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Coronavirus recession could plunge tens of millions into poverty, new report warns

People handed out food at a food distribution site that has seen a surge in demand due to the coronavirus outbreak on April 07, 2020 in the Harlem neighborhood of New York City.
People handed out food at a food distribution site that has seen a surge in demand due to the coronavirus outbreak on April 07, 2020 in the Harlem neighborhood of New York City.Spencer Platt/Getty

The coronavirus recession that has sparked unprecedented job losses will likely drive US poverty rates to five-decade highs, according to new projections from Columbia University researchers.

If unemployment hits 30% and stays there, as a recent Federal Reserve report has warned, one widely used measure of poverty would skyrocket more than 50%, from 12.4% to 18.9%, according to report by Zachary Parolin and Christopher Wimer at the Center on Poverty and Social Policy.

This would add more than 21 million people to the poverty rolls and mark the highest recorded poverty rate since at least 1967, they said. Even under a best-case scenario, where employment levels recover rapidly after the summer, "the annual poverty rate will reach levels comparable to the Great Recession."

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The pandemic has ravaged the economy, as stay-at-home orders have sidelined businesses and social life to stem its spread. More than 22 million Americans have filed unemployment claims since the White House declared a national emergency on March 13, wiping out a decade's worth of job growth.

The authors use the Census Bureau's Supplemental Poverty Measure in their calculations. Many researchers give the SPM more weight than other federal poverty measures because it "counts a more comprehensive measure of resources, which include after-tax income, in-kind or near cash benefits, and a subtraction of non-discretionary expenses like those for medical, work, and child care expenses," according to the authors.

But they also calculated a poverty rate before taxes and transfers are factored in. That rate is reflected in the higher line in the chart above. The authors note that the rate is useful for identifying the living conditions "delivered by the wider economy," before incomes are adjusted by redistributionary policy measures, food stamps and unemployment benefits.

For a family of four who rents their home, the SPM poverty threshold was $28,166 in 2018, according to the Census Bureau.

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Nearly 1 in 5 Americans will be below this threshold if 2020′s unemployment rate hits 30%, according to the Columbia study. Under a more optimistic scenario where unemployment peaks at 10%, 15% of households would be under this threshold.

The numbers look much worse before accounting for taxes and transfers. Under 30% unemployment, for instance, nearly 35% of households would hit the poverty threshold before cash benefits kick in.

One big caveat is that these figures do not reflect the coronavirus stimulus bill, which provides one-time cash payments to most American families and greatly expands unemployment benefits. Those measures will reduce the share of families falling into poverty.

The report is intended to depict how much damage the recession will inflict from baseline prerecession levels to help policymakers calibrate how much relief American families need. Because poverty rates are calculated on an annual basis, the authors stress that the numbers are blind to month-to-month income fluctuations that could greatly destabilize some households.

A government check could help keep a household above the poverty line when looking at total annual income, for instance. But if that check arrives weeks or months after the loss of a job, that family is likely to face financial precarity if it doesn’t have another source of income to draw on.

The report additionally finds that children and working-age adults are at the greatest risk of falling into poverty because of the recession. Adults older than 65, who are at less risk of losing employment income simply because many of them are retired, are likely to see a smaller spike in their poverty rate.

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In a 30% unemployment scenario, nearly one-third of all black families would end up below the poverty line.

To avoid such dire scenarios, the authors “emphasize the urgent need for the provision of income assistance to all US residents, with a particular focus on children and working-age adults who we find are at the greatest risk of falling into poverty.”