Wednesday, March 30, 2016

Calculate Your Economic Risk

Credit Gérard DuBois
TWO economic issues loom especially large in the United States today: widespread economic insecurity and soaring levels of income inequality. These are not just issues of interest to academics and policy makers; they are a prime concern of ordinary citizens. “How much economic risk do I face in the future?” you may wonder. “How does my risk differ from that of others?”
Plenty of professors, including ourselves, analyze economic risk and publish the results in academic journals and other scholarly outlets. But Americans in general might also benefit from a tool that could help them personalize the vast amount of data that we have analyzed on this issue. So we constructed an economic risk calculator, now available at, that allows you to assess your chances of experiencing poverty in the next five, 10 or 15 years.
The idea behind our approach is similar to the idea behind a doctor’s ability to predict your risk of heart disease. Using several pieces of information (blood pressure, cholesterol, etc.), your doctor can make a reasonable estimate of your chances of having a heart attack in the next 10 years. These numbers are based on statistical patterns derived from a very large sample of families that make up the Framingham Heart Study, the longitudinal study of cardiovascular health that began in 1948.
Our predictions of economic risk work in a similar way. Using hundreds of thousands of case records taken from a longitudinal study of Americans that began in 1968, we estimate the likelihood — based on factors like race, education, marital status and age — of an individual’s falling below the official poverty line during the next five, 10 or 15 years. (The poverty line for a family of four in 2015 was approximately $24,000.)
We have discovered that, for many Americans, the future risk of poverty is far from trivial. Take someone who might be thought of as having a relatively low probability of poverty: an American who is in his or her later 30s, white, not married, with an education beyond high school. It turns out that the 15-year risk of poverty for such a person is actually 32 percent. In other words, one-third of such individuals will experience at least one year below the poverty line in the not-so-distant future.
If we project across a longer span of adulthood, it appears that a clear majority of Americans will experience poverty. For example, in earlier research we estimated that between the ages of 20 and 75, nearly 60 percent of Americans will spend at least one year below the official poverty line, and three-quarters will experience a year below 150 percent of the poverty line.
In addition, our risk calculator helps underscore how vast the inequalities in the United States actually are. Race, education, marital status and age make a huge difference in terms of who is more or less likely to experience poverty. For example, the five-year risk of poverty is 5 percent for an American who is 45 to 49, white and married, with an education beyond high school. In contrast, the five-year risk for an individual who is 25 to 29, nonwhite and unmarried, with an education of high school or less is a whopping 72 percent.
The gap between the haves and have-nots in the United States is now greater than it has been in decades. Our economic risk projections illustrate just how profound these demographic fault lines are likely to be in the future. As the country becomes increasingly nonwhite in the years ahead, with millions of young Americans priced out of higher education and less likely to marry, the percentage of the population experiencing poverty is certain to grow. The “opportunity structure,” in particular the labor market, has been stacked against these groups for some time. Furthermore, our social policies, such as health care, housing and educational reforms, have done little to address the systemic disadvantages embedded in American society.
We are in danger of becoming an economically polarized society in which a small percentage of the population is free from economic risk, while a vast majority of Americans will encounter poverty as a normal part of life.
With our calculator, Americans can for the first time examine their own economic vulnerability. Our hope is that such information will be both sobering and a clarion call to action.

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