How Poverty Damages Health
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Healthcare Strategy Social Impact Economics Policy Jun 4, 2012

How Pover­ty Dam­ages Health

Anti-pover­ty pro­grams boost recip­i­ents’ well-being

Based on the research of

William Evans

Craig Garthwaite

Econ­o­mists have long known that the more mon­ey you have, the health­i­er you are. What has been dif­fi­cult to sort out is whether mon­ey leads to bet­ter health or if the two sim­ply go hand in hand. After all, peo­ple who are wealth­i­er might sim­ply be more patient and per­sis­tent or could sim­ply have had bet­ter childhoods.

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Rare is the oppor­tu­ni­ty to study a mas­sive and per­sis­tent injec­tion of wealth into needy fam­i­lies, but the 1993 expan­sion of the Earned Income Tax Cred­it is one exam­ple. The EITC, a lump-sum dis­burse­ment giv­en at tax time, is by far the nation’s largest anti-pover­ty pro­gram, dis­trib­ut­ing $49 bil­lion to 24 mil­lion peo­ple in 2008.

In 1993, fam­i­lies with two or more chil­dren were for the first time giv­en sub­stan­tial­ly more mon­ey than fam­i­lies with one child, pro­vid­ing Craig Garth­waite, an assis­tant pro­fes­sor of man­age­ment and strat­e­gy at the Kel­logg School of Man­age­ment, and William Evans, a pro­fes­sor at Notre Dame, with an oppor­tu­ni­ty to exam­ine the effects on poor fam­i­lies of a sub­stan­tial and per­sis­tent windfall.

Clear Ben­e­fits

Garth­waite and Evans report that moth­ers with more than one child, and there­fore up to $1,327 in addi­tion­al funds from the EITC, claimed to have sig­nif­i­cant­ly bet­ter health out­comes. Exam­i­na­tion of a suite of bio­mark­ers in these moth­ers also revealed that vital signs asso­ci­at­ed with stress and pre­dic­tive of heart dis­ease were low­er after the increase in the EITC. We’re among the first to show clear health ben­e­fits of a cash trans­fer pro­gram,” Garth­waite says.

For the poor­est fam­i­lies, the expan­sion of the EITC rep­re­sent­ed an increase in their income of up to 15 per­cent. In total, the pro­gram is big­ger than the com­bi­na­tion of Tem­po­rary Assis­tance for Needy Fam­i­lies and the Sup­ple­men­tal Nutri­tion­al Assis­tance Pro­gram, or what are col­lo­qui­al­ly known as wel­fare and food stamps. The EITC’s impact on fam­i­lies can be con­sid­er­able. As one recip­i­ent put it in an inter­view with The New York Times, You get this feel­ing of, Hey, I’m like them now.’ ” Pre­sum­ably, by them,” he means the mid­dle class.

Self-report­ed health mea­sures are sur­pris­ing­ly good indi­ca­tors of future health out­comes.” — Craig Garthwaite 

Pre­vi­ous lit­er­a­ture showed that a sub­stan­tial por­tion of the EITC is spent on things that are like­ly to affect the base­line lev­els of stress in recip­i­ents by chang­ing many cir­cum­stances of their life at once, like a new car or a move to a bet­ter neigh­bor­hood. This could explain why self-report­ed health went up among women in these fam­i­lies and the num­ber of bad men­tal health days went down.

Self-report­ed health mea­sures are sur­pris­ing­ly good indi­ca­tors of future health out­comes, Garth­waite says. But they are also coarse, and it is not clear what is being mea­sured when some­one says they have good” or fair” health. Tra­di­tion­al­ly, research in this area has relied on changes in mor­tal­i­ty for objec­tive data. But that presents a prob­lem, as mor­tal­i­ty among peo­ple aged 21 to 40 is not par­tic­u­lar­ly high. To get a clear­er view, Garth­waite instead looked at data on bio­mark­ers for health gath­ered by states and com­piled by the Cen­ters for Dis­ease Con­trol and Prevention.

Bio­mark­ers are gath­ered through urine and blood sam­ples. Mark­ers asso­ci­at­ed with stress, includ­ing C-reac­tive pro­tein and albu­min — which are asso­ci­at­ed with inflam­ma­tion, which is itself linked to stress — went down when fam­i­lies received larg­er EITC pay­outs. Inde­pen­dent of oth­er fac­tors, these mark­ers pre­dict rates of future heart dis­ease, car­diac arrest, and stroke. We’re try­ing to look fur­ther up the causal path­way, to see changes in things that might even­tu­al­ly lead to adverse health out­comes,” Garth­waite says.

Per­cep­tion Impor­tant

The results of Garth­waite and Evans’s study mean that a per­ceived change in socioe­co­nom­ic sta­tus is hav­ing a direct effect on the phys­i­ol­o­gy of mil­lions of Amer­i­cans. They sug­gest that by help­ing recip­i­ents upgrade their lives, EITC pay­ments can low­er stress lev­els. The effects of stress on health are well doc­u­ment­ed in the med­ical lit­er­a­ture, and the addi­tion of the bio­mark­er data fur­ther rein­forces this hypoth­e­sis, Garth­waite says.

This find­ing could have a con­crete impact on cal­cu­la­tions that weigh the costs and ben­e­fits of the EITC and oth­er pover­ty-reduc­tion pro­grams. If we think about a demo­c­ra­t­ic ide­al, elect­ed offi­cials are implic­it­ly weigh­ing the costs and ben­e­fits of the pro­gram,” Garth­waite says. We want to pro­vide as com­plete infor­ma­tion as we can, and we’ve shown that the health effects of this pro­gram should be includ­ed on the ben­e­fits side.”

The EITC is unique among anti-pover­ty pro­grams in that it tends to have bipar­ti­san sup­port, since it goes to peo­ple who work and who have kids. By show­ing that its expan­sion has a direct effect on health out­comes, Garth­waite and Evans’s research sug­gests that there is not mere­ly a cor­re­la­tion between health and wealth, but that the pro­vi­sion of addi­tion­al funds through the EITC is actu­al­ly a unique dri­ver of bet­ter health.

Relat­ed read­ing on Kel­logg Insight

Bal­anc­ing Med­ical Risks with Finan­cial Needs: Con­tro­ver­sial pre­scrip­tion drug Vioxx may have kept peo­ple in the workforce

Are Restau­rants Real­ly Super­siz­ing Amer­i­ca? Restrict­ing restau­rant meals may not trim Amer­i­cans’ expand­ing waistlines

Featured Faculty

Craig Garthwaite

Associate Professor of Strategy, Director of Health Enterprise Program, HEMA

About the Writer

Christopher Mims is a journalist based in Baltimore, Maryland.

About the Research

Evans, William and Craig Garthwaite. 2012. “Giving Mom a Break: The Impact of Higher EITC Payments on Maternal Health.” Working paper, Kellogg School of Management.

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