Social, Economic and Demographic Analysis of Detroit

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18th May 2020 International Studies Reference this

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Background

The Rise of Industrial Detroit

Prior to the 1900s, Detroit was a fairly prominent commercial and transport city, due to its location in the center of the Great Lakes region and its access to multiple rail lines. By the turn of the century, the automotive industry boomed and companies such as Chrysler, Ford, and General Motors (commonly referred to as the Big Three) moved into the city. Using Albert Kahn’s new architectural techniques, factories were built to be more efficient and space effective. Such new developments led to a high demand for workers to staff these factories. Low-skill manufacturing jobs in Detroit were extremely attractive at the time. Ford announced its $5 a day wage in 1914, a significantly higher wage than many other low skill jobs of the time, and other companies in Detroit boosted their pay to remain competitive with Ford (Anderson, 2014). People moved to access these newfound opportunities from all over the US and even from outside the country. The population of the city grew and grew, along with the black and ethnic population. World War 1 took off and as America’s manufacturing giant, Detroit factories were refitted to make war materiel. The Great Depression did not hit Detroit as severely as other cities (need some sources on that, honestly just a guess), and again in World War 2, Detroit factories were refitted once again to produce wartime supplies and vehicles. This earned the city the name “Arsenal of the West”. In 1943, due to rising racial tensions betweens the black and white communities, a riot broke out, and was finally ended after three days by federal troops.

Post War Detroit

After the war, returning soldiers and those wealthy enough started moving out of the city. The GI Bill allowed veterans to get low interest, no down payment mortgages for new homes and the highways augmented the current motor culture of the US. New highways were built after the Eisenhower administration passed the Federal Aid Highway Act in 1956. However, those built in Detroit cut through poorer ethnic neighborhoods, dividing those pre-existing communities and displacing those caught in its path with little forewarning. Not only did the well-off residents of the city start to move out, the automakers also relocated to the suburbs of Detroit in search of more space for their factories. Also, distributing the workforce over a larger area and increasing the number factories helped minimize the effect of union strikes. The big three built a combined 25 new factories outside city limits during this time (Sugrue 2004, par. 2). Inner city residents were unable to follow them, due to lack of capital and/or discrimination in housing. Blacks that tried to move into white suburban neighborhoods were met with hostility and the local Veterans Affairs office heavily favored whites for mortgages from the GI bill (Katznelson,). These further increased tensions in the black and white community. (Need to add more on 60s?) Tensions once again exploded in 1967, when the police raided a small, black owned, illegal bar. The violence escalated and after five days and millions of dollars in damage, the riot had been quelled after federal troops were called in. What had been a stream of people leaving the city has now become a flood. Those wealthy enough moved away in fear for their safety and with them, their tax dollars. This has been a growing problem since people started to leave Detroit. Without a solid tax base, basic social services and infrastructure were severely underfunded. This only exacerbated slow emergency service response times and even to the point where streetlamps couldn’t be turned on (source this). Gang activity and the illegal drug trade was rampant during this period, and these factors continued to cause more people to leave. (I don’t have enough info on Coleman Young). After NAFTA passed in 1994, many auto companies moved their primary manufacturing efforts to near the Mexico-US border, where labor costs there severely undercut wages in Detroit. (Need to get more info on modern >1994).

Demographic structure

According to the 2016 Census population estimates, Detroit is the 23rd largest city in the US. In 2017, there are 673k people with median age of 34.6 in Detroit, MI (DATA USA, 2019). The population of Detroit is 79.12% black, 14.1% white, and 7.5% Latino or Hispanic (Detroit, 2019). Dividing the population by age range,  the largest age range group is from 20 to 29, which makes up 17% of the population. The second largest age range is from 0 to 9, which constitutes 14%. Only 6% are from age 60 – 79, and 3% above 80. Other age groups are evenly distributed (U.S. Census Bureau, 2019).

Poverty background

In Detroit, four in ten people live in poverty.  The poverty thresholds are set quite low in Detroit, MI. A family of four is considered as living in poverty if their annual income is below $24,600 in 2017 (Marge Sorge, 2018). The poverty rate of Detroit is 37.9%, which means that the income of one person out of 2.6 falls under the poverty threshold. At that time, the poverty rate of Michigan is only 15.6%, which is 22.3% lower than the poverty rate of Detroit. As for income inequality, the Gini Index of Detroit was higher than Gini Index of all of Michigan from 2008 to 2016 (DATA USA, 2019).

