Estimating the Economic Cost of Childhood Poverty in the United States

The profession of social work has historically confronted many of society’s most vexing social problems and challenges. Beginning at the end of the 19th and early 20th centuries, social work arose to confront the challenges of poverty and the destructive conditions surrounding impoverishment. Throughout the 20th and 21st centuries, the profession has expanded to tackle a variety of conditions that diminish the quality of life including racial disparities, mental illness, child abuse, community disorganization, and many others.

Today, social work addresses a wide range of social and economic problems that affect the well-being of individuals, families, and communities. Yet underlying many of these problems remains the destructive condition of poverty. For example, poverty has been shown to exert a powerful influence on an individual’s physical and mental health. Those living in poverty tend to have significantly worse health as measured by a variety of indicators when compared with those not living in poverty (Barr, 2014).

The effect of poverty on children is particularly destructive. As Rank (2004) and others have argued, poverty serves to stunt children’s physical and mental development. Poor infants and young children in the United States are far more likely to have lower levels of physical and mental growth (as measured in a variety of ways) than their nonpoor counterparts (Council on Community Pediatrics, 2016). As children grow older, and if they continue to live in poverty, the disadvantages of growing up poor multiply. These disadvantages include attendance at inferior schools (Biddle, 2013), detrimental environmental conditions associated with poverty-stricken neighborhoods (Brooks-Gunn, Duncan, & Aber, 1997), unmet health needs (Chung, 2016), and a host of other hardships.

The result is that poverty exacts a heavy toll on the poor. However, what is perhaps less obvious are the economic costs of poverty to our nation as a whole. In this article we seek to address what some of those costs might actually be.

The United States is generally considered the wealthiest country in the world. It is also recognized that the United States has some of the highest levels of poverty and income inequality among the industrialized countries (United Nations Development Programme, 2015). Whether we examine children’s rates of poverty, poverty among working-age adults, or poverty within single-parent families, the story is much the same. The United States has extremely high rates of poverty in comparison with other Organisation for Economic Co-operation and Development countries (Smeeding & Theuenot, 2016).

Although there are many potential reasons for this paradox of poverty amid plenty, we would argue that one in particular stands out—the United States lacks the political will to seriously address poverty. Since the end of President Johnson’s declared War on Poverty in the 1960s, the United States has largely retrenched from supporting and funding strong anti-poverty programs (Brady, 2009; Kenworthy, 2014).

This lack of political will can be attributed to many factors. Among them are the historical and cultural emphasis on individualism and self-reliance, the racial and ethnic heterogeneity of the U.S. population, and the overall tendency toward limited government (Alesina & Glaeser, 2004). However, we would argue that an additional factor for understanding the lack of a political will to address poverty has been a failure to truly appreciate the economic costs that poverty extracts from the nation. In the parlance of social policy, it is important to understand and acknowledge the estimated costs of a social problem. By doing so, one is better able to gauge the overall scope of a problem and what savings can be accrued by reducing or eliminating the problem.

There has been much discussion regarding the human costs of poverty. Yet surprisingly, very little has been written about what the wider economic costs of poverty might be. Being able to derive a reasonable and prudent estimate of the economic costs of poverty would appear to be an essential piece of information for social workers and policymakers striving to alleviate poverty. In short, it provides a fiscal imperative for poverty reduction.

Cost of Poverty Measured through Reduced Capability

Sen’s Capability Approach

One way to understand and frame the economic costs of poverty is through the capability framework of Amartya Sen (1992, 1999). Sen (1999) argued that “poverty must be seen as the deprivation of basic capabilities rather than merely as lowness of incomes” (p. 87). He went on to note that “policy debates have indeed been distorted by overemphasis on income poverty and income inequality, to the neglect of deprivations that relate to other variables, such as unemployment, ill health, lack of education, and social exclusion” (Sen, 1999, p. 108).

