Increasing Wages is an Effective Poverty Reduction Tool

Broad-based wage growth—if we can figure out how to achieve it—would dwarf the impact of nearly every other economic trend or policy in reducing poverty. Even in 2010, the bottom fifth of working age American households relied on wages for the majority (56%) of their income. When you add in all work-based income including wage-based tax credits, nearly 70% of income for low-income Americans is work-related. Yes, the targeted efforts to strengthen the safety net are well deserved. Programs such as food stamps (SNAP), unemployment insurance, and Social Security have helped reduce poverty over the last four decades.  But market based poverty (or poverty measured using only income from wages) has been on the rise and the safety net has to work even harder to counterbalance the growing inequalities of the labor market.

There was once a strong statistical link between economic growth and poverty reduction, but rising inequality has severed it, and the results are deeply dispiriting. If the statistical link between economic growth and falling poverty that held before the mid-1970s had not been broken by rising inequality, then poverty, as the government measures it, would be virtually eradicated today. Furthermore, the impact of rising inequality is nearly five times more important in explaining poverty trends than family structure.

As the Economic Policy Institute has documented in our paper launching the Raise America’s Pay project, this rise in inequality is simply the flip side of nearly stagnant hourly wage growth for the vast majority of the American workforce in the three decades before the Great Recession. So how to reverse this wage-stagnation, especially for low-wage workers? Below is a list of proposals, all linked in their attempt to rebuild institutions that provide bargaining power to workers who have had it taken from them in recent decades.

The minimum wage is currently more than 25% below its real value in the late 1960s. The Congressional Budget Office (CBO) reports that the Harkin-Miller bill to raise the minimum wage to $10.10 would cumulatively boost incomes of people below the federal poverty line by $5 billion. And this is probably too conservative; other academic research finds that the same bill would lift more than 4 million people out of poverty. Among those who would see a raise from the Harkin-Miller bill, 55% are women and 25% are women of color. Nearly one-in-five kids would see at least one parent get a raise.

We need to enforce the labor standards we have, update the ones that need it, and put power back in the hands of workers to bargain for better working conditions for themselves and their families.

Another key policy priority should be efforts to level the playing field for workers to organize and form unions. The decline in unionization over the last several decades has led to increases in wage inequality and a loss of bargaining power for workers. And this bargaining power loss is not confined to union members themselves—unions often set wage-standards for entire sectors. Importantly, the decline in unionization is not a natural, inevitable phenomenon or a result of workers no longer wanting unions. It is the result of a policy decision to allow growing employer aggressiveness to tilt the playing field against organizing drives.

This policy choice is clear when one looks at the evidence. First, unionization has held up much better in the public sector where employers have less ability to fight organizing drives. Second, in 2007, the share of non-union workers who said they wanted to be represented by a union or similar organization reached an all-time high at over 50%.   There is a growing wedge between the desire to organize and bargain collectively and workers’ ability to do so. And, third, even the most obvious form of employer aggressiveness—the firing of workers who are trying to organize—has risen sharply in recent decades, according to the National Labor Relations Board.

The fact is that the decline of unions can explain approximately one-third of the growth of wage inequality among men and approximately one-fifth among women since the 1970s. This rising wage inequality is the key driver behind stagnant wages for workers at the bottom. When low-wage workers have been able to organize, unionization is  associated with higher wages and benefits for many, including: food preparation workers, cashiers, cafeteria workers, child-care workers, cooks, housekeepers, and home-care aides.

Reducing wage theft is also particularly important to low-wage workers. Wage theft occurs when employers withhold wages that are owed to a worker, for example by requiring workers to work off the clock or refusing to pay overtime. There is widespread evidence of these practices and more—from tipped workers not being paid their wages to Apple store employees being forced to stand in line after their shift while their bags are checked for merchandise. In nearly 9,000 investigations of the restaurant industry, the wage and hour division of the Department of Labor found that 83.8% of the shops investigated had wage and hour violations —underscoring the enforcement problems.

Millions of low- and moderate-wage workers have also seen slow wage growth because they are working overtime and not getting paid for it. This is because the real value of the salary threshold under which all salaried workers, regardless of their work duties, are covered by overtime provisions has been allowed to erode dramatically. Simply adjusting the threshold for inflation since 1975 would raise it to $984 per week (or $51,000 on an annual basis), from its current level of $455 ($24,000 annually). This simple adjustment would guarantee millions of additional workers time-and-a-half pay when they work more than 40 hours in a week.

