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Hungry Americans Less Productive as Budget Cuts Deepen: Economy

November 25, 2013

Hungry Americans Less Productive as Budget Cuts Deepen

Jourie Ortiz hauls groceries purchased with food stamps to his apartment in Rhode Island. Photographer: Michael S. Williamson/The Washington Post via Getty Images

Olivia Solis asks herself the same two questions every morning: “How’s rent going to be paid? What meal are we going to make with what food we do have?”

The unemployed mother of three said answers were harder to find this month when the U.S. food-stamp program was trimmed. The worries also preoccupied her mechanic husband, Gumecindo, who would send texts from work with ideas on how they could make extra cash, including cleaning houses or helping people move.

“When he messages me things like that, then I know it’s on his mind,” said Solis, 34, who lives in Richland, Washington. “I know he’s not working to his full potential because all he’s thinking is, ‘What else can we do?’”

People worried about life’s necessities are less able to focus on solving problems or being more creative. Such stress, which is being exacerbated by recent cuts in government social services, damps the current and potential output of adults and children, filtering through to everything from corporate profits and dividends to worker pay and entrepreneurship.

“If people are very anxious and feeling insecure economically, their performance on the job is going to be affected,” said Isabel Sawhill, a senior fellow in economic studies at the Brookings Institution in Washington. “And if children from low-income families are not given an opportunity to climb the ladder, we are going to continue to have a lot of social problems and low productivity. It affects everyone.”

Budget Cuts

Spending on the Supplemental Nutrition Assistance Program, commonly known as food stamps, fell by $5 billion this month as a temporary funding boost was allowed to expire. The reduction is one of many amid a wave of federal austerity that will shave 1.5 percentage points from gross domestic product this year, according to calculations by Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

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U.S. lawmakers failed to agree on a plan to reduce the federal budget deficit earlier this year, meaning automatic across-the-board spending cuts began taking place on March 1, weighing on the economy. Another round of forced reductions, or sequestration, will begin on Jan. 15 if policy makers are again unable to reach agreement.

Federal spending on food stamps has more than doubled in the past five years, with the bulk of the money spent at retailers including Wal-Mart Stores Inc. and Kroger Co.

Members of a House-Senate conference committee are scrutinizing food stamp eligibility rules as they reconcile different versions of a bill that would set agricultural policy for the next five years. Either would cut food-stamp spending, mostly by altering who can get benefits.

Hunger Costs

Hunger costs the U.S. at least $167.5 billion each year in lost economic productivity and earnings, health-care expenses that could have been avoided by better nutrition and the value of charity to keep families fed, according to a 2011 report from the Center for American Progress.

“The additional impact on kids starts to show up more clearly down the road,” said Harry Holzer, a public policy professor at Georgetown University in Washington and a former Labor Department chief economist. “You might see high-school dropout rates go higher, a range of behavior problems.”

Fiscal restraint not only slows growth in the world’s largest economy, it also risks permanently curbing the productivity of America’s poorest families at a time when it’s already cooling nationally. Worker output per hour was unchanged in the third quarter from the same period in 2012, matching its worst performance outside of recessions since 1993, according to Labor Department data.

Slowing Productivity

Productivity has grown at an average 0.8 percent annualized rate per quarter over the past three years, versus 3 percent in the decade through 2005. While part of the slowdown is linked to companies’ reluctance to spend on more sophisticated machinery, the ability of individual employees to take advantage of the equipment is another component.

Workers unable to provide for themselves or their families are distracted on the job and preoccupied with navigating the channels of obtaining government assistance, said Joel Berg, a senior fellow at the Center for American Progress, a Washington-based group that believes government policies can help address issues such as income inequality. At the same time, children who aren’t well nourished are often sicker and experience higher rates of educational problems such as missing school, getting suspended or repeating a grade.

“The lost potential of folks is just impossible to calculate,” said Berg, who is also executive director of the New York City Coalition Against Hunger. “How many potential Bill Gates or Steve Jobs are there that just grew up in the background because they weren’t well fed as kids?”

Poverty Rate

The poverty rate in the U.S. was 15 percent last year, compared with a 26-year low of 11.3 percent in 2000. Food stamps reduce poverty rates among every age group by at least 0.8 percentage point, according to Census data issued this month.

The rate for children would be 21 percent excluding food stamps, compared with 18 percent, according to the supplemental report. Those figures take into account the effects of benefits, such as food stamps or Social Security payments, and necessary family expenses, such as federal income taxes.

Monthly benefits for the Solis family were cut to $432 from $569. As of last week, Gumecindo Solis, 38, was laid off from his job at a crop-dusting company until operations resume in April, meaning the $2,200 he was bringing home each month will be gone as well. Their benefits may increase as a result, although not as much as before the cuts. Olivia, who is searching for work, says she’s also seeing the stress take its toll on their children.

“We’re constantly in fear of what else is going to happen,” she said.

Record Spending

Spending for the food-stamp program reached a record $78.4 billion in the fiscal year that ended Sept. 30, due in part to a temporary boost in benefits passed as part of the 2009 economic stimulus that expired Nov. 1.

For Doris Eley, that lapse means her monthly benefits were cut to about $160 from about $200. The 52-year-old has been staying with friends while attending a culinary training program at Foodbank of the Virginia Peninsula, in Hampton. She hopes to open her own bakery one day.

There have been times when “I can’t really focus on school because I’m hungry,” though the program’s director helps provide some food, Eley said. While the food-stamp benefits have never covered the cost of all her meals, “now that they’ve cut the stamps, I really don’t know what I’m going to do.”

The Special Supplemental Nutrition Program for Women, Infants and Children, another program that helps some 9 million poor people buy milk, baby formula, fruits, vegetables and other healthy foods, received almost $500 million less in funding in the fiscal year ended in September.

Unemployment Insurance

Meanwhile, federally funded extended unemployment insurance benefits are set to expire at the end of this year, which means more than 2 million unemployed workers will lose aid by the end of March 2014, according to a report from the National Employment Law Project.

Housing subsidies for low-income families have also been on the chopping block. Sequestration reduced Housing Choice Voucher program funding by $938 million in 2013, including an $854 million cut in appropriations for rental assistance programs.

If Congress doesn’t cancel sequestration as part of an agreement to fund the government beyond January, as many as 185,000 families will lose housing vouchers by the end of next year compared to December 2012, according to the Washington-based Center on Budget and Policy Priorities.

Safety Net

While the recession did a lot of damage, “the safety net at the bottom worked reasonably well,” Brookings’ Sawhill said. “Now what’s happening is those extra benefits are beginning to disappear.”

Some argue worker efficiency is more a function of family values and less linked to poverty.

“Productivity is a result of your work ethic and your education level and your development of skills in the labor market,” said Robert Rector, senior research fellow in poverty and welfare at the Heritage Foundation in Washington, a research organization that promotes public policies based on principles including a more limited government. “Starting out with a low income doesn’t cause someone to have less work ethic, it doesn’t cause them to be somewhat indifferent to education.”

The invisible economic cost of poverty and stagnant incomes, especially with regard to the future output of children, makes it easy for policy makers to delay action, Brookings’ Sawhill said. While more funding won’t fix the problem, it’s a good place to start, she said.

“It’s not just a matter of money, but we need some money to catalyze reform,” said Sawhill. “We are not investing in children, and we do that at our peril.”

To contact the reporter on this story: Victoria Stilwell in Washington at vstilwell1@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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