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Citation: Journal of Economic Issues June 1998, v32, n2, p279(7)
Author: Hill, Lewis E.
Title: The institutional economics of poverty: an inquiry into
the causes and effects of poverty. by Lewis E. Hill
------------------------------------------------------------------------
COPYRIGHT 1998 Journal of Economic Issues-Association for Evolutionary
Economics
Remark Upon Receiving the Veblen-Commons Award
The thesis of this essay is that the failure of the American people to invest
adequately in the human capital represented by impoverished children is both
the most important cause and the most tragic effect of poverty in the United
States. Impoverished parents do not have, and the welfare system does not
provide them with, adequate means to make the necessary investment in their
children to lift them out of a life of poverty. The types of investments in
human capital that are both most important and most likely to be inadequate
for impoverished children include nutrition, health care, and education. The
inadequacy of these kinds of investment in the human capital represented by
impoverished children condemns them to lifelong poverty through succeeding
generations. Nobel Laureate Gary Becker has investigated this problem and has
concluded that "the case is overwhelming that investments in human capital are
one of the most effective ways to raise the poor to decent levels of income
and health" [Becker 1995, 7].
More than one-fifth of all American children were impoverished in 1993. The
rate of childhood poverty was higher in the United States than in most other
Western nations [Bergmann 1996, 1; Duncan and Brooks-Gunn 1997, 1]. "American
children are twice as likely to be poor as Canadian children, 3 times as
likely to be poor as British children, 4 times as likely to be poor as French
children, and 7 to 13 times as likely to be poor as German, Dutch, and Swedish
children" [Lavelle 1995, 38]. Welfare does not eliminate poverty. In the early
1990s, the combined benefits from Aid to Families with Dependent Children and
Food Stamps amounted to only 72 percent of the poverty line for a mother with
two children in a median state [Danziger and Gottschalk 1995, 91]. The
children of working poor mothers are more endangered than children on welfare
because they are not eligible for Medicaid, and the cost of child care
averages more than 25 percent of their mother's income [Chase-Lansdale and
Brooks-Gunn 1995, 161-168; Lavelle 1995, 104].
Persistent poverty usually causes chronic malnutrition, which produces
extremely detrimental consequences for children. The severity of these
detrimental consequences is influenced by the intensity and duration of the
poverty and by the age of the impoverished child. Malnutrition during infancy
and childhood can damage their immune system and produce a wide variety of
negative health outcomes [Sidel 1996, 143-147]. Moreover, chronic malnutrition
adversely affects the development of the central nervous system and can cause
permanent brain damage and mental retardation. Chronically inadequate
nutrition inhibits the development of cognitive ability and social skills.
Learning disabilities are an almost inevitable result of chronic malnutrition
during infancy and childhood. All of these negative physical and mental
outcomes of infant and childhood poverty combine to cause learning failure and
to limit academic performance [Duncan and Brooks-Gunn 1997, 70-99; Karp 1993,
13-30; Walker 1994, 117-135]. Impoverished children are two to three times as
likely to suffer from physical and mental disabilities as children who are not
poor [Sidel 1996, 142-144; Lavelle 1995, 131].
These physical and mental disabilities, which have been caused by
malnutrition, are greatly exacerbated by the very low quality and the woefully
inadequate quantity of health care that impoverished children receive. Only
about half of poor children are eligible for Medicaid, but even these children
receive health care that is substantially inferior to the health care that
children who are not poor receive. Most Medicaid providers are over worked and
under paid. The access of poor children to Medicaid care is frequently limited
by the inconvenient location of medical facilities and the long waiting time
for service. For these and other reasons, Medicaid health care is likely to be
piecemeal, discontinuous, uncoordinated, inefficient, and therefore
inadequate. Medicaid providers are especially derelict in their failure to
provide adequate preventive care [Rodgers 1996, 69-128; Chase-Lansdale and
Brooks 1995, 159-169].
