Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 6 The Economics of Labor Markets
Chapter 20 of 36 Income Inequality and Poverty
Section 18 of 20
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Many policies designed to help the poor have the effect of discouraging the poor from working on their own to escape poverty.
Suppose a family needs an income of $30,000 to maintain a reasonable standard of living.
And suppose the government promises to guarantee every family $30,000 of income.
The government thereby makes up the difference between a $0 family income and $30,000
The incentive effects of this policy are obvious.
Anyone who could only find work at a job for under $30,000 has little incentive to find and keep that job.
For every dollar the person would earn, the government would reduce the income supplement by a dollar.
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A person discouraged from working because of government income supplements loses the on-the-job training and experience.
Their children miss the lessons learned by observing a parent working a full-time job.
Welfare, Medicaid, food stamps, and the Earned Income Tax Credit are all programs aimed at helping the poor.
They are all tied to family income.
As a family's income rises, a family becomes ineligible for these programs.
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Critics of antipoverty programs claim they discourage people from working and create a "culture of poverty."
One partial solution is to reduce income benefits gradually as incomes rise.
Considering example in Table B:
A poor family loses a third of income benefits for every extra dollar it earns.
This 33% effective tax only somewhat reduces work incentive.
The family is incentivized to continually increase income, here from $10,000 to $37,000, it still receives some benefits throughout.
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In the U.S. when did government monetary and material support programs for poor people begin?
Gemini:
Major federal monetary and material support programs for poor people in the U.S. began during the Great Depression, primarily with the passage of the Social Security Act in 1935.
While localized and state-level relief efforts existed earlier, the 1930s marked the first time the federal government took significant responsibility for welfare.
Timeline of key federal poverty support programs:
-Emergency Relief and Construction Act (1932):
In response to the Great Depression, President Herbert Hoover's administration provided $300 million in temporary loans to states for relief.
-Federal Emergency Relief Administration (FERA) (1933): President Franklin D. Roosevelt and Congress established this agency, which provided grants to states for job creation and relief. FERA was disbanded in 1935 and its functions were taken over by the Works Progress Administration (WPA) and Social Security Administration.
-Civilian Conservation Corps (CCC) (1933): This program provided jobs for unemployed young men in national parks and other conservation projects.
-Social Security Act (1935): This landmark legislation created a national welfare system, including federal financial participation in state-administered programs for old-age assistance, aid for the blind, and Aid to Dependent Children (ADC).
-Food Stamp Program (1939): The first food stamp program was introduced as a pilot program during the Great Depression, though the modern program was created later.
-Medicaid (1965): As part of the Social Security Amendments of 1965, the federal government began providing grants to states for medical assistance programs for low-income individuals.
-Supplemental Security Income (SSI) (1972): This program (a part of “welfare”) federalized cash assistance programs for needy adults (aged, blind, and disabled), replacing the earlier state-administered efforts
"welfare" because it is a needs-based, means-tested assistance program.
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In the U.S. before the advent of government monetary and material support for poor people how did poor people survive?
Gemini:
Before the advent of widespread government monetary and material support, poor people in the U.S. primarily relied on family, local communities, private charities, and mutual aid societies for survival.
Key survival methods included:
-Family and Community Support:
Extended families often lived together or nearby and provided a primary safety net, caring for the elderly, disabled, and orphaned.
Neighbors and friends also engaged in informal "reciprocal relief," where people in need could receive help with the understanding they might provide help later when their situation improved.
-Private Charities and Religious Institutions:
Churches and various private organizations historically played a significant role in aiding the poor.
They provided food (soup kitchens), shelter, clothing, and basic medical care.
-Mutual Aid Societies:
Immigrant and working-class communities formed fraternal societies and mutualistas that offered members a form of social insurance, including sickness benefits, life insurance policies, and support for widows and orphans, funded by member contributions.
-Local Government Poor Relief:
From colonial times, local towns and counties had systems in place to assist the indigent.
This often involved the use of almshouses or poorhouses, institutions where poor, elderly, or disabled individuals could live in exchange for labor if they were able.
-Work and Self-Sufficiency:
Many people survived by working long hours, often 18-hour days, in physically demanding jobs like factory work or farming.
In rural areas, families often grew their own food and raised livestock, achieving a degree of self-sufficiency that buffered them from urban economic shocks.
Child labor was also common, with children working from a young age in factories, on farms, or as domestic help to contribute to the family income.
-Alternative Livelihoods:
In times of extreme hardship, such as the Great Depression, people employed various strategies, including selling goods on street corners, taking in laundry or boarders, or moving to "Hoovervilles" (shantytowns) and working in exchange for food or services within self-help cooperatives.
Some also resorted to begging or crime.
For those unable to work due to physical or mental disabilities, options were limited, often resulting in institutionalization in asylums or minimal care provided by volunteers.
Survival was often very difficult, and many people, particularly the elderly, malnourished, and disabled, died at a younger age than after the implementation of federal aid programs like Social Security.
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culture of poverty
hinkon no bunka
貧困の文化
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