The Great Expense of Being Poor

Over at The Atlantic, Barbara Ehrenreich reminds us of just how burdensome poverty can be. One would think this is obvious, but far too many Americans prescribe to the notion that poverty is a product of bad behavior and character, rather than the natural outcome of bad circumstances, such as a dearth of well-paying jobs.

What I discovered is that in many ways, these [low paying] jobs are a trap: They pay so little that you cannot accumulate even a couple of hundred dollars to help you make the transition to a better-paying job. They often give you no control over your work schedule, making it impossible to arrange for child care or take a second job. And in many of these jobs, even young women soon begin to experience the physical deterioration—especially knee and back problems—that can bring a painful end to their work life.

I was also dismayed to find that in some ways, it is actually more expensive to be poor than not poor. If you can’t afford the first month’s rent and security deposit you need in order to rent an apartment, you may get stuck in an overpriced residential motel. If you don’t have a kitchen or even a refrigerator and microwave, you will find yourself falling back on convenience store food, which—in addition to its nutritional deficits—is also alarmingly overpriced. If you need a loan, as most poor people eventually do, you will end up paying an interest rate many times more than what a more affluent borrower would be charged. To be poor—especially with children to support and care for—is a perpetual high-wire act.

Most private-sector employers offer no sick days, and many will fire a person who misses a day of work, even to stay home with a sick child. A nonfunctioning car can also mean lost pay and sudden expenses. A broken headlight invites a ticket, plus a fine greater than the cost of a new headlight, and possible court costs. If a creditor decides to get nasty, a court summons may be issued, often leading to an arrest warrant. No amount of training in financial literacy can prepare someone for such exigencies—or make up for an income that is impossibly low to start with. Instead of treating low-wage mothers as the struggling heroines they are, our political culture still tends to view them as miscreants and contributors to the “cycle of poverty”.

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Global Inequality Widens Further Still

In an inauspicious start to the new year, one of the world’s most prominent charities issued a new report finding that, as of 2015, a little over sixty individuals own more wealth than 3.5 billion people — half the world’s population. According to The Guardian:

Oxfam said that the wealth of the poorest 50% dropped by 41% between 2010 and 2015, despite an increase in the global population of 400m. In the same period, the wealth of the richest 62 people increased by $500bn (£350bn) to $1.76tn.

The charity said that, in 2010, the 388 richest people owned the same wealth as the poorest 50%. This dropped to 80 in 2014 before falling again in 2015.

Mark Goldring, the Oxfam GB chief executive, said: “It is simply unacceptable that the poorest half of the world population owns no more than a small group of the global super-rich – so few, you could fit them all on a single coach”.

I concur. In a world where millions still die annually from easily treatable and preventable causes, and where hundreds of millions struggle just to get by each day, it is unfathomable that a mere busload of people could control so much wealth (and with it, power). Continue reading

100 CEOs Have Retirement Savings Greater Than 41 Percent of American Families

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Brazil’s Difficult Gamble With the Amazon

With most of the world’s largest rainforest located within its borders, Brazil is center stage in global debates and efforts regarding environmental preservation. As an in-depth and visually stimulating NPR photo essay shows Continue reading

The World’s Improving Economic Prospects

Positive news about the trajectory of the world is hard to find these days. From climate change to inequality to the rise of political authoritarianism, it seems that humanity is backsliding in just about every area of progress — what a way to kick off the 21st century and all its alleged promises.

Our World In Data is a web-based initiative that provides infographics about changing trends in a wide variety of subjects, from living standards to economics. Operating out of the Institute of New Economic Thinking at Oxford University, it is a reliable source for those wishing to document how humanity has changed over the course of decades, centuries, or millennia.

Fortunately, the data collected by OWID clearly show that for all the grim circumstances our species faces, we have broadly made vast improvements in socioeconomic prosperity, especially by historical standards. Compare GDP per capita — which serves as a rough, if imperfect, approximation of average living standards — in year one C.E. to 2008.

GDP per capita in 1 C.E. (Our World In Data / Institute of New Economic Thinking)

GDP per capita in 2008 (Our World In Data / Institute of New Economic Thinking)

You don’t have to go too far back to see how much progress there has been. Even over the last two centuries, there has been a marked and unprecedented improvement in the economic circumstances of most humans.

Our World In Data / Institute of New Economic Thinking

Moreover, while much of the world remains very poor (albeit far less so than two centuries ago), it is largely these impoverished nations that are leading the way in economic growth and development, thereby progressively lifting more of their people from poverty.

Our World In Data / Institute of New Economic Thinking

To be sure, none of this means that we should be complacent: these advancements are both tenuous and far short of what is needed to ensure a better life for all (indeed, the website concludes with this warning as well). However, it is still important to recognize how much we have achieved: incomes are growing across the world, poverty is rapidly declining, and the world’s poorest nations to continue to chalk up the highest rate of growth.

Granted, much of this progress is being felt unevenly; a lot of fast-growing countries are seeing their newfound wealth concentrated in relatively few hands, or invested inefficiently, if at all. Plenty of developed nations are lagging behind, too, with stagnating incomes and growing inequality. But all these challenges and shortcomings aside, we should be encouraged by how far we have come, and recognize the incredible potential for improvement of the human condition.

