Monday, December 14, 2015

Comparing poverty rates (absolute and relative) of the United States to the social democracies

Image: Relative poverty is confusing for most Americans. (source)

I've got a series of posts on relative poverty that I started in 2013 but never published. The reason I moved them to the back burner is that my goal here is persuasion, and Americans simply don't care about relative poverty. They should--relative poverty kills--but it's a somewhat complicated argument.

Second, and more importantly, I'm interested in comparing the United States to the social democracies, and the data don't match up. I assumed it was impossible to do a comparison of poverty because the United States uses an absolute poverty measure, while the rest of the developed world uses relative poverty and does not keep data on absolute poverty (I found some data on absolute levels of income for this post, but it's not on poverty).

So while I couldn't compare absolute poverty rates, I could compare relative poverty rates (because those data do exist for the United States), but nobody cares about relative poverty in the United States.

In short, I gave up on comparing the poverty rates of the United States versus other countries.

Fortunately, Dylan Matthews highlighted the complicated research that translated income data for several European countries into absolute poverty rates using the absolute poverty line of the United States.
It actually is possible to use the Luxembourg Income Study database to estimate more precisely how many people live under the US poverty in America versus Finland. If you use the granular microdata and follow the same procedures in looking at the US as in looking at other countries, you can come up with a fair comparison...Stockholm University's Markus Jäntti, a senior scholar with the Luxembourg Income Study, did just that kind of number crunching for me. Using the same poverty line as Petrilli and Wright, he found that the absolute poverty rate in the US in 2010 was about 10 percent, and in Finland it was about 4.5 percent. Finland's rate wasn't slightly lower — it was more than halved compared with the US.
Jäntti and Gornick also produced numbers for a wider range of countries in a 2011 paper. They used data from 2004, which included not just Finland but all four major Nordic nations. And they found that poverty rates in those countries — as measured using the US poverty line — were much lower than in the US. Child poverty in particular was much lower: 11.8 percent in the US, and a mere 1.9 percent in Denmark.

No one should be surprised that--using the United States' absolute poverty line as yardstick--poverty is much lower in the social democracies.

As long as we're on the topic, Matthews reiterates that the United States' relative poverty rate is quite high:
When we look at relative poverty rates, as poverty experts suggest, the US falls even further behind the Nordic countries. In 2012, 17.9 percent of Americans lived on less than half the median income, after taking taxes and transfers into account. Only 9 percent of Swedes did, and 5.4 percent of Danes[.]
Yes, the United States has double the relative poverty rate of Sweden and over three times the relative poverty rate of Denmark. Relative poverty, absolute poverty--it doesn't matter the measure. Poverty is much worse in the United States.

Using the same Luxembourg Income Study dataset, Matt Bruenig performs a similar exercise, comparing Americans' disposable income at different points in the income distribution to their counterparts in other countries. For example, households at the 5th percentile (so very poor) in 14 developed countries have more disposable income households at the 5th percentile in the United States, and so on:

There are three major caveats, and both make the experience of poverty even worse in the United States. The first is most obvious, explained by Bruenig:
Additionally, disposable income fails to capture in-kind benefits, and therefore misses the wonderful free health care, among other things, available in many of the above countries.
In other words, this is not an apples-to-apples comparison. An American household at the 50th percentile might have more disposable income than a Finnish household at the 50th percentile, but this matters very little if nearly 100% of that disposable income is spent on child care services or college tuition, which a Finnish household gets for free; I made this argument at length here.

Second, Matthews cautions against the idea that poverty rates can be looked at in isolation, as low skill immigration can increase a country's poverty rate yet be an unequivocal good thing:
One thing to be careful about when interpreting these poverty rates is compositional effects due to immigration. An average Nigerian worker can increase his income almost 15-fold just by moving to the United States — but that might not even be enough to get above the US's poverty line. Letting that worker come to America doesn't actually make anyone in the US worse off, and it makes the worker much better off, but it still increases the poverty rate...This doesn't explain the huge difference between poverty in the US and Scandinavia; that's almost entirely due to the US's much less generous welfare state for the poor. But it does help explain why, say, Sweden has more poverty than Denmark. Sweden has historically been the most pro-migrant Scandinavian country [taking in] more refugees in per capita than any other European nation, while Denmark is notably strict on immigration, to the point of facing charges that its policies violate international human rights law.
In other words, much of the absolute poverty rate in Scandinavian countries is due to low skilled immigration. When a full accounting of poverty rates and low skill immigration is taken, the United States comes out even worse.

Finally--as Bruening explains in a separate post--arguments over the exact placement of the poverty line serve no purpose to obscure the incidence of poverty. Relying on a specific poverty line obscures the nature of poverty; be suspicious of anyone who bases conclusions on a specific poverty line. For example, it matters greatly if two countries' poverty rates are equal but the poor in country A live on $2 per day whereas the poor in country B live on $10,000 per year. Simply stating that a specific percentage of people live below a specific poverty line serves no purpose but to obscures the different experiences of poverty.

To confront this, Bruenig argues that we need to account for the "poverty gap", or the total income that we would have to provide each and every poor person to bring them to exactly the poverty line. This idea is more clear visually:

The pink region is the poverty gap--its area is equal to the total amount of money we would have to give each poor person to bring them exactly to the poverty line.

The United States has a truly staggering poverty gap, especially in comparison to the social democracies. This reflects the United States' stunning incidence of extreme (less than $2 per day) poverty. Clearly, poverty is far worse in the United States--both for a typical impoverished family or individual, as well as in the aggregate.

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