Other labor market policies and practices, which, if changed, would increase the wages of low- and moderate-wage workers, include: the misclassification of employees, such as construction workers who are deemed independent contractors so that the employer doesn’t have to pay for workers’ compensation. Just-in-time scheduling occurs when employers schedule workers erratically and sporadically, and denies workers any regularity in their schedule or pay. Think about how difficult that is for working parents who need to support their families and also find child care, or for workers who need a second job to make ends meet. Finally, paid sick time, paid family medical leave, and flexible work hours, all would support workers and their families.

The social safety net remains crucial for low-income working families in this country and also needs reforms. Everything from shoring up SNAP to extending EITC to childless adults to expanding Medicaid to people in those states which refuse federal dollars. We also should have universal pre-K and affordable and high quality child care—we need to use every tool in our toolbox to give kids a chance of success, reducing inequality at the starting gate of kindergarten.

But, if we really care about children in our country, then we also need to raise the wages of parents working hard every day to lift their families out of poverty.  We need to enforce the labor standards we have, update the ones that need it, and put power back in the hands of workers to bargain for better working conditions for themselves and their families.




Safety Net

Ending Child Poverty in the US: Financially Prudent, Morally Just

More than one in five children in the US lives in poverty: that’s 790,000 children in New York, 429,000 in Chicago, and 125,000 in Washington, D.C. In all, there are 16 million poor children. Child poverty is also rising, up six percentage points since the turn of the century.

Those numbers make it seem like a pretty intractable problem. After all, it’s literally millions of our children—living without adequate shelter, without healthy food, without adequate opportunities to play and learn and grow. If we’ve let things get this bad then surely child poverty must be nearly impossible to solve.

But the fact is it isn’t difficult to end child poverty, or at least to dramatically reduce it. As Austin Nichols, an economist at the Urban Institute, wrote last year:

If the United States offered cash benefits to children in poor families, we could cut child poverty by more than half. According to calculations using the 2012 Current Population Survey, poor children need $4,800 per year each, on average, to escape poverty. That’s $400 a month for each child.

If we issued a $400 monthly payment to each child, and cut tax subsidies for children in higher-income families, we would cut child poverty from 22 percent to below 10 percent. If we further guaranteed one worker per family a job paying $15,000 a year, and each family participated, child poverty would drop to under 1 percent.

A child benefit is now common across developed countries, with amounts of about $140 a month in the UK, $190 in Ireland, $130 in Japan, $160 in Sweden, and $250 in Germany.  A smaller child benefit of $150 per month would chop child poverty from 22 percent to below 17 percent. Adding the job guarantee would lower child poverty to 8 percent.

So the fact is we could end child poverty, but we’d have to give poor families money to spend on their children—and there’s a lot of evidence that simply giving poor people money works. But it would be expensive, and in these economic times surely we can’t afford it, right?

That’s actually not so clear. It would be expensive in the short run—about $76 billion annually—to spend $4,800 a year on every poor kid. But what if it’s really expensive in the long run not to?

Empirical evidence suggests that the economic costs of child poverty each year in the U.S. are about $550 billion, or 3.8 percent of GDP.

Rigorous evidence is also mounting that being born into poverty makes it much likelier that a newborn will have a range of physical ailments, and that she’ll spend significant time in poverty during her childhood. That same body of evidence shows how much likelier it is that children who spend significant time in poverty will be poor as adults. And that effect compounds: the more time in child poverty, the worse the outcomes when the child reaches adulthood—including outcomes for health, education, economics, and criminal justice.

In other words we know—when a baby is born—if she’s likely to be poor as a child and therefore poor as an adult. And we know that if she’s poorer as an adult, she will have worse educational outcomes and less productivity in the job market. Her kids will likelier be poor and unhealthy, and the family as a whole will rely more on the social safety net.

Put that all together and it gets awfully expensive fast—up to $550 billion a year, compared to $76 billion or less a year to dramatically reduce poverty.

So what if instead we spent some of that money now—up front—to help children break out of the cycle? While it’s expensive, future savings stemming from higher productivity and lower safety net spending are great. That makes it sound a lot like—wait for it—an investment! You invest money now because you expect strong returns in the future.

Dramatically reducing poverty is in fact the financially prudent thing to do, and helping 16 million American children out of poverty is the moral thing to do as well.



