Association for Public Policy Analysis & Management

From December 2007 until June 2009, the United States experienced the Great Recession, its worst financial crisis since the Great Depression (Grusky, Western, & Wimer, 2011; National Bureau of Economic Research, 2010). The level of unemployment increased dramatically during this period, from approximately 5 to 10% (Hout, Levanon, & Cumberworth, 2011). Low-income families were especially vulnerable to the poor economic conditions; estimates from the Current Population Survey indicate that unemployment rates in the lowest income decile were as high as 31 percent from October to December 2009 and were nearly 20 percent in the second lowest income decile (Sum & Khatiwada, 2010).  Because the Great Recession was associated with such high levels of unemployment, especially among economically disadvantaged families, it is critical to understand how vulnerable families were impacted and to consider how the public and private safety nets helped families make ends meet.

Prior research has documented the effects of the Great Recession on economic indicators, but many studies fail to investigate differences by education. Nor has the literature studied families with children – a group that may be particularly vulnerable in times of economic crisis. We add to the literature by studying the links between the city level unemployment rate and family income, poverty, material hardship, public and private transfers among families with young children. We also extend the literature by studying differences by maternal education to better understand how the safety net works for different families. We use data from the Fragile Families and Child Wellbeing Study, a longitudinal urban birth cohort study of approximately 5000 families that oversampled nonmarital births, to conduct pooled OLS and individual fixed-effects models. The advantage of these data are two-fold; first, the longitudinal data allow us to study the same families in good and bad economic times – to exploit the variation in the unemployment rate over a full decade, and second, we have a large sample of economically disadvantaged families, those who are most likely to need to rely on public and private safety nets.

In this paper, we investigate three questions: 1) How did the Great Recession affect household income, poverty, and material hardship (inability to pay for basic needs such as food, or housing)? 2) How responsive to the recession was the private safety net (doubling up and private financial transfers) and the public safety net (Medicaid, Temporary Aid to Need Families, Supplemental Security Insurance, Unemployment Insurance, the Earned Income Tax Credit, Public housing, and Supplemental Nutrition Assistance Program?  And 3) to what extent did public and private transfers mitigate the economic effects of the recession?

We find that household income declined, poverty increased and material hardships increased for families with children during the Great Recession. However, we also find that usage food stamps and unemployment insurance also increased, as did private financial transfers from friends/family. Together these public and private transfers helped to mitigate the economic impact on families with children. Cash and in-kind transfers reduced poverty among households with young children by about 10 percentage points.