For Sen and others using the capability framework, the meaning of poverty is considerably broader than that of simply low income (Nussbaum & Sen, 1993). Rather, an essential element of poverty is that it undermines human capabilities and potential. From this perspective, the effects of poverty are viewed as particularly pronounced in several specific areas including ill health, lower economic productivity, and an increased risk of criminal and dysfunctional activity (Sen, 1999, 2009). Other areas that have been discussed in this context include homelessness and physical and mental abuse (Nussbaum, 2000). In each of these areas, the argument is that poverty stunts an individual’s potential and growth by fostering illness, less education and skills, fewer legitimate opportunities to get ahead in life, greater anxiety and mental stress, and so on. As Rank (2004) has argued,

the lack of income is clearly a critical component of poverty and represents a convenient, logical, and pragmatic starting point and measuring stick. But we must go beyond thinking of poverty solely in terms of low income. This involves incorporating a wider set of experiences and deprivations into our understanding. (pp. 182–183)

In applying this perspective to the economic costs of childhood poverty, we are in a sense measuring the loss of human potential that poverty imposes on society. Such a loss of potential can be tangibly measured through indicators deemed particularly important from the capability perspective—these indicators include measures of ill health, lost economic productivity, and dysfunctional and destructive behavior.

Prior Estimates

To our knowledge, there have been only two attempts to estimate the economic costs of poverty in the United States. In both cases, researchers analyzed the economic costs of childhood poverty. As discussed earlier, these analyses have focused on the impact of poverty on the deprivation of several basic capabilities, which in turn results in wider societal costs.

The first analysis was a 1994 study commissioned by the Children’s Defense Fund (CDF). The Costs of Child Poverty Project pulled together several different policy analyses to arrive at a range of estimates regarding poverty’s economic impact (CDF, 1994). The Panel Study of Income Dynamics (PSID) data were used to estimate the price of childhood poverty on future economic productivity. The argument was that poverty during childhood suppresses levels of education, along with dampening an individual’s ability to acquire valuable job skills. These, in turn, result in children being less economically productive as adults. Economic productivity was measured by the amount of paid work in hourly wages during adulthood.

CDF estimated that the overall economic costs of one year of child poverty ranged from $36 billion to $177 billion, depending on the assumptions and data being used. The bottom line was that childhood poverty represented a significant drag on economic productivity to the U.S. economy.

A second attempt to measure the costs of child poverty was designed to be somewhat broader than the CDF study (Holzer, Schanzenbach, Duncan, & Ludwig, 2007, 2008). Like the CDF study, the Holzer et al. (2008) study took into account the impact of poverty on economic productivity and output, but it also attempted to measure the effect of poverty on increased criminal activity and elevated health expenditures among the poverty-stricken.

Holzer et al. (2007, 2008) reviewed a wide range of research studies that examined the statistical relationship between growing up in poverty and children’s future earnings, likelihood to engage in crime, and quality of health in later life. Based on an overall average of these effects, Holzer and colleagues (2007, 2008) derived an estimate of the costs of childhood poverty. They calculated that growing up in poverty reduced the nation’s aggregate output by $170 billion a year. Similarly, childhood poverty raised the costs of crime by $170 billion a year. Finally, children’s impoverishment resulted in increased health expenditures of $164 billion a year.

Putting these three estimates together resulted in an overall annual cost of childhood poverty in 2006 of approximately $500 billion, or 3.8% of overall gross domestic product (GDP). As Holzer et al. (2007) wrote, “The high cost of childhood poverty to the U.S. suggests that investing significant resources in poverty reduction might be more cost-effective over time than we previously thought” (p. 2).

Yet as both of these studies readily acknowledge, their cost estimates undoubtedly underestimate the true expense of poverty. For example, there are many additional costs that have not been accounted for, including child homelessness and maltreatment costs. Furthermore, both studies were conducted a number of years ago. Consequently, there is a need to provide an analysis that both updates these original costs of poverty and incorporates additional costs that were not included in these seminal studies.

