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Testimony before the Chairman, Committee on Ways and Means, House of 
Representatives: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 10:00 a.m. EST: 

Wednesday, January 24, 2007: 

Poverty In America: 

Consequences for Individuals and the Economy: 

Statement of Sigurd R. Nilsen, Director Education, Workforce, and 
Income Security Issues: 

GAO-07-343T: 

GAO Highlights: 

Highlights of GAO-07-343T, a testimony before the Chairman, Committee 
on Ways and Means, House of Representatives 

Why GAO Did This Study: 

In 2005, 37 million people, approximately 13 percent of the total 
population, lived below the poverty line, as defined by the Census 
Bureau. Poverty imposes costs on the nation in terms of both 
programmatic outlays and productivity losses that can affect the 
economy as a whole. To better understand the potential range of effects 
of poverty, GAO was asked to examine (1) what the economic research 
tells us about the relationship between poverty and adverse social 
conditions, such as poor health outcomes, crime, and labor force 
attachment, and (2) what links economic research has found between 
poverty and economic growth. To answer these questions, GAO reviewed 
the economic literature by academic experts, think tanks, and 
government agencies, and reviewed additional literature by searching 
various databases for peer- reviewed economic journals, specialty 
journals, and books. We also provided our draft report for review by 
experts on this topic. 

What GAO Found: 

Economic research suggests that individuals living in poverty face an 
increased risk of adverse outcomes, such as poor health and criminal 
activity, both of which may lead to reduced participation in the labor 
market. While the mechanisms by which poverty affects health are 
complex, some research suggests that adverse health outcomes can be 
due, in part, to limited access to health care as well as greater 
exposure to environmental hazards and engaging in risky behaviors. For 
example, some research has shown that increased availability of health 
insurance such as Medicaid for low-income mothers led to a decrease in 
infant mortality. Additionally, exposure to higher levels of air 
pollution from living in urban areas close to highways can lead to 
acute health conditions. Data suggest that engaging in risky behaviors, 
such as tobacco and alcohol use, a sedentary life-style, and a low 
consumption of nutritional foods, can account for some health 
disparities between lower and upper income groups. The economic 
research we reviewed also points to links between poverty and crime. 
For example, one study indicated that higher levels of unemployment are 
associated with higher levels of property crime. The relationship 
between poverty and adverse outcomes for individuals is complex, in 
part because most variables, like health status, can be both a cause 
and a result of poverty. These adverse outcomes affect individuals in 
many ways, including limiting their development of the skills, 
abilities, knowledge, and habits necessary to fully participate in the 
labor force. 

Research shows that poverty can negatively affect economic growth by 
affecting the accumulation of human capital and rates of crime and 
social unrest. Economic theory has long suggested that human 
capital—that is, the education, work experience, training, and health 
of the workforce—is considered one of the fundamental drivers of 
economic growth. The conditions associated with poverty can work 
against this human capital development by limiting individuals’ ability 
to remain healthy and develop skills, in turn decreasing the potential 
to contribute talents, ideas, and even labor to the economy. An 
educated labor force, for example, is better at learning, creating and 
implementing new technologies. Economic theory suggests that when 
poverty affects a significant portion of the population, these effects 
can extend to the society at large and produce slower rates of growth. 
Although historically research has focused mainly on the extent to 
which economic growth alleviates poverty, some recent empirical studies 
have begun to demonstrate that higher rates of poverty are associated 
with lower rates of growth in the economy as a whole. For example, 
areas with higher poverty rates experience, on average, slower per 
capita income growth rates than low-poverty areas. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-343T]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Sigurd R. Nilsen at (202) 
512-7215 or at nilsens@gao.gov. 

[End of Section] 

Mr. Chairman and Members of the Committee: 

I am pleased to be here today to discuss the important topic of poverty 
and its effects on individuals and our economy. My testimony is drawn 
from our report Poverty in America: Economic Research Shows Adverse 
Impacts on Health Status and Other Social Conditions as well as the 
Economic Growth Rate (GAO-07-344), being released this morning. Our 
work looks at what the economic research tells us about the 
relationship between poverty and adverse social conditions, such as 
poor health outcomes, crime, and labor force attachment; and what links 
economic research has found between poverty and economic growth. 

According to the Census Bureau, approximately 37 million people in the 
United States--nearly 13 percent of the total population--lived below 
the poverty line in 2005.[Footnote 1] This percentage was significantly 
larger for particular population groups, specifically children, 
minorities, and those living in certain geographic areas such as inner 
cities. The federal government spends billions of dollars on programs 
to assist low-income individuals and families.[Footnote 2] These 
programs included Medicaid, food stamps, Temporary Assistance for Needy 
Families (TANF), and the Earned Income Tax Credit (EITC), to name some 
of the largest. While some have taken issue with Census' official 
poverty measure and proposed alternative measures, it is generally 
recognized that poverty imposes costs on the nation as a whole, not 
merely in terms of programmatic outlays but also through lost 
productivity that can affect the overall economy. 

In conducting our work, we reviewed the economic literature by academic 
experts, think tanks, and government agencies, which we collected from 
searches of various databases, peer-reviewed economic journals, 
specialty journals, and books. We also provided our draft report to 
four external reviewers. They are recognized experts who have conducted 
research and published on the topic of poverty and economic growth and 
whose work has recommended a variety of approaches and strategies to 
policymakers. We limited the scope of our work by looking at recent 
studies published since 1996, excluding anything older, with exceptions 
made for work that was considered seminal. Thus, our results are not an 
exhaustive or historical treatment of the topic. Our review was 
primarily driven by the economic literature focused on the United 
States either exclusively or including other developed nations; studies 
from other disciplines were excluded unless they were captured in 
either the economic study under review or its bibliography. When we 
refer to poverty in the report, we are using an absolute measure, not a 
relative one. This means that, for the most part, the studies we 
reviewed typically used the official poverty line published by the 
Census Bureau as its benchmark. A few of the studies we reviewed used 
relative measures such as the poorest 10 percent of the population. 

