The U.S. Government Programs Keeping Millions Out of Poverty

Americans across the political spectrum are conditioned to believe that the government safety net, broadly called “welfare”, is woefully inefficient. While it is no doubt true that public sector solutions are inadequate in many respects –something both major political wings agree on, albeit for different reasons — as the Economic Policy Institute (EPI) reminds us, these programs are the only thing keeping tens of millions of Americans out of poverty.

More analysis from EPI:

Social Security was by far the most powerful anti-poverty program in the United States last year, keeping 25.9 million people out of poverty. Refundable tax credits, such as the Earned Income Tax Credit (EITC) and the Child Tax Credit, kept 9.8 million people out of poverty. The Supplemental Nutrition Assistance Program (SNAP), aka food stamps, kept 4.7 million people out of poverty, while other targeted programs (such as housing subsidies, unemployment insurance, and school lunch programs) made it possible for millions more to keep their heads above water.

In 2014, 48.4 million people (or 15.3 percent of the U.S. population) were in poverty, as measured by the Supplemental Poverty Measure (SPM)—a more sophisticated approach for measuring economic well-being than the official federal poverty line. However, that number would have been significantly higher were it not for programs like the ones listed above. In the absence of stronger wage growth for low and middle-income workers, these safety-net programs play an increasingly important role in helping struggling families afford their basic needs.

Note the last sentence, which I have bolded for emphasis. The ever-more contentious debate about government expenditure on welfare would be a moot point if the private sector paid workers better and/or provided benefits, thereby precluding the need to turn to state programs. Simply put, most people would not turn to the government if there was more stable and liveable employment available. Until then, these flawed, threatened, and still vital programs are all that millions of Americans have.

Sweden Experiments With Six-Hour Workday

Count on the Swedes to explore an alternative to the traditional eight-hour workday. According to the Guardian, the effort was spearheaded by retirement home, whose overworked nurses opted to shave off two hours of every workday — without a reduction in wages — in an effort to improve their efficiency.

“I used to be exhausted all the time, I would come home from work and pass out on the sofa,” says Lise-Lotte Pettersson, 41, an assistant nurse at Svartedalens care home in Gothenburg. “But not now. I am much more alert: I have much more energy for my work, and also for family life”.

The Svartedalens experiment is inspiring others around Sweden: at Gothenburg’s Sahlgrenska University hospital, orthopaedic surgery has moved to a six-hour day, as have doctors and nurses in two hospital departments in Umeå to the north. And the trend is not confined to the public sector: small businesses claim that a shorter day can increase productivity while reducing staff turnover.

At Svartedalens, the trial is viewed as a success, even if, with an extra 14 members of staff hired to cope with the shorter hours and new shift patterns, it is costing the council money. Ann-Charlotte Dahlbom Larsson, head of elderly care at the home, says staff wellbeing is better and the standard of care is even higher.

Indeed, it is quite anomalous that people continue to work increasingly harder and longer despite the vast gains in productivity. Technological and administrative innovation has allowed people to do a lot more in an hour than ever before, so why should workers continue to strain themselves, often for meager compensation, to undermine these gains? Why shouldn’t productivity be used to its greatest effect, by allowing people to balance work and leisure to society’s benefit?  Continue reading

Poor People and Fast Food

Among the many ways that poor people are shamed and ostracized in American society is the pervasive myth that they are recklessly indulgent consumers of fast food. But as The Atlantic reports, bad eating habits, and subsequently high rates of obesity, are hardly the purview of low income people.

Back in 2011, a national study by a team at UC Davis concluded that as American salaries grow into the upper echelons of middle income, so does fast-food intake. “Low prices, convenience and free toys target the middle class— especially budget-conscious, hurried parents— very well,” wrote professor J. Paul Leigh, the senior author of the study. He adds that fast food is most popular among the people who are less likely to be obese.

But could that possibly be true? According to a 2013 Gallup study, the fries don’t lie:

“[F]ast food is hardly the province solely of those with lower incomes; in fact, wealthier Americans—those earning $75,000 a year or more—are more likely to eat it at least weekly (51%) than are lower-income groups. Those earning the least actually are the least likely to eat fast food weekly—39% of Americans earning less than $20,000 a year do so.”

Now a new study, this time by the Centers for Disease Control and Prevention, weighs in on the matter. While the national survey did show that on a given day, roughly one-third of American children will eat fast food, the breakdown among income levels is pretty even.