Although the children who are covered by Medicaid receive inferior health
care, they are more fortunate than the children of the working poor who are
ineligible for Medicaid. Financial barriers deny these impoverished children
access to the health care they need. This medical neglect causes a substantial
deterioration in the health of most of these poor children who are not covered
by Medicaid. Impoverished children are much more likely to be inadequately
immunized than children who are not poor [Chase-Lansdale and Brooks-Gunn 1995,
159-185; Sidel 1996, 146].
Most of these impoverished physically and mentally disabled children attend
our very worst schools either in central city ghettos or in impoverished
nonmetropolitan school districts with tax bases that are woefully inadequate
to finance quality education. The neighborhoods are depressed and dangerous;
the infrastructure of buildings and equipment is ancient and decrepit. The
faculty, which ranges from inexperienced to incompetent, works with totally
inadequate resources in an impossible attempt to teach the unteachable progeny
of poverty [Will and Vatter 1970, 9396; Sidel 1996, 141-143; Jargowsky 1997,
110-111]. Because of their physical disabilities, impoverished children are
irregular in their attendance; because of their mental disabilities, they fail
to learn when they are present in their schools [Sidel 1996, 142-144; Lavelle
1995, 131]. Impoverished parents usually fail to provide adequate support for
their children's quest for education; poor parents are more likely to have low
expectations for the/r children and less likely to be involved in their
schooling than more affluent parents [Handler 1995, 37].
For all of these reasons, impoverished children are very likely to receive an
inferior education. Indeed, the quality of education in schools located in
central city ghettos is likely to be so low that it is only marginally better
than no education at all. If the compensation that ghetto youths can receive
from criminal activity is considered, then additional years of schooling would
involve a significant opportunity cost. Adolescents who have lived in poverty
for four years are approximately 75 percent less likely to graduate from high
school than non-poor adolescents [Duncan and Brooks-Gunn 1997, 388-399]. The
probability that an impoverished child will graduate from college is extremely
low. Less than 4 percent of the children from the lowest quartile of families
by income graduate from college; more than 75 percent of the children from the
highest quartile of families graduate from college [Lavelle 1995, 69].
Impoverished youths who graduate from high school, but who have no education
beyond high school, fare hardly better than dropouts. During the 1950s and
1960s, most male high school graduates found secure and lucrative employment
in the manufacturing sector, but more recent changes have affected their
employment opportunities in an extremely adverse manner. Manufacturing
employment has declined drastically during recent years. Moreover, most
manufacturing plants have moved out of the central cities into suburbs that
are far beyond the commuting range of ghetto youths [Holzer 1996, 1-44].
Meanwhile, the trend toward increased automation in manufacturing has
eliminated many of the jobs of unskilled and semi-skilled laborers and has
increased the skill requirements for the remaining jobs beyond the
qualifications of high school graduates. Most good jobs in manufacturing
require at least the equivalent of an associate's degree from a community
college. The most popular method of recruiting laborers is through informal
referrals from current employees and other contacts, but this method of
recruitment inherently discriminates against disadvantaged minorities. This
inherent discrimination is intensified by the screening methods that are used
to select the successful candidates from the pool of applicants [Holzer 1996,
45-70].
Most female high school graduates find employment in the service sector where
employment has increased rapidly and substantially, but there has been a
tendency for employment opportunities to move from the central cities into the
suburbs. Moreover, technological progress has increased the skill requirements
for the better jobs to a level that is beyond the qualifications of an
impoverished high school graduate [Holzer 1996, 71-105].
Even if impoverished youths are fortunate enough to find employment, the wages
are likely to be so low that they are condemned to continuing poverty as a
members of the working poor. During recent years, the incomes of Americans
without college degrees have decreased significantly. Income differentials
between whites and minorities have increased, and gender differentials between
men and women continue to be large [Holzer 1996, 106-125]. The final result of
these trends in employment and wages has been to perpetuate poverty from one
generation to the next indefinitely into the future [Holzer 1996, 126-135].