Media and Politics

Calling Young Artists! National Contest to Raise Awareness about Poverty

This post originally appeared at

With the swipe of a paintbrush or click of a camera, your child can make a difference in the fight to end poverty.  Not only that, they have the chance to win exciting prizes, and have their artwork showcased in a national campaign.

As part of its mission to build the political and public will to cut poverty in half in ten years, the Half in Ten Campaign is hosting our first ever nationwide art competition with the theme Our American Dream—What Will It Take To Get There?, and the June 30th submission deadline is only two weeks away. We are calling on everyone, ages 4 to 24, to unleash their creativity and engage in a national conversation with their families, teachers, and community members about poverty and what we need to do as a nation to tackle it.

We need your help to encourage your children to participate. Moms and dads across the nation play an essential role in achieving our goal to reduce poverty as we know firsthand how important it is that children have enough nutritious food on the table, that we and/or our partners have good jobs with good wages, and that our families are secure and stable. Together, we must work to build the country that we want our kids to grow up in, and Half in Ten’s art competition is the perfect opportunity to engage our children in the process.

Aside from the chance to win prizes such as an art kit, an iPad, or a trip to DC, we will feature several winning selections in our campaign materials and reports. It’s time to build a movement against poverty—to raise our voices for the millions of fellow parents and children who struggle to make ends meet. And with your help, we can harness our kids’ collective energy and imagination to push forward.

The decisions our policymakers make today have a profound impact on children. Half in Ten’s National Art Competition offers an opportunity for children to reflect on what poverty means to them and the changes they envision for their community and the country so that everyone can achieve the American Dream.

With that, it’s time to break out the art supplies and register!  Please visit our website for further guidance, details, and frequently asked questions about the competition.





If We Want to Build a Powerful Movement for Economic Justice, Our Work on Poverty Can’t Be a ‘Separate Thing’

Fifty years after President Johnson declared war on poverty, it’s time to reimagine anti-poverty work for the next fifty years. In doing so, one thing seems central: the need to build a broad-based progressive movement for economic justice and security. This movement needs to encompass not just the 15 percent living below our outmoded poverty line, but all people who struggle to make ends meet and aren’t getting the dignity, security, and compensation they deserve.

Much of our current approach to poverty dates back to the early 1960s. At that time, America was commonly viewed as an affluent society in which prosperity was widely shared. But there was growing recognition that we had a pesky poverty problem. The general sentiment back then is captured in the Economic Opportunity Act of 1964, which declared that the benefits of economic prosperity were “widely shared throughout the nation” but “poverty continues to be the lot of a substantial number of our people.” There was also a view that people living in poverty were a distinct minority, one very different from those in the middle and working classes. To cite perhaps the most influential example, Michael Harrington’s 1962 book on poverty, elites often thought of low-income people as “a different kind of people” living in an “other America.”

Given this, it seemed technically possible in the 1960s to eliminate poverty through a targeted approach that mostly relied on narrowly means-tested benefits and services along with education and training. And this approach seemed politically possible, despite its costs and narrow targeting, because it was assumed that the middle class would become increasingly prosperous and thus have little objection to expanding targeted programs until poverty was eliminated.

It could have worked. As economist Elise Gould has highlighted, if the gains from economic growth had continued to be shared with middle- and low-income people in the same way as they were in the initial decades following World War II, the official poverty rate would have fallen to somewhere near zero in the 1980s.

As a result, the real incomes of Americans in both the bottom and middle of the income distribution have barely budged since the late 1970...shared prosperity is at best a distant memory, something Baby Boomers tell the grandkids about.

Of course, that’s not what happened, in large part because of what President Reagan called the conservative “reorientation of the role of the federal government in our economy” and the consequent growth in inequality over the last several decades. As a result, the real incomes of Americans in both the bottom and middle of the income distribution have barely budged since the late 1970s, even as productivity continued to grow steadily and those at the top have seen extraordinary gains. Shared prosperity is at best a distant memory, something Baby Boomers tell the grandkids about.

Adding insult to injury, conservatives have consistently used their own version of “other America” rhetoric to cast low-income people as idle takers who are dependent on benefits paid for with middle-class tax dollars. According to this logic, poverty is mostly a matter of bad behavior abetted by means-tested programs created by a bunch of ‘60s liberals. And the extent to which our economy and social contract no longer work as they should for millions of low- and middle-income Americans is viewed as beyond the scope of a discussion of poverty.

