There's a really interesting discussion happening here about the poverty trap in the U.S., and why for many workers earning less than $40k, they are often worse off if they get a modest raise. Make sure you read the comments.
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Re-Evaluation Of Our Welfare programs
The problem with the government’s welfare program is that sometimes when workers in an income bracket below $40,000 start making more money and move up a tax bracket, they lose more of their welfare support than they gained from their pay increase. This happens because the new tax bracket doesn’t give the workers as much welfare support. This government program needs to be re-evaluated, because working harder and getting promoted puts these low income workers in a worse place than they were before. Basically, these workers would rather stay in the lowest tax bracket, because they will make more money than if they were to be promoted. This is because of the large amount of support they get from the welfare program, when they are in a lower tax bracket. This is the opposite of what the welfare program is designed for. The government’s welfare program is supposed to help and motivate people to make more money. The government wants people to move up the ladder enough so that one day they won’t rely on welfare. Once they are off welfare the government will also save money and make more money on income taxes. Everyone wins in this situation. The new welfare program I propose, must guarantee that a citizen doesn’t lose money when their wages increase. Workers need to see that their increase in wage and job status will benefit them. This will motivate them to work harder. This article analyzes the problem with stories and statistics, which bring this problem into the limelight. I hope government officials are listening.
Why do poverty traps exist?
The question of poverty traps is a particularly interesting one to me, and an area that I’d like to research more. Over the past year I’ve read some different views on why poverty is a cyclical phenomenon and an intriguing one comes from William Easterly’s The Elusive Quest for Growth which discusses poverty traps in more geographical terms. He points to a few of the well-known poverty traps in the US such as parts of the Mississippi Delta and West Virginia where there are unusually large clusters of poverty. In this discussion was the notion that these regions suffer from underinvestment, and that this is because most initial investment in regions such as these is usually unprofitable. In other words, underinvestment begets more underinvestment and thus poverty becomes cyclical. (I believe Easterly ultimately rejects underinvestment as the root cause of underdevelopment on a macro-level but we’ll just ignore that for now).
I am unsure if this describes what’s going on for a more individual level or even on a neighborhood level such as south side Chicago, but it does provide an interesting framework to approach the question of poverty traps. I will say through my own meager experience with non-profits and talking with those involved with fighting poverty on the neighborhood level that this idea of a “lack of inertia” holds somewhat true. An impoverished neighborhood with a broken school system for example attests to the same kind of preliminary underinvestment that would lead to a poverty trap. And yet I know that the problem is more complex and messy than this, and so would require a solution that is nuanced. All in all I consider this issue to be extremely important and hope to continue researching how poverty traps can effectively be tackled.
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