Age and Gender

At 57.1%, Detroit has the highest child poverty rate in the country and has been increasing since 2000 (Drawing Detroit, 2017).  The poverty rate of children under 18 is above 50%, while the poverty rate of children under 6 is almost 60%, and given that 31.1% of the population is under the age of 18, child poverty is becoming a rising problem in Detroit and the future of the community is bleak. Gender inequality is also a problem in Detroit. There is a clear male bias within the population regardless of years of schooling. Glass ceilings are still noticeable for female workers as male citizens have about $2 higher median hourly wages across all levels of education.

Race and Ethnicity

            With the same level of educational qualification, people of different races are treated differently. For example, with a BA Degree or higher,  a black person earns $3.20 per hour less than a white person. The most common racial group living under the poverty threshold in Detroit, MI is Black, followed by White and Hispanic.

School Enrollment

For those who have not enrolled in school in Detroit, MI, the poverty rate is 32.5%. For those who have enrolled in school, the poverty rate increased to 48.3%. There are typically 6 types of school in Detroit, MI. For those who only enrolled in Nursery School, their poverty rate is about 57.5%, which is the highest poverty rate group in people who enrolled in school. For those who finished their Elementary School, which is considered as grade 1 to 4, the poverty rate is 55.2%. For people enrolled in Middle School, which is from grade 5 to 8, the poverty rate is 51.7%. For people enrolled in High School, which is from grade 9 to 12, the poverty rate is 48.2%. For people enrolled in Undergraduate School, they have a poverty rate of 37.2%. For people enrolled in Graduate or Professional School, they have a poverty rate of 30.9%, which is the lowest poverty rate group in people who enrolled in school. According to these data, the poverty rate is decreasing when people enrolled a more professional and higher level school.

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A 2010 report on Detroit’s poverty situation further highlights the significant effect of education on poverty. 46.0% of families headed by someone with an educational level below highschool are in poverty. 35.2% of highschool graduate-headed families are in poverty. Families headed by people with BA degrees or higher only have a 10.2% poverty rate, suggesting that Detroiters who have experience in higher levels of education are less likely to be in poverty.

Economic Lives

Health care, child care, and housing take up a majority of poor Detroiters’ costs. However, some still cannot even afford to meet their living needs. According to the 139 Square Miles report by Detroit Future City, 24% of adults in Detroit do not have access to health care because of costs. This is mainly due to an increase in health care costs and housing prices. The standard for affordable rent in the US is considered to be no more than 30% of family’s income. In Detroit, 50.2% of all households spend more than 30% of their income on rent, meaning that more than half of Detroit are actually cost-burdened by housing. Detroit’s median household income is $27,838 per year, which is half the median household income of the state of Michigan. A majority of the income that the working poor makes is from low-wage service jobs. Moreover, many of the working poor make so little money from their jobs that they have to take up a second job in order to pay for basic living necessities like food, transportation and technology. Thus, there are a few issues such as affordable housing and welfare that Detroit needs to address in order to solve their poverty issue.

Causes of Poverty

Last century, Detroit was well-known as the Motor City in the world. The Big Three automobile manufacturers – Ford, General Motors and Chrysler Corp. – all headquartered in Detroit. They created hundreds of thousands of manufacturing jobs. At that time, no one would imagine that one day, Detroit would go bankrupt. However, today, General Motors is the only one automaker that still headquartered in Detroit. During the Great Recession, it even needed to get a provisional bailout from the government in order to pull through tough times. What’s more, it finally had to declare bankruptcy in 2009 and got financing support from Obama’s government.

Historically speaking, the riots and the gasoline crisis are the causes of Detroit’s failure. For instance, the Twelfth Street riots in 1967 was marked as one of the most serious riots in the US history. In the riot, black residents stood against the police. It caused more than forty people to be killed and hundreds of people to get injured while thousands of people were arrested. The riots like this left Detroit in chaos, which led some people especially the upper and middle class to leave the city. As a result, the city suffered from losing some active workers and attracting investments from the rich. The gasoline crisis during 1973 and 1974 made the situation worse. Before the crisis, Americans preferred heavier and more powerful cars, which burned more fuel, because the price of oil was well controlled and thereby affordable for many of them. By 1974, the gasoline price quadrupled. This affected all the Big Three automobile manufacturers in Detroit. The demand for large cars decreased since large cars were not as popular as before. Instead, smaller and more fuel-efficient cars came to people’s minds. For example, Japanese automakers successfully found a place of the automobile market in the US during that period. For a long period, Ford, General Motors and Chrysler Corp. all struggled and found it hard to compete with foreign automobile manufacturers.

