The Macroeconomy and Poverty

• Published date: 01 January 2024
• DOI: http://doi.org/10.1177/00027162241289722
• Author: Marianne P. Bitler,Hilary Hoynes,Elira Kuka
• Date: 01 January 2024
• Subject Matter: Dynamics of Poverty, Work, and Policy

82 ANNALS, AAPSS, 711, January 2024

DOI: 10.1177/00027162241289722

The

Macroeconomy

and Poverty

By

MARIANNE P. BITLER,

HILARY HOYNES,

and

ELIRA KUKA

1289722ANN THE ANNALS OF THE AMERICAN ACADEMYTHE MACROECONOMY AND POVERTY

research-article2024

We revisit a key question about poverty that was a

repeated subject of investigation for Rebecca Blank,

estimating the effects of the business cycle on pre–

tax-and-transfer and post–tax-and-transfer poverty.

Using an anchored household-level version of the

Supplemental Poverty Measure’s thresholds and

resources, we show that poverty is countercyclical, ris-

ing in recessions and falling in expansions. We also find

that the social safety net provides protection against

cyclicality: Post–tax-and-transfer poverty is less cyclical

than is pre–tax-and-transfer poverty. The largest cycli-

cality occurs among children and Black and Hispanic

persons, and lower cyclicality is evident among white

and elderly persons. The safety net leads to the largest

reductions in cyclicality for the elderly and the smallest

effects for nonelderly households without children.

Finally, we find an inverted U shape with cyclicality low

and rising below 75 percent of poverty and declining

above.

Keywords: macroeconomy; poverty; cyclicality; sup-

plemental poverty

In this article, we revisit a question that

Rebecca “Becky” Blank took up with coau-

thors Alan Blinder and David Card (Blank and

Blinder 1986; Blank and Card 1993): What is

Correspondence: hoynes@berkeley.edu

Marianne P. Bitler is a professor of economics at the

University of California, Davis. Her work focuses on

the U.S. safety net and the people who use it.

Hilary Hoynes is Chancellor’s Professor of Economics

and Public Policy at the University of California,

Berkeley. Her work focuses on the impacts of the social

safety net in the U.S. for families with children.

Elira Kuka is an associate professor of economics at

George Washington University. Her work focuses on

understanding how government policies affect individ-

ual behavior and family well-being.

NOTE: Thanks to Hanns Kuttner, Diane Schanzenbach,

and other conference participants for helpful com-

ments. Thanks to Gaby Lohner and Raheem Chaudhry

for excellent research assistance.

THE MACROECONOMY AND POVERTY 83

the impact of macroeconomic conditions on poverty? These were the first works

to examine the cyclicality of economic well-being across the income distribution,

with a particular focus on the lower end of the income distribution. Their work

examined how these impacts varied with alternative measures of the economic

cycle, how cyclicality varied across demographic groups, and what role the safety

net played in buffering these shocks. As with many topics, Becky Blank made

significant contributions and opened up new inquiries. In this case, her work

expanded the macro lens on impacts of recessions to distributional impacts with

a focus on possible roles for policy.

We begin by summarizing these pioneering studies and the literature that fol-

lowed. The work has evolved over time as poverty measurement has advanced

from use of the Official Poverty Measure (OPM) to the Supplemental Poverty

Measure (SPM). Becky’s work and the work that followed show that the cyclical-

ity of poverty is not a stable parameter but can and does change with structural

changes in the labor market and the social safety net.

We then provide updates and new estimates for the cyclicality of poverty using

data through 2019 (pre-COVID) as well as through 2022. We use data from the

Current Population Survey (CPS) Annual Social and Economic Supplement

(ASEC) files and construct two main measures of poverty—pre–tax-and-transfer

and post–tax-and-transfer poverty—to show how excluding or including govern-

ment taxes and transfers from household resources affects measured poverty

rates and their cyclicality. For both poverty rates, we compare household-level

resources to an anchored household-level version of the SPM’s thresholds. Using

state-by-year data, we estimate the impact of two measures of local labor

markets—state unemployment and real median income—on poverty. Following

Becky’s work, we examine how this varies by demographic group and at different

points in the income-to-poverty distribution.

We find that poverty is countercyclical, rising in recessions and falling in

expansions. We also show that the social safety net protects against volatility in

the rises and falls of the cycles: Post–tax-and-transfer poverty is less cyclical

than is pre–tax-and-transfer poverty. The effects of business cycles on pre–

tax-and-transfer poverty vary significantly across demographic groups, with

the largest cyclicality for children and Black and Hispanic persons and lower

cyclicality for white and elderly persons. While the safety net leads to reduc-

tions in cyclicality for almost all groups, there is large variation in its impact,

with the largest reductions in cyclicality for the elderly and the smallest reduc-

tions for Hispanics and nonelderly households without children. Finally, we

study how our results vary across the income to poverty distribution. We find

an inverted U shape with cyclicality low at 25 percent of poverty, rising until

75 percent of poverty, and declining at higher thresholds of poverty. Overall,

our results suggest that further safety net spending aimed at children, minori-

ties, or individuals with household incomes between 25 and 150 percent of

poverty thresholds might be most effective at reducing the cyclicality of eco-

nomic well-being.