September 13, 2023
Earlier this week, the Census Bureau reported its annual income, poverty, and health insurance data for 2022. Due to the tight labor market and the partial continued pandemic benefits, the 2022 supplemental poverty rate (at 12.4 percent) changed very little relative to pre-pandemic levels (at 12.3 percent from 2018 to 2019).
However, we are seeing a far more stark picture for year-over-year child poverty. Data show that child poverty has doubled since Congress allowed the 2021 enhanced Child Tax Credit (CTC) and most pandemic benefits to expire. The sharp increase in child poverty from last year’s 5.2 percent to 12.4 percent reveals the vital role that expanded CTC and other public programs played in buffering household financial fluctuation within a year.
With an increasing number of people entering the labor force in the post-pandemic economy, many will inevitably encounter a low-wage labor market in which workers experience more instability in terms of both the risk of layoffs or unemployment and unstable and unpredictable work schedules.
Before the pandemic, around one-third of U.S. workers said their month-to-month income varied. The unstable incomes that workers face are mostly driven by hours worked and involuntary job churn. This is particularly true among disadvantaged groups, including families with lower wages, immigrant families, and people of color. Although racial and age gaps in unstable work schedules have abated in the current recovery, such instability continues to be a major challenge for working parents and those without a college degree.
According to a recent article published in Social Forces, over one out of four children from households with the greatest instability (defined as at the 4th quartile of hours distribution) live below the supplemental poverty line. The study also shows that even for children whose parents have the same education, are the same age, live in the same state, work in a similar industry, and have other similar characteristics, greater work hours instability within a year is significantly linked to a higher child poverty rate.
As Figure 1 shows, the trend of work-hour instability corresponds relatively more closely to the trend of the official poverty rate rather than to the supplemental poverty rate. This implies that before the pandemic, government spending on non-cash programs may offset a large part of the adverse impacts of labor market volatility.
Why Do We Need the Expanded and Monthly CTC?
Given its relatively high take-up rate and that it is not attached to work conditions for caregivers, some in-kind programs (particularly SNAP) work well in stabilizing household income (as evident in Figure 2). Before the pandemic, cash transfers’ buffering effects in the context of frequent work instability were much more muted relative to the impacts of the in-kind programs.
Figure 2 also shows how unresponsive some previous tax programs were to buffer income loss in the context of frequent work instability before 2020. An expanded, monthly, and refundable Child Tax Credit will help lessen the adverse financial consequences from work hours (and associated earnings) churning. CEPR will continue the research along these lines.