Our work was conducted between October 2006 and January 2007 according 
to generally accepted government auditing standards. Because we did not 
evaluate the policies, operations, or programs of any federal agency to 
develop the information presented in this report, and because we are 
not making any recommendations, we did not seek agency comments. 
However, we met with agency officials from the Departments of Commerce, 
Health and Human Services, Justice, and Labor to obtain information on 
research they or others had conducted related to our work objectives. 

Summary: 

Economic research shows that poverty is associated with a number of 
adverse outcomes for individuals, such as poor health, crime, and 
reduced labor market participation, and has a negative impact on the 
economic growth rate. Some research suggests that adverse health 
outcomes are due, in part, to limited access to health care as well as 
exposure to environmental hazards and engaging in risky behaviors. The 
economic research we reviewed also suggests that poverty is associated 
with higher levels of certain types of crime. The relationship between 
poverty and adverse outcomes for individuals is complex, in part 
because most variables, like health status, can be both a cause and a 
result of poverty. Regardless of whether poverty is a cause or an 
effect, however, the conditions associated with poverty can work 
against the development of human capital--that is the ability of 
individuals to remain healthy and develop the skills, abilities, 
knowledge, and habits necessary to fully participate in the labor 
force. Human capital development is considered one of the fundamental 
drivers of economic growth. An educated labor force, for example, is 
better at learning, creating, and implementing new technologies. 
Economic theory suggests that when poverty affects a significant 
portion of the population, these effects can extend to the society at 
large and produce slower rates of growth. Though limited, empirical 
research has demonstrated that higher rates of poverty are associated 
with lower rates of growth in the economy as a whole. 

Background: 

Economic growth is one of the indicators by which the well-being of the 
nation is typically measured, although recent discussions have focused 
on a broader set of indicators, such as poverty. Poverty in the United 
States is officially measured by the Census Bureau, which calculates 
the number of persons or households living below an established level 
of income deemed minimally adequate to support them. The federal 
government has a long-standing history of assisting individuals and 
families living in poverty by providing services and income transfers 
through numerous and various types of programs. 

Measuring the Nation's Well Being: Economic Growth and Other 
Indicators: 

Economic growth is typically defined as the increase in the value of 
goods and services produced by an economy; traditionally this growth 
has been measured by the percentage rate of increase in a country's 
gross domestic product, or GDP. The growth in GDP is a key measure by 
which policy-makers estimate how well the economy is doing. However, it 
provides little information about how well individuals and households 
are faring. 

Recently there has been a substantial amount of activity in the United 
States and elsewhere to develop a comprehensive set of key indicators 
for communities, states, and the nation that go beyond traditional 
economic measures. Many believe that such a system would better inform 
individuals, groups, and institutions on the nation as a whole. Poverty 
is one of these key indicators. Poverty, both narrowly and more broadly 
defined, is a characteristic of society that is frequently monitored 
and defined and measured in a number of ways.[Footnote 3] 

How Is Poverty Defined in the United States? 

The Census Bureau is responsible for establishing a poverty threshold 
amount each year; persons or families having income below this amount 
are, for statistical purposes, considered to be living in 
poverty.[Footnote 4] The threshold reflects estimates of the amount of 
money individuals and families of various sizes need to purchase goods 
and services deemed minimally adequate based on 1960s living standards, 
and is adjusted each year using the consumer price index. The poverty 
rate is the percentage of individuals in total or as part of various 
subgroups in the United States who are living on income below the 
threshold amounts. 

Over the years, experts have debated whether or not the way in which 
the poverty threshold is calculated should be changed. Currently the 
calculation only accounts for pretax income and does not include 
noncash benefits and tax transfers, which, especially in recent years, 
have comprised larger portions of the assistance package to those who 
are low-income.[Footnote 5] For example, food stamps and the Earned 
Income Tax Credit could provide a combined amount of assistance worth 
an estimated $5,000 for working adults with children who earn 
approximately $12,000 a year.[Footnote 6] If noncash benefits were 
included in a calculation of the poverty threshold, the number and 
percentage of individuals at or below the poverty line could change. In 
1995, a National Academy of Sciences (NAS) panel recommended that 
changes be made to the threshold to count noncash benefits, tax 
credits, and taxes; deduct certain expenses from income such as child 
care and transportation; and adjust income levels according to an 
area's cost of living.[Footnote 7] In response, the Census Bureau 
published an experimental poverty measure in 1999 using the NAS 
recommendations in addition to its traditional measure but, to date, 
Census has not changed the official measure.[Footnote 8] 

U.S. Poverty Rates: 

In 2005, close to 13 percent of the total U.S. population--about 37 
million people--were counted as living below the poverty line, a number 
that essentially remained unchanged from 2004. Poverty rates differ, 
however, by age, gender, race, and ethnicity and other factors. For 
example, 

* Children: In 2005, 12.3 million children, or 17.1 percent of children 
under the age of 18, were counted as living in poverty. Children of 
color were at least three times more likely to be in poverty than those 
who were white: 34.2 percent of children who were African-American and 
27.7 percent of children who were Hispanic lived below the poverty line 
compared to 9.5 percent of children who were white.[Footnote 9] African-
American children represented 15.2 percent and Hispanic children 
represented 19.9 percent of all children under the age of 18 in 2005. 

* Racial and ethnic minorities: African-Americans and Hispanics have 
significantly higher rates of poverty than whites. In 2005, 24.9 
percent of African-Americans and 22 percent of Hispanics lived in 
poverty compared to 8.3 percent for whites. African-Americans made up 
12.5 percent of the total population while Hispanics accounted for 14.7 
percent. 

* Elderly: The elderly have lower rates of poverty than other groups. 
For example, 10.1 percent of adults aged 65 or older lived in poverty. 
The elderly represented 12.1 percent of the total U.S. population in 
2005. 

