Reducing Intergenerational Poverty (2024) / Chapter Skim
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6 Children's Family Income, Wealth, and Parental Employment
6 Children's Family Income, Wealth, and Parental Employment
Pages 139-166
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From page 139... ...
Persistently low levels of family income, wealth, and employment may therefore be important drivers of intergenerational poverty, while policies that increase parental incomes, wealth, and employment may increase intergenerational mobility. In assessing the role of family economic factors as a driver of intergenerational poverty, we begin with data on trends in U.S.
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From page 140... ...
TRENDS IN INCOME AND EARNINGS Family Income and Child Poverty To determine the extent to which family income is associated with intergenerational poverty, it is important to examine how intergenerational mobility is affected by both the absolute levels of family income and earnings and the degree of income and earnings inequality between low- and higher-skilled parents. Poverty persistence across generations would seem to relate most closely to the absolute levels of children's family income, in both childhood and adulthood.
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From page 141... ...
household income of children in the bottom, middle, and top income quintiles, 1967–2019. NOTES: Figure 6-1 shows the average household incomes for children in the bottom, middle, and top income quintile.
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The near doubling of household incomes at the bottom end of the distribution over the past half century has significantly reduced child poverty. Using an Supplemental Poverty Measure (SPM)
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From page 143... ...
. Conclusion 6-1: When tax credits, Supplemental Nutrition Assistance Program benefits, and other noncash sources are counted as part of in come, the family incomes of children on the bottom rungs of the income distribution have nearly doubled over the past 40 years, and rates of child poverty have been cut in half.
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. Like family incomes, the earnings of low- and middle-skilled workers have risen more slowly than the earnings of higher-skilled workers (Figure 6-3)
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are behind the increasing gap between low- and higherskilled workers, since many of these changes have favored and rewarded workers with college degrees more than less-skilled workers. Technological changes -- and globalization -- have restructured the labor market by reducing the amount of "routine" work required by middle- and high-wage jobs.
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From page 146... ...
The labor market that children in families living below poverty will enter will continue to evolve, as new forms of robotics and artificial intelligence (AI) become established throughout the economy.
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From page 147... ...
suggests that minimum wage increases have larger long-run negative effects, and that large increases are particularly problematic, although there is disagreement about these conclusions as well. Economists also disagree about the extent to which higher minimum wages can reduce poverty.
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. This is a particular challenge for low-wage women, since the cost of child care relative to their wages can be very high (Borowsky et al., 2022)
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From page 149... ...
Rigorous evidence shows that expansions of the federal Child Care and Development Fund's child care subsidies prior to the revision of that program in 2014 increased maternal employment, but also may have worsened child development outcomes (Herbst & Tekin, 2010; see also Baker et al., 2019, and Chapter 4)
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From page 150... ...
-- especially in the case of previously incarcerated people. The lower employment rates and earnings of Black men reentering the labor market after incarceration reflect their lower skills and work experience, but also their lack of access to social networks that might help them get jobs and, as confirmed in a number of rigorous studies, clear discrimination by employers (Holzer et al., 2003; Pager, 2003)
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. But the largely correlational evidence on which that conclusion is based does not prove that policydriven increases in the family incomes of children who are in households living below poverty would reduce intergenerational poverty.
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(2016) studies provide strong evidence that cash or near-cash programs can reduce intergenerational poverty.
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study of the roll-out of the Food Stamp program, Bastian and Michelmore (2018) found that EITC-induced income increases in adolescence were more potent predictors of children's adult outcomes than were income increases earlier in childhood.
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Other Noteworthy Causal Studies of the Intergenerational Impacts of Income Supplementation Among the relatively few recent studies of the possible intergenerational benefits of increases in family income, in the absence of increases in employment, is the Jacob et al.
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Parental Employment and Intergenerational Outcomes As noted above, programs like the EITC increase both family incomes and parental employment, and it is unclear which effect is responsible for its beneficial impacts on children. Studies of the effect of incomes on intergenerational poverty are reviewed above.
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The estimated wage and income elasticities of labor supply in the United States suggest that employment will rise when the wages of the poor are subsidized, but fall if these subsidies are replaced with unconditional cash transfers, including child tax credits. Corinth et al.
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, but there has been no rigorous research on this question. Conclusion 6-5: Higher parental earnings and employment among low-income families can potentially reduce intergenerational poverty by raising family income, increasing access to the Earned Income Tax Credit (EITC)
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From page 158... ...
In the case of intergenerational poverty, low-income families with higher net worth may be able to use their wealth to pay for their children's education or provide a more stable, safer, or healthier environment for them as they grow up; this, in turn, might reduce the children's chances of being low
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. Household Wealth and Intergenerational Outcomes Correlational Studies Parental wealth or its components are highly predictive of child outcomes, based on a number of correlational studies.
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Fox (2016) found heterogeneous associations between parental wealth and income mobility among Black and White households, with increasing upward income mobility for low-income White families but not low-income Black families.
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All told, the literature offers no strong evidence as to whether increases in the wealth of low-income families might be expected to reduce intergenerational poverty. Conclusion 6-6: Controlling for income, family wealth is strongly cor related with children's adult outcomes.
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From page 162... ...
This leads us to consider potential expansions to tax credits that would produce such increases. The policy research literature does not tell us from which income levels increases are most effective at reducing intergenerational poverty, nor does it identify the most powerful combinations of increased income and employment for enhancing intergenerational mobility.
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From page 163... ...
That report estimated the an nual cost of this EITC expansion to be $20.4 billion and predicted that it would increase employment among low-income adults by 548,000 and reduce short-run poverty among children by 15%. • EITC Option 2: Expand the Earned Income Tax Credit by increas ing payments along the phase-in and flat portions of the EITC schedule.
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164 FIGURE 6-7 EITC expansion options. SOURCE: Based on committee-created simulations under different policy options for structuring an EITC expansion.
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• Combine an expansion of the EITC with expanding coverage of the Child Care and Development Fund block grant to provide more generous and timely reimbursement for the child care expenses of low-income parents. • Combine an expansion of the EITC with expanding coverage of the Child Care and Development Fund block grant along the lines of what was implemented temporarily for the 2021 tax year.
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From page 166... ...
• Restructure the Child and Dependent Care Tax Credit to provide more generous and timely reimbursement for the child care ex penses of low-income parents. Steps to Increase the Wealth of Low-Income Households Attempts to increase the wealth of low-income households and improve the short-term outcomes of these families and longer-term outcomes of their children have focused on encouraging the accumulation of savings, for example through child development accounts, and the acquisition of assets, such as by becoming a homeowner (see Appendix C: Chapter 6)
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