The four-year rise in the U.S. poverty rate that began with the 2001 recession and the aftermath of Hurricane Katrina has sparked renewed interest in poverty among researchers and policymakers. Policies for addressing poverty are influenced by perceptions of its causes. Accordingly, this article evaluates the impact of several purported causes of poverty in New York City. Using decennial census data for 1970-2000, the authors employ simulations and a decomposition framework to investigate the relationship between poverty and key demographic and economic changes in the city. They find that two demographic changes - the growing percentage of the city's black and Hispanic populations and the increasing share of residents living in female-headed families - are clearly associated with the city's rise in poverty from 1969 to 1979 and the continued high poverty rate from 1979 to 1999. However, when these demographic changes are placed in the context of income growth and expanding income inequality, the study finds that the rise in income inequality plays a larger role in the 1979-99 persistence of poverty than do demographic changes. The authors also explore the influence of changes in earnings inequality on income inequality and poverty. They find a considerable increase in poverty and an expansion of earnings inequality within a key element of the city's population: persons living in full-year working families. The rise in earnings inequality can be traced to the stagnation of wages at the low end of the earnings distribution.
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Article provided by Federal Reserve Bank of New York in its journal Economic Policy Review.