"Macroeconomic Performance and Poverty" (PDF), John Iceland, Lane Kenworthy & Melissa Scopilliti; Institute for Research on Poverty, University of Wisconsin; May 2005; paper hereafter called "IKS."

Observe the denominator is always less than 1, something to which the economist is likely to object, but which conforms to common experience. Productivity growth may, for that particular household, reduce MRP (by making it expedient to replace workers with machinery) or it may increase MRP (by making the product cheaper per unit of labor input, making it more remunerative to hire workers). However, most economists assume the latter condition always applies.

I make this point because the IKS study disaggregates the effects of GSP (gross state product) and employment on poverty. In order to do so, one must consider the possibility that GSP could grow at rates significantly different from those of employment, which implies a variation in the rate of productivity growth. Likewise, in order to disaggregate the effect of unemployment from employment, then one must examine the role of laborforce participation rates. In 2003, discussion of a "jobless recovery" centered on the alleged growth in productivity that supposedly allowed employers to produce so much more with the same number of workers; in 2004, low unemployment coupled with insignificant job creation (and high population growth) led to speculation as to why laborforce participation rates were shrinking.

The study almost never mentions "productivity" and "participation rate". However, I will make some observations of my own, based on the paper's findings.

The potential link between the employment and unemployment rates, work hours, and poverty is easy to see. To the extent that some formerly nonemployed individuals at the low end become employed, their household income will increase. This will reduce poverty. The level of unemployment is likely to be similarly related to work hours among those at the low end of the income distribution, particularly since less-skilled workers and job seekers tend to be among the first laid off and the last hired. Economic output can have an independent effect on work hours: employers in a growing economy may increase work hours among those they already employ rather than hire new employees. For employees with low wages, these additional hours will reduce poverty.
[p.6]

On the other hand, the connection between a healthy macroeconomy and low poverty is not automatic. If per capita GDP increases but all of the increase in income accrues to households at the top and/or middle of the income distribution, poverty will not decrease. The poverty-reducing effect of growth may be mitigated or offset, in other words, by a rise in inequality. Similarly, if the employment rate rises but all of the new jobs go to individuals in high- and/or middle-income households... there will be no gain for those in low-income households and hence no decline in poverty. The same is true for unemployment. If a decline in the unemployment rate results from persons in high- or middle-income households finding jobs, or from unemployed persons in lowincome households giving up the search and dropping out of the labor force, there will be little or no reduction in poverty
[p.6]

ABSOLUTE VERSUS RELATIVE POVERTY RATES

Absolute poverty rates are simply the percentage of people whose income, as multiple of minimal nutrition requirements, is inadequate. The poverty rate calculated by the U.S. government is an absolute one: the poverty line does not differ across states, and it is not adjusted over time for changes in economic output or incomes. In most high income communities, absolute poverty rates are low because the poor have comparatively high money incomes—high, in terms of the food they can buy. Nonetheless, when comparing states such as Connecticut to states such as West Virginia, absolute poverty is a poor measure of the number of people with inadequate income. In Connecticut, money incomes may be higher than West Virginia, but so are rents and most services. When calculating absolute poverty levels, demographers ignore the fact that food commodity prices vary from community to community. Hence, the minimal nutritional requirements of a family of four living in Connecticut may cost so much more there than in West Virginia, that the threshold of poverty in Connecticut really needs to be be higher than in West Virigina. Even if that were taken into consideration, the minimal amounts of rent that a family must spend in order to remain within commuting distance of work may be so much higher than the usual multiple of 3 is, for the richer state, grossly inadequate.

I say this because initially a reader might suppose the concern with relative poverty levels stems from liberal cravings for an egalitarian culture. While income inequality does pose its own political and economic costs, the concern with relative poverty has little to do with that concern. Instead, it arises from a narrowly economic concern with the effective purchasing power of households in different communities, and with the potential risks this poses to a recovery.

There is a strong correlation between absolute poverty levels and relative poverty levels because, even though states with lower incomes tend to have lower prices, the prices are not so much lower than the income levels. Connecticut may have general price levels that are much higher than those prevailing in Mississippi, but not two times as much (which is the ratio of the states' respective per capita GSP). Another important aspect is that recoveries and recessions are not equally distributed across states; for the most part, states suffering recessions tend to lose populations, and states with a large number of people living in relative poverty are likely to suffer longer recessions than their low levels of relative poverty would suggest. Relative poverty means that people are confined to either looking for work or working, with little long-term career-building opportunities. Poor communities therefore are likely to experience a recovery as an occasion to pay debts to banks, rebuild credit, and little else before the next recession hits. Moreover, because of the importance of the secondary economy in poor communities as an employer, widespread relative poverty means that a minor reduction in transfer entitlements tend to sharply increase pre-tax, pre-transfer poverty.

DIFFERENT METHODS OF MEASURING POVERTY

A misconception with both liberals and conservatives is that economic disparity is a direct result of a less progressive (or flatter) tax structure, and by reduced transfer entitlements to lower income groups. However, nearly all research on poverty, including the IKS study to which I've been referring, ignore taxes entirely, but do count transfers. THe IKS study ignores both taxes and transfers. The impact of transfers on measured poverty, therefore, is indirect. In poor communities, most wages will be paid by retailing and service establishments. Hence, a reduction of transfer entitlements tends to reduce jobs, leading to a larger cohort of aid recipients, all of whom are sustained at a much lower standard of living than the smaller cohort was before the reduction. When an entire district of a major city is thus reduced to abject destitution, the dependence on aid is greater than before, and the culture of dependency more pervasive.

The effect of poverty on higher-income households of the USA is not a topic of discussion in the IKS study, which is confined to culling through the data of income stimulation. From the perspective of liberals and conservatives alike, the ideal is for the poor to become affluent through commercial employment, not transfers. Not many people want poverty to be solved by a permanent welfare state and permanent income supports; such a system tends to undermine the culture of democracy. As a conservative person, I want Americans to believe success reflects their own virtuous behavior, and I also want the economy to be providential enough that it doesn't assume it can redress market failure through booby prizes.

As a liberal person, I want all Americans to have the dignity and self-respect of self-reliance that comes with genuine economic prosperity, as opposed to some being (knowingly) that they are being bribed to put up with a dysfuctional society that has no use for them. And finally as a radical person, I want the traditionally poor comunities to be indispensible, and capable of self-assertion. All these normative goals are undermined when a large cohort of the nation is universally regarded as useless, and universally reliant on the indulgence of the economic elites.