Poverty and Unemployment in the United States
Learning Outcomes
- Describe the relationship between poverty, work, and unemployment
Poverty in the United States
When people lose their jobs during a recession or in a changing job market, it takes longer to find a new one, if they can find one at all. Also, according to (Hicks 2013), those with higher human capital, or years of education, have a much more difficult time finding work. When people do find a job, it is often at a much lower wage or not full time. This can force people into poverty. In the United States, we tend to have what is called relative poverty, defined as being unable to live the lifestyle of the average person in your country. This must be contrasted with the absolute poverty that is frequently found in underdeveloped countries and defined as the inability, or near-inability, to afford basic necessities such as food (Byrns 2011). (You can review more about poverty and differences in terminology in the module on inequality.) [1]
Try It
The Historical U.S. Unemployment Rate
Examining unemployment can help us better understand poverty in the United States. Let’s look at what the unemployment rate is really telling us. The unemployment rate is not the percentage of the total adult population without jobs, but rather the percentage of adults who are in the labor force but who do not have jobs. Even with the “out of the labor force” category, there are still some people that are mislabeled in the categorization of employed, unemployed, or out of the labor force. There are some people who have only part time or temporary jobs and who are looking for full time and permanent employment that are counted as employed, though they are not employed in the way they would like or need to be. Additionally, there are individuals who are underemployed. This includes those that are trained or skilled for one type or level of work who are working in a lower paying job or one that does not utilize their skills. For example, an individual with a college degree in finance who is working as a sales clerk would be considered underemployed. They are, however, also counted in the employed group. All of these individuals fall under the umbrella of the term “hidden unemployment.” Discouraged workers, those who have stopped looking for employment and, hence, are no longer counted in the unemployed also fall into this group.
Let’s look at how unemployment rates have changed over time and how various groups of people are affected by unemployment differently. Figure 1 shows the historical pattern of U.S. unemployment since 1948. While it clearly fluctuates over time, the unemployment rate seems to return to a range of 4% to 6%. There does not seem to be a long-term trend toward the rate moving generally higher or generally lower.
As we look at this data, several patterns stand out:
- Unemployment rates do fluctuate over time. During the deep recessions of the early 1980s and of 2007–2009, unemployment reached roughly 10%. For comparison, during the Great Depression of the 1930s, the unemployment rate reached almost 25% of the labor force.
- Unemployment rates in the late 1990s and into the mid-2000s were rather low by historical standards. The unemployment rate was below 5% from 1997 to 2000 and near 5% during almost all of 2006–2007. The previous time unemployment had been less than 5% for three consecutive years was three decades earlier, from 1968 to 1970. It has returned to this level in 2016.
- The unemployment rate never falls all the way to zero. Indeed, it never seems to get below 3%—and it stays that low only for very short periods. (Reasons why this is the case will be discussed later.)
- The timing of rises and falls in unemployment matches fairly well with the timing of upswings and downswings in the overall economy. During periods of recession and depression, unemployment is high. During periods of economic growth, unemployment tends to be lower.
- No significant upward or downward trend in unemployment rates is apparent. This point is especially worth noting because the U.S. population nearly quadrupled from 76 million in 1900 to over 314 million by 2012. Moreover, a higher proportion of U.S. adults are now in the paid workforce, because women have entered the paid labor force in significant numbers in recent decades. Women composed 18% of the paid workforce in 1900 and nearly half of the paid workforce in 2012. But despite the increased number of workers, as well as other economic events like globalization and the continuous invention of new technologies, the economy has provided jobs without causing any long-term upward or downward trend in unemployment rates.
Unemployment Rates by Group
Unemployment is not distributed evenly across the U.S. population. Figure 2 shows unemployment rates broken down in various ways: by gender, age, and race/ethnicity.
The unemployment rate for women had historically tended to be higher than the unemployment rate for men, perhaps reflecting the historical pattern that women were seen as “secondary” earners. By about 1980, however, the unemployment rate for women was essentially the same as that for men, as shown in 2(a). During the recession of 2008–2009, however, the unemployment rate climbed higher for men than for women.
Younger workers tend to have higher unemployment, while middle-aged workers tend to have lower unemployment, probably because the middle-aged workers feel the responsibility of needing to have a job more heavily, in addition to having more experience. Younger workers move in and out of jobs (and in and out of the labor force) more easily. Elderly workers have extremely low rates of unemployment, because those who do not have jobs often exit the labor force by retiring, and thus are not counted in the unemployment statistics. Figure 2(b) shows unemployment rates for women divided by age; the pattern for men is similar.
The unemployment rate for African-Americans is substantially higher than the rate for other racial or ethnic groups, a fact that surely reflects, to some extent, a pattern of discrimination that has constrained Blacks’ labor market opportunities. However, the gaps between unemployment rates for whites and for Blacks and Hispanics diminished in the 1990s, as shown in Figure 3(c). In fact, unemployment rates for Blacks and Hispanics were at the lowest levels for several decades in the mid-2000s before rising during the Great Recession of 2008.
Finally, those with less education typically suffer higher unemployment. In early 2013, for example, the unemployment rate for those with a college degree was 3.7%; for those with some college but not a four-year degree, the unemployment rate was 6.0%; for high school graduates with no additional degree, the unemployment rate was 7.6%; and for those without a high school diploma, the unemployment rate was 10.3%. This pattern may arise because additional education offers better connections to the labor market and higher demand, or it may occur because the labor market opportunities for low-skilled workers are less attractive than the opportunities for the more highly-skilled. Because of lower pay, low-skilled workers may be less motivated to find jobs.