As shown in Exhibit #, currently, Detroit has more retired workers than active workers. This is also one of the causes of Detroit’s poverty conditions. With less active employees, the city government cannot make enough revenues through tax collection. And since there are more retirees within the city, the government has to spend a lot of money on its pension funds as well as health care programs. One bad news was that the government not only could not have a budget surplus, but also needed to experience an increase in its debt and liability because it was supposed to lend money from other institutions in order to cover the funds which could help out the poor and the retirees. It made the situation worse and worse and it seemed like there was a financial hole that the government was unable to plug in the future as the government could not cut the budget deficit and the budget deficit was still out of control. According to Brad Plumer in “Detroit’s pension problems, in one chart”, Detroit government used to “[default] on pension obligations”, which was likely to “[blow] a hole in the 30-year projections and long-term solvency” (Plumer 2013). Unfortunately, the government of Detroit went bankrupt on July 18, 2013, which worsens the situation again.

High unemployment rate and high crime rate are also the problems Detroit faces. The unemployment rate in Detroit is much higher than the country and state average (Graham 2018). Although high crime rate is a result of poverty, it is one cause of poverty. Because poor people need money to survive, sometimes they opt to commit a crime, which makes the upper and middle class feel that their safety needs are threatened and finally leave the city. Since they leave Detroit, the companies in the city find it hard to hire skilled workers. As a result, many firms and factories choose to leave the city and set up in its suburbs. Job opportunities that are available to the residents decrease and some lose their jobs. Not surprisingly, the unemployment rate rises. As more and more people become jobless, more and more citizens live below the poverty line.

Welfare

One of the best ways a region can do to fight poverty is by implementing a solid welfare system. Welfare programs provide low-income families with subsidies. These transfers could either be in the form of cash for financial aid or as In-Kind transfers like free healthcare, and subsidized housing.

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In the US, many effective welfare programs such as the Earned Income Tax Credit (EITC) have already been implemented as a response to their poverty issue. The EITC is a tax credit system that incentivizes the poor to join the labor force by providing low-income families with cash transfers that are calculated based on income and household size. The EITC is known to be extremely effective at increasing labor force participation, decreasing poverty rates, and decreasing welfare caseloads. However, ever since the change in program management from the federal level to the state level during the welfare reform in the 1990s, the policy has been enforced in different ways, and so the extent of the EITC program differs with each state.

The EITC program works on both a federal and a state or local government level. The federal EITC provides low-income working families with the cash transfers. To supplement the federal EITCs, each state then provides their low-income families with their own state EITC, which is usually set as a percentage of the federal credit. For example, low-wage families in the state of Massachusetts receive an additional 23% of their federal credit as state credit. There are also cases where cities choose to follow their own EITC rate instead of their state rate. Low-income families in New York City receive only an additional 5% of their federal credit whereas others in the State of New York receive 30% additional credit. The city of Detroit however, chooses to use Michigan’s state EITC, which is only 6% of federal credit. Given the high poverty levels of Detroit and Michigan cities, the Michigan EITC is too low for the area and needs to be optimized. To reduce the poverty rates, Michigan governors are proposing to double the Michigan EITC to 12% of the federal credit. This would provide low-wage Detroiters with additional 130 USD in transfers that could help pay for their ever-increasing living expenses and lift them out of poverty. Moreover, a higher state EITC credit cap would attract the poor and motivate them to work because of the policy’s work requirement, increasing labor force participation.

Health care

 One of the biggest impacts that President Obama made on Detroit was the 2010 enactment of the Affordable Care Act (ACA), a reformed federal health care system that aimed to increase health care accessibility and availability for adults across the nation. This policy allowed states to expand the coverage of their Medicaid programs by creating new health care programs. Michigan’s Medicaid expansion, also known as the Healthy Michigan Plan (HMP), was authorized under the ACA in 2013. The Healthy Michigan Plan is different to traditional Medicaid programs in terms of eligibility rules. Traditional Medicaid was only applicable to elderly/disabled below 100% of federal poverty line (FPL), children below 160% of FPL, and pregnant women below 195% of FPL. HMP on the other hand, specifically targets the working population. Adults (ages 19-64) who earn less than 133% of the FPL are eligible to apply for health care coverage of services such as free drug prescription, emergency services, and mental health services. This is extremely beneficial to low-income households because it enables them to spend their earnings on other important bills like electricity and rent, reducing financial pressures. It’s possible that the eligibility change to 133% of the FPL could also help smoothen the poor’s transition out of poverty. By covering the high costed health insurance of the city for the adults once they’re above the poverty line, it could protect them against shocks from losing other government subsidy privileges.