Poverty rates also differ depending on geographical location and for 
urban and nonurban areas. Poverty rates for urban areas were double 
those in suburbs, 17 percent compared to 9.3 percent. Poverty rates in 
the South were the highest at 14 percent; the West had a rate of 12.6 
percent, followed by the Midwest with 11.4 percent and the Northeast at 
11.3 percent.[Footnote 10] 

The Role of the Federal Government: 

The U.S. government has a long history of efforts to improve the 
conditions of those living with severely limited resources and income. 
Presidents, Congress, and other policymakers have actively sought to 
help citizens who were poor, beginning as early as the 1850s through 
the more recent efforts established through welfare reform initiatives 
enacted in 1996. 

Over the years, the policy approaches used to help low-income 
individuals and families have varied. For example, in the1960s federal 
programs focused on increasing the education and training of those 
living in poverty. In the 1970s, policy reflected a more income- 
oriented approach with the introduction of several comprehensive 
federal assistance plans. More recently, welfare reform efforts have 
emphasized the role of individual responsibility and behaviors in areas 
such as family formation and work to assist people in becoming self- 
sufficient. Although alleviating poverty and the conditions associated 
with it has long been a federal priority, approaches to developing 
effective interventions have sometimes been controversial, as evidenced 
by the diversity of federal programs in existence and the ways in which 
they have evolved over time. 

Currently, the federal government, often in partnership with the 
states, has created an array of programs to assist low-income 
individuals and families. According to a recent study by the 
Congressional Research Service (CRS), the federal government spent over 
$400 billion on 84 programs in 2004 that provided cash and noncash 
benefits to individuals and families with limited income. These 
programs cover a broad array of services: Examples include income 
supports or transfers such as the Earned Income Tax Credit and TANF; 
work supports such as subsidized child care and job training; health 
supports and insurance through programs like the State Children's 
Health Insurance Program (SCHIP) and Medicaid; and other social 
services such as food, housing, and utility assistance. Table 1 
provides a list of examples of selected programs. 

Table 1: Selected Examples of Federal Cash and Noncash Assistance to 
Low-Income Families and Individuals, Fiscal Year 2004: 

Purpose: Cash aid; 
Program: Temporary Assistance for Needy Families (TANF); 
Federal cash outlay: $10.4 billion[A]; 
Program description: Permits a state to give ongoing basic cash aid to 
families that include a minors or a pregnant woman. Work and other 
requirements must be met. 

Purpose: Cash aid; 
Program: Earned Income Tax Credit (EITC); 
Federal cash outlay: $37.9 billion[B]; 
Program description: Provides a refundable credit to workers with and 
without children. 

Purpose: Food and nutrition; 
Program: Food Stamp Program; 
Federal cash outlay: $27.2 billion[C]; 
Program description: Provides certain allotments to individuals for 
purchasing of food items, based upon the individual's level of 
eligibility/need. 

Purpose: Food and nutrition; 
Program: Special Supplemental Nutrition Program for Women, Infants and 
Children (WIC); 
Federal cash outlay: $4.5 million; 
Program description: Provides benefits for low-income mothers, infants, 
and children considered to be at "nutritional risk.". 

Purpose: Medical; 
Program: Medicaid; 
Federal cash outlay: $176 billion; 
Program description: Provides payments to health care providers in full 
or via co-pay for eligible low-income families and individuals and for 
long-term care to eligible individuals who are aged or disabled. 

Purpose: Medical; 
Program: State Children's Health Insurance Program (SCHIP); 
Federal cash outlay: $4.6 billion[D]; 
Program description: Provides federal matching funds for states and 
territories to provide health insurance to targeted low-income 
children. 

Purpose: Educational; 
Program: Federal Pell Grant Program; 
Federal cash outlay: $12 billion; 
Program description: Provides assistance to undergraduate students who 
meet a certain needs test and are enrolled in an eligible institution 
of postsecondary education. 

Purpose: Educational; 
Program: Head Start; 
Federal cash outlay: $6.8 billion[E]; 
Program description: Provides comprehensive services to targeted low-
income children. Services include educational, medical, dental, 
nutritional, and social services. 

Purpose: Housing; 
Program: Section 8 Low-Income Housing Assistance; 
Federal cash outlay: $22.4 billion; 
Program description: Provides rental assistance through vouchers or 
rental subsidies to eligible low- income families or single persons. 

Purpose: Services; 
Program: Child Care and Development Block Grant (CCDBG); 
Federal cash outlay: $6.9 billion; 
Program description: Provides funding to low-income parents for child 
care. 

Purpose: Services; 
Program: Social Services Block Grant (SSBG) (Title XX); 
Federal cash outlay: $1.7 billion; 
Program description: Provides funding to assist states in providing 
social services to eligible low-income individuals or families. 

Purpose: Jobs; 
Program: Job Corps; 
Federal cash outlay: $1.5 billion; 
Program description: Provides no-cost training and education to low- 
income individuals ages 16-24 while providing a monthly allowance 
payment. 

Purpose: Energy; 
Program: Low-Income Home Energy Assistance Program (LIHEAP); 
Federal cash outlay: $1.9 billion; 
Program description: Provides assistance to low-income home owners and 
renters to help meet energy needs such as heating and cooling. 

Source: For a full list of federal programs, see Cash and Noncash 
Benefits for Persons with Limited Income: Eligibility Rules, Recipient 
and Expenditure Data, FY2002-FY2004; Washington D.C. 2006. 

[A] Federal outlay figures in table 1 are from fiscal year 2004, as 
reflected in the CRS report from which they are taken, sourced above. 
Some exceptions apply and are noted. The TANF figure, $10.4 billion, is 
the estimated total of federal and state expenditures combined for only 
TANF cash aid in fiscal year 2004. This figure does not include other 
combined federal and state funding for the following: TANF child care, 
estimated at $2.5 billion in fiscal year 2004; TANF work programs and 
activities, estimated at $2.2 billion in fiscal year 2004; and TANF 
services estimated at $6.3 billion in fiscal year 2004. 

[B] EITC federal outlay total of $37.9 billion is for fiscal year 2003 
as reported in GAO, Means Tested Programs: Information on Program 
Access Can Be an Important Management Tool, GAO-05-221 (Washington, 
D.C. March 2005). 

