In an article at Salon Joan Walsh rails against a system that consigns too many Americans to low wage jobs. What is the target of her ire? The Earned Income Tax Credit:
It would also be nice for Obama to recognize: The fact that so many Americans “work their tails off and are still living at or barely above poverty,†receiving public assistance, is not just an unhappy accident. It’s the result of public policy supported by many Democrats — and he hasn’t done much to change or challenge it. In fact, the chair of Obama’s Council of Economic Advisors has made the most spirited defense of it.
The truth is, a bipartisan consensus emerged in the 1990s, that a job, practically any job, was better than long-term public assistance for so-called “able-bodied†adults, including mothers with young children. It led to controversial 1996 welfare reform legislation that had ramifications way beyond the realm of welfare.
Republicans demanded work from welfare recipients; (most) Democrats went along, but demanded new support for low-wage workers: an expanded Earned Income Tax Credit, wider Medicaid and food stamp eligibility, new (though not nearly sufficient) child care subsidies. (As an Illinois state senator, Obama was critical, but later endorsed the deal.) The new support programs also helped millions of low-wage workers who never relied on welfare; as wages continued to stagnate and even decline, more people became eligible.
suggesting that all of these moves are forms of corporate welfare that have allowed the McDonalds and Wal-Marts to dominate the employment landscape.
What she supports is a higher minimum wage.
Unfortunately, she never connects the dots. Most of the working poor earn more than the minimum wage—it’s earned by only 3% of the population and most who earn it are not heads of household. Would the working poor be better off with a higher minimum wage and without the EITC? Would lower Medicaid or food stamp eligibility improve the lot of the working poor? Would eliminating or curtailing these policies while increasing the minimum wage improve their lot or make it that much harder?
While I agree that bad policies have lead to too many people without jobs or just barely able to scrape by on jobs that don’t pay enough, I think that Ms. Walsh needs to look farther afield for policies that have synergistically produced the world she decries. These include immigration policies that have lead to the importation of large numbers of non-skilled and semi-skilled workers, putting downwards pressure on the lowest income earners. There’s a lot that’s controversial about immigration but that isn’t.
It includes trade policies that have abolished import duties on most goods, allowing other countries to export their goods here without importing our goods in return, putting downwards pressure on employment here. It includes monetary policy that encourages the sale of interest-bearing bonds to foreign governments. Holding dollars is one thing. That’s something completely different.
To believe in a higher minimum wage is objectively either to believe that a higher minimum wage will have no effect whatever on employment or that the unemployment rate among black teenagers, already at around 35%, is too low. How’s that for a “low wage swamp”?
3% of employed Americans is 4 million people. Just above them are people who started at minimum and progressed only another 20 cents an hour, with their current wage also a function of minimum wage. Where you build the basement affects where you build the first floor.
The fact that they are not technically “heads of households” is irrelevant. They may not be heads of household because the minimum wage is so low. Poverty pushes people to ineffective behaviors. You cannot save when you cannot eat. You cannot improve your education when you cannot afford a place to live. You do not spend your time shopping for the best bargains when you can’t get to a grocery store and are reduced to buying all your food at a Circle K. You don’t take on the duties of fatherhood when you can’t buy diapers. The connective tissue of society breaks down.
Yes, you would think cutting low-end immigration would raise wages. But we’ve done just that since the recession, and wages have not gone up. If we raised the minimum wage to something Americans can live on, Americans would be able to use their native advantages – speaking English, for example – to take those jobs. It’s the lowness of the wage that causes the jobs to default to immigrants.
So, to borrow your formulation: to believe the minimum wage should remain too low to sustain life in the US, is to believe jobs should go only to people willing to work for 3rd world wages. In other words, your low wage jobs are a set-aside for the benefit of immigrants.
Raise the wage and you’d actually force out some of the immigrants since so one really prefers a drive-through cashier who has to repeat everything three times in order to be understood. At 7 bucks, sure, a Guatemalan with minimal English. At $10, hell, I’m going to upgrade to someone who speaks the language.
The real problem with raising the minimum wage is that only slave wages (subsidized by taxpayers) and inertia keep employers like McDonald’s from automating. But at that point we’re talking about a much bigger societal problem, unless we think the future of substantial portions of the human race should be to compete with robots to see who can clean a rich man’s toilet for less.
