workers, and only Wal-Mart was below the eight percent threshold. The judge ruled that the Maryland law violated the federal Employee Retirement Income Security Act of 1974 by forcing employers to provide a specific level of health-care coverage for their workers.

Poverty. Some 37 million US residents had incomes below the poverty line in 2004. Two-thirds were white, but the poverty rate was higher for Blacks-- a quarter were poor. The poverty line was set in the early 1960s as three times the money USDA estimated was needed to feed a family, $19,806 for a family of four in 2005.

The income used to determine poverty includes income before taxes and government benefits, but excludes the value of non-cash benefits such as food stamps, Medicaid and housing assistance. The major exclusion is the Earned Income Tax Credit, which provided $38 billion in 2005 to poor residents with children.

A higher percentage of nonmetro residents have had incomes below the poverty line since poverty measures were developed in the early 1960s. However, if the lower cost of living in nonmetro areas is taken into account with Fair Market Rent data, poverty is lower in rural than urban areas, with many of the elderly poor in rural areas are reclassified as having incomes above the poverty line. FMR data are the cost of gross rent including utilities for the 40th percentile of standard quality housing.

The US has struggled to develop an anti-poverty program that provides sufficient income for the poor not expected to work and preserves work incentives for those expected to work. Many economists favor a negative income tax, which would provide a basic level of support sufficient for those not expected to work, and then reduce the payment as earnings rise; the income tax is considered negative because those with low incomes get government payments, while those with high incomes pay taxes.

President Nixon proposed a Family Assistance Program in 1972 that would have guaranteed every US adult the equivalent of about $2,700 a year in 2006 dollars and every child $1,620. Congress rejected this negative income tax, with liberals saying it was too stingy, and conservatives saying it was too expensive. Instead, Congress created Supplemental Security Income for the poor not expected to work, which in 2005 paid an average $450 a month to 7.2 million people, and the Earned Income Tax Credit for low-earners with children.

Children in families with incomes up to 185 percent of poverty-level incomes are eligible for reduced-price school lunches. Families with incomes between 130 and 240 percent of the poverty line have volatile incomes, crossing the 185-percent line about five times in a typical year. This income volatility makes it hard for schools to accurately determine who is eligible for reduced-price school lunches.

Welfare Reform. Welfare reforms signed into law on August 22, 1996 put limits on cash payments to poor people. These reforms, plus an enlarged work support system and rapid economic and job growth in the late 1990s, sharply reduced the number of recipients of cash assistance. In the past decade, the number of families receiving cash assistance fell from five million in 1994 to 1.9 million in 2005. Only 50 percent of those seemingly eligible for welfare benefits are receiving them, down from 80 percent in the mid-1990s.

Employment of single mothers is up to 69 percent, from 62 percent in 1995, and child support collections have nearly doubled. The mentality of both welfare agencies and poor women changed, with cash assistance seen as a temporary crutch rather than a long-term source of support. However, the previous welfare poor have often become the working poor. There are 1.2 million so-called "dis-connected" poor mothers in "no work, no welfare households," that is, without cash benefits or employment.

Over half of welfare spending goes for non-cash assistance, providing child care, education, training and other services. Beginning October 1, 2006, welfare reforms enter Stage 2, as the federal government requires more recipients of cash assistance to work or work more hours, partially reversing the original idea of the 1996 reforms, which was to allow states to decide how to spend the federal government's welfare funds.

Some states are complaining that the federal government reneged on its promise of capped block grants in exchange for state flexibility in how to spend welfare dollars. House Republicans argued that fewer than a third of adults receiving cash assistance were working, which Democrats said reflected the state success in getting recipients into work. However, Republicans pushed for changes that require states to have half of adult recipients employed at least 30 hours a week (up from 20 hours), and federal regulations tightened the definition of work.

The Earned Income Tax Credit is the largest US anti-poverty program, providing $34 billion in federal funds to 22 million American families in 2003; 18 states have their own EITCs to supplement federal EITC benefits. The EITC began in 1975 to offset rising Social Security taxes for low-earners with children under 19. Full-time year-round workers earning the minimum wage receive the maximum credit, while those earning $15 or more an hour are generally not eligible for EITC benefits. The largest group of EITC recipients are single mothers in their early 30s with one or two children.

Former Senator John Edwards (D-NC) may make reducing poverty a centerpiece of a 2008 bid for the presidency. According to Edwards, raising the federal minimum wage from $5.15 an hour to $7.50 would lift a million Americans out of poverty; Edwards argues that the US could eliminate poverty with an additional $15 to $20 billion a year in spending.

Robert D. Putnam's book, Bowling Alone, noted that since the mid-1960s, the number of friends reported by Americans has been shrinking, and that fewer Americans contribute their blood and money to worthy causes. Since the mid-1960s, there has been growing isolation, reflecting two-earner families, longer commutes and changing values.

The No Child Left Behind Act aims to make all American students proficient in reading and math by 2014 by requiring states to test students and measure their progress. If test scores do not improve, students have the right to transfer out of "failing schools," but few do.

Steven Greenhouse and Michael Barbaro, " Wal-Mart to Add Wage Caps and Part-Timers," New York Times, October 2, 2006. Edmund L. Andrews, "Democrats Link Fortunes to Rise in Minimum Wage," New York Times, July 13, 2006.