In our analysis, we built on this research to arrive at a new estimate of the cost of U.S. child poverty. Specifically, we used the Holzer et al. (2008) study as our starting point. We recomputed the costs of lost economic productivity, increased crime rates, and increased health expenditures using the same methodology as the Holzer et al. (2008) analysis. We then calculated several additional costs that were not included in the Holzer et al. (2008) study.

Method

Our analysis follows the approach that has been used to estimate the economic costs of a variety of social problems including crime (Anderson, 1999), physical inactivity (Ding et al., 2016), opioid abuse (Florence, Zhou, Luo, & Xu, 2016), child maltreatment (Fang, Brown, Florence, & Mercy, 2012), and child poverty (Holzer et al., 2008) in previous peer-reviewed articles. Although each of these studies examined a different phenomenon, they rely on the same definition of an economic cost and use an annual, incidence-based approach to calculate the annual costs of a social problem.

Following this line of work, our study defines a cost as anything that reduces the aggregate social welfare of the United States. Costs include both opportunity costs and social harms that people would pay to avoid (Boardman, Greenberg, Vining, & Weimer, 2010). Cost-measurement studies discuss each cost in turn, explain how the cost was measured, and then tally the costs to produce a total cost. We have adopted this approach for our analysis as well. We also rely on the incidence-based approach for estimating costs. This approach tallies all the costs incurred in a single year (Haddix, Teutsch, & Corso, 2003). Thus, we calculate the lifetime costs of all new cases of child poverty occurring in a single year.

Our article includes seven costs of child poverty. Similar to the Holzer et al. (2008) study, we measured the reduced adult earnings of children growing up in poverty, the increased cost of crime committed by children who grew up poor, and the increased health care costs for children in poverty. In addition, we measured the cost of child homelessness and child maltreatment that occurred due to poverty, as well as the increased costs of corrections spending and the social costs of incarceration that are incurred due to poverty. These costs were included because (a) they were identified by prior literature as a negative outcome arising from child poverty, (b) they are consistent with the capabilities perspective used to frame our analysis, and (c) data were available to estimate the economic cost. Certainly, there are other costs of child poverty that are not included in this study; however, data were not available to make a reliable estimate of these economic costs. For example, child poverty clearly causes emotional harm to children who live in poverty. Unfortunately, we were not able to obtain data to estimate the cost of this emotional harm.

The inputs to calculate the costs included in this study come from a variety of sources, including the U.S. Census Bureau, PSID, and findings of prior literature. Our analysis relied on data from 2015 whenever possible. In the absence of 2015 figures, data from 2012, 2013, or 2014 were used. All costs were adjusted to 2015 dollars (U.S. Bureau of Labor Statistics, 2017).

A critical assumption of this analysis is that child poverty is responsible for reductions in adult earnings, increased crime, and so on. Our assumption is grounded not merely in correlations between poverty and social outcomes, but in evidence that child poverty can have a deleterious effect on cognitive development (Noble et al., 2015). Although the causal pathways are not entirely clear, child poverty appears to result in toxic stress that can manifest itself in negative social outcomes (National Scientific Council on the Developing Child, 2005/2014). Nevertheless, it is not yet possible to precisely identify the extent to which negative adult social outcomes are attributable solely to child poverty (Holzer et al., 2008). Hereditary factors, for example, undoubtedly also play a role (Jencks & Tach, 2006).

Results

Increased Health Costs

Growing up in poverty can have deleterious effects on a person’s health (Brooks-Gunn & Duncan, 1997; Case, Lubotsky, & Paxson, 2002; Ravallion, 2016). Poor children are more likely to be admitted to a hospital, have poor nutrition, and become disabled (Wood, 2003). Although some of these health effects may be attributable to hereditary factors, there is strong evidence to suggest that the physical environment in which poor children are raised plays a major role. For example, poor children are significantly more likely to be exposed to high levels of lead and other toxic pollutants that can cause a range of health problems (Brody et al., 1994; Evans, 2004).