Perhaps I can clarify this by explaining what “head of household” means. Here’s the definition:
Single persons living alone don’t qualify. But single parents do. Most of those who don’t qualify as head of household are either single or claimed by someone else as a dependent.
About half of those earning minimum wage are under 25. They tend never to have been married, childless, white, and not to have graduated from high school. They tend to work only part-time.
The states with the highest percentage of people earning minimum wage are Georgia, Mississippi, and Texas. The states with the lowest percentage are Washington, California, Oregon, and Alaska.
In other words, those earning minimum wage don’t meet your model.
In terms of efficiency, the best ways for helping the poor (at the federal level) are:
1. Change policies so that more jobs are created.
2. The EITC
3. The minimum wage
I would be interested in knowing why Ms. Walsh favors increasing the minimum wage over reforming the EITC (and, especially eliminating or reducing the “cliff” that confronts the working poor). I can only guess. My guesses would be that
a) it’s the approach favored by the Democratic leadership
b) it sounds good and she hasn’t thought much about the details
c) it’s opposed by people she dislikes
Reforming the EITC to become a universal income guarantee (everybody gets it) would be a better method than raising the minimum wage, but I really don’t see either happening in such a conservative country.
Conservatism ain’t what it used to be. Bill Buckley supported that idea 40 years ago.
I am looking at a graph of the fraction of laborer’s wage income to total US income. The graph runs from 1950 to 2010 and is remarkably stable at 70%, plus or minus about two points. Its just BLS statistics, no political bent.
What does it tell you? Its not capital vs labor. I’d go into how capital’s short term benefit is competed away, but if one does not understand that already its pointless. Those who propose a minimum wage, especially with such nonsense as “rapacious executives” make three mistakes. They confuse management with ownership (capital), they assume capital will take the hit (even as the wage % indicates non-capital’s take is stable) and fail to understand how rapidly capital can and will flee vs labor, and they assume no elasticity in the price for labor. They are economically and business illiterate. Further, above and beyond the 70% wage statistic, they fail to understand that labor is also a consumer, and benefits from the efficiencies of capital investment and competitive labor markets accrue to them: see Wal-Mart. Millions of consumers get lower priced blue jeans while a relatively few laborers are displaced. Unions are just a tax for a relatively few on millions of consumers. Some have estimated that the benefits of competitive labor and capital markets approaches 90% to consumers. Is overturning that a good model?? Finally, they assume that displaced workers are done, never to find anything else. These arguments have been made forever. But do we keep buggy whip or horse shoe making laborers? Should we eliminate the car and go back to horses? How about family farms?
The issue of the composition of wage income has different dynamics. The issue of intervention in the labor market from immigrants also has different dynamics, but I’ll let my Democrat friend explain their support for that………………like votes for handouts.
As for income maintenance, I grew up watching Firing Line. Take a look at Buckley and Friedman discussing/debating the negative income tax. 1968.
http://www.youtube.com/watch?v=xtpgkX588nM
And if you prefer something different than Buckley and Friedman debating, I can always post a link to a Led Zeppelin tune. Just sayin’
Drew, I’m pretty much a permanently displaced worker. I guess I shouldn’t have bet on buggy whip manufacture. Oh, wait, I didn’t. I guess math, etc are out-moded skills in the modern workplace these days. Of course, I’m in fine company, as I know rocket scientists that are permanently displaced, too.
I guess it’s easier to have faith in the greatness of modern capitalism when one has twenty million dollars in capital. I wonder why that is?
Ice –
I just don’t want to get into it. You are obviously a smart guy. I’ve “changed” careers (not really, all the various experiences came to a crescendo in what I do now) but at all stages people told me I should take what was given and not take the chance to go for the next step. It was a bitch.
I told them to go to hell and figured out what I had to do next to get where I wanted to go. (BTW – I didn’t get into PE until age 40) I know you are geographically constrained and wouldn’t suppose to comment on those dynamics. But that is a self imposed constraint, you must admit. I went to New York. Didn’t want to, but did. Finishing school if you will.
I know you think it preachy, but I’d spend less time telling me to go to hell and more time telling your detractors to go to hell. I’m simply a glass half full guy and refuse to believe you can’t do what you desire. I’m simply constitutionally incapable of thinking that way. Think of that what you may.
OK, there you have it. I got into it……..