[C] For more on the Food Stamp Program, see GAO-05-839R, (Washington, 
D.C.: June 30, 2005). 

[D] For more on SCHIP federal outlay figure of $4.6 billion, see GAO- 
05-839R. 

[E] Head Start federal outlay total of $6.8 billion is for fiscal year 
2005. 

[End of table] 

Economic Research Links Poverty with Adverse Outcomes for Individuals 
Such as Poor Health and Crime: 

Economic research suggests that individuals living in poverty face an 
increased risk for adverse outcomes, such as poor health, criminal 
activity, and low participation in the workforce. The adverse outcomes 
that are associated with poverty tend to limit the development of 
skills and abilities individuals need to contribute productively to the 
economy through work, and this in turn, results in low incomes. The 
relationship between poverty and outcomes for individuals is complex, 
in part because most variables, like health status, can be both a cause 
and a result of poverty. The direction of the causality can have 
important policy implications. To the extent that poor health causes 
poverty, and not the other way around, then alleviating poverty may not 
improve health. 

Individuals Living in Poverty Experience Higher Rates of Adverse Health 
Outcomes, in Part because of Limited Access to Health Care, 
Environmental Hazards, and Risky Behaviors: 

Health outcomes are worse for individuals with low incomes than for 
their more affluent counterparts. Lower-income individuals experience 
higher rates of chronic illness, disease, and disabilities, and also 
die younger than those who have higher incomes.[Footnote 11] As 
reported by the National Center on Health Statistics, individuals 
living in poverty are more likely than their affluent counterparts to 
experience fair or poor health, or suffer from conditions that limit 
their everyday activities (fig.1). They also report higher rates of 
chronic conditions such as hypertension, high blood pressure, and 
elevated serum cholesterol, which can be predictors of more acute 
conditions in the future. Life expectancies for individuals in poor 
families as compared to nonpoor families also differ significantly. One 
study showed that individuals with low incomes had life expectancies 25 
percent lower than those with higher incomes.[Footnote 12] Other 
research suggests that an individual's household wealth predicts the 
amount of functionality of that individual in retirement.[Footnote 13] 

Figure 1: Selected Health Indicators by Poverty Status: 

[See PDF for image] 

Source: National Center for Health Statistics, Health, United States, 
2006 with Chartbook on Trends in the Health of Americans (Hyattsville, 
Maryland: 2006). 

[End of figure] 

Research suggests that part of the reason that those in poverty have 
poor health outcomes is that they have less access to health insurance 
and thus less access to health care, particularly preventive care, than 
others who are nonpoor. Very low-income individuals were three times as 
likely not to have health insurance than those with higher incomes, 
which may lead to reduced access to and utilization of health care 
(fig. 2). 

Figure 2: Percentage of Population with No Health Insurance (Private or 
Medicaid) by Poverty Status: 

[See PDF for image] 

Source: National Center for Health Statistics, Health, United States, 
2006 with Chartbook on Trends in the Health of Americans (Hyattsville, 
Maryland: 2006). 

[End of figure] 

Data show that those who are poor with no health insurance access the 
health system less often than those who are either insured or wealthier 
when measured by one indicator of health care access: visits to the 
doctor. For example, data from the National Center on Health Statistics 
show that children in families with income below the poverty line who 
were continuously without any type of health insurance were three to 
four times more likely to have not visited a doctor in the last 12 
months than children in similar economic circumstances who were insured 
(fig. 3). Research also suggests that a link between income and health 
exists independent of health insurance coverage. Figure 3 also shows 
that while children who are uninsured but in wealthier families visit 
the doctor fewer times than those who are insured, they still go more 
often than children who are uninsured but living in poverty. 

Figure 3: No Visits to Any Health Provider in the Past 12 Months 
(Children under 18 Years of Age) by Level of Insurance: 

[See PDF for Image] 

Source: National Center for Health Statistics, Health, United States, 
2006 with Chartbook on Trends in the Health of Americans (Hyattsville, 
Maryland: 2006). 

[End of Figure] 

Some research examining government health insurance suggests that 
increased health insurance availability improves health outcomes. 
Economists have studied the expansion of Medicaid, which provides 
health insurance to those with low income. They found that Medicaid's 
expansion of coverage, which occurred between 1979 and 1992, increased 
the availability of insurance and improved children's health outcomes. 
For example, one study found that a 30 percentage point increase in 
eligibility for mothers aged 15-44 translated into a decrease in infant 
mortality of 8.5 percent.[Footnote 14] Another study looked at the 
impact of health insurance coverage through Medicare and its effects on 
the health of the elderly and also found a statistically significant 
though modest impact.[Footnote 15] There is some evidence that 
variations in health insurance coverage do not explain all the 
differences in health outcomes. A study done in Canada found 
improvements in children's health with increases in income, even though 
Canada offers universal health insurance coverage for hospital 
services, indicating that health insurance is only part of the 
story.[Footnote 16] 

Although there is a connection among poverty, having health insurance, 
and health outcomes, having health insurance is often associated with 
other attributes of an individual, thus making it difficult to isolate 
the direct effect of health insurance alone. Most individuals in the 
United States are either self-insured or insured through their 
employer. If those who are uninsured have lower levels of education, as 
do individuals with low income, differences in health between the 
insured and uninsured might be due to level or quality of education, 
and not necessarily insurance.[Footnote 17] 

Another reason that individuals living in poverty may have more 
negative health outcomes is because they are more likely to live and 
work in areas that expose them to environmental hazards such as 
pollution or substandard housing. Some researchers have found that 
because poorer neighborhoods may be located closer to industrial areas 
or highways than more affluent neighborhoods, there tend to be higher 
levels of pollution in lower-income neighborhoods.[Footnote 18] The 
Institute of Medicine concluded that minority and low-income 
communities had disproportionately higher exposure to environmental 
hazards than the general population, and because of their impoverished 
conditions were less able to effectively change these 
conditions.[Footnote 19] 