Another article in The Washington Post by Roberto Ferdman points out that it is “the poorest kids that tend to get the smallest share of their daily energy intake from Big Macs, Whoppers, Chicken McNuggets, and french fries”. Indeed, well-meaning yet flawed attempts to ban fast-food venues in areas with high rates of obesity and poverty alike have done little to curb the issue — indeed, in the case of South Los Angeles, it sped up the problem.  Continue reading

U.S. Workers Need — and Deserve — a Raise

From the New York Times:

Flat or falling pay is self-reinforcing because it dampens demand and, by extension, economic growth. In the current recovery, median wages have fallen by 3 percent, after adjusting for inflation, while annual economic growth has peaked at around 2.5 percent. At that pace, growth isn’t able to fully repair the damage from the recession that preceded the recovery. The result is a continuation of the pre-recession dynamic where income flows to the top of the economic ladder, while languishing for everyone else …

… In a healthy economy with upward mobility and a thriving middle class, hourly compensation (wages plus benefits) rises in line with labor productivity. But for the vast majority of workers, pay increases have lagged behind productivity in recent decades. Since the early 1970s, median pay has risen by only 8.7 percent, after adjusting for inflation, while productivity has grown by 72 percent. Since 2000, the gap has become even bigger, with pay up only 1.8 percent, despite productivity growth of 22 percent.

Why has worker pay withered? The answer, in large part, is that rising productivity has increasingly boosted corporate profits, executive compensation and shareholder returns rather than worker pay. Chief executives, for example, now make about 300 times more than typical workers, compared with 30 times more in 1980, according to the Economic Policy Institute. Other research shows far greater discrepancies at some companies.

In most companies, there is plenty of money to go around, thanks in no small part to the contributions of hardworking Americans. Isn’t it about time they get their money’s worth? Shouldn’t they, too, get a cut of the profits they helped produce? Or at least a better and more stable working environment?

Mural of the Mexican Independence, by Juan O’Gorman. Courtesy of

Mexico — Rising Global Power?

In honor of Mexican Independence Day, a hard-fought achievement that absolutely did not happen on Cinco de Mayo, I present some facts to counter the country’s warped and narrow image in the United States (most resoundingly apparent in the cycle of hysteria around illegal immigration).

For starters, overall immigration from south of the border has, as of 2013, declined by 80 percent since 2007, the lowest at any point since 1991. Not only does the number of Mexicans returning home outnumber those leaving the country, but more Americans have left for Mexico than the other way around, an underreported trend that has surged since 2005. (Subsequently, our southern neighbor hosts over one million U.S. citizens, the most of any country in the world.)

Moreover, this trend is likely to be permanent, since Mexico is actually doing far better than most people realize, despite its many pressing social and political problems. Following the recession, the Mexican economy has grown twice as fast as America’s, and was among the fastest growing in the world in some years (albeit from a much lower base). Depending on the metric used, Mexico has the 11th to 15th largest economy in the world, and is predicted by groups like Goldman Sachs and the World Bank to become the fifth to seventh largest economy by 2050 – around the level that France, Germany, and the U.K. are at today.

A few analysts have gone even further by suggesting that Mexico could become an influential global power in its own right. This is not as far fetched as it may initially sound: in many areas, such as infrastructure and business climate, the country is at least comparable, if superior, to Brazil, China, India, Russia, and other identified emerging powers; it has even earned coveted classification as one of several economic powerhouses to look out for — see the MINT group or the Next Eleven.

These accolades are well deserved. Since the mid-1990s, the majority of Mexicans have joined a rapidly growing middle-class, warranting the county’s official classification as a newly industrialized nation (NIC), a distinction only a handful of developing countries have achieved. Mexico’s average life expectancy and poverty rate is comparable to the U.S. (thanks in part to its universal healthcare system), while one-third of Mexican states have a violent crime rate equal to or even less than that of many U.S. states.

To be sure, Mexico is still enduring many problems, namely one of the worst rates of violence and income inequality in the world. Its political system, while free and robust by developing-world standards, is nonetheless rife with corruption and venality. Many intractable challenges face the country, but it is not the dystopia that popular culture and news media make it out to be, and it certainly has a lot of potential.

So Mexicans have a lot to be proud of this independence day. Despite the grim present circumstances, their long and rich history demonstrates a seemingly boundless capacity for perseverance, resourcefulness, and hope. Here is hoping that our good neighbor to the south continues steadily along the path to progress.

Photo courtesy of and

Economic Snapshot: Why the Average American Worker Should By Making $3,770 More

From the Economic Policy Institute (EPI) comes the ever-important reminder of how the U.S. economy, for all its size and relatively robust growth, has failed to benefit the average worker.

