Education, Earnings, and Poverty

Over the past forty years the rising educational attainment of the population has been a significant factor in the historical trend toward higher earnings and lower poverty rates. In recent years, however, the levels of individual earnings and family income have stagnated and poverty rates have risen, especially for the young, at all educational levels. This paper examines the relationship between an individual's educational attainment and his or her ability to earn enough to support a family (as measured by the poverty line for a four-person family) over the decades from 1949 to 1986. It concludes that policies to enhance human capital through investments in health and education are necessary but not sufficient to significantly raise the earnings of many individuals. Additional policy changes are needed to alleviate current hardship by supplementing the incomes of low earners. Such strategies will also have a human-capital-enhancing effect by making it easier for children in low-income families to remain in school. Policy interventions proposed include an expanded Earned Income Tax Credit, a refundable Dependent Care Credit, and child support reforms.