Poverty
O’S Chapter 14
(c) Allen C. Goodman, 2006
Is poverty urban?
• In US we define a poor household as one whose total
income is less than the amount required to satisfy
“minimum needs.”
Poverty in the United States
Source: http://www.census.gov/prod/2003pubs/p60-222.pdf
Poverty Population -- Location
2001 below poverty level 2002 below poverty level Change in poverty
(2002 less 2001)
Characteristic Number 90% CI Pct. 90% CI Number 90% CI Pct. 90% CI Number 90% CI Pct. 90% CI
Inside metropolitan areas 25,446 575 11.1 0.3 27,096 591 11.6 0.3 *1,649 612 *0.5 0.3
Inside Central Cities 13,394 427 16.5 0.5 13,784 433 16.7 0.5 390 451 0.2 0.5
Outside central cities 12,052 406 8.2 0.3 13,311 426 8.9 0.3 *1,259 436 *0.7 0.3
Outside metropolitan
areas 7,460 394 14.2 0.8 7,474 395 14.2 0.8 14 415 - 0.8
• Not exclusively urban
• More in Central City than elsewhere
Poverty by Race
Poverty Numbers - 2002
Under 18 Ages 18 - 64 Ages 65 +
Total Poverty Pct. Total Poverty Pct. Total Poverty Pct.
All Races 72,696 12,133 16.7 178,388 18,861 10.6 34,234 3,576 10.4
White Alone 55,703 7,549 13.6 144,694 13,178 9.1 29,980 2,739 9.1
Black Alone 11,275 3,645 32.3 21,547 4,277 19.9 2,856 680 23.8
Asian Alone 2,683 315 11.7 7,881 764 9.7 977 82 8.4
Hispanic 13,210 3,782 28.6 23,952 4,334 18.1 2,053 439 21.4
Reasons for Poverty
• Unemployment -- Large proportion of
poor households lack full-time workers.
• Low wages -- If one is working at
minimum wage, it doesn’t provide
enough income to lift households out of
poverty.
Poverty and Urban Areas
• We are seeing that segregation occurs. With
jobs moving into the suburbs, we may see a
“spatial mismatch” between people and jobs.
This is related to segregation. Why?
Long commutes which are costly and
reduce net wage.
Long commutes which may lead to
unemployment.
Poor information about potential jobs.
Why segregation?
• Voluntary?
– Evidence suggest most Blacks would prefer
to live in integrated neighborhoods
• Lower incomes
– Some explanatory power. Some studies
suggest that if Black incomes were higher
there would be less segregation, although it
would not be eliminated.
Why segregation?
• Racial prejudice
– Studies show that Whites prefer at least
80/20
– Blacks prefer 50/50.
• Agent discrimination
– Roychoudhury and Goodman found this to
be the case with housing audit data for
Detroit. Discuss.
• Exclusionary zoning
– Discriminates against Blacks.
Impacts of Segregation
Effects of Segregation
• Cutler and Glaeser find: 1.0
0.88
– All else equal, young 0.9
0.8
black adults are worse off 0.7
Elasticity
0.6
in more segregated cities 0.5
0.49
• Earn less income 0.4 0.29
0.3
• Have lower HS 0.2
graduation rates 0.1
0.0
• Are more likely to Dropping out Neither in Single
of HS school or m otherhood
become single mothers. w orking
Elas of outcome to 1% ↑ in segregation
Why?
• Fewer role models?
• Is it the case that the lack of contacts with
positive role models much worse
outcomes.
• Suggests for Detroit that if D = 60 rather
than 80, this implies a -0.29 * (28.6%↓ in
segregation) = 8.3% decrease in single
motherhood. Do we believe this?
Back to spatial mismatch
• Is it race or space?
– Ellwood felt that spatial factors were
overrated since Black youths didn’t work in
their own neighborhoods anyway, so the
location of jobs was relatively unimportant.
– Ihlandfeldt found:
• Inferior access to employment opportunities
explains between 24 and 27% of gap between
Black and White employment rates.
• Spatial mismatch is more important in big metro
areas.
Education and Poverty
• How do firms hire Demand = MRPlabor
workers.
wage rate
• They demand
labor. They stop if
MRP equals the
wage rate.
• Discuss
Labo L*
r
Education and Poverty
• More education -> Demand = MRPlabor
greater MRP.
wage rate
• More likely to get
hired at a higher
wage.
Labo L*
r
Earnings and Education
Differences in Earnings - 1995
White Black Hispanic
All Workers 27556 20537 18262
% of white 74.5% 66.3%
HS grad 22154 17072 18333
% of white 77.1% 82.8%
College grad 37711 29666 30602
% of white 78.7% 81.1%
Race and Earnings
• About 3/4 of gap between White and
Black earnings can be explained by
differences in:
– education
– age
– skills
– location.
• Rest (12 – 25%) may be related to
discrimination.
Discrimination
• Prejudiced firm Demand = MRPlabor
doesn’t like to
wage rate
Prejudiced Demand
hire Blacks. Foregone
• Sees it as a lower
MRP.
• Pays more to
White workers
L**
• Foregoes profit. L*
Labo
r
Statistical Discrimination
• Suppose that an employer has to choose
between a White or a Black applicant.
Wants to hire worker with higher VMP.
• Believes that, on average, due to
education and work experience, W is
more productive than B.
• “Better” choice is W, based on imperfect
information. It is STILL discrimination.
Statistical Discrimination
• Similar story has occurred w/ mortgage
lending.
• Belief that, on average, due to current
and future wealth (which we can’t always
see), W is a better risk than B.
• “Better” choice is W, based on imperfect
information. It is STILL discrimination.