Poverty

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Poverty

• OS Chapter 14

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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.

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Poverty in the United States
Source http//www.census.gov/prod/2003pubs/p60-22
2.pdf
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Poverty Population -- Location
2001 below poverty level 2001 below poverty level 2001 below poverty level 2001 below poverty level 2002 below poverty level 2002 below poverty level 2002 below poverty level 2002 below poverty level Change in poverty Change in poverty Change in poverty Change in poverty
  (2002 less 2001) (2002 less 2001) (2002 less 2001) (2002 less 2001)
Characteristic Characteristic Number 90 CI Pct. 90 CI Number 90 CI Pct. 90 CI Number 90 CI Pct. 90 CI
   
Inside metropolitan areas Inside metropolitan areas 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 Inside Central Cities 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 Outside central cities 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 Outside metropolitan areas 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

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Poverty by Race
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Reasons for Poverty

• Unemployment -- Large proportion of poor
  households lack full-time workers.
• Low wages -- If one is working at minimum wage,
  it doesnt provide enough income to lift
  households out of poverty.

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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.

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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.

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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.

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Impacts of Segregation

• Cutler and Glaeser find
• All else equal, young black adults are worse off
  in more segregated cities
• Earn less income
• Have lower HS graduation rates
• Are more likely to become single mothers.

Elas of outcome to 1 ? in segregation
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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?

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Back to spatial mismatch

• Is it race or space?
• Ellwood felt that spatial factors were overrated
  since Black youths didnt 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.

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Education and Poverty

• How do firms hire workers.
• They demand labor. They stop if MRP equals the
  wage rate.
• Discuss

Demand

MRPlabor
wage rate
L
Labor
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Education and Poverty

• More education -gt greater MRP.
• More likely to get hired at a higher wage.

Demand

MRPlabor
wage rate
L
Labor
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Earnings and Education
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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.

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Discrimination

• Prejudiced firm doesnt like to hire Blacks.
• Sees it as a lower MRP.
• Pays more to White workers
• Foregoes profit.

Demand

MRPlabor
Prejudiced Demand
wage rate
Foregone ?
L
L
Labor
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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.

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Statistical Discrimination

• Similar story has occurred w/ mortgage lending.
• Belief that, on average, due to current and
  future wealth (which we cant always see), W is a
  better risk than B.
• Better choice is W, based on imperfect
  information. It is STILL discrimination.