Poverty and Inequality in the United States

Americans are proud of their economic system, believing it provides opportunities for all citizens to have good lives. Their faith is clouded, however, by the fact that poverty persists in many parts of the country. Government anti-poverty efforts have made some progress but have not eradicated the problem. Similarly, periods of strong economic growth, which bring more jobs and higher wages, have helped reduce poverty but have not eliminated it entirely.

The federal government defines a minimum amount of income necessary for the basic maintenance of a family of four. This amount may fluctuate depending on the cost of living and the location of the family. In 1998, a family of four with an annual income below $16,530 was classified as living in poverty.

The percentage of people living below the poverty level dropped from 22.4 percent in 1959 to 11.4 percent in 1978. But since then, it has fluctuated in a fairly narrow range. In 1998, it stood at 12.7 percent.

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Understanding Poverty and Its Various Types

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What is more, the overall figures mask much more severe pockets of poverty. In 1998, more than one-quarter of all African-Americans (26.1 percent) lived in poverty; though distressingly high, that figure did represent an improvement from 1979, when 31 percent of Blacks were officially classified as poor, and it was the lowest poverty rate for this group since 1959. Families headed by single mothers are particularly susceptible to poverty. Partly as a result of this phenomenon, almost one in five children (18.9 percent) was poor in 1997. The poverty rate was 36.7 percent among African-American children and 34.4 percent of Hispanic children.

Some analysts have suggested that the official poverty figures overstate the real extent of poverty because they measure only cash income and exclude certain government assistance programs such as Food Stamps, health care, and public housing. Others point out, however, that these programs rarely cover all of a family's food or health care needs and that there is a shortage of public housing. Some argue that even families whose incomes are above the official poverty level sometimes go hungry, skimping on food to pay for such things as housing, medical care, and clothing. Still, others point out that people at the poverty level sometimes receive cash income from casual work and in the "underground" sector of the economy, which is never recorded in official statistics.

In any event, it is clear that the American economic system does not apportion its rewards equally. In 1997, the wealthiest one-fifth of American families accounted for 47.2 percent of the nation's income, according to the Economic Policy Institute, a Washington-based research organization. In contrast, the poorest one-fifth earned just 4.2 percent of the nation's income, and the poorest 40 percent accounted for only 14 percent of income.

Despite the generally prosperous American economy as a whole, concerns about inequality continued during the 1980s and 1990s. Increasing global competition threatened workers in many traditional manufacturing industries, and their wages stagnated. At the same time, the federal government edged away from tax policies that sought to favor lower-income families at the expense of wealthier ones, and it also cut spending on a number of domestic social programs intended to help the disadvantaged. Meanwhile, wealthier families reaped most of the gains from the booming stock market.

In the late 1990s, there were some signs these patterns were reversing, as wage gains accelerated -- especially among poorer workers. But at the end of the decade, it was still too early to determine whether this trend would continue.

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This article is adapted from the book "Outline of the U.S. Economy" by Conte and Karr and has been adapted with permission from the U.S. Department of State.