Although child poverty is likely to be responsible for a large number of health costs, we focus on measuring the costs for which we have data available. These costs include (a) direct health expenditures, (b) special education costs, and (c) a reduction in quality-adjusted life years (QALYs). In measuring these costs we relied on the identical methodology found in the Holzer et al. (2008) study.

The direct health costs and increased spending on special education attributable to child poverty has been estimated to be $26 billion (Holzer et al., 2008). Holzer et al. (2008), basing their estimate on the findings of Cutler and Richardson (1998) regarding QALYs, found that there is an additional $248,000 in health capital costs incurred for each child in poverty. This figure is multiplied by the number of children born each year (4 million) and the percentage of these children born into poverty (15%) to generate the aggregate cost of these QALYs, which is $149 billion. Adding this amount to the direct health expenditures and special education costs mentioned earlier, adjusting it downward by 7% to eliminate hereditary factors (Case, Fertig, & Paxson, 2005; Case et al., 2002), and converting to 2015 dollars, results in an aggregate health cost of $192.1 billion.

Reduced Earnings

Children who experience poverty during childhood earn less money when they become adults compared with their nonpoor counterparts. This constitutes lost economic productivity and is therefore an economic cost of poverty. This process has been extensively documented and captured through the concept of cumulative inequality. As Rank, Hirschl, and Foster (2014) demonstrated, children growing up in poverty are often exposed to an inferior education. This in turn results in fewer skills and abilities developed, which results in employment in lower paying and less stable jobs. The result is that across the span of adulthood, children growing up in poverty are less economically productive than their nonpoor counterparts.

We can estimate the amount of such reduced earnings following the methodology used in the Holzer et al. (2008) study (see  Appendix A for the technical details regarding the specific calculations). Using the Holzer et al. (2008) method, we arrived at an overall estimate of $294 billion in reduced earnings as a result of childhood poverty.

Increased Victimization Costs of Street Crime

Children from the bottom quintile of income are significantly more likely to commit a crime when they become adults (Bjerk, 2007). This should not be surprising, because economic theory suggests that people commit crimes when the benefit exceeds the cost (Becker, 1968), and poor individuals tend to have a higher rate of return from crime (Kelly, 2000). The annual victimization cost of street crime is $700 billion (“The Cost of Crime,” 2006). Holzer et al. (2008) estimated that 20% (approximately $140 billion) of this cost is the result of childhood poverty. This figure is doubled to account for the underreporting of crime (Hindelang, Hirschi, & Weis, 1981) and then adjusted downward by 40% to rule out hereditary factors (Jencks & Tach, 2006). This produces an estimate of approximately $170 billion, which is $200.6 billion in 2015 dollars.

Increased Corrections and Crime Deterrence Costs

Because child poverty increases crime (Bjerk, 2007), it also increases corrections costs, private spending on crime deterrence (car alarms, locks, and so on), and the opportunity cost of time spent planning and executing crimes (Anderson, 1999; Cohen, 2005; “The Cost of Crime,” 2006). These costs, which totaled $612 billion in 2006, were multiplied by the amount attributable to child poverty (20%) (Holzer et al., 2008) and then adjusted downward by 40% to remove hereditary effects (Jencks & Tach, 2006). In addition, the lost value of criminals’ time was multiplied by two to adjust for the underreporting of crime (Holzer et al., 2008). The total cost is estimated to be $103.8 billion, which is $122.5 billion in 2015 dollars.

Increased Social Costs of Incarceration

A growing body of research suggests that incarceration creates a large number of social costs that do not appear in government budgets (Alexander, 2010; Western, 2006). These include costs to incarcerated people, children and families, and communities (Clear, 2007). Incarceration results in increased rates of eviction, reduced rates of marriage and increased divorce, and criminal justice debt, among other things (DeVuono-Powell, Schweidler, Walters, & Zohrabi, 2015). The non-budgetary cost of incarceration was estimated to be $923.6 billion in 2014 (McLaughlin, Pettus-Davis, Brown, Veeh, & Renn, 2017).

