Monday, March 11, 2013

Playing Fair: Economics

Today is Sunday, March 10, 2013.

Yesterday I wrote that I believe life is essentially fair because karma and reincarnation are at work to allow us, as Soul, to learn lessons over the course of lifetimes.  However, I also wrote that there are still things that are unfair, and that it may be possible to do something about.  In general, I'm talking about systems that are unfair.

There are three things in the realm of economics in the United States that a lot of people on all sides of the political spectrum agree are unfair – albeit for different reasons: the welfare system, CEO salaries, and the minimum wage.

When Bill Clinton overhauled the welfare system in the United States, one of the biggest changes was that recipients of welfare had to apply for jobs weekly and keep their jobs, or face losing benefits.  Another change was that cash benefits would expire after a certain amount of time.  This sounds like a great idea, but there have been problems with it that need fixing. 

There is a notion among middle- and upper-class Americans that welfare recipients don't actually go to work, and I know that used to be the case.  Nowadays, the situation is different.  According to Jordan Weissmann, writing for The Atlantic, "84 percent of eligible families took part in pre-Clintonian welfare. By 2005, it was just 40 percent."  Why don't more people apply for welfare?  It's easy to say that the work requirements scared people away, but there is another problem: the endless paperwork required to apply for the program.  As someone who is now living in rent-controlled housing, I can attest to this.  Imagine having to fill out a 25-page application just to get an apartment!  Imagine having to give even the names of banks with which you no longer have an account, simply to verify that the account is closed!  Imagine having to promise that you won't get a job or try to earn any money because if you do, you will be over the income limit to qualify for rent-controlled housing – this, when units are going empty for months!

Another reason people don't apply for welfare is that they want to "save up their eligibility for an even rainier day, or opt out to keep their incomes low so they can get other government benefits. " according to Weissmann.   For example, the Chicago Tribune described a woman in Illinois who quit her low-paying job because she needed health care when she became pregnant, and the care provided by her employer was less than she could get on Medicaid.  Later, she got another job, but quit because the cost of daycare for her children was prohibitive.  Like many middle- and upper-class mothers, she also wanted to be at home for her young children as much as she could.  Why is it that low-income women are punished for wanting this, while others who are more fortunate are praised for the same thing?  

Getting a job in the first place is a lot trickier for many low-income people than most of us realize.  Besides finding a baby-sitter, many low-income people have to invest in clothes and shoes appropriate for the workplace at a time when they can least afford it, and car maintenance and repair takes a lot of money, as every driver knows.  Many employers, especially in smaller cities, will not hire people who ride city buses, because they believe that dependence on mass transit will lead to tardiness or absenteeism.  I personally experienced this in my job-hunting when I did not have a car, and had no driver's license, to boot.  There were a number of jobs that I could easily have gotten if I'd had my own set of wheels. 

Those who do accept jobs often feel forced to forgo pay raises or promotions because they will lose benefits that will cause any raise in pay to be cancelled out.  This is especially true for single mothers whose children still need daycare. As James Pethokoukis shows in his blog entry for AEIdeas, it is actually slightly more beneficial in terms of net income for many working mothers to accept lower-paying jobs that never quite get them completely off the welfare roles.  This is the so-called "welfare cliff" that welfare recipients have to jump off in order to get off welfare for good.  In other words, they somehow have to do with less in hopes of eventually getting more. 

Rep. Gwen Moore (D-WI) was quoted on this issue in Hot Air, a blog by Rob Bluey.  In her testimony at a congressional hearing, she explained that she was once a single working mother who relied on welfare.  "She spoke in personal terms about the tradeoffs recipients must make when their employer offers a promotion or pay increase. In her case, she once 'begged my supervisor not to give me a 50-cents-an-hour raise lest I lose Title 20 daycare.'  Moore said the same factors were at play with her Medicaid."

According to The American Prospect, a bimonthly print and online political magazine based in Washington, D.C., the Family Support Act, which was supposed to help single mothers get off welfare, hasn't changed the situation that much. "The reason is simple: single mothers do not turn to welfare because they are pathologically dependent on handouts or unusually reluctant to work. They turn to welfare because they cannot get jobs that pay any better than welfare." The article goes on to state, "Welfare benefits have always been low, and their purchasing power has fallen steadily since the mid-1970s. Most people assume that low benefits just force recipients to live frugally. But low benefits have another, more sinister effect that neither conservatives nor liberals like to acknowledge: they force most welfare recipients to lie and cheat in order to survive."   Why hasn't anything substantive been done about the problem?  According to the article, neither liberals nor conservatives want to talk about the issue. "Conservatives ignore this problem because admitting that welfare recipients cannot survive without cheating would weaken the case for cutting benefits. Liberals ignore the problem because admitting that welfare recipients cheat for any reason whatever reduces public sympathy for their plight."

 Welfare isn't the only unfair economic situation.  Two others that I'd like to highlight are excessive CEO salaries and benefits, and the federal minimum wage.   According to several sources, new data from the Economic Policy Institute reveals that CEO pay at American companies has risen 725 percent since 1978.  This is more than 127 times faster than worker pay over the same time period.  In 1978, CEOs took home 26.5 times more than the average worker. They now make roughly 206 times more than workers.  An article in Think Progress notes, "CEOs at companies like Bank of America often pocket huge pay increases even as the company’s stock price plummets and jobs are cut."  So much for the notion that CEOs are paid because they are the ones who make companies profitable.  The Think Progress article also stated, "Wealth inequality is worse than it was even in Ancient Rome. And, as pay skyrockets and tax rates fall for the richest Americans, the rising inequality has left the bottom 95 percent of Americans saddled with more debt than ever before."  Well, we all know what happened to Ancient Rome, and that lends some credence to fiscal conservatives' prophecies of economic upheaval in the near future.  Recently there have been huge demonstrations in European countries by masses of people for whom life has become unbearable because of government austerity measures.  If the so-called "sequester" is not ended soon, the United States could be next to experience mass demonstrations.  The Occupy movement may be only the beginning.