Between 2000 and the second quarter of 2015, the share of income generated by corporations that went to workers’ wages (instead of going to capital incomes like profits) declined from 82.3 percent to 75.5 percent, as the figure shows. This 6.8 percentage-point decline in labor’s share of corporate income might not seem like a lot, but if labor’s share had not fallen this much, employees in the corporate sector would have $535 billion more in their paychecks today. If this amount was spread over the entire labor force (not just corporate sector employees) this would translate into a $3,770 raise for each worker.

Here is a visual of the data, which shows just how wide the gap is by historical standards. Continue reading

How Visible Inequality Erodes Communities

Poverty and inequality are bad enough on their own, but a recent Yale study published in Nature suggests that the mere visibility of income disparity can be socially and psychologically disruptive. As The Atlantic reported:

“Making wealth visible was a very corrosive force. It resulted in the rich exploiting the poor”, said Nicholas A. Christakis, the co-director of Yale Institute for Network Science and one of the senior authors of the study. When wealthy people find out that their neighbors don’t have the resources they do, researchers find, they’re less likely to help them, or anyone else …

… Researchers found that when rich subjects knew that their neighbors were less wealthy than they were, they became less likely to cooperate with them. The poor, however, chose to keep cooperating. This leads to what researchers call an exploitation scenario, in which the poor keep lowering their own wealth to invest in their local network, “making them worse off relative to their neighbors and allowing the rich to get richer”, the researchers write.

When rich subjects don’t know the wealth of their neighbors, though, they are more likely to cooperate than are poorer subjects. This leads to what researchers call a “fairness” scenario, in which the rich invest their wealth into a local network, which then grows richer as a whole.

Overall, visible poverty reduces overall cooperation, interconnectedness, and wealth. But inequality itself has “relatively little” impact on cooperation or interconnectedness. “Most people thinking about inequality today may be confusing two distinct phenomenon”, Christakis told me.

This might explain why famously egalitarian societies like Sweden and Japan tend to report higher than normal levels of social cohesion: not only is income broadly distributed, but any disparity that exists is plastered over through public policy and communitarian values. Broad access to education, healthcare, and quality housing means that the material markers of poverty are absent. There are also cultural taboos against the ostentatious displays of wealth and conspicuous consumption that are common in the U.S. and elsewhere. No doubt these factors make cooperation and social trust a lot easier, as people do not feel worlds apart despite what their actual incomes and lifestyles might be. Continue reading

Lessons from Benjamin Franklin on Business Success

Ultimately, for Benjamin Franklin, the question of how to succeed in business could not be divorced from how to succeed in life and, therefore, the ends to which one should live. To live like a king seemed distinctly un-American. To live for no one else seemed unimaginable. If Americans view things differently today, perhaps that says less about how we succeed in business than what we believe it means to lead a life well lived.

—  John Paul Rollert, “How America Lost Track of Ben Franklin’s Definition of Success”, The Atlantic

Labor Day 2015 By the Numbers

As millions of workers enjoyed a well needed day off this past Labor Day, the Economics Policy Institute (EPI) reminds us that about one out of four private sector workers (24 percent to be exact) will not be enjoying pay time off; a similar number (23 percent) get no paid vacation time at all.

While this overall lack of paid holidays and vacation time is quite telling (especially compared to our international peers, who more or less universally mandate paid time off), access to paid time off varies dramatically between workers by their pay. As the chart below shows, only 34 percent of private-sector workers at the bottom of the wage distribution receive paid holidays and only 39 percent receive paid vacation. Among the top 10 percent of workers, meanwhile, 93 percent receive both paid holidays and paid vacation.

The following chart shows just how dramatic this inequity is.

Lack of leisure time is not the only thing beleaguering America’s working class. Another EPI study, published right on time for Labor Day, gives a rundown of how 2015 is looking for laborers. Unsurprisingly, the diagnosis remains grim.

  • Unemployment rates remain too high overall, and far too high for African Americans, Hispanics, and young graduates.
  • Wages have continued their 35-year trend of broad-based stagnation.
  • The buying power of the minimum wage continues to erode each year that policymakers refuse to raise it.
  • Declining collective bargaining is harming workers’ wage prospects.
  • Far too many workers have to contend with unpredictable schedules and no paid leave.

