The Macroeconomy and Poverty

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, rising 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 cyclicality 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.