Despite robust growth in real GDP per capita in the last three decades, U.S. poverty rates have changed very little.
A number of studies have suggested that the lack of improvement in the poverty rate reflects a weakened relationship between poverty and the macroeconomy.
We find that this relationship has weakened over time, but in spite of this, changes in labor market opportunities—measured by median wages, unemployment rates and inequality—predict changes in the poverty rate rather well. Importantly, we find that the lack of improvement in poverty rates despite rising living conditions is due to the stagnant growth in median wages and increasing inequality.