Here are a few more highlights from the EPI paper, which I highly recommend you read in its entirety.  Continue reading

The Divergence Between Productivity and Average Pay

The Economic Policy Institute (EPI), which has been at the forefront of studying the recent trends of inequality and economic stagnation, has dedicated another paper to assessing why and how wages have stagnated despite rising productivity — and what can be done about it. (You can download the PDF version here)

A careful analysis of this gap between pay and productivity provides several important insights for the ongoing debate about how to address wage stagnation and rising inequality. First, wages did not stagnate for the vast majority because growth in productivity (or income and wealth creation) collapsed. Yes, the policy shifts that led to rising inequality were also associated with a slowdown in productivity growth, but even with this slowdown, productivity still managed to rise substantially in recent decades. But essentially none of this productivity growth flowed into the paychecks of typical American workers. Second, pay failed to track productivity primarily due to two key dynamics representing rising inequality: the rising inequality of compensation (more wage and salary income accumulating at the very top of the pay scale) and the shift in the share of overall national income going to owners of capital and away from the pay of employees. Third, although boosting productivity growth is an important long-run goal, this will not lead to broad-based wage gains unless we pursue policies that reconnect productivity growth and the pay of the vast majority.

The report is a long read (albeit worth the time if you can spare it), but it provides a helpful rundown of the key findings.

  • For decades following the end of World War II, inflation-adjusted hourly compensation (including employer-provided benefits as well as wages) for the vast majority of American workers rose in line with increases in economy-wide productivity. Thus hourly pay became the primary mechanism that transmitted economy-wide productivity growth into broad-based increases in living standards.
  • Since 1973, hourly compensation of the vast majority of American workers has not risen in line with economy-wide productivity. In fact, hourly compensation has almost stopped rising at all. Net productivity grew 72.2 percent between 1973 and 2014. Yet inflation-adjusted hourly compensation of the median worker rose just 8.7 percent, or 0.20 percent annually, over this same period, with essentially all of the growth occurring between 1995 and 2002. Another measure of the pay of the typical worker, real hourly compensation of production, nonsupervisory workers, who make up 80 percent of the workforce, also shows pay stagnation for most of the period since 1973, rising 9.2 percent between 1973 and 2014. Again, the lion’s share of this growth occurred between 1995 and 2002.
  • Net productivity grew 1.33 percent each year between 1973 and 2014, faster than the meager 0.20 percent annual rise in median hourly compensation. In essence, about 15 percent of productivity growth between 1973 and 2014 translated into higher hourly wages and benefits for the typical American worker. Since 2000, the gap between productivity and pay has risen even faster. The net productivity growth of 21.6 percent from 2000 to 2014 translated into just a 1.8 percent rise in inflation-adjusted compensation for the median worker (just 8 percent of net productivity growth).
  • Since 2000, more than 80 percent of the divergence between a typical (median) worker’s pay growth and overall net productivity growth has been driven by rising inequality (specifically, greater inequality of compensation and a falling share of income going to workers relative to capital owners). Over the entire 1973–2014 period, rising inequality explains over two-thirds of the productivity–pay divergence.
  • If the hourly pay of typical American workers had kept pace with productivity growth since the 1970s, then there would have been no rise in income inequality during that period. Instead, productivity growth that did not accrue to typical workers’ pay concentrated at the very top of the pay scale (in inflated CEO pay, for example) and boosted incomes accruing to owners of capital.
  • These trends indicate that while rising productivity in recent decades provided thepotential for a substantial growth in the pay for the vast majority of workers, this potential was squandered due to rising inequality putting a wedge between potential and actual pay growth for these workers.
  • Policies to spur widespread wage growth, therefore, must not only encourage productivity growth (via full employment, education, innovation, and public investment) but also restore the link between growing productivity and the typical worker’s pay.
  • Finally, the economic evidence indicates that the rising gap between productivity and pay for the vast majority likely has nothing to do with any stagnation in the typical worker’s individual productivity. For example, even the lowest-paid American workers have made considerable gains in educational attainment and experience in recent decades, which should have raised their productivity.

The visualization of this data certainly speaks for itself.

Moreover, the study actually warns that its methodology may actually understate the extent of divergence between owners, executives, and shareholders on the one hand, and laborers of all sorts on the other. As I am pressed for time, and the caveats are too long to produce here, I invite you to read the paper in its entirety for yourself.

Ultimately, I shared this as a starting point for a very simple question (one I know I have rehashed here many times before): why does not the same logic used to justify CEO bonuses (and for that matter shareholder dividends) apply to average workers? Why is it not standard practice that every worker gets a cut of the profits they also helped contribute to? It could be divyded out proportionally each quarter.

If such pay allegedly motivates executives to perform better, or helps to attract the best and brightest — neither of which has been true in many cases — why would it not have the same effect on workers? Are we to believe that executives need millions of dollars to incentivize the hard work expected of everyone else without such perks? (The fact they have more responsibility is irrelevant, since incentives would be proportional.)

What are your thoughts and reactions?

Source: EPI