Hence, Rep. Paul Ryan’s “inner city” comments, his immensely strange idea that his “work on poverty is a separate thing” from his slash and burn budgets, and the restricted purview of his recent report on the War on Poverty, which neglects to mention many of our most effective anti-poverty strategies, like the minimum wage, unions, and Social Security.

We live in a vastly different economy and have a very different politics than fifty years ago. This means we can’t think of poverty like Paul Ryan does, as a “separate thing” from growing inequality or the well-founded concerns that millions of middle-income Americans have about their own economic security, and that of their children. As Sr. Simone Campbell put it recently, “If we just combat poverty, we are only going to be focusing on a symptom.” To make real progress going forward, we need to build and be part of a progressive movement that modernizes the social contract—the set of public and private structures designed to promote economic security and opportunity—and makes shared prosperity a reality from the bottom up and the middle out.

The profound economic change we’ve seen also means we can’t afford to think of the anti-poverty movement as a “separate movement”—a “for-poor-people-only” movement—that focuses solely on means-tested programs, and is separate from the labor, women’s and other cross-class economic justice movements. Along these lines, Gov. Ted Strickland made an important point in a post last month:

 … sometimes missing from progressive consciousness … is an awareness of the importance of organized labor. We became as egalitarian as we did as a nation because working people gained power and influence by banding together and bargaining for better wages and benefits and safety conditions. And as economic disparities have increased over these last few decades, the influence of organized labor has decreased. So whether it’s the same paradigm or not, we’ve got to find some way for people to act collectively in their self-interest. 

Some of the best work addressing the challenge Gov. Strickland identifies has been highlighted by in recent months, including the work of Caring Across Generations, Jobs with Justice, the Fight for $15 in Seattle, Center for Community Change Action’s economic justice campaign, Witnesses to Hunger, and other local efforts to engage low-income people in advocacy as Joel Berg and others call for. But we also need more of the kind of cross-class, dues-paying citizen and membership associations that Theda Skocpol has argued are necessary to “re-democratize” politics, and to link local groups to debates in Washington, D.C.

Because this is such an essential conversation, it can’t be limited to a relative few working in think tanks, national advocacy organizations, national foundations, and privileged academic posts. So I hope that will continue to spark lively conversation about what anti-poverty advocacy and research should become over the next decade and beyond, and bring lots of new and diverse voices into this debate.





The Full Employment Route to Poverty Reduction

Efforts to alleviate poverty are often seen as being separate from the debate on overall economic policy, with the former involving a distinct set of issues that only marginally overlap with the latter. This is unfortunate, since the health of the economy, and specifically the level of unemployment, has an enormous impact on the prospects of the poor. In fact, there are few policies that are likely to have as much effect on improving the plight of the poor or near poor as a genuine commitment to full employment economic policies.

There are three separate channels through which a reduction in the unemployment rate is likely to benefit low-income people. The first is simply by increasing their probability of finding jobs. Unemployment is not evenly distributed throughout the workforce; the less-educated and disadvantaged see the sharpest rises in unemployment when the economy goes into a downturn.

In the year prior to the beginning of the recession, the unemployment rate for workers without a high school degree averaged just over 7.0 percent. Its average for 2010 was 14.8 percent, an increase of 7.8 percentage points. For workers with high school degrees the unemployment rate went from 4.3 percent to 10.3 percent, a rise of 6.0 percentage points. By contrast, the unemployment rate for college grads rose by just 2.7 percentage points, from 2.0 percent to 4.7 percent. While everyone got hit by the downturn, clearly those with less education saw the greatest increase in their risk of being unemployed.

There is a similar story about race. The unemployment rate for whites rose from 4.1 percent in the years before the downturn to 8.7 percent in 2010, a rise of 4.6 percentage points. The unemployment rate for African Americans rose from 8.2 percent to 16.0 percent in 2010, a rise of 7.8 percentage points. The unemployment rate for Hispanics went from 5.6 percent before the downturn to 12.5 percent, an increase of 6.9 percentage points.

We know that we can get more growth and lower rates of unemployment with more government spending. There is enough research on this topic that it should no longer be a debatable point.

