Monday Reads: We’re losing the War on Poverty

Good Morning!

I am still stirred up about wage inequality.  It just drives me nuts to watch all these people tramp into stores that pay workers wages they can’t live on with next to nothing in benefits.  I can’t imagine that having more junk is all that important that you have to buy it from owners that treat employees like expendables.  Then, these workers must rely on shrinking government programs. I don’t mind paying taxes for a safety net but having people work at jobs where employers let their benefits come from taxpayers just doesn’t seem right at all.

 You can tell what kind of  post this will be just by seeing wonky graphs that come from Paul Krugman right here at the top.  Then, there is the actual data that puts the U.S. minimum wage into perspective.

As a result of legislative inaction, inflation-adjusted minimum wages in the United States have declined in both absolute and relative terms for most of the past four decades. The high-water mark for the minimum wage was 1968, when it stood at $10.60 an hour in today’s dollars, or 55 percent of the median full-time wage. In contrast, the current federal minimum wage is $7.25 an hour, constituting 37 percent of the median full-time wage. In other words, if we want to get the minimum wage back to 55 percent of the median full-time wage, we would need to raise it to $10.78 an hour.

International comparisons also show how out of line our current policy is: the United States has the third lowest minimum wage relative to the median of all Organization for Economic Cooperation and Development countries. This erosion of the minimum wage has been an important contributor to wage inequality, especially for women. While there is some disagreement about exact magnitudes, the evidence suggests that around half of the increase in inequality in the bottom half of the wage distribution since 1979 was a result of falling real minimum wages. And unlike inequality that stems from factors like technological change, this growth in inequality was clearly avoidable. All we had to do to prevent it was index the minimum wage to the cost of living.

Of course, we don’t inflation adjust the minimum wage.  Also, there are more and more good jobs that are being restructured down so employers can get away with not paying a living wage too. Here’s an example of why so many workers in the US cannot even survive–much less get ahead–in most jobs.  This example is from the Seattle area even though the analysis can be found in The New Yorker.  The author is interested in the topic because of the activism that followed.

In 2005, Alaska Airlines fired nearly five hundred union baggage handlers in Seattle and replaced them with contractors. The old workers earned about thirteen dollars an hour; the new ones made around nine. The restructuring was a common episode in America’s recent experience of inequality. In the decade after 2000, Seattle’s median household income rose by a third, lifted by the stock-vested, Tumi-toting travellers of its tech economy. But at the bottom of the wage scale earnings flattened.

Sea-Tac, the airport serving the Seattle-Tacoma area, lies within SeaTac, a city flecked by poverty. Its population of twenty-seven thousand includes Latino, Somali, and South Asian immigrants. Earlier this year, residents, aided by outside labor organizers, put forward a ballot initiative, Proposition 1, to raise the local minimum wage for some airport and hotel workers, including baggage handlers. The reformers did not aim incrementally: they proposed fifteen dollars an hour, which would be the highest minimum wage in the country, by almost fifty per cent. A ballot initiative so audacious would normally have little chance of becoming law, but Proposition 1 polled well, and by the summer it had turned SeaTac into a carnival of electoral competition. Business groups and labor activists spent almost two million dollars on television ads, mailings, and door knocking—about three hundred dollars per eventual voter. (Alaska Airlines wrote the biggest check for the no side.) On November 5th, SeaTac-ians spoke: yes, by a margin of just seventy-seven votes, out of six thousand cast. A reversal after a recount is still possible.

In any event, SeaTac has proved that the sources of surprise in American politics since the Great Recession are not limited to Tea Party rabble-rousing. The grassroots left, which seemed scattered and demoralized after the Occupy movement fizzled, has revived itself this year—with help from union money and professional canvassers—by rallying voters around the argument that anyone who works full time ought not to be at risk of poverty

Indeed there are many states that now have state minimum wages higher than the federal minimum wage. Here’s why according to ARINDRAJIT DUBE–an economist–who I quoted above on how inflation has compromised the federal minimum wage.

These patterns show up in recent survey data as well, as over three-quarters of Americans, including a solid majority of Republicans, say they support raising the minimum wage to either $9 or $10.10an hour. It is therefore not a surprise that when they have been given a choice, voters in red and blue states alike have consistently supported, by wide margins, initiatives to raise the minimum wage. In 2004, 71 percent of Florida voters opted to raise and inflation-index the minimum wage, which today stands at $7.79 per hour. That same year, 68 percent of Nevadans voted to raise and index their minimum wage, which is now $8.25 for employees without health benefits. Since 1998, 10 states have put minimum wage increases on the ballot; voters have approved them every time.

But the popularity of minimum wages has not translated into legislative success on the federal level. Interest group pressure — especially from the restaurant lobby — has been one factor. Ironically, the very popularity of minimum wages may also have contributed to the failure to automatically index the minimum wage to inflation: Democratic legislators often prefer to increase the wage themselves since it allows them to win more political points. While 11 states currently index the minimum wage, only one, Vermont, did so legislatively; the rest were through ballot measures.

Protesters across the country are targeting employers like Walmart. Walmart is a huge example of a company where workers are so poor they rely on government safety net programs.  Workers want full time hours, benefits, and a living wage. This example is from the Detroit area.

Across the nation Friday, protesters came out in support of increasing the minimum wage and they chose Walmart stores as their target.

In Macomb County, a loud rally was held outside the retailer’s Sterling Heights location.

