Concentrated Poverty and the Disconnect Between Jobs and Workers

By ·January 22, 2019
University of California, Irvine

The Issue:

High levels of joblessness have been characteristic of extremely high-poverty neighborhoods in primarily urban settings. Many challenges stand in the way of generating jobs in these areas. These include low skills among potential workers, inadequate and decaying infrastructure, racial discrimination in hiring, crime and other ills. Successfully addressing these issues remains a challenge for policy.

Joblessness among working-age men was 37 percent for residents of extremely poor neighborhoods — compared to 19 percent U.S. overall in 2012-2016.

The Facts:

  • Many U.S. cities continue to have clusters of people in poverty living in extremely disadvantaged areas. After declining in the 1990s, the population living in zones of extreme poverty — areas where 40 percent or more of residents are under the poverty line — began rising again in the 2000s even before the Great Recession hit. About 13.3 percent of the nation's poor, or 6.2 million people, lived in Census tracts where 40 percent or more of the population was under the poverty line, according to my calculations based on the most recent data from the American Community Survey for 2012-2016. While poverty in the United States is both a rural and urban problem (poverty is in fact slightly higher in rural areas at 16.5 percent vs. 14.8 percent in metropolitan areas) nearly 90 percent of the Census tracts with extreme poverty are in metropolitan areas.
  • A relatively larger share of the poor live in areas of concentrated poverty in the Midwest and Northeast compared to the South and West. Over 15 percent of the poor in the Midwest and Northeast reside in areas of concentrated poverty, compared with a rate of 13.3 percent for the nation as a whole. Among the largest 100 metro areas in the country, areas in upstate New York, Wisconsin, central California and Mississippi have among the highest shares of poor people living in areas of extreme poverty. Concentrated poverty is also high in the South when you consider smaller urban areas (those in the top 101-200 by population metropolitan areas in the country). Among the top 101-200 metropolitan areas, cities in Michigan, Pennsylvania, Georgia, Florida and Texas have among the higher concentrations of poverty (see page 6, here)
  • Joblessness is high in extremely poor neighborhoods. The share of men who were either unemployed or not in the labor force while in prime working ages (between 25–54) was 37 percent for residents of extremely poor neighborhoods — compared to 19 percent in the nation overall in the 2012-2016 American Community Survey data. Residents of extremely poor neighborhoods are also more likely to have lower levels of education, which is associated with lower levels of employment and lower wages: 61 percent of those who live in extremely poor neighborhoods have a high school education or less, compared with 41 percent for the total population. People who live in neighborhoods of concentrated poverty significantly differ from residents of other neighborhoods in other ways: they are more likely to be members of minorities and the share of residents who live in households headed by women with children is twice that of the total population.
  • Some theories regarding the lower employment rate of disadvantaged minorities in urban neighborhoods find that this is in part due to there being lower available jobs per worker in these areas. The spatial mismatch between jobs and inner city workers may have emerged with a changing industrial structure as jobs left these neighborhoods. The discrepancy between workers and jobs persists if residential segregation, attributable at least in part to discrimination in housing markets, makes it difficult for residents to move closer to areas with more abundant jobs. Inadequate transportation and high commuting costs from the city cores towards areas with greater employment options, the absence of information regarding job opportunities outside of the neighborhood, and racial discrimination in hiring, can also contribute to the lower employment of residents of extremely poor neighborhoods. The combination of fewer jobs, low wages and high commuting costs makes working a less attractive option, especially for the less-skilled for whom commuting costs take up a larger share of earnings. However, there is some evidence that what is important is not just how jobs are distributed across areas but also the extent to which race plays a role in employment (see here). Simply bringing jobs to these areas might not be enough to address the problem if racial discrimination in hiring plays a role in the higher levels of joblessness among residents of extremely poor neighborhoods; or, if the labor market networks that help potential workers find open positions are racially segregated. If that is the case, then hiring incentives intended to reduce poverty by spurring job creation in targeted areas should incentivize hiring of local residents.
  • Other factors can deter job creation in high-poverty neighborhoods. Issues such as crime, blight, and decaying infrastructure can lead to the exit of more affluent customers, reducing demand for some types of products and services. They can also make it difficult to attract higher-skilled workers.
  • Policymakers have tried to use place-based policies to create jobs, reduce poverty and improve welfare directly in areas with high concentrations of poverty — but these don't have a strong track record of success. Place-based policies offer tax credits and other incentives for hiring and investing in designated localities. The most prominent place-based policies in the United States are federal and state enterprise zones. For example, the federal Empowerment Zone program, authorized in 1993, targeted relatively poor areas with high unemployment by offering business tax credits for hiring residents of those zones, as well as block grants for business assistance, infrastructure investment and training programs. More recently, the 2017 Tax Cuts and Jobs Act introduced another version of place-based policies. The legislation created incentives directed at investors in property that allow for deferral or avoidance of federal taxes on capital gains in investments in areas designated as opportunity zones in 18 states. However, research to date has not found conclusive evidence that place-based policies result in lower poverty increased job creation or improved welfare for the residents of high-poverty areas (see here). In some cases, for instance, such policies can result in property value appreciation that displaces poor residents. In others, rather than generating new jobs, such policies transfer jobs from one zone to another.

What this Means:

Many areas across the country have large concentrations of poverty with low levels of employment. Existing policies designed to increase jobs in those areas through incentives for hiring and investment have failed to deliver significant increases in job creation and to raise the incomes of the least-advantaged people. One policy alternative I suggest in a recent Hamilton Project proposal would be to subsidize new jobs through local non-profits. These organizations would hire residents from families below the poverty line to work on revitalizing and improving disadvantaged areas. After an initial period, in which workers could develop skills and experience, the program would promote and partially subsidize a transition to private sector jobs. The aim would be to create strong incentives for immediate job creation and induce the transition of workers to higher-paid private sector jobs — while at the same time improving the quality of life in targeted areas, which could help spur private-sector job growth.


Employment / Poverty
Written by The EconoFact Network. To contact with any questions or comments, please email [email protected].
More from Econofact