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Poverty levels rose after jobless benefits expired: Study

Jim Sullivan, Notre Dame Gilbert F. Schaefer College Professor of Economics and LEO Co-founder, joins Yahoo Finance's Akiko Fujita to discuss how the coronavirus pandemic has impacted American's income.

Video Transcript

AKIKO FUJITA: Despite the economic downturn, the rate of poverty in the US actually went down in the initial days of the pandemic, initial months of the pandemic. Our next guest attributes that directly to government stimulus, but with Congress dragging its feet on that, that number is starting to tick higher.

Let's bring in Jim Sullivan. He's a professor of economics at the Notre Dame Gilbert Schaefer College. He's also co-founder of the Wilson Sheehan Lab for Economic Opportunities. And Jim, it's great to talk to you today, especially a very timely conversation given that we're waiting for any kind of developments out of Washington on this stimulus.

You have been tracking real-time poverty estimates using the Census Bureau data. What have you seen over the last six, seven months? And how has that shifted since we've seen the end of the enhanced unemployment benefits, as well as the additional stimulus checks dry up?

JIM SULLIVAN: Sure. And good afternoon. Good to talk to you. You know, if I can, I might even go back a little bit further, just to note that prior to the pandemic, we were seeing noticeable improvements in poverty. So the poverty was falling month to month. And it looked like poverty was going to be lower in 2020 than in 2019.

And then the pandemic hit. And what you see in the first few months after the pandemic-- so look at, say, April and May. You have poverty rates at 1 and 1/2 percentage points lower than they were at the very beginning of 2020. And that's 4 and 1/2 million individuals lifted out of poverty.

As you mentioned, much of that could be-- actually, all of it can be attributed to the government response, the relief package that allocate resources to households, not just for households, with people even above the poverty line. And then what's happened since then is that many of these benefits have expired.

So there was a stimulus payment that was one time that were sent out to households mostly in April and May. And then there have been supplements to unemployment insurance benefits, $600 a week, that were paid out for people receiving unemployment insurance all the way through the end of July. And those have since expired. Now what we've seen since then is a noticeable rise in poverty.

AKIKO FUJITA: And how quickly have you seen that rise and those numbers turn? We're now going, what, more than two months after the expiration of those additional $600 you talked about several months later after the stimulus checks. What's your concern on how quickly this could turn?

JIM SULLIVAN: Well, it's quite concerning not only because there's the expiration of these benefits. So the resources and the help that vulnerable households are getting has diminished.

But also because, although we've seen an improvement in the labor market, we've seen declines in unemployment rates, the rate at which that declined has slowed considerably. And we still have more than 12 million that are out of work just by the official definition, and many more that are out of work and not seeking work necessarily, so wouldn't fall under the official definition.

So there's a lot of concern that those households will still be left behind, unless we either see a government response or a dramatic improvement in the labor market. And there's no real signs that we're going to see a dramatic improvement in the labor market based on existing data.

AKIKO FUJITA: And Jim, you have that chart of all Americans in terms of where the poverty rate is. But you've also sort of singled out communities of color. When you look at Black Americans, there is a real divide here. Can you speak to that and how much worse you think it's likely to get in the absence of any government help?

JIM SULLIVAN: Yes, one of the things we're learning a lot more about in terms of the economic impacts of the pandemic is that it's very disparate, right? Some groups are actually benefiting somewhat in some industries, and others are being hit particularly hard.

And it turns out that certain demographic groups like African-Americans are disproportionately represented in the industries that are being hit harder. So since July, what we've seen is a sharp rise in poverty rates overall. But for African-Americans, it's risen by 5 percentage points. And now we're more than one in four African-Americans are designated as living in poverty.

And to be honest with you, there's no expectation that that pattern is going to change but for some change or development, good news in the labor market, or additional relief from the federal government.

AKIKO FUJITA: And Jim, as we look to the headlines out of Washington today, it feels like, at least in rhetoric, things were getting closer to reaching a deal. But we're now two, three months into the expiration of the previous program for direct help to Americans.

Is it enough to get a deal today to try to reverse course in terms of what you're tracking on poverty? Or are you concerned that too much time has already passed in order to be able to help the most vulnerable Americans?

JIM SULLIVAN: Yeah, so two things. One is, I think it is remarkable the impact that the initial CARES Act and government relief had. And so I'm optimistic that if the government were to respond, that that could be tremendously helpful.

But in terms of, like, is that enough, there is another important concern here, is that temporary relief still doesn't necessarily address all of the issues, right? So I think that many individuals, particular vulnerable families who have a lot of uncertainty about future job prospects, are facing much greater challenges.

So for example, even though we saw income go up shortly after the pandemic because of the government response, individual household spending fell sharply. And it looks like, at least to some extent, that was due to greater uncertainty. We just weren't sure about future income streams.

And so, unless there is a way to provide some guarantee about having some economic stability over a much longer period of time, there's still going to be these individuals and families that are going to have to face some economic turmoil.

AKIKO FUJITA: And Jim, how does the cost of housing, the cost of rent, play into your outlook? For the most part, we had a significant number of states with eviction moratoriums in place. Those have now expired, while there's a federal moratorium still in place.

And so while some of these families may have been able to get by, they're going to have rent due by the end of the year. That's going to add to the cost and add to the financial burden.

JIM SULLIVAN: Yeah, we don't have all the data on this yet, but it does certainly appear that the eviction moratoriums have at least postponed a bit a crisis on homelessness.

But I will say, if you look at communities, cities all across the country, who have resources like emergency financial assistance to assist families, they're seeing demand like they've never seen before, requests for emergency financial assistance to help pay one month's rent, to help pay the utilities, on the levels that they really haven't seen in the recent past.

So it does-- there are plenty of indications that there is building hardship, particularly among small and vulnerable families and individuals. And so that just gives greater reason for concern about what might happen if we don't see some improvements in the economy or some support.

AKIKO FUJITA: Jim Sullivan, a professor of economics at Notre Dame, it's good to talk to you today. Appreciate your time.

JIM SULLIVAN: Appreciate it. Thanks.