Robert M. La Follette School of Public Affairs
Monday, July 28, 2014

Wallace studies poverty, wealth in the United States

Geoffrey Wallace Geoffrey Wallace

For someone wanting to know who is poor in the United States, Geoffrey Wallace is the guy to consult.

The La Follette School economist has parsed various measures of U.S. poverty and finds that 15 percent of the U.S. population was poor in 2012, according to the U.S. government's official poverty measure. "The news is better if we factor in government programs and tax liabilities," Wallace says. "With the addition of food stamp benefits and subtraction of federal, state and payroll tax payments to determine net income, 12.3 percent of the U.S. population was poor in 2012."

Under the U.S. Department of Agriculture's official measure, 22 percent of children are poor, but with net family income, that rate drops to 15 percent, says Wallace, who shared his expertise with Wisconsin Assembly staff at professional development class the La Follette School offered in January 2014.

The official measure that dates to 1963 has many faults, Wallace says, which makes it difficult to use to evaluating long-term trends. "It does not account for benefits, taxes or tax credits, and it does not take into account newer family arrangements that allow for families to share resources."

In the classroom

At the La Follette School, Geoffrey Wallace teaches PA 818 Introduction to Quantitative Tools for Policy Analysis and PA 873 Introduction to Policy Analysis.

Faculty Bio Page

To address these concerns, the U.S. Census Bureau created the Supplemental Poverty Measure. It factors in many more household expenditures, all cash income and government assistance, and the resources of all individuals living in the same housing unit. "The overall poverty rate computed with the SPM is a percentage point higher than the official rate," Wallace says.

"What is more interesting is that comparing the two measures leads to very different conclusions about how various characteristics affect the risk of poverty," Wallace continues. "For example, under SPM, a higher rate of adults 65 and older are poor than under the official measure. The official threshold is lower for older adults while the SPM cutoff is the same regardless of one's age. "Second, older adults who do not work are unlikely to benefit from tax credits or from deductions for work expenses under SPM."

The measures show different rates for people depending on the region of the country, their age, whether a family is headed by a woman or man. "Shelter costs in the West are relatively high," Wallace says, "so the SPM shows higher rates of poverty out West than the official measure, which does not account for housing costs."

In addition to poverty, Wallace explores wealth, specifically links between wealth and health. With La Follette School economists Robert Haveman, Karen Holden and Barbara Wolfe, he has assessed the risk of several types of health shocks older adults experience.

"Retirement years are a precarious time for many older Americans," Wallace says. "Even if retirees succeed in accumulating resources that they expect to be sufficient to maintain their pre-retirement standard of living, many of them face unexpected adverse health shocks after retirement."

Their findings, produced in a report to the Social Security Administration, suggested that retirees face rather low probabilities of experiencing health shocks early in retirement, but racial minorities, retirees with low levels of education, and people who retired on Social Security Disability Insurance are at substantial risk for shocks to physical and cognitive health.
"In more recent work we found that a temporary decline in health will lead to a large albeit temporary decline in wealth by as much as $14,000," Wallace says. "The wealth level readjusts in about eight years, but if the health problem is permanent, then wealth is likely to decline by that $14,000 in the first year and drop permanently by another $35,000."

In an article to be published by the journal Children and Youth Services Review, Wallace and co-authors Maria Cancian and Chi-Fang Wu examine the effect of welfare sanctions on the rates of people who transition off welfare with no jobs, low-benefit jobs and high-benefits jobs. "The results indicate that if a welfare recipient is sanctioned for violating policy, he or she is more likely to leave welfare with a job than without," Wallace says.

Wallace's next project is to look at the relationship between health and macroeconomic shocks. "This work will determined whether the timing of people's health shocks matter — is there a double jeopardy in experience a health shock in the midst of a period of depressed asset prices such as we saw during the Great Recession?" Wallace says. "If a household has to liquidate resources when they have lost value to cover the expenses of a health shock, that household likely will see lower absolute returns when markets rebounds."