Income and Poverty Across SMSAs: A Two-Stage Analysis

Michael C. Seeborg, Robert M. Leekley

Research output: Journal ArticleArticlepeer-review


Among the many explanations of income and poverty levels, especially among black families, two have garnered much of the recent public and academic attention: welfare disincentives and urban deindustrialization. Although on the surface, these explanations appear quite dissimilar, they do have a common thread.
The ''welfare-disincentive'' explanation argues that while public assistance raises family income and reduces poverty directly, it has the opposite effects indirectly. According to this argument, welfare leads recipients to reduce their work, schooling and traditional family formation [Murray, 1984] all of whose reductions significantly affect family income and poverty adversely. Blacks are hurt more than whites because a larger percentage of blacks have only the low-wage labor market options for which public assistance is a substitute.
The "urban-deindustrialization" argument concentrates instead on the disappearance of manufacturing jobs from urban areas. The resulting deprivation and absence of meaningful work gives rise to an "underclass" [Wilson and Neckerman, 1986; Wilson, 1987]. And underclass attitudes, by discouraging work, schooling and traditional family formation, further adversely affect family income and poverty. Blacks are hurt more than whites because blacks are less mobile and are subject to greater discrimination in alternative, non-manufacturing employment.
Expressed this way, the common thread is clear. Each sees some environmental influence giving rise to an underclass, thus discouraging work, schooling and traditional family formation. And each sees these underclass characteristics as adversely affecting family income and poverty. The difference is over the environmental influence most responsible for creating this underclass - welfare disincentives or urban deindustrialization.
This paper explores these arguments further. First, we develop a two-stage model to predict a city's median family income and poverty rate. The model allows the city's welfare level and industrial structure, among other things, to affect its median family income and poverty rate directly. It also allows them to affect income and poverty indirectly, through their effects on underclass creation. We estimate the model, separately for blacks and whites, using cross-sectional, Standard Metropolitan Statistical Area (SMSA)-level data. Finally, we simulate the total effects, direct and indirect, of changes in welfare and industrial structure on SMSA median family incomes and poverty rates.
Original languageAmerican English
JournalEastern Economic Journal
StatePublished - 1993


  • Economics

Cite this