The link between poverty and health outcomes may also be explained by 
lifestyle issues associated with poverty. Sedentary life-style: the use 
of alcohol and drugs; as well as lower consumption of fiber, fresh 
fruits, and vegetables are some of the behaviors that have been 
associated with lower socioeconomic status.[Footnote 20] Cigarette 
smoking is also more common among adults who live below the poverty 
line than among those above it, about 30 percent compared to 21 
percent.[Footnote 21] Similarly, problems with being overweight and 
obese are common among those with low family incomes, although most 
prevalent in women: Women with incomes below 130 percent of the poverty 
line were 50 percent more likely to be obese than those with incomes 
above this amount.[Footnote 22] Figure 4 shows that people living in 
poverty are less likely to engage in regular, leisure-time physical 
activity than others and are somewhat more likely to be obese, and 
children in poverty are somewhat more likely to be overweight than 
children living above the poverty line. In addition, there is also 
evidence to suggest a link among poverty, stress, and adverse health 
outcomes, such as compromised immune systems.[Footnote 23] 

Figure 4: Percentage of Population Who Have a Sedentary Lifestyle, Are 
Overweight, or Are Obese, by Poverty Status: 

[See PDF for image] 

Source: National Center for Health Statistics, Health, United States, 
2006 with Chartbook on Trends in the Health of Americans (Hyattsville, 
Maryland: 2006). 

[End of figure] 

While evidence shows how poverty could result in poor health, the 
opposite could also be true. For example, a health condition could 
result, over time, in restricting an individual's employment, resulting 
in lower income. Additionally, the relationship between poverty and 
health outcomes could also vary by demographic group. [Footnote 24] 
Failing health, for example, can be more directly associated with 
household income for middle-aged and older individuals than with 
children, since adults are typically the ones who work. 

Economic Research Shows an Association between Poverty and Crime: 

Just as research has established a link between poverty and adverse 
health outcomes, evidence suggests a link between poverty and crime. 
Economic theory predicts that low wages or unemployment makes crime 
more attractive, even with the risks of arrest and incarceration, 
because of lower returns to an individual through legal 
activities.[Footnote 25] While more mixed, empirical research provides 
support for this. For example, one study shows that higher levels of 
unemployment are associated with higher levels of property crime, but 
is less conclusive in predicting violent crime.[Footnote 26] Another 
study has shown that both wages and unemployment affect crime, but that 
wages play a larger role.[Footnote 27] 

Research has found that peer influence and neighborhood effects may 
also lead to increased criminal behavior by residents. Having many 
peers that engage in negative behavior may reduce social stigma 
surrounding that behavior.[Footnote 28] In addition, increased crime in 
an area may decrease the chances that any particular criminal activity 
will result in an arrest. Other research suggests that the neighborhood 
itself, independent of the characteristics of the individuals who live 
in it, affects criminal behavior. [Footnote 29] One study found that 
arrest rates were lower among young people from low-income families who 
were given a voucher to live in a low-poverty neighborhood, as opposed 
to their peers who stayed in high-poverty neighborhoods. The most 
notable decrease was in arrests for violent crimes; the results for 
property crimes, however, were mixed, with arrest rates increasing for 
males and decreasing for females.[Footnote 30] 

Adverse Outcomes, Such as Poor Health and Low Educational Attainment, 
Lead to Reduced Participation in the Labor Market: 

Regardless of whether poverty is a cause or an effect, the conditions 
associated with poverty limit the ability of low-income individuals to 
develop the skills, abilities, knowledge, and habits necessary to fully 
participate in the labor force, in turn leading to lower incomes. 
According to 2000 Census data, people aged 20-64 with income above the 
poverty line in 1999 were almost twice as likely to be employed as 
compared to those with incomes below it.[Footnote 31] Some of the 
reasons for these outcomes include educational attainment and health 
status. 

Poverty is associated with lower educational quality and attainment, 
both of which can affect labor market outcomes. Research has 
consistently demonstrated that the quality and level of education 
attained by lower-income children is substantially below those for 
children from middle-or upper-income families. Moreover, high school 
dropout rates in 2004 were four times higher for students from low- 
income families than those in high-income families.[Footnote 32] Those 
with less than a high school degree have unemployment rates almost 
three times greater than those with a college degree, 7.6 percent 
compared to 2.6 percent in 2005. And the percentage of low-income 
students who attend college immediately after high school is 
significantly lower than for their wealthier counterparts: 49 percent 
compared to 78 percent.[Footnote 33] 

A significant body of economic research directly links adverse health 
outcomes, which are also associated with low incomes, with the quality 
and quantity of labor that the individual is able to offer to the 
workforce. Many studies that have examined the relationship among 
individual adult health and wages, labor force participation, and job 
choice have documented positive empirical relationships among health 
and wages, earnings, and hours of work.[Footnote 34] Although there is 
no consensus about the exact magnitude of the effects, the empirical 
literature suggests that poor health reduces the capacity to work and 
has substantive effects on wages, labor force participation, and job 
choice, meaning that poor health is associated with low income. 

Research also demonstrates that poor childhood health has substantial 
effects on children's future outcomes as adults. Some research, for 
example, shows that low birth weight is correlated with a low health 
status later in life. Research also suggests that poor childhood health 
is associated with reduced educational attainment and reduced cognitive 
development. Reduced educational attainment may in turn have a causal 
effect not only on future wages as discussed above but also on adult 
health if the more educated are better able to process health 
information or make more informed choices about their health care or if 
education makes people more "future oriented" by helping them think 
about the consequences of their choices. In addition, some research 
shows that poor childhood health is predictive of poor adult health and 
poor adult economic status in middle age, even after controlling for 
educational attainment. 

Economic Research Suggests a Negative Association between Poverty and 
Economic Growth: 

The economic literature suggests that poverty not only affects 
individuals but can also create larger challenges for economic growth. 
Traditionally, research has focused on the importance of economic 
growth for generating rising living standards and alleviating poverty, 
but more recently it has examined the reverse, the impact of poverty on 
economic growth. In the United States, poverty can impact economic 
growth by affecting the accumulation of human capital and rates of 
crime and social unrest. While the empirical research is limited, it 
points to the negative association between poverty and economic growth 
consistent with the theoretical literature's conclusion that higher 
rates of poverty can result in lower rates of growth. 