Removing the reduced earnings of formerly incarcerated people from the social cost of incarceration (to avoid double-counting reduced earnings) results in a cost of $693.6 billion. This study assumes that if child poverty increases crime (Bjerk, 2007) it also increases incarceration, thereby increasing the social costs of incarceration. We multiplied the non-budgetary social costs of incarceration by the 20% that is attributable to child poverty and then further adjusted downward by 40% to eliminate hereditary factors (Jencks & Tach, 2006), which produced an estimated cost of $83.2 billion.

Child Homelessness

Poverty is a primary contributor to child homelessness (United States Conference of Mayors, 2007). This is a significant problem; at least 2,483,539 children became homeless at some point in 2013 (Bassuk, DeCandia, Beach, & Berman, 2014). This creates costs for children and society. Perlman and Willard (2012) identified 13 different costs stemming from child homelessness, including emergency room visits, lead toxicity, mental health conditions, and other costs. When these costs are aggregated, the annual cost per homeless child is estimated to be $37,168 (Perlman & Willard, 2012). Multiplying this figure by the number of homeless children yields an estimated cost of $92.3 billion, which is $96.9 billion in 2015 dollars.

Increased Child Maltreatment

Child abuse and neglect cannot be viewed outside the context of poverty (Pelton, 1978). Income is strongly associated with child maltreatment (Drake & Jonson-Reid, 2014), and evidence suggests that income plays a causal role (Berger, Font, Slack, & Waldfogel, 2017; Cancian, Yang, & Shook Slack, 2013). Thus, poorer children are more likely to be maltreated, which leads to a number of costs (child welfare case management, foster care services, deaths from abuse or neglect, and so on). The annual cost of child maltreatment in the United States was $124 billion in 2010 (Fang et al., 2012). Research suggests that 30% of children would not be in the child welfare system if they were not poor (Courtney, McMurtry, & Zinn, 2004; Torrico, 2009); this implies that $37.2 billion ($40.5 billion in 2015 dollars) in child maltreatment costs could be avoided if child poverty were to be eliminated.

Total Cost of Child Poverty

The sum total of the seven costs measured in this study is $1.0298 trillion (see Table 1).

More than one-third of the costs pertain to increased crime and incarceration (see Figure 1). The cost of reduced earnings and increased health costs are also substantial, whereas child homelessness and child maltreatment are each responsible for less than 10% of the cost of child poverty.

An important caveat to our findings is that one could conceivably argue that we have slightly overestimated the costs of poverty by using the official poverty line instead of the Supplemental Poverty Measure (SPM). The SPM provides a lower rate of child poverty because it adds the value of welfare and tax transfers to families’ income (Wimer, Nam, Waldfogel, & Fox, 2016). In 2015, the SPM indicated that child poverty was about 20% lower than the official poverty rate would suggest (U.S. Census Bureau, 2016d). Reducing our aggregate cost of child poverty by 20% would result in a new figure of $823.8 billion. Although this is lower than our original estimate using the official poverty measure by approximately $200 billion, it is still well over 50% higher than the previous estimate provided in the original Holzer et al. (2008) study.

The bottom line is that child poverty represents a significant economic burden to the United States. This is largely because living in poverty stunts the growth and undermines the potential of children. As noted at the beginning of this article, the costs of poverty can be understood through the process of basic capabilities deprivation as argued by Sen. Or as Ravallion (2016) noted, “Children growing up in poorer families tend to suffer greater human development gaps, with lasting consequences for their adult lives” (p. 595). Impoverished children grow up with fewer skills and are less able to contribute to the economy. They are more likely to engage in crime and experience more frequent health care problems. These costs are ultimately borne not only by the children themselves, but also by the wider society as well.