WWJ’s Pat Sweeting spoke with local Market Manager Bernie Dave. He says wages vary according to shift, location and competition within the market.

“It’s over minimum wage … entry-level is over minimum wage and then based on experience there are obviously different pay scales and different pay rates,” Dave said.

Protesters charge the majority of Walmart employees earn minimum wage; taking home less than $25,000 a year.

After handing-over a petition bearing hundreds of signatures, protesters continued their rally shouting “D-15.”

Ricardo Jackson of the service Employees International Union explains: “We are fighting for the rightful benefits that we deserve … Fifteen dollars an hour, and a union and we want if now … and we’re going to keep fighting till we break their backs and get what we deserve,” he said.

We have seen a lot of right wing populism in the tea party wing of the Republican Party recently. Are we about to see a left wing version now that will gain ground in the Democratic Party? The increasing call from both sides of the aisle to gut popular New Deal Programs–like Social Security–at a time when so many ordinary Americans are really hurting is creating a new dialogue on the nation’s priorities. The beltway’s priorities come from the donor class and people every where are very frustrated. Senator Elizabeth Warren has established herself as an important voice in the fight to maintain our legacy entitlement programs. We paid for them and we deserve the benefits they provide.

The left’s influence will be on display in coming weeks when a high-profile congressional committee formed after the government shutdown faces a deadline to forge a budget agreement. Under strong pressure from liberals, the panel has effectively abandoned discussion of a “grand bargain” agreement partly because it probably would involve cuts to Social Security.

“The absolute last thing we should do in 2013 — at the very moment that Social Security has become the principal lifeline for millions of our seniors — is allow the program to begin to be dismantled inch by inch,” Warren said recently on the Senate floor, announcing her support for a bill that would expand the program.

Liberals say Social Security is one example of how Democrats are likely to face sustained pressure in coming months to move in a more populist direction on a host of issues.

“The first Obama administration was focused too much on saving the banks and Wall Street,” said Sen. Tom Harkin (D-Iowa), a liberal who is retiring after four decades in Congress. “There’s going to be a big populist push on whoever’s running for office to espouse these kinds of progressive policies.”

I watch all of these things with intense interest as an economist and some one concerned about social justice. The  appalling amount of income inequality in this country is creating a situation where more and more people are being left to less and less.  However, Fear NOT!  The richest of the rich are paying money to live in luxury shanty towns so they can pretend to be poor. Yes, talk about things I wish weren’t true.  This takes real gall.

Emoya Luxury Hotel and Spa created a fake shanty town so that its wealthy clientele can pretend to slum it “within  the safe environment of a private game reserve.”

But don’t worry, even though the “Shanty Town” has intricately designed, colorful iron shacks, outdoor bathrooms, and battery operated radios, things aren’t too realistic for comfort. “This is the only Shanty Town in the world equipped with under-floor heating and wireless internet access!” its website boasts.

And it’s also listed as ideal for team building exercises or theme parties. Because nothing is more festive than pretending to pinch pennies while spending a third of the median South African monthly income in one night.

Poverty tourism, also known as “poorism,” isn’t unheard of.  There have been various “reality” tours through the slums of Mumbai and Rio de Janeiro’s favelas for years.

While the merits of visiting a real shanty town, as if it were a museum exhibit or a wildlife reserve, is certainly up for moral debate, pretending to have the experience without ever having to set eyes on people who are actually suffering is a whole different kind of tone deaf.

They still drive buses over the canal so tourists can gawk at the empty lower 9th ward and the few houses built by celebrity charity.  This kind of shock and awe tourism is just awesomely insensitive.  It’s just too bad that the least all of this could do is put money into poor neighborhoods.  That never seems to happen,

Speaking of insensitive uber rich people, remember the Romney campaign?  This story ought to have every economist who has read the empirical research on the impact of minimum wages doing a face palm.  Yes, you are so worthless that you’d never ever get an opportunity to work if it wasn’t on the cheap.

CNN contributor Kevin Madden, a former advisor and spokesperson for Mitt Romney (R), said on Sunday that Congress should not raise the minimum wage because it would deny people the “opportunity to grab that bottom rung of the economic ladder.”

During a panel segment on CNN’s State of the Union, host Candy Crowley observed that there was a “seriousness” to the recent protests at companies like Walmart and President Barack Obama’s call to raise the minimum wage.

Democratic strategist Donna Brazile pointed out that many Walmart employees were forced to rely on food stamps and other federal benefits because they were not paid a living wage.

“The idea that someone could work hard full time and still be below the poverty level or near it and needing federal assistance seems wrong to a lot of people,” Crowley noted.

“The question here is economic opportunity and how we address it,” Madden remarked. “Oftentimes when you have the federal government or others step in and they start to raise the minimum wage, what happens is you take away or reduce some people’s opportunity to grab that bottom rung of the economic ladder, to get the opportunity and skills that you need to move up that economic ladder.”

“They’re still not high paying jobs though,” Crowley pressed.

Madden argued that there needed to be “greater economic opportunity across the spectrum of the economy” instead of just focusing on raising wages for the poorest Americans.

I am not even sure I want to know what he means by ‘greater economic opportunity”.  I’m visualizing sharecropping and indentured servitude frankly.

So, you can see I spent an entire blog post on one topic.  I’m relying on you to help us cover some other areas.  This subject is just one I feel passionate about.

What’s on your reading and blogging list today?