Cycle of poverty

In economics, a cycle of poverty, poverty trap or generational poverty is when poverty seems to be inherited, preventing subsequent generations from escaping it. This is known as the cycle of poverty. It is caused by self-reinforcing mechanisms that cause poverty, once it exists, to persist unless there is outside intervention. It can persist across generations, and when applied to developing countries, is also known as a development trap.

Families trapped in the cycle of poverty have few to no resources. There are many self-reinforcing disadvantages that make it virtually impossible for individuals to break the cycle. Lack of financial capital, education, and social connections all play a role in keeping the impoverished within the cycle of poverty. Those who are born into poverty have been shown to consistently remain poor throughout their lives.

Educational psychologist Ruby K. Payne, author of A Framework for Understanding Poverty, distinguishes between situational poverty, which can generally be traced to a specific incident within the lifetimes of the person or family members in poverty, and generational poverty, which is a cycle that passes from generation to generation, and goes on to argue that generational poverty has its own distinct culture and belief patterns.

Measures of social mobility examine how frequently poor people become wealthier, and how often children are wealthier or achieve higher income than their parents.

The US federal minimum wage has not kept up with inflation. It peaked in 1968 at $14 an hour in inflation-adjusted dollars. It has been at $7.25 an hour since 2009. Some, such as the Center for Law and Social Policy, the Center for American Progress, and Oxfam say that poverty is caused and maintained, to a significant degree, by low wages that some people in poverty earn. A low minimum wage also lowers wages above it too. It is more and more difficult for those households to get out of poverty, especially in states that haven't raised the minimum wage very much, or at all, since 2009. The Washington Center for Equitable Growth and The Review of Economic Studies noted studies that found that higher minimum wages in some places increased employment. One reason was that they lowered the rate of people leaving their jobs, thus increasing the number of filled jobs. The Robert Wood Johnson Foundation reported that researchers have determined that regardless of possible job losses (in some places) a federal minimum wage increase would bring great financial relief to many people.

However, some labor economists say that little poverty has been reduced following minimum wage increases. Others, such as the National Bureau of Economic Research, say their studies demonstrate that the negative consequences had on some low-wage earners due to minimum wage increases, such as minimum-wage earners in competitive markets having their work hours reduced or even losing employment after the minimum wage is increased, may not always be outweighed by the positive effects, depending on the unique circumstances of each labor market.

Some poor households, with or without full-time working members, have people that can not work very much, if at all. According to the United States Census, in 2012 people aged 18–64 living in poverty in the country gave the reason they did not work, by category:

Some activities can also cost poor people more than wealthier people. For example, if unable to afford the first month's rent and security deposit for a typical apartment lease, people sometimes must live in a hotel or motel at a higher daily rate. If unable to afford an apartment with a refrigerator, kitchen, and stove, people may need to spend more on prepared meals than if they could cook for themselves and store leftovers.