Discussion

Several broad arguments can be made in support of reducing poverty. Many of these revolve around the issues of values and social justice. For example, poverty amid plenty would appear to fundamentally undermine the moral fabric and sense of decency in a society. This is particularly the case for childhood poverty. In addition, the prevalence of childhood poverty violates many of the values that the profession of social work stands for as well.

Childhood poverty would also appear to weaken the American principle and ideal of equality of opportunity. Children being raised in poverty do not have the same chances for success as children who are raised in middle- or upper-income families. This contradicts our belief in “liberty and justice for all.”

The argument presented here, however, is of a somewhat different nature. It is one that is rooted in the concept of self-interest. We contend that alleviating poverty is in all of our collective self-interests. Whether we realize it or not, we each pay a high price for allowing poverty to walk in our midst. Yet what exactly is that price? In this article we have attempted to provide an empirical answer to the question.

In approaching this question, it is important to keep in mind three basic principles in weighing the economic costs of poverty. First, poverty ultimately undermines human potential by stunting overall individual development and capacity. This core idea was discussed earlier through the lens of reduced capabilities. For example, the effect of childhood poverty on economic productivity is largely the result of poverty reducing the quantity and quality of education that children receive, which then affects their ability to compete effectively in the labor market.

Second, a fundamental tenet of social policy is that the prevention of a problem is often a more cost-effective approach than programmatic solutions on the back end of a problem. The old saying “An ounce of prevention is worth a pound of cure” is certainly apropos. It is not a question of paying or not paying. Rather, it is a question of how we want to pay, which then affects the amount we end up spending. In making an investment up front to alleviate poverty, the evidence suggests that we will be repaid many times over by lowering the costs associated with a host of interrelated problems.

Third, a wide net should be cast in terms of conceptualizing poverty reduction as being in our self-interest. This sense of a broad awareness surrounding the costs of poverty can be referred to as enlightened self-interest. In other words, by becoming aware of the various costs associated with poverty or, conversely, the various benefits associated with the reduction of poverty, we begin to realize that it is in our own self-interest to combat the condition of poverty.

Encapsulating all three of these points is a powerful quote from the earlier cited CDF report. In summarizing the costs of childhood poverty, they noted,

The children who suffer poverty’s effects are not its only victims. When children do not succeed as adults, all of society pays the price: businesses are able to find fewer good workers, consumers pay more for their goods, hospitals and health insurers spend more treating preventable illnesses, teachers spend more time on remediation and special education, private citizens feel less safe on the streets, governors hire more prison guards, mayors must pay to shelter homeless families, judges must hear more criminal, domestic, and other cases, taxpayers pay for problems that could have been prevented, fire and medical workers must respond to emergencies that never should have happened, and funeral directors must bury children who never should have died. (CDF, 1994, p. 99)

Keeping the aforementioned principles in mind, we have attempted to estimate the economic cost of childhood poverty in this article. To do so, we quantified the costs of lower economic productivity, higher health care and criminal justice costs, and child homelessness and maltreatment costs. By summing together these costs, we arrived at an overall estimate that in 2015 childhood poverty in the United States was costing the nation $1.0298 trillion a year. This number represents 5.4% of the U.S. annual GDP.

Perhaps a better way of gauging the magnitude of the costs of childhood poverty is to compare it with the total amount of federal spending in 2015. The federal government spent a total of $3.688 trillion in 2015 (Congressional Budget Office, 2015). This included the entire range of programs and agencies supported by the government, including Social Security, Medicare, defense spending, and so on. The annual cost of childhood poverty—$1.0298 trillion—therefore represents 28% of the entire budget spent by the federal government in 2015.

Consequently, to argue that we pay an enormous economic price for having the highest rates of poverty in the industrialized world is clearly an understatement. Childhood poverty represents a significant drain on both the U.S. economy and society as a whole. It results in sizable losses in economic productivity, higher health care and criminal justice costs, and significant costs associated with remedial efforts to address the fallout of childhood poverty.

