NCPA - National Center for Policy Analysis


May 23, 2007

The poor have been getting less poor, according to a new study by the Congressional Budget Office.  On average, CBO found that low-wage households with children had incomes after inflation that were more than one-third higher in 2005 than in 1991.

The CBO results don't fit the prevailing media stereotype of the U.S. economy as a richer take all affair -- which may explain why you haven't read about them:

  • Among all families with children, the poorest fifth had the fastest overall earnings growth over the 15 years measured.
  • The poorest even had higher earnings growth than the richest 20 percent.
  • The earnings of these poor households are about 80 percent higher today than in the early 1990s.

What happened?

  • CBO says the main causes of this low-income earnings surge have been a combination of welfare reform, expansion of the earned income tax credit and wage gains from a tight labor market, especially in the late stages of the 1990s expansion.
  • Though cash welfare fell as a share of overall income (which includes government benefits), earnings from work climbed sharply as the 1996 welfare reform pushed at least one family breadwinner into the job market.

Earnings growth tapered off as the economy slowed in the early part of this decade, but earnings for low-income families have still nearly doubled in the years since welfare reform became law.  Some two million welfare mothers have left the dole for jobs since the mid-1990s.  Far from being a disaster for the poor, as most on the left claimed when it was debated, welfare reform has proven to be a boon.

Source: Editorial, "The Poor Get Richer," Wall Street Journal, May 23, 2007.

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