There are various explanations as to why less educated and African American and Hispanic workers see the sharpest rise in unemployment during downturns, but there is little debate about this outcome. Also, there is no evidence of any change in this pattern as the economy has recovered, despite the claims of some analysts.

For the first five months of 2014 the unemployment rate for workers without high school degrees averaged 9.5 percent, a drop of 5.3 percentage points from 2010 levels.  The unemployment rate for college grads averaged 3.3 percent, a decline of 1.4 percentage points from recession peaks. This means the least educated workers have actually made more progress in getting back to pre-recession unemployment rates than the most educated workers. If the unemployment rate were to return to pre-recession levels for the population as a whole, it would almost certainly fall back to pre-recession levels for the less educated and minorities as well.

In addition to the unemployment channel, workers at the bottom of the income ladder are also likely to benefit from low unemployment as a result of having the opportunity to work more hours. In my book with Jared Bernstein, Getting Back to Full Employment (free download available), we show that the late 1990s boom was associated with an increase of 17 percent in the total number of hours worked for households in the bottom fifth of the income distribution. By contrast, the increase in hours worked for households in the top two income quintiles was just 1.0 percent. There are many low-income people who would like to be able to put in more hours on the job. The low unemployment of the late 1990s, which bottomed out at 4.0 percent as a year-round average in 2000, provided this opportunity.

Finally, low unemployment provides workers at the middle and bottom of the wage distribution with the bargaining power they need to get a share of the economy’s growth. Hourly wages have been largely stagnant for these workers for most of the last three decades. However, in the years from 1996-2000, workers at the middle and bottom saw substantial wage gains. According to our analysis, a sustained 1.0 percentage point drop in the unemployment rate translates to a 9.8 percent increase in the wages of a worker at the 20th percentile of the wage distribution. It would lead to a wage gain for a worker in the middle of the wage distribution of 4.2 percent. It has little effect on the wages of workers at the top of the income distribution.

For these reasons, a full employment policy is an effective way to increase the opportunities and income of people at the bottom. If full employment of the sort that we saw at the end of the 1990s could be sustained for a long period of time, it would almost certainly lead to a substantial reduction in poverty rates and a large improvement in living standards for low-income people.

When the unemployment rate was falling to thirty year lows in the late 1990s the press had accounts of suburban hotels and restaurants chartering busses to pick workers up in the inner cities and drive them to their jobs in the suburbs. There were stories of employers providing day care facilities and even making arrangements to accommodate elder care for workers caring for aging parents. Some firms actively sought out workers with disabilities. In a tight labor market, firms will make extraordinary efforts to recruit employees who at other times they would never likely hire.

Full employment is also a desirable policy because it goes directly against the “makers versus takers” line that many conservatives push. Full employment is about giving people at the bottom the opportunity to work. In this same context, not pursuing full employment is effectively a policy of not offering people an opportunity to work.

This is a crucial point. We can talk about a policy to promote full employment—by investing in infrastructure, spending on retrofitting buildings or solar paneling to reduce greenhouse gas emissions, or subsidizing pre-K education; but accepting a higher level of unemployment is also a policy decision. We know that we can get more growth and lower rates of unemployment with more government spending. There is enough research on this topic that it should no longer be a debatable point.

We can also get lower rates of unemployment by reducing the size of the trade deficit. If we can increase our exports and replace imports with domestically produced goods and services, it will increase output and lead to more jobs. If we were to eliminate the trade deficit altogether and have balanced trade, it would create almost 6 million jobs. The trade deficit is also the result of policy decisions, most importantly ones pertaining to the value of the dollar. A dollar that costs less in foreign currencies makes our goods cheaper for the rest of the world to purchase, and makes imports more expensive. We could make deals with foreign countries to raise the value of their currency against the dollar as President Reagan did with the Plaza Accord in 1985, but our trade policy has taken a different direction.

There may be reasons why people want smaller budget deficits, but pushing for deficit reduction in the current economic environment is ultimately a policy of denying people jobs. In the same vein, supporting a high dollar, and therefore a large trade deficit, is also a policy of denying people jobs. And, since higher unemployment reduces the bargaining power of workers and leads to lower wages, a high unemployment policy is a policy that provides employers with low-cost labor, exacerbating economic inequality.

In short, a full employment policy is a tremendously effective way to increase the income and opportunities available to the poor and near poor. But the high unemployment policy we currently have in place is one that redistributes income upward and denies people the jobs they need to escape poverty.