The fundamental cause of perpetual poverty is the failure of the American
people to invest adequately in the human capital represented by impoverished
children.
A single mother who is a victim of poverty has a choice between two
alternatives: she can choose to go on welfare, or she can choose to seek
employment in order to support herself and her children. The tragic outcome of
her choice is that neither alternative is likely to lift her and her children
out of perpetual poverty. If she chooses to go on welfare, she will qualify
for benefits worth about $7,500 a year in a typical state. She will also
qualify herself and her children for free health care provided by Medicaid,
and she can stay at home and care for her children [Bergmann 1996, 12-13;
Rodgers 1996, 69-107]. Even these inadequate benefits have been jeopardized by
the conservative Republican Congress, which has decentralized control over
these programs, reduced federal expenditures on them in real terms, and
repealed the legal entitlement of dependent children to aid [Bergmann 1996,
91-95]. It is interesting to note that the Congress that repealed the
dependent children's entitlement to aid did nothing to limit or reduce the
entitlement of millions of affluent elderly citizens to extremely bountiful
Social Security benefits, which they do not need.
If the single mother chooses to seek employment, then she will probably join
the ranks of the working poor. Most impoverished single mothers are not
qualified for any job that would pay above the minimum wage of $5.15 an hour.
If she is fortunate enough to find a full-time minimum-wage job and to hold it
for a year, she will earn an annual income of $9,893 after Social Security
taxes have been deducted from her wages. Additionally, she would qualify for
an earned income tax credit and food stamps worth approximately $3,400, but
she would lose the Medicaid benefits for herself and her children. Moreover,
the working poor single mother would need to provide care for her children at
a cost of more than 25 percent of her income. If all of these benefits and
costs of working are considered, then the inevitable conclusion is that
working poor mothers are at best only marginally better off than single
welfare mothers. At worst, working poor mothers endure a lower level of living
than welfare mothers [Bergmann 1996, 12-13].
The structure of the American welfare system, which punishes welfare mothers
who seek employment, creates a disincentive for them to leave the system. This
disincentive has been exacerbated by the very limited and rapidly
deteriorating employment opportunities for unskilled laborers. These
circumstances have contributed not only to the perpetuation of poverty, but
also to the increase in the childhood poverty rate from 14 percent in 1973 to
19.7 percent in 1991 [Danziger and Gottschalk 1995, 90].
The American welfare system is destroying the lower middle class. The minority
of the members of this class who are fortunate enough to acquire skills that
can be marketed in the high-technology economy of the twenty-first century
will prosper and move up into the upper middle class. The majority of the
members of the lower middle class who fail to acquire marketable skills will
sink into the lower class and suffer from a lifelong damnation of perpetual
poverty.
In sharp contrast to the United States, France has developed a system of
public assistance that has virtually eliminated poverty. This system
encourages, facilitates, and subsidizes investment in the human capital
represented by children. Unlike the United States, France maintains a national
system of health insurance that provides free health care for all legal
residents, including children. Additionally, France has established a special
public health service to provide a comprehensive system of free preventive
medical care for all pregnant women and their babies. All French working
mothers are entitled to maternity leave with pay [Bergmann 1996, 59-61, 7085].
The French government provides very liberally for day care and education for
infants, children, and youths. Publically supported centers provide
high-quality day care for infants and toddlers from birth to the age of three.
The fee for this service is based on the ability of the parents to pay.
Impoverished parents make small token payments; parents with an annual income
of more than $80,000 pay the full cost of the care [Bergmann 1996, 35-41].
Free nursery schools are provided for all children, regardless of the income
of their parents, from the time that they are toilet trained until they enter
the free public elementary schools. Free child care before and after school is
provided for children of working parents [Bergmann 1996, 2835].
