The Causes of Poverty

What makes people poor? There are many causes, all of which have some truth to them.

Yes, some poor people sometimes commit crimes, or act irresponsibly, and end of contributing to their own poverty. When middle-class people commit the same crimes or irresponsible behavior, however, they rarely end up poor. And the overwhelming majority of the poor are not criminals: indeed, they are far more likely to be crime victims than perpetrators. Crime is thus a factor in explaining poverty, but crime alone cannot be blamed for poverty as a whole.

Yes, racism and other invidious forms of discrimination disproportionately hold down the poor. At the same time, many of the poor are white, and racism hurts middle-class African-Americans and Latinos. Racism is thus a cause—but hardly the only cause—of poverty.

Yes, the education system in Milwaukee and the United States in general frequently leaves poor children far behind. Yet the very poverty in which many children are raised makes it more difficult for them to get an effective education. And, especially today, many adults who received a good education—graduated from school, got good grades, stayed out of trouble—are unemployed and poor. So the education system's shortcomings are hardly an explanation for poverty.

All these explanations hold some truth. But they overlook the fundamental labor market cause of poverty in Milwaukee and the United States.

The main reason why Milwaukee has so much poverty is because tens of thousands of impoverished adult job seekers who want to work at good-paying jobs that will lift them out of poverty cannot find work that pays well because the labor market doesn't provide enough jobs to go around and between 20-30% of the available jobs pay very low wages.

In short: poverty in Milwaukee and everywhere else in the U.S. is the direct result of what the job market offers: a huge job shortage, and a plethora of low-wage jobs.

The Job Shortage

There are typically far more unemployed adults who seek work than there are job openings available. As a result, many impoverished job seekers end up out of work for long periods of time, and no more than half of them qualify for Unemployment Insurance (UI). The underlying job shortage in our economy is one of the major contributors to poverty.

How big is the job shortage? It depends on the overall status of the economy. When the economy is soft (for example, during 2002 and 2003 and from the fall of 2008 through the present), the rising number of unemployed job seekers climbs far above the falling number of job openings, and the job shortage gets bigger. When the economy is more robust (for example, from 2004 through 2006), the growing number of unemployed job seekers drops closer to the ascending number of job seekers, and the job shortage shrinks. But with the rarest of exceptions (such as the late 1990s), Milwaukee like the rest of the U.S. has experienced a significant job shortage for most of the last several decades.

There are now 15 million unemployed Americans and 2 million available jobs—a job shortage exceeding 12 million.

   

Source: U.S. Bureau of Labor Statistics

In Wisconsin the same pattern prevails. Using actual unemployment data for Wisconsin and an estimate of job openings in the state, the Community Advocates Public Policy Institute estimates that Wisconsin in December 2009 had more than 250,000 job seekers, only 50,000 job vacancies, and thus a job shortage of 200,000.

   

The most recent data for the Milwaukee area prepared using a somewhat different methodology by the UW-Milwaukee Employment and Training Institute shows that, in Milwaukee County, in 2009, the number of unemployed job seekers was nearly 75,000, the number of job vacancies was just under 10,000, and thus Milwaukee's job shortage was approximately 65,000, or a ratio of 7.5:1.

A Plethora of Low-Wage Jobs

The current Wisconsin minimum wage is $7.25 per hour. Full-time and year-round workers who earn the minimum wage thus end up with $15,080 per year, which is thousands of dollars below the poverty line for a single parent with two (or more) children or a married couple with one (or more) children.

Thousands of Milwaukee, Wisconsin, and American workers – including many adults with families – earn the minimum wage or close to it. They remain poor not because they don’t work, but because their low wages leave them below or barely above the poverty line.

Our Inadequate Disability and Old-Age Pension System

A third major cause of poverty in Wisconsin and throughout the U.S. is the simple fact that many of the adults who are outside the labor market altogether receive disability or Social Security payments too low to get above the poverty line.

For decades in the U.S., people whose disabilities preclude them from regular work have been able to obtain monthly payments from the Supplemental Security Income (SSI) or Social Security Disability Income (SSDI) programs. Those who have worked most of their lives and reached age 66 are entitled to full Social Security benefits. Yet for many of these individuals, for whom work is either not a realistic option or a societal expectation, the disability or pension payments they get leave them poor. Their poverty, in short, is the direct result of inadequate payments from SSI, SSDI or Social Security.

The Lack of Health Insurance … and the Cost of Health Care, Child Care, Energy
and Transportation

Poverty also results from a lack of adequate health insurance — which makes health care (including addiction treatment and mental health care) unaffordable — as well as the high cost of child care, energy and transportation. Even among low-income adults who manage to find jobs at wages that technically put them above the poverty line, many still find it impossible to maintain a decent standard of living because the “basics” cost so much. Health costs are a particular problem as they are now rising far faster than inflation.

Child care costs are a burden for many parents of young children. Energy costs pose a special problem in a state like Wisconsin that has a prolonged and severe winter, and thus high winter heating bills.

And for many low-income workers, Wisconsin's transportation system drives them back into poverty by requiring them to buy a car and spend money on gas to get to job sites that the state's underfunded public transit program doesn't serve, even as the state's massive $1.5 billion property tax subsidy of roads has induced many employers to move jobs farther and farther out of reach.

Inadequate Early Childhood Education

Finally, poverty results from failing to provide all children the early education, during the first three years of their lives, that prepares their bodies, their brains, and their habits to succeed in school…and thus in the labor market and their future lives. A growing body of research makes clear how important it is for children, from the moment of birth until they enter school at age four or five, to receive essential health care, positive verbal stimulation, and good learning habits. Without these, many low-income children enter school years behind their peers. But with the help of well-designed early education programs, poor children can narrow and even close much of the gap and do as well as other children in school - leading them ultimately to jobs and incomes that lift them (and their children) out of poverty.