Research has shown that accumulation of human capital is one of the 
fundamental drivers of economic growth.[Footnote 35] Human capital 
consists of the skills, abilities, talents, and knowledge of 
individuals as used in employment. The accumulation of human capital is 
generally held to be a function of the education level, work 
experience, training, and healthiness of the workforce.[Footnote 36] 
Therefore, schooling at the secondary and higher levels is a key 
component for building an educated labor force that is better at 
learning, creating, and implementing new technologies. Health is also 
an important component of human capital, as it can enhance workers' 
productivity by increasing their physical capacities, such as strength 
and endurance, as well as mental capacities, such as cognitive 
functioning and reasoning ability. Improved health increases workforce 
productivity by reducing incapacity, disability, and the number of days 
lost to sick leave, and increasing the opportunities to accumulate work 
experience. Further, good health helps improve education by increasing 
levels of schooling and scholastic performance. 

The accumulation of human capital can be diminished when significant 
portions of the population have experienced long periods of poverty, or 
were living in poverty at a critical developmental juncture. For 
example, recent research has found that the distinct slowdown in some 
measures of human capital development is most heavily concentrated 
among youth from impoverished backgrounds. When individuals who have 
experienced poverty enter the workforce, their contributions may be 
restricted or minimal, while others may not enter the workforce in a 
significant way. Not only is the productive capability of some citizens 
lost, but their purchasing power and savings, which could be channeled 
into productive investments, is forgone as well. 

In addition to the effects of poverty on human capital, some economic 
literature suggests that poverty can affect economic growth to the 
extent that it is associated with crime, violence, and social unrest. 
According to some theories, when citizens engage in unproductive 
criminal activities they deter others from making productive 
investments or their actions force others to divert resources toward 
defensive activities and expenditures. The increased risk due to 
insecurity can unfavorably affect investment decisions--and hence 
economic growth--in areas afflicted by concentrated poverty. Although 
such theories link poverty to human capital deficiencies and criminal 
activity, the magnitude of their impact on economic growth for an 
economy such as the United States is unclear at this time.[Footnote 37] 
In addition, people living in impoverished conditions generate 
budgetary costs for the federal government, which spends billions of 
dollars on programs to assist low-income individuals and families. 
Alleviating these conditions would allow the federal government to 
redirect these resources toward other purposes. 

While economic theory provides a guide to understanding how poverty 
might compromise economic growth, empirical researchers have not as 
extensively studied poverty as a determinant of growth in the United 
States. Empirical evidence on the United States and other rich nations 
is quite limited, but some recent studies support a negative 
association between poverty and economic growth. For example, some 
research finds that economic growth is slower in U.S. metropolitan 
areas characterized by higher rates of poverty than those with lower 
rates of poverty.[Footnote 38] Another study, using data from 21 
wealthy countries, has found a similar negative relationship between 
poverty and economic growth.[Footnote 39] 

Concluding Observations: 

Maintaining and enhancing economic growth is a national priority that 
touches on all aspects of federal decision making. As the nation moves 
forward in thinking about how to address the major challenges it will 
face in the twenty-first century, the impact of specific policies on 
economic growth will factor into decisions on topics as far ranging as 
taxes, support for scientific and technical innovation, retirement and 
disability, health care, education and employment. To the extent that 
empirical research can shed light on the factors that affect economic 
growth, this information can guide policymakers in allocating 
resources, setting priorities, and planning strategically for our 
nation's future. 

Economists have long recognized the strong association between poverty 
and a range of adverse outcomes for individuals, and empirical 
research, while limited, has also begun to help us better understand 
the impact of poverty on a nation's economic growth. The 
interrelationships between poverty and various adverse social outcomes 
are complex, and our understanding of these relationships can lead to 
vastly different conclusions regarding appropriate interventions to 
address each specific outcome. Furthermore, any such interventions 
could take years, or even a generation, to yield significant and 
lasting results, as the greatest impacts are likely to be seen among 
children. Nevertheless, whatever the underlying causes of poverty may 
be, economic research suggests that improvements in the health, 
neighborhoods, education, and skills of those living in poverty could 
have impacts far beyond individuals and families, potentially improving 
the economic well-being of the nation as a whole. 

This concludes my statement, Mr. Chairman. I would be happy to respond 
to any questions that you or other members of the committee may have. 

[End of section] 

Contact and Acknowledgments: 

GAO Contact: 

Sigurd R. Nilsen, (202) 512-7215 or nilsens@gao.gov: 

Acknowledgments: 

Kathy Larin, Assistant Director, and Janet Mascia, Analyst-in-Charge, 
managed this assignment. Lawrance Evans, Ben Bolitzer, Ken Bombara, 
Amanda Seese, and Rhiannon Patterson made significant contributions 
throughout the assignment. Charles Willson, Susannah Compton, and 
Patrick DiBattista helped develop the message for the report and 
testimony. 

In addition, Doug Besharov, Dr. Maria Cancian, Dr. Sheldon Danziger, 
and Dr. Lawrence Mead reviewed and provided comments on the report on 
which this testimony is based. 

FOOTNOTES 

[1] In 2005 the poverty threshold for a family of four was $19,971. 

[2] Congressional Research Service, Cash and Noncash Benefits for 
Persons with Limited Income: Eligibility Rules, Recipient and 
Expenditure Data, FY2002-FY2004 (Washington, D.C.: Mar. 27, 2006). 

[3] GAO, Informing Our Nation: Improving How to Understand and Assess 
the USA's Position and Progress, GAO-05-1 (Washington, D.C., November 
2004). 

[4] The U.S. Department of Health and Human Services (HHS) establishes 
poverty guidelines that are similar to the poverty thresholds but are 
used by HHS and other agencies for administering programs, such as 
determining program eligibility. 

[5] Congressional Research Service, Poverty in the United States: 2005 
(Washington, D.C.: Aug. 31, 2006). 