The French government maintains a dual system of free secondary schools: the
regular system of secondary schools, open to all students; and a special
system of superior secondary schools, called lycees, for especially talented
students. Admission to the lycees is based on competitive examinations.
Approximately 45 percent of all French students graduate from a lycee. Free
tuition at state universities is available to anyone who can qualify for
admission [Bergmann 1996, 27-28]. The education of French children is never
limited by the ability of their parents to pay for their education. All levels
of French schools, from nursery school through universities, provide
high-quality educations.
French social programs offer several cash benefits that are paid to parents
for the purpose of raising the standard of living for their children. All
parents, regardless of their incomes, are entitled to a family allowance that
is based on the number of children they have. They are entitled to an
additional allowance for each handicapped child they have. All pregnant women
are eligible for the new baby allowance of $134 a month from the beginning of
the second trimester of their pregnancy until their babies are three-months
old. This allowance can be continued beyond the normal termination date for
impoverished mothers. Single-parent subsistence is paid to destitute single
mothers with small children. These destitute single mothers are eligible for a
guaranteed minimum income to assist them when they reenter the labor market.
All of these programs provide French parents with supplementary income that
they can invest in the human capital represented by their children [Bergmann
1996, 50-69].
The American people have a choice. They can choose to continue the present
welfare system, which oppresses dependent children in order to grant very
lucrative tax breaks and bountiful Social Security benefits to millions of
citizens who range from affluent to obscenely wealthy. The alternative would
be to follow the French model of investing in the human capital embodied in
our children in order to eliminate poverty in two generations. It is my
highest hope and my most fervent prayer that the American people will choose
the latter alternative and that the United States will become the land of
opportunity, not only in theory, but also in practice.
References
Becker, Gary. "Human Capital and Poverty Alleviation." Internet information
from the World Bank, March 1995.
Bergmann, Barbara R. Saving Our Children From Poverty: What the United States
Can Learn from France. New York: Russell Sage Foundation, 1996.
Chase-Lansdale, P. Lindsay, and Jeanne Brooks-Gunn. Escape from Poverty: What
Makes a Difference for Children? Cambridge: Cambridge University Press, 1995.
Danzinger, Sheldon, and Peter Gottschalk. America Unequal. New York: Russell
Sage Foundation, 1995.
Duncan, Greg J., and Jeanne Brooks-Gunn, eds. Consequences of Growing Up Poor.
New York: Russell Sage Foundation, 1997.
Handler, Joel F. The Poverty of Welfare Reform. New Haven, Conn.: Yale
University Press, 1995.
Holtzer, Harry J. What Employers Want. New York: Russell Sage Foundation,
1996.
Jargowsky, Paul A. Poverty and Place: Ghettos, Barrios, and the American City.
New York: Russell Sage Foundation, 1997.
Karp, Robert J., ed. Malnourished Children in the United States: Caught in the
Cycle of Poverty. New York: Springer Publishing Company, 1993.
Lavelle, Robert, ed. America's New War on Poverty. San Francisco: Blackside,
Inc., 1995.
Rodgers, Harrell R., Jr. Poor Women Poor Children: American Poverty in the
1990s. 3d ed. Armonk, N.Y.: M.E. Sharp, 1996.
Sidel, Ruth. Keeping Women and Children Last: America's War on the Poor. New
York: Penguin Books, 1996.
Walker, Robert. Poverty Dynamics: Issues and Examples. Brookfield, Vt.:
Ashgate Publishing Company, 1994.
Will, Robert E., and Harold G. Vatter, eds. Poverty in Affluence: The Social,
Political, and Economic Dimensions of Poverty in the United States. 2d ed. New
York: Harcourt, Brace & World, Inc., 1970.
Lewis E. Hill is Professor of Economics, Texas Tech University. The author
gratefully acknowledges the research assistance of Neil Terry and James
Holland. This paper was presented at the annual meeting of the Association for
Evolutionary Economics, Chicago, Illinois, January 3-5, 1998.
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