Since the health care reform, the health of Detroit’s low-income population was greatly improved. 3 years into the health care expansion, Detroit’s uninsured rate saw a huge reduction from 22% down to 7%. Moreover, a 2018 mixed methods study on the HMP conducted by the University of Michigan highlighted its impact. Of the 4108 survey responses, 80.2% were below 100% of the FPL, suggesting that a majority of the people who are under the HMP program are in poverty. The study also concluded that, since enrollment, 47.8% of HMP enrollees saw improvements in their physical health, 38.2% of users had improved mental health, 69.4% believed they experienced increases in work productivity, and 54.5% reported that the program was able to make them more fit to look for jobs. Thus, not only did Michigan’s Medicaid expansion improve the health of the poor, but it also improved their ability to work, and increased their job opportunities. However, this study heavily relied on the respondents’ ability to recall their experience, which could be subjective and inaccurate. Still, this is a big step forward for the city of Detroit in terms of solving their poverty issue.

Necessities

The United States Environmental Protection Agency considers an affordable bill to be 4.5% of monthly household income for water and wastewater service. While there is an ongoing debate about whether percentage-of-income is the most accurate determination of affordability, it remains the federal standard and most commonly used metric. The issue of water affordability has been an area of concern and contention in the City of Detroit for over a decade. Low-income residents pay on-average 10% of their monthly household income for water services, more than double the estimated rate. Residents are also making trade-offs to pay those bills. (Rockowitz 2018)

Assistance is helping reduce costs, but is not closing the affordability gap. Almost 80% of households on assistance pay over 4.5% of their income for water services. 94.3% were still cutting-back on monthly expenses to keep-up with their bills. 25.6% of households not receiving assistance were unaware of assistance programs.

It is suggested that the state government can extend to water suppliers the same rules that prohibit electric and natural gas providers from shutting off service to households with low incomes, older adults and people with serious medical conditions. Additionally, water suppliers should consider income-based rates for customers facing burdensome bills. In 2017, Philadelphia adopted a water rate structure, setting bills at 2% to 4% of income for customers at or below 150% of the federal poverty level or who experience certain financial hardships. This helps families to stay on their current water bills, increases certainty in the water supplier’s revenue stream, and reduces the supplier’s expenses related to collections and bad debt.

Housing

Michigan state law requires local governments to make a Poverty Tax Exemption (PTE) available to owner-occupants with low-incomes. In Detroit, the PTE is implemented as the Homeowners Property Tax Assistance Program (HPTAP). Homeowners living near or below the Federal Poverty Level (FPL) may apply annually to this program to have their property tax bill reduced by half or eliminated. Despite the availability of the PTE in Detroit, only a small proportion of eligible homeowners gain access to this critical relief. (Eisenberg 2018)

Findings reveal that low awareness, burdensome application procedures and limited institutional accountability act as barriers that restrict access to the program. Many residents who were eligible but did not receive the PTE in past years face considerable tax debt and remain at high risk for foreclosure. Most residents are confused about the relationship between city and county tax obligations; and the difference between available relief options. Homeowners faced considerable barriers at each stage of the application process that prevented them from receiving the exemption.

On the other hand, Detroit’s inclusionary zoning ordinance aims to offer more housing for families making up to 80% of AMI, but incomes in the city are generally much lower than incomes in the larger metro area and the most severe shortage of affordable housing is among renter households with Extremely Low Incomes (ELI)—those living at 30% of Area Median Income (AMI) and below. To focus on these families, the ordinance also created the Affordable Housing Development and Preservation Fund, which receives 20% of the net receipts of city-owned commercial property sales as well as the penalties assessed for failure to comply with the ordinance. The money can be used to meet the housing needs of families with incomes of up to 50% of AMI, with the majority dedicated to ELI families. (Cassidy 2019)

In 2018, Mayor Mike Duggan announced an initiative to establish a second housing fund, the Affordable Housing Leverage Fund (AHLF). Planned investments to the AHLF from several sources total $250 million over five years, eclipsing the city’s commitment to the ordinance-created fund. However, the fund is directed at development priced for households up to 80% of AMI, with a focus on those up to 60% of AMI. The city should make a more robust commitment of dedicated annual revenue to the first fund, which includes creation of an Affordable Housing Task Force, in order to achieve its deeper affordability goals for the Detroit families facing the greatest housing challenges.

Policies Proposal

Considering the causes of poverty in Detroit, the government should try to attract investment and thereby create more jobs and attract more workers. It is supposed to improve education and training of employees so that the city can compete with its suburbs instead of losing its upper and middle class in the competition with them. Meanwhile, with more active workers, the government can also increase tax revenue and achieve a budget surplus.

Conclusion

Bibliography

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Appendix

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