Thinking about Unemployment
We cannot rely on unemployment statistics to provide a clear picture of total unemployment in the United States. First, unemployment statistics do not take into account underemployment, a state in which a person accepts a lower paying, lower status job than their education and experience qualifies them to perform. Second, unemployment statistics only count those:
- who are actively looking for work
- who have not earned income from a job in the past four weeks
- who are ready, willing, and able to work
The unemployment statistics provided by the U.S. government are rarely accurate, because many of the unemployed become discouraged and stop looking for work. Not only that, but these statistics undercount the youngest and oldest workers, the chronically unemployed (e.g., homeless), and seasonal and migrant workers.
A certain amount of unemployment is a direct result of the relative inflexibility of the labor market, considered structural unemployment, which describes when there is a societal level of disjuncture between people seeking jobs and the available jobs. This mismatch can be geographic (they are hiring in California, but most unemployed live in Alabama), technological (skilled workers are replaced by machines, as in the auto industry), or can result from any sudden change in the types of jobs people are seeking versus the types of companies that are hiring.
Because of the high standard of living in the United States, many people are working at full-time jobs but are still poor by the standards of relative poverty. They are the working poor. The United States has a higher percentage of working poor than many other developed countries (Brady, Fullerton and Cross 2010). In terms of employment, the Bureau of Labor Statistics defines the working poor as those who have spent at least 27 weeks working or looking for work, and yet remain below the poverty line. Many of the facts about the working poor are as expected: Those who work only part time are more likely to be classified as working poor than those with full-time employment; higher levels of education lead to less likelihood of being among the working poor; gender and race impact ones odds of being in this group and those with children under 18 are four times more likely than those without children to fall into this category. In 2016, the working poor rate, which is the the ratio of the working poor to all individuals in the labor force for at lest 27 weeks or more, was 4.9 percent, or 7.6 million Americans, down from 2015. In that same year women were more likely than men to be among the working poor. The rate for Blacks and Hispanics were 8.7 percent and 8.5 percent, respectively, compared with 4.3 percent for whites and 3.5 percent for Asians (U.S. Bureau of Labor Statistics 2016).
Age also plays a factor in being classified as the working poor. The working-poor rate of employed youths 20 to 24 years old was 8.7 percent in 2016, considerably higher than the rates for workers ages 35 to 44 (5.6 percent) and 55 to 64 (2.8 percent). Workers age 65 and older had a working-poor rate of 1.5 percent. (Chart 1) [2]
MillenNials and Poverty
Millennials, or Americans born between 1982 and 2000, now number 83.1 million and represent more than one quarter of the nation’s population. Young adults today are marrying at lower rates than previous generations, and self-reports suggest that a lack of economic security including wages, poverty, and housing (e.g., housing costs and living arrangements) are all associated with lower marriage rates among young adults. [3]. According to Pew Research (2017) more millennial households are in poverty than households headed by any other generation. In 2016, of the approximate 17 million U.S. household living in poverty, 5.3 million were headed by a millennial.[4]\
Most developed countries such as the United States protect their citizens from absolute poverty by providing different levels of social services such as unemployment insurance, welfare, food assistance, and so on. They may also provide job training and retraining so that people can reenter the job market. In the past, the elderly were particularly vulnerable to falling into poverty after they stopped working; however, pensions, retirement plans, and Social Security were designed to help prevent this. A major concern in the United States is the rising number of young people growing up in poverty. Growing up poor can cut off access to the education and services people need to move out of poverty and into stable employment. As we saw, more education was often a key to stability, and those raised in poverty are the ones least able to find well-paying work, perpetuating a cycle.
There is a lively debate about how much support local, state, and federal governments should give to help the unemployed and underemployed. The decisions made on these issues will have a profound effect on working in the United States.
Think It Over
- Why do you think millennials have such a high number of households living in poverty?
glossary
[glossary-page]
[glossary-term]discouraged workers:[/glossary-term]
[glossary-definition]those who have stopped looking for employment due to the lack of suitable positions available[/glossary-definition]
[glossary-term]structural unemployment:[/glossary-term]
[glossary-definition]a societal level of disjuncture between people seeking jobs and the jobs that are available[/glossary-definition]
[glossary-term]out of the labor force:[/glossary-term]
[glossary-definition]those who are not working and not looking for work—whether they want employment or not; also termed “not in the labor force”[/glossary-definition]
[glossary-term]underemployed:[/glossary-term]
[glossary-definition]individuals who are employed in a job that is below their skills[/glossary-definition]
[glossary-term]underemployment:[/glossary-term]
[glossary-definition]a state in which a person accepts a lower paying, lower status job than his or her education and experience qualifies him or her to perform[/glossary-definition][/glossary-page]
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- Hicks, M. J. (2013). Notes On: Labor Markets After the Great Recession: Unemployment and Policy for Indiana. Labor Law Journal, 64(2), 103–113. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=88045408&site=ehost-live ↵
- BLS Reports. A profile of the working poor, 2016. Retrieved from https://www.bls.gov/opub/reports/working-poor/2016/home.htm. ↵
- Gurrentz, Benjamin (April 2018) Millennial Marriage: How Much Does Economic Security Matter to Marriage Rates for Young Adults? Retrieved from https://www.census.gov/library/working-papers/2018/demo/SEHSD-WP2018-09.html ↵
- Fry, Richard (2017). 5 facts about Millennial households. Pew Research Center. Retrieved from: https://www.pewresearch.org/fact-tank/2017/09/06/5-facts-about-millennial-households/ ↵