[6] Danzinger, Sheldon, "Fighting Poverty Revisited: What Did 
Researchers Know 40 Years Ago? What Do We know Today?" Dec. 4, 2006. 

[7] For a summary of the NAS panel recommendations see Congressional 
Research Service Report 95-539, Redefining Poverty in the United 
States: National Academy of Science Panel Recommendations, by Thomas R. 
Gabe (archived) (Washington, D.C.: 1995). 

[8] U.S. Census Bureau, Poverty among Working Families: Findings from 
Experimental Poverty Measures (Washington, D.C.: Sept. 2000). 

[9] Beginning in March 2003, the Census Bureau allowed survey 
respondents to identify themselves as belonging to one or more racial 
groups. In prior years, respondents could select only one racial 
category. Consequently, poverty statistics for different racial groups 
for 2002 and after are not directly comparable to earlier years' data. 
The term "blacks and white" refers to persons who identified with only 
one single racial group. The term "Hispanic" refers to individuals' 
ethnic, as opposed to racial, identification. Hispanics may be of any 
race. 

[10] Congressional Research Service, Poverty in the United States: 2005 
(Washington, D.C.: Aug. 31, 2006). 

[11] Centers for Disease Control and Prevention, Health, United States, 
2006; 1998 (Hyattsville, Maryland). 

[12] Deaton, Angus, "Policy Implications of The Gradient of Health and 
Wealth," Health Affairs, Vol. 21., No.2, March 2002. 

[13] Smith, James, and Raynard Kington, "Demographic and Economic 
Correlates of Health in Old Age." Demography, Vol. 34, No. 1, 1997. 

[14] Currie, Janet, and Jonathan Gruber, "Saving Babies: The Efficacy 
and Cost of Recent Changes in the Medicaid Eligibility of Pregnant 
Women," The Journal of Political Economy, Vol. 104, No. 6, December 
1996. 

[15] Card, David, et. al., "The Impact of Nearly Universal Insurance 
Coverage on Health Care Utilization and Health: Evidence from Medicare" 
National Bureau of Economic Research, Working Paper 10365. NBER, March 
2004. 

[16] Currie, Janet, and Mark Stabile, "Socioeconomic Status and Child 
Health: Why Is the Relationship Stronger for Older Children." American 
Economic Review, Vol. 93, No. 5, December 2003. 

[17] Additionally, differences in individual health outcomes can 
sometimes be explained by other factors that may be associated with 
poverty, but are difficult to detect, such as risk aversion. 

[18] While much of the specific biological mechanism by which air 
pollution might affect health is still unknown, some recent research by 
economists has noted a link between pollution and health, especially 
for infants. Currie and Neidell (2005) find that the decrease in the 
level of carbon monoxide in California in the 1990s had a significant 
effect on reducing infant mortality. See Currie, Janet, and Matthew 
Neidell, "Air Pollution and Infant Health: What Can We Learn From 
California's Recent Experience?" Quarterly Journal of Economics, 120 
(3), 2005. Similarly, Chay and Greenstone (2003) find that the 
reduction in total suspended particulates due to the 1970 Clean Air Act 
had a significant impact on infant mortality. See Chay, Kenneth, and 
Michael Greenstone, "Air Quality, Infant Mortality, and the Clean Air 
Act of 1970." National Bureau of Economic Research, Working Paper No. 
10053. NBER, 2003. 

[19] Institute of Medicine, Committee on Environmental Justice, "Toward 
Environmental Justice: Research, Education, and Health Policy Needs", 
(Washington, D.C.: 1999), p.6. 

[20] Adler, Nancy E., and Katherine Newman, "Socioeconomic Disparities 
in Health: Pathways and Policies." Health Affairs, Vol. 21 No. 2, 2002. 
See also Deaton, Angus. "Policy Implications of the Gradient of Health 
and Wealth." Health Affairs, Vol. 21, No.2: 2002. 

[21] Centers for Disease Control and Prevention, Tobacco Use among 
Adults-United States, 2005. Morbidity and Mortality Weekly Report , 
2006; 55(42): 1145-1148. Some research suggests that part of the reason 
why smoking rates are higher may be peer effects, especially among 
youth smokers. See DeCicca, Phillip, Donald Kenkel, and Alan Mathios, 
"Racial Difference in the Determinants of Smoking Onset." Journal of 
Risk and Uncertainty. Boston: 2000. Vol. 21, Iss. 2/3; p311. Other 
studies have shown that educational attainment can affect smoking use 
as well. See DeCicca, Philip, Donald Kenkel, and Alan Mathios,"Putting 
Out the Fires: Will Higher Taxes Reduce the Onset of Youth Smoking?" 
Journal of Political Economy. Chicago 2002.Vol.110, Iss.1; p. 144. 

[22] U.S. Public Health Service, Surgeon General's Call To Action to 
Prevent and Decrease Overweight and Obesity 2001, Washington, DC, pp. 
13-14. 

[23] While access to care, behavior, and environmental factors are some 
of the most commonly offered reasons for the relationship between 
poverty and health, recent literature has suggested other alternative 
theories, of which there is less of a research tradition. These include 
the effect of short exposures to health shocks as a result of poverty, 
such as poor nutrition or increased adrenalin due to higher levels of 
stress, and psycho-social stress that leads to problems with the immune 
system. See Smith, James P., "Healthy Bodies and Thick Wallets: The 
Dual Relation between Health and Economic Status." The Journal of 
Economic Perspectives, Vol. 13, No. 2, 1999. 

[24] It is not clear whether these adverse outcomes occur with greater 
frequency among all individuals living in households below the poverty 
line or only among those experiencing extreme poverty; those who 
experience poverty during critical development stages, such as infancy 
or early childhood; or those who experience long bouts of poverty. 

[25] Criminal behavior has been measured by reports to the police in an 
area, self-reported crime by individuals in surveys or arrests, as well 
as other measures. See also Freeman, Richard, "Why Do So Many Young 
American Men Commit Crimes and What Might We Do About It?" Journal of 
Economic Perspectives, Vol. 10, No. 1: Winter 2006. 