One question that naturally arises in a study such as ours is what would it cost to reduce poverty in the United States? Furthermore, might it be more cost-effective to simply accept the high levels of U.S. childhood poverty rather than pay the price of reducing poverty?

With these questions in mind, two recent analyses have indicated that the cost of reducing childhood poverty is a fraction of what such poverty is costing us. CDF, in conjunction with the Urban Institute, has estimated that childhood poverty could be reduced by 60% at a cost of $77 billion (Giannarelli, Lippold, Minton, & Wheaton, 2015). This would be accomplished through expanding an array of programs that have been shown to be effective in reducing poverty such as the earned income tax credit, a higher minimum wage, child care subsidies, and so on. Similarly, Shaefer and colleagues (2016) have estimated that by transforming the child tax credit into a universal child allowance, childhood poverty could be reduced by 40% to 50%, with extreme poverty eradicated, at a cost of approximately $70 billion. Taking these studies into account, if we assume that childhood poverty could be roughly cut in half through an annual expenditure of $70 billion, that $70 billion would save us approximately half of the $1.0298 trillion that we project poverty costs us, or $515 billion. The bottom line is that according to these studies the ratio of savings to cost is slightly more than 7 to 1. For every dollar spent in poverty reduction, we would save over $7 in terms of the economic fallout from poverty.

However, there is a second way of estimating the difference between the price of ending poverty versus what it is costing us. It is through a measure known as the poverty gap or the poverty income deficit. This measures what it would cost to lift all poor households with children under the age of 18 years to the level of the poverty line. In other words, how much total income is needed to pull every American child out of poverty? According to the U.S. Census Bureau (2016c), that figure for 2015 was $86.9 billion. For $86.9 billion, every American household with children under 18 years of age in poverty could be raised out of poverty.

We can then compare this figure to our overall estimate of the costs of childhood poverty, which is $1.0298 trillion. Combining these two figures results in a ratio of savings to cost of approximately 12 to 1. Consequently, when using the Census measurement of the costs associated with eliminating poverty, the result is an even higher rate of savings than when using the two earlier-mentioned studies.

The bottom line is that reducing poverty is justified not only from a social justice perspective, but from a cost–benefit perspective as well. Investing in programs that reduce childhood poverty is both smart and effective economic policy.

It should be noted that there are many additional costs that we have clearly not accounted for in this analysis. For example, poverty has been shown to be strongly related to teenage childbearing. In turn, research suggests that the economic costs of teenagers bearing children is high (Fletcher & Wolfe, 2009). By reducing childhood poverty, which would lower teenage childbearing, we would bring down these economic and societal costs. Consequently, our estimates should be seen as a lower bound with respect to the costs of childhood poverty.

In addition, there are significant costs associated with poverty during adulthood that we have not at all taken into account. In our analysis we have focused only on the costs of childhood poverty. However, poverty also strikes individuals at various points throughout their lives. In fact, as Rank (2004) and Rank et al. (2014) have shown, poverty will strike a majority of Americans at some point during their adulthood. As such, we believe our overall figure of $1.0298 trillion a year is a significant underestimate of the true costs of American poverty.

Furthermore, it is important to point out that our analysis has calculated an overall annual cost to the United States. Rather than a one-time cost, the economic cost of childhood poverty is approximately $1 trillion per year. This clearly constitutes a significant ongoing drag on the overall U.S. economy.

It is also important to note that since the early 1980s, the overall rate of poverty for children has ranged between 15% and 23% (U.S. Census Bureau, 2016b). It has thus remained stubbornly high during this period of time. In fact, children are currently the age group at the highest risk of poverty, and that risk is particularly extreme for younger-age children. If these trends and patterns continue, the cost of childhood poverty in the future will likely remain exceedingly high.

