Have changes in family structure adversely affected the ability of economic growth to reduce poverty?

Abstract

In the United States economic growth is the primary means of fighting poverty. From 1959 to 1973 this tool was quite successful as the poverty rate declined by over 50 percent. However, since 1973 the poverty rate has remained relatively stagnant, fluctuating primarily in response to the business cycle. Many explanations have been given for this behavior such as rising wage inequality and an inaccurate means of measuring poverty. Another explanation, however, is changes in the demographic composition of the population, specifically the shift away from married-couple families to single-parent families and single individuals living alone that occurred in the post-war period. The purpose of this study was to determine if these changes in family structure have adversely affected the ability of economic growth to reduce poverty and the implications of this both in terms of future reductions in poverty and public policy. To accomplish this, pooled time-series cross-sectional data from the Panel Study of Income Dynamics was used to estimate the elasticity or responsiveness of total family income and its components, in particular wages and labor hours, to economic growth. These elasticities were estimated using the method of Zellner's seemingly unrelated regression (SUR) for four specific family types–single individuals living alone, single-parent families, married couples without children, and married couples with children–in order to determine if the impact of economic growth varies by family type. The results of this analysis indicate that the demographic shift that occurred in the post-war period compromised the ability of economic growth to reduce poverty. The incomes of both single individuals without children and single-parent families were significantly less responsive to economic growth than the incomes of married couples with children. The source of these disparities is found in the labor market. For single individuals without children wages were unaffected by growth while hours worked increased only marginally. In contrast, both the wages and hours worked of heads in single-parent families were highly responsive to growth; low average wages, however, translate these changes into relatively small income gains. Given this, further significant reductions in poverty stemming from economic growth are quite unlikely.