[26] Raphael, Steven, and Rudolf Winter-Ebner, "Identifying the Effect 
of Unemployment on Crime." Journal of Law and Economics, Vol. XLIV. 
2001. 

[27] Gould, Eric D., Bruce A. Weinberg, and David B. Mustard, "Crime 
Rates and Local Labor Market Opportunities in the United States: 1979- 
1997. Review of Economics and Statistics, 84 (1): 2002. 

[28] Katz, Lawrence F., Jeffrey R. Kling, and Jeffrey B. Liebman, 
"Moving to Opportunity in Boston: Early Results of a Randomized 
Mobility Experiment." Quarterly Journal of Economics, May 2001. 

[29] However, a challenge that researchers face is that, almost by 
definition, many individuals share the same characteristics in a 
neighborhood. Therefore, it is difficult to determine whether it is the 
characteristic of the individual or the neighborhood that is the source 
of the behavior. 

[30] [Hyperlink, 
Http://www.huduser.org/publications/fairhsg/MTODemData.html and 
http://www.hud.gov/prodesc/mto.cfm]. Some economists have used data 
from the Moving-to-Opportunity experiment as a way to attribute 
causality. Moving-to-Opportunity is a research demonstration in which a 
number of families, chosen randomly, within five public housing 
authorities were given housing vouchers to be used in low-poverty 
neighborhoods. Another group of families acted as the control, and were 
not given the vouchers. Using these data, some economists have compared 
the outcomes for children whose families received the vouchers and 
those that did not. To some extent, the results have confirmed that 
neighborhood, independent of individual characteristics, affects 
criminal behavior, but the results have also been mixed. Using data 
from the randomized housing experiment, Ludwig, Duncan, and Hirschfeld 
(2001) found that the housing vouchers reduced violent arrests by 
teens, but may have increased the number of property arrests. Kling, 
Ludwig, and Katz (2005) also used the Moving-to-Opportunity data, but 
looked for differential effects by gender. The authors found that for 
females, there were large reductions in the amount of arrests for both 
property and violent crime, when compared to those for the control 
group. For males, there were reductions in violent arrests, but 
proportionally smaller than the drops for females. In addition, there 
were significant increases in the rate of property arrests. 

[31] U.S. Census Bureau, Employment Status: 2000, Census 2000 Brief 
(Washington, D.C., August 2003), p.4 

[32] National Center for Education Statistics, U.S. Department of 
Education, Dropout Rates in the United States: 2004, (Washington, D.C. 
November 2006), p. 4. 

[33] Choy, Susan, "College Access and Affordability," Education 
Statistics Quarterly, Vol. 1, Issue 2, Topic: Postsecondary Education. 

[34] Several methodological challenges exist in this literature: For 
example, many of these findings could reflect the effect of income on 
health rather than vice versa. In addition, results are highly 
sensitive to the measures of health that are used, with self-reported 
health status subject to several forms of bias, some of which could 
overstate the relationship between income and health, and others of 
which could understate the relationship. For example, individuals who 
have reduced their hours of work or left the labor force may be more 
likely to report poor health, in order to justify their reduced labor 
supply or because government programs provide incentives to report 
disability; this would lead to an upward bias in the estimated 
relationship between income and health. On the other hand, it is 
possible that higher-income individuals, who on average have greater 
health care utilization, may be more likely to be diagnosed with 
certain conditions simply because of their greater access to health 
care. This would lead to a downward bias in the estimated relationship 
between income and health. 

[35] Economic models that consider human capital to be a fundamental 
driver of economic growth are commonly referred to as endogenous growth 
models, although the more traditional neoclassical model has also been 
augmented to include the role of human capital. Endogenous growth 
theory posits technological growth as occurring through dynamics inside 
the model. Although there are several competing models, crucial 
importance in each is given to the production of new technologies and 
human capital. While the major point these models emphasize is that 
human capital is the driving force behind growth, the actual modeling 
of the relationship is still a controversial issue in the economic 
literature. Some growth models assert that the driving force behind 
economic growth is the rate of accumulation of human capital, in which 
the rate of economic growth is proportional to the rate of accumulation 
of human capital. Another approach considers that high levels of human 
capital, as embodied in the level of the educational attainment of the 
workforce, increases the capacity of individuals to innovate (discover 
new technology) or to adopt new technology. 

[36] In general, economists regard expenditures on education, training, 
medical care, and so on as investments in human capital. Collectively, 
theoretical growth models suggest economic growth results from 
improvements in human capital as embodied in the skills and experience 
of the labor force; from expansion of physical capital in the form of 
plant and equipment; and from progress in science, engineering, and 
management that generates technological advance. While many variables 
have been empirically tested, only a few have been accepted as being 
statistically significant in explaining growth. The role of human 
capital is now almost universally regarded as being indispensable in 
this respect. 

[37] Human capital deficits experienced by some impoverished 
individuals cannot always be attributed to experience of poverty. In 
some cases, low education attainment and poor health, although 
associated with poverty, may actually be caused by some other factor 
that is also responsible for poverty. In this case, poverty would be a 
symptom rather than a cause (i.e., poor health, poor choices, or 
addiction may erode human capital potential and cause poverty). 
Similarly, most poor people do not commit crimes, and those that do may 
be motivated by forces unrelated to their incomes. 

[38] The relationship is not always statistically significant in all 
regions. Statistical insignificance in some cases might be more 
attributable to data issues such as sample size or multicollinearity 
rather than an indication of nonrelationship between poverty and income 
growth in various regions. See S. Dev Bhatta, "Are Inequality and 
Poverty Harmful for Economic Growth," Journal of Urban Affairs, 22 (3- 
4): 2001. This study provides, arguably, a better comparison group than 
cross-country studies, since metropolitan statistical areas in the 
United States are at relatively similar stages of development. 

[39] Voitchovsky, S., "Does the Profile of Income Inequality Matter for 
Economic Growth? Distinguishing between the Effects of Inequality in 
Different Parts of the Income Distribution." Journal of Economic 
Growth, Vol.10.: 2005. 

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