Finally, returning back to the capabilities perspective, it has been argued that this perspective aligns well with the overall aims and goals of social work (Morris, 2002). As Reisch (2002) has written, “At its best, social work stands for the creation of a society in which people, individually and in community, can live decent lives and realize their full human potential” (p. 351). We have argued that childhood poverty is a significant impediment to accomplishing these goals. The societal and economic costs of poverty can be understood and measured through the loss of human potential that results from such impoverishment.

In conclusion, this article has built on the framework provided in earlier analyses of the costs of childhood poverty. We have refined the methodology to take into account additional costs not considered in those original studies and to update their analyses with more recent cost accounting. The bottom line is that the price of childhood poverty is exceedingly high. The profession of social work is well positioned to advocate and lobby for the alleviation of poverty with such knowledge. Recognizing the enormous costs of poverty is an important step toward summoning the political will to address this economic and societal blight on the nation.

Michael McLaughlin, MBA,MACC, is a PhD student and Mark R. Rank, PhD, is Herbert S. Hadley Professor of Social Welfare, George Warren Brown School of Social Work, Washington University in St. Louis. Address correspondence to Mark R. Rank, George Warren Brown School of Social Work, Washington University in St. Louis, Campus Box 1196, One Brookings Drive, St. Louis, MO 63130; e-mail: [email protected].

References

Appendix A: Technical Details on Estimating the Costs of Reduced Earnings

Research indicates that child poverty leads to lower adult earnings (Holzer, Schanzenbach, Duncan, & Ludwig, 2008). Doubling a poor family’s income has been shown to significantly increase a child’s earnings as an adult by as much as 40% (Corcoran & Adams, 1997; Mayer, 1997). This lost productivity reduces the gross domestic product (GDP) and is therefore a cost of child poverty.

To estimate this cost, we rely on data obtained from the U.S. Census Bureau and prior research. Specifically, we replicate the methodology used in the Holzer et al. (2008) study to estimate the value of reduced earnings. The following description walks through the specific steps taken to arrive at our overall estimate.

In 2015, the poverty line for a family of four was $24,036 (Proctor, Semega, & Kollar, 2016). Research suggests that it would take at least twice this amount for a family to meet its basic needs (Dinan, 2009). Following the Holzer et al. approach, we take the difference between the amount that is twice the poverty line ($48,072) and the average income for a family of four that is below the poverty line ($13,918), which yields $34,154. This is equivalent to a difference of 1.24 log points. Prior research has documented an intergenerational elasticity of earnings of about 0.5 (Holzer et al., 2008), consequently we reduce the difference by half to 0.62. Applying this difference to the median per capita earnings for an adult in 2015, which is $29,979 (U.S. Census Bureau, 2016a), suggests that a poor child’s adult earnings would be reduced by $16,127 annually, which is 46.2% relative to median earnings. We then adjust for the fact that median earnings were 71.3% of mean earnings in 2015 (Proctor et al., 2016) and that earnings are 60.4% of GDP (Federal Reserve Bank of St. Louis, 2017). Finally, we multiply the resulting figure of 19.9% (46.2% × 71.3% × 60.4%) by the figure of 9.6%, which is the percentage of children who spend at least 50% of their childhood below the poverty line according to data from the Panel Study of Income Dynamics (Blank, 1997). This implies that the persistent poverty experienced by these children reduces the GDP by 1.91%.

In addition, we multiply the figure of 19.9% by the 8% of children who spend between 25% and 50% of their childhood below the poverty line (Corcoran & Adams, 1997). We reduce the resulting figure of 1.6% by 50% because shorter poverty spells have less of an effect on adult outcomes (Corcoran & Adams, 1997). Thus, the total reduction in GDP is 2.71% (1.91% + 0.8%). This figure is then reduced by 40% to eliminate the hereditary component, resulting in an adjusted figure of 1.63%. The GDP in 2015 was $18.036 trillion (Bureau of Economic Analysis, 2016), which implies that the cost of reducing earnings due to child poverty is $294 billion. These calculations replicate the exact procedures followed in the Holzer et al. (2008) analysis.