The Price of Poverty

New research from the UK confirms what CAP showed in 2007—child poverty drags down a nation’s economy.

Demonstrators listen to speakers at a rally in Trafalgar Square in central London. The British government has set 2010 as a target date to halve child poverty. (REUTERS/Toby Melville)
Demonstrators listen to speakers at a rally in Trafalgar Square in central London. The British government has set 2010 as a target date to halve child poverty. (REUTERS/Toby Melville)

Arguments for ending child poverty often rely on a feeling that it is simply wrong to allow any child to miss out on the experiences that so many take for granted. But now new research from the Joseph Rowntree Foundation in the UK shows that a high child poverty rate imposes a substantial drag on a country’s overall economy.

The Center for American Progress made this case in January 2007 in an innovative report from Harry Holzer and colleagues, which laid out the heavy costs to the U.S. economy of not tackling child poverty. Inspired by this example, the Joseph Rowntree Foundation report set out an estimated cost to the UK of £25 billion—around 1 percent of GDP.

The Rowntree report identifies two ways in which child poverty imposes costs. Growing up poor is associated with a range of poorer outcomes in adulthood, and poor physical and mental health, which place extra burdens on public services. And the lost potential associated with growing up poor means that we lose out on productivity, earnings, and taxation.

The research reviews evidence on the long-term effects that growing up poor has on children’s outcomes. As we reported earlier this year, poverty has clear implications for health over the long term and therefore imposes additional costs on the health service. Poverty can also damage mental health, leading to a higher risk of suicide and to a range of antisocial behaviors. And while poverty does not lead children and young people to commit crimes, and the vast majority of poor children do not engage in criminal behaviour, there are associations between economic disadvantage and criminality—leading again to higher costs for services and society.

In order to estimate the costs of these additional services, researchers looked at the association between the number of children in poverty in an area and the costs of services in this area, controlling for other factors that would make spending higher. Around half the costs of child poverty, or £12 billion, are associated with this additional spending.

But if poverty imposes extra costs on society, it also drains the resources with which to meet them. Growing up poor has a strong effect on educational outcomes and on the prospect of finding employment as an adult. The research also estimates the costs to the economy of this loss of potential, both in terms of lost tax revenues and in terms of the benefits that are required to support adults who would otherwise have been working. A conservative estimate puts these costs at £13 billion.

What does this mean for policy? Many believe that the moral case for ending child poverty is already clear. But this research makes clear that failing to tackle poverty today imposes substantial financial costs on society as well. We’ve recently seen governments across the world spending vast sums on stabilizing the banking system with the argument that not doing so would lead to even greater costs in the long term. Investing in child poverty today should similarly be seen as spending to save.

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