While pay for those at the top has risen, workers' salary in real terms has not kept up with the rapidly rising cost of living. Says Think  Progress, "Despite substantial gains in productivity since the 1970s, worker pay has remained flat."   Bonnie Kavoussi writes in The Huffington Post, "That trend comes despite workers nearly doubling their productivity during the same time period, when compensation barely rose. Worker productivity spiked 93 percent between 1978 and 2011 on a per-hour basis, and 85 percent on a per-person basis, according to the Federal Reserve Bank of St. Louis.
Meanwhile, workers saw their inflation-adjusted wages fall in recent years as corporations postponed giving raises while adding to their record corporate profits."

Basically, I could argue all day how unfair this is, but there are those who will never be swayed by any arguments.  Essentially, the people of this country will have to make their voices heard in a way that companies will understand, and I'm not sure when that will happen.  The recent banking system collapse and resulting economic recession doesn't seem to have changed most CEOs' thinking on the matter. Personally, I can't imagine how these people can sleep at night, but it is evidently pretty easy to get to sleep on pricey 800-thread-count Egyptian cotton sheets. Nobody's threatening to turn off their phone or cut their electricity because they can't pay their utility bills.

The current federal minimum wage is currently $7.25/hour.  Many states have enacted a state minimum wage, as well.  According to the U.S. Department of Labor, "In cases where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher of the two minimum wages."  I looked up my state of residence, South Dakota, and found that our state minimum wage is the same as the federal wage. It was a shock to notice that Minnesota, a state that I grew up in, has a lower state minimum wage. That's probably why I was told, when I worked at Target as a graduate student, that I would receive a "training wage" at first. It was also interesting to note that the few states with no minimum wage law are concentrated in the "deep South," making a lot of people, but especially people of color, totally dependent on the federal minimum.  I was also amazed at the number of states with a higher state minimum wage.  The highest of these seems to be $9.19, in the state of Washington.  Somehow, I doubt that even this wage is enough to pay the bills for many families. 

Now that President Obama has begun in earnest to try to get Congress to raise the federal minimum wage, there is a lot of controversy on the subject.  In her article for The New York Times, Christina D. Romer says that "most arguments for instituting or raising a minimum wage are based on fairness and redistribution."  This seems to be the way the conservatives frame the liberals' arguments for raising the minimum wage.  In answer to her article, reader Matthew Aitken writes, "That misses the point. At the heart of redistributive policies like that for a minimum wage is a belief championed by President Obama: that we’re all in this together, connected as one people. If the proposal to raise the annual income of a minimum-wage worker by $3,500 means that she doesn’t have to go hungry, or doesn’t have to choose between health care and the rent, then my life is richer for it, too — even if I do not directly benefit from her augmented purchasing power."  Aitken's answer seems to be the way the liberals like to frame their argument for raising the minimum wage.

Newark, N.J. Mayor Corey Booker's experiment in living on $33/week – the amount of money a food stamp recipient has to buy food each week – is a case in point.  Booker pretty much proved that it is impossible to eat nutritious meals on less then five dollars a day. 

Zachary Roth writes, "A new study by the National Low Income Housing Coalition finds that there isn't a single state in the union where it's possible to afford a two-bedroom apartment at the prevailing market rent, while working a standard 40-hour week."  He continues, "'Afford' here means paying no more than 30 percent of your income, which is what's usually seen as the right percentage for people to spend on housing. Of course, not everyone needs a two-bedroom apartment—but plenty of single parents do." 

I heartily hope that Congress will raise the federal minimum wage this year.  If they don't, then I hope that the American people will demonstrate their discontent in a way that makes them see the error of their ways.  :-/

Sources of information for this blog entry:

Bluey, Rob.  "Do welfare recipients have an incentive to work?" Hot Air (conservative blog). August 10, 2012.

Giambusson, David and Eunice Lee, Star Ledger staff writers.  "Cory Booker's week on food stamps shines latest light onto statewide struggle."  December 14, 2012.

Jencks, Christopher.  "The Real Welfare Problem."  American Prospect. December 4, 2000.

Kavoussi, Bonnie.  "CEO Pay Grew 127 Times Faster Than Worker Pay Over Last 30 Years."  The Huffington Post. May 2, 2012.

, James. "Julia's Mother: Why a single mom is better off with a $29,000 job and welfare than taking a $69,000 job."  AEIdeas, the public policy blog of American Enterprise Industries. July 12, 2012.

Romer, Christina D.  "The Business of the Minimum Wage."  The New York Times. March 2, 2013.

Roth, Zachary.  "It's basically impossible to live on the minimum wage."  MSNBC.  May 31, 2012.

Thomas, Jerry.  "Promise, Problems in Going Off Welfare: Mother of 2, Proves It's Worth the Work."
Chicago Tribune. August 4, 1996.

United States Department of Labor web site.  "Wage and Hour Division."  Visited on March 10, 2013.

United States Department of Labor web site. "Wages: Minimum Wage".  Visited on March 10, 2013.

Waldron, Travis.  "Study: CEO Pay Increased 127 Times Faster Than Worker Pay Over Last 30 Years."  Think Progress (nonpartisan liberal blog of the Center for American Progress Action Fund). May 3, 2012.

Weissmannm, Jordan.  "The Real Problem With Welfare: It Stopped Helping the Poor"  The Atlantic. August 8, 2012.

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