Economic stimulus must focus on poor

By REBECCA M. BLANK and MARK H. GREENBERG

The bad news on the economy continued last week, when we learned that the unemployment rate has now reached 7.6 percent, with more than 11 million unemployed people. It’s worth focusing on the people behind these statistics. The pain of unemployment is not spread equally among the population. When unemployment rises, less skilled workers are laid off at a much higher rate than more skilled workers. In the most recent unemployment statistics, almost 11 percent of high school dropouts are unemployed, while the unemployment rate is less than 4 percent among college graduates.

Some demographic groups experience much greater unemployment in recessions. Black and Hispanic unemployment rates have increased faster than white unemployment rates; unemployment among young minority workers has increased particularly rapidly and is now more than 30 percent. Perhaps surprisingly, women’s unemployment rates have remained below men’s, but that reflects the fact that the downturn started earlier in construction and manufacturing industries, which are heavily male-dominated. As the consumer spending sector sheds workers, women’s unemployment rates are catching up with men’s.

Unemployment means steep reductions in family income. It isn’t surprising that rapid increases in unemployment lead to substantial increases in poverty. A rough rule of thumb is that for every percentage point increase in unemployment, the poverty rate increases by almost half a percentage point. If unemployment reaches 10 percent, as some analysts now project, the nation’s poverty rate could grow from 12.5 percent in 2007 to 14.8 percent — meaning that more than one out of every seven Americans will be living in poverty.

Government policy

Such a large increase in poverty and economic need is not inevitable, however. Government policy in the coming months matters a great deal. If the recovery package generates millions of jobs, we may avoid 10 percent unemployment. Furthermore, provisions in the recovery package and state decisions about how to spend recovery funds can contribute to raising family incomes during the recession.

Specifically, the stimulus package includes provisions such as the Making Work Pay tax credit worth $500 for most workers, expansion of the federal Earned Income Tax Credit and Child Tax Credit, temporary increases in food stamp benefits and child care subsidies, enhanced unemployment insurance benefits, and expanded health care coverage for unemployed workers. These all will help unemployed and lower-income families weather the recession.

This stimulus package can jump-start economic growth two ways. It can fund programs that result in direct hiring (such as infrastructure programs) and it can provide funds to individuals or organizations that will be spent throughout the economy, hence generating more economic activity and more employment. The support for low-income families in this legislation fits into the second category.

Dollars aimed at lower-income families in the recovery package provide a double benefit. First, they target resources to the groups who are hardest hit by the recession and most likely to experience extended unemployment. As we have targeted billions of dollars to troubled banks, we should surely also target dollars to the families who are most hurt by rising unemployment.

Second, the stimulus effect of these dollars on the whole economy is high. Because these groups are struggling to meet their basic needs, they are likely to spend every dollar they receive. Hence, the multiplier effects of dollars spent on the poor are higher than dollars spent on the rich.

X Rebecca M. Blank is a senior fellow at the Brookings Institution, Washington, D.C. and was a member of the Council of Economic Advisers under President Clinton. Mark Greenberg directs the Georgetown Center on Poverty, Inequality and Public Policy and is a senior fellow at the Center for American Progress, Washington, D.C. Distributed by McClatchy-Tribune Information Services.