Will the working poor be better off in the future? Probably not. But it will not be the government’s fault

In-Work Poverty in the United States

This is a must read from the IZA on the prospects for working poor. To summarize, the prospects are not good.

This paper finds that wages and productivity have “decoupled” since the 1970s. This means that wages no longer follow productivity higher. The researchers note several reasons for this trend: 1) declining unionization and collective bargaining, 2) managers focusing on short term gains by cutting wage costs, 3) growing monopsony power in some industries, 4) technological change, and 5) global competition. Unfortunately these trends are likely to get worse over time.

The best way to solve this problem is for companies to voluntarily increase wages in order to improve moral and productivity of their workforce. While the government can increase the minimum wage to help the working poor, it is more efficient and less damaging when companies make the decision on their own accord.

We’ve seen some regions increase minimum wage to help those working at the lowest end of the pay spectrum. One instance of this is Seattle – whereby the hotly debated Seattle wage study found that increasing minimum wage to $13/hour led to large job losses at the minimum wage level. On the other hand, the same study found that more jobs were created that pay over $19/hour. While I can conjure up a scenario where this situation can occur, these results indicate to me that there is likely an issue with the data and/or methodology of the study.

Other research has found evidence that the cost of higher minimum wage is offset by lower turnover of employees, increases in productivity, price increases, and higher sales revenues due to the higher wages. Now, obviously this can be easily countered with the fact that if wages and prices increase in tandem for a large block of consumers then they will ultimately be in the same place as before the wage hike. But this is a topic that requires more research and does not consider the social aspect of higher wages.

And I will leave you with one paragraph from the paper that summarizes the prospects for the working poor in the near future:

At the time of this writing, in early 2017, it is still unclear what direction
federal policy in the United States will take. Under a Democratic
administration, increases in the federal minimum wage and the EITC,
along with introduction of paid parental leave and universal preschool,
would have been on the table. With Republicans in control of the
presidency and both houses of congress, a continuation of existing
programs would appear to the best case scenario.

Categories: Uncategorized

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s