Annals of the Great Recession IX.

In the first five years after the “Great Recession” (i.e. 2008-2013), 60 percent of the new jobs that were created in the “recovering” American economy were low-wage jobs. By early 2013, a quarter of jobs paid less than $10 an hour. At the same time, from 2006 to 2012 the top 50 companies that relied on of low-cost labor paid $175 billion in dividends to stock holders. That is, middle and upper-income group stock portfolios rebounded from the recession while lower-income group earnings were held down. This created the much debated problems of the “working poor” and the legal minimum wage.[1]

Who are the “working poor”? The answer depends on your definition. One definition is people living in families in which at least one member is working but earns under the government-defined poverty line: $11,702 for an individual and $23,021 for a family of four. By this count, there are 46.2 million “working poor” in the United States. A broader definition, favored by activists, is anyone working who cannot afford the basics: food, clothing, housing, transportation, child-care, and health-care.

Who falls into this group? About 10 percent are white, mostly living in the South and Southwest. More than 25 percent each are African-American or Latino, distributed much more evenly around the country. Big business chains (Walmart, Target, fast-food chains like McDonald’s and Pizza Hut) that base their strategy on low-cost labor employ a lot of these people. Broadly, poor people come from poor families. Men from poor communities tend to have little education when the modern economy puts a premium on education; they have lousy jobs and are frequently unemployed; often they don’t get married or get divorced; lots of kids grow up in single-parent homes and go to the same lousy schools as did their parents. All this raises the prospect that we have created a hereditary under-class that amounts to a huge waste of human potential.

The federal minimum wage is $7.25 an hour. It hasn’t budged since 2009. Between 2009 and 2012, inflation raised the cost of living by 7 percent. This knocked the real minimum wage down to $6.75. Raising the minimum wage would lift many of these people a little further up the ranks of the poor. Critics warn that this would just lead to job losses through automation. (Some economists argue that these low-wage jobs can’t be automated. This is undoubtedly true of some low-wage jobs, but the self-check-out lines that are already common at grocery stores and hardware stores could easily spread to fast-food chains.)

Lots of employers appear to have privatized profit while socializing costs. Low wages and no health-benefits are possible—in part—because a lot of working people earning the minimum wage have to rely upon food stamps and other forms of public assistance. An estimated 3.5 million people—minimum wage workers and their dependents—depend on food stamps to feed themselves. The cost shifted from employers to tax payers is estimated at $4.6 billion. Raising the minimum wage to just over $10 an hour would move these people off the welfare rolls.[2]

Unionization is another possible response. This would allow workers to bargain more effectively for higher wages. Only 11.3 percent of American workers belong to unions, about half of them to public-sector unions. One barrier here is that 24 states have “right to work” laws that obstruct unionization.

Then, perversely, the federal government offers incentives to the working poor to not make more money. The Earned Income Tax Credit (i.e. transfer payment from higher income groups) falls as the recipient earns more money. In one case, each additional dollar earned reduces the EITC by 88 cents. Working more hours or getting a slightly better paying job doesn’t make any sense.

In short, the problem of the “working poor” involves a lot of difficult problems that have deep roots and have been building up for a long time. That doesn’t mean that we should just throw up our hands in despair. Simple and obvious solutions, however, may have unforeseen effects or even none at all.

[1] “Working, but still poor,” The Week, 8 February 2013, p. 11.

[2] “Noted,” The Week, 21 March 2014, p. 16.

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