This ongoing series of research has been made possible through the financial support of the National Science Foundation, the Menard Family Foundation, and the Wilson Sheehan Lab for Economic Opportunities (LEO). 

Poverty continues to rise as coronavirus cases increase

Professor Bruce D. Meyer

The coronavirus pandemic has taken a significant toll on the U.S. labor market. Since the start of the pandemic, more than 80 million claims for unemployment insurance have been filed. Improvements in the labor market have slowed with more than 11 million officially unemployed and millions of other former workers still without jobs. Early on in the pandemic the federal government offered a relief package that included large, one-time stimulus payments to households and greatly expanded unemployment insurance benefits. But some of these benefits have expired while unemployment persists, raising important questions about the long-term impact of the pandemic on poverty.

Notre Dame Professor James X. Sullivan

Fortunately, James Sullivan, the Gilbert F. Schaefer College Professor of Economics and co-founder of the Wilson Sheehan Lab for Economic Opportunities (LEO) at the University of Notre Dame; Bruce Meyer, the McCormick Foundation Professor at the University of Chicago Harris School of Public Policy; and Jeehoon Han, an economist at Zhejiang University, have constructed a new poverty measure that provides near-real-time poverty estimates using U.S. Census Bureau data. They are updating this measure on a monthly basis as new data become available.

Their analysis shows that poverty declined in the first few months after the start of the pandemic. They find that the poverty rate fell by 1.5 percentage points from 10.9 percent in the months leading up to the COVID-19 pandemic (January and February) to 9.4 percent in the three months at the start of the pandemic (April, May, and June). The team also found evidence that poverty declined across a range of demographic groups and geographies, with some of the most noticeable declines evident for people with low levels of education and for those who fall into the “other race” (neither white nor Black) category.

Poverty has risen sharply, however, in recent months as some of the benefits that were part of the government relief package have expired. Poverty rose nearly 2 percentage points from 9.4 percent in the period from April to June to 11.3 percent for September and October. Nearly 7 million have been added to the ranks of the poor since May. Poverty appears to have risen in October even though the unemployment rate fell by more than a percentage point. This disconnect between poverty and unemployment is not surprising given that some government benefits have expired, unemployment insurance benefits are typically only about half of pre-job loss earnings, and four million people have left the labor force in the past year and therefore are not counted as unemployed. Despite the decline early on in the pandemic, poverty is now higher than it was at the start of the year.

The increase in poverty in recent months was more noticeable for blacks, children, and those with a high school education or less. For blacks, poverty rose by 5.4 percentage points in recent months. The estimates also suggest that poverty rose more in states with less effective unemployment insurance systems. The recent overall rise raises concerns about possible future increases in poverty given that Pandemic Unemployment Compensation, the additional $600 paid weekly to unemployment insurance recipients, was discontinued at the end of July, and Pandemic Unemployment Assistance, for those usually not eligible for regular unemployment insurance, will expire in December.

The initial research will be published in the Brookings Papers on Economic Activity and is available via the National Bureau of Economic Research (NBER), while the economists’ monthly updates are currently available via the team’s Poverty Measurement dashboard.

The researchers’ estimates, which can be produced with a lag of only a few weeks, help clarify how the pandemic affects individuals and families throughout 2020 as it happens. As a result, the estimates could be the basis for government policies and programs that help prevent people from slipping into poverty during sharp downturns in the economy.

“In this time of crisis, it is important for policymakers to respond as quickly as possible to address the needs of those hit hardest by the pandemic,” the authors said. “Our results show that for low-income individuals and families, the government response to the pandemic more than offset the sharp decline in earnings early on in the pandemic. However, these gains appear to have faded as some of the benefits expire. It is important that we continue to track poverty in real time to determine what additional support is called for as this pandemic persists.”

Interestingly, the data indicate that the vast majority of the unemployed received unemployment insurance, though this was less true early on in the pandemic. Receipt of the benefits was uneven across the states, however, with some not reaching a large share of their out-of-work residents.

The authors’ initial study (using the data through June) goes on to show that the entire decline in poverty can be accounted for by the one-time stimulus checks the federal government issued, predominantly in April and May, and the expansion of unemployment insurance eligibility and benefits. In fact, in absence of these programs, poverty would have risen sharply. The one-time payments provided up to $1,200 to individuals and $2,400 to married couples without dependents, with the maximum amount going to individuals with income under $75,000, and married couples with income under $150,000. In addition, unemployment insurance benefits were increased by $600 per week and eligibility for unemployment insurance was broadened to include the self-employed, those seeking part-time employment, and others who otherwise would not be eligible.

To calculate their near-real-time estimates of poverty, the authors use data from the monthly Current Population Survey (CPS), a nationally representative survey of about 60,000 households each month — the same survey that is used to calculate official monthly unemployment statistics. This survey includes a question about family income that is asked of a quarter of the sample and provides the data necessary to estimate poverty. In their study, the authors show that, historically, their real-time poverty estimate from the monthly CPS has been a good predictor of changes in the official poverty rate.