To see more data about the changes in socioeconomic development, click here. As always, please feel free to share your thoughts.

The Plight of Child Care Workers

One would think that someone who dedicates their life to serving some of the world’s most vulnerable people would be entitled to a living wage and great social respect. But as a recent ThinkProgress article highlights, those that care for the nation’s children are among the most poorly paid and economically unstable workers in the country.

According to a new analysis from the Economic Policy Institute, the median wage for child care workers is $10.31. That’s not just a small figure on its own; it’s also very low compared to what these workers could make elsewhere. Even when compared to other workers with the same gender, race, educational attainment, age, geography, and a number of other factors, EPI found that child care providers make 23 percent less. And even those figures are likely underestimating the problem, given that any provider who is self employed and working out of her own home — providers who are likely to earn even less than those in, say, centers — aren’t counted.

“Despite the crucial nature of their work, child care workers’ job quality does not seem to be valued in today’s economy,” the report notes. “They are among the country’s lowest-paid workers, and seldom receive job-based benefits such as health insurance and pensions.”

Adding insult to injury, these low wages mean that many child care workers — more than 95 percent of whom are women, and many of them parents — struggle to afford care for their own children. Barnette has experienced this conundrum herself. While she was able to get a child care subsidy for her two eldest children, her youngest son, who is now five, was put on a waiting list at three months old and only taken off last February, when he got a slot in a pre-K program. In the intervening time, Barnette had to quit her job. “I couldn’t work because I couldn’t afford the child care”, she said.

It’s a widespread problem among a workforce that cares for others’ children. Preschool teachers have to spend between 17 and 66 percent of their income to get care for their own infants; in 32 states and D.C., it eats up a third or more of their earnings.

This is despite the fact that, aside from the obvious importance of their work, the services of childcare workers are in higher demand than ever, owing to the prevalence of dual-income households where both parents must work full-time to get by (as well as the growth in single-parent households wherein the sole guardian must work a lot, too). Continue reading

What Happens When You Give Employees a $70,000 Minimum Wage

In April 2015, Gravity Payments, a credit card payment processing firm based in Seattle, did something highly unorthodox: it unliterally gave all employees, from lowly clerks to customer services representatives, a minimum annual salary of $70,000 — well above the median rate of the average American worker.

Phased in over a period of three years, the plan will effectively double the salaries of 30 workers and give raises to 40 more making less than $70,000. All minimum salaries jumped to $50,000 right away, with $10,000 for each of the next two years. Anyone already earning $50,000 to $70,000 would still enjoy a nice raise of $5,000.

Moreover, CEO and founder Dan Price would accomplish this not by laying off staff, raising prices, or cutting the pay of certain highly paid workers; rather, he would make up the difference by slashing his own $1 million salary to $70,000 and investing 75 to 80 percent of the company’s anticipated $2.2 million for the year.

While plenty of companies could well afford to pay their workers well by going this route — allocating less profit and payroll to executives and shareholders — few would ever entertain the idea, let alone go through with it. Hence all the media attention that this exceptional pay raise warranted.

Unsurprisingly, this shockingly generous move was met with a lot of skepticism, both towards the motive (was it a publicity stunt?) and the practicality (could a company survive with so much profit going to workers)? Doubters and critics seemed quickly validated once the the firm became inundated by a series of misfortunes that related to the decision.  Continue reading

The Deteriorating American Middle Class

Citing a recent report from the U.S. Social Security Administration, Michael Snyder at Washington’s Blog finds a host of grim statistics that confirm what most Americans already know: that the financial stability and comfort of middle class life is increasingly elusive.

-38 percent of all American workers made less than $20,000 last year.

-51 percent of all American workers made less than $30,000 last year.

-62 percent of all American workers made less than $40,000 last year.

-71 percent of all American workers made less than $50,000 last year.

That first number is truly staggering.  The federal poverty level for a family of five is $28,410, and yet almost 40 percent of all American workers do not even bring in $20,000 a year.

If you worked a full-time job at $10 an hour all year long with two weeks off, you would make approximately $20,000. This should tell you something about the quality of the jobs that our economy is producing at this point.

Granted, given how much cost of living varies by city or state, a seemingly low salary might afford a middle class existence depending on where one lives (e.g., $50,000 is a lot more money in a place like Little Rock, Arkansas than New York City, New York). Even so, there is no justification for so many workers, across a variety of industries, professions, and areas, making so little — especially with productivity and profits alike continuing to rise. When will the average American get their fair share?

Consumers Push Back Against Exorbitant CEO Pay

As inequality becomes one of the prevailing concerns of the 21st century, an increasing number of Americans are pushing back, both through civic engagement and conscientious consumption.

In a series of experiments, Bhavya Mohan, Michael Norton, and Rohit Deshpandé showed that Americans are deeply concerned about CEO compensation — enough that they will pay up to 50 percent more on average to avoid businesses with egregious CEO pay gaps.

“We do really see that people have a stronger preference for products from companies that pay fair wages”, says Norton, a professor at Harvard Business School. As the researchers dug deeper, they found that this holds particularly true for Democrats and independents — while Republicans didn’t seem to care at all.

In one set of surveys, the researchers showed people pictures of towels from a national retailer where the median worker earned $22,400 a year. They told half the people that the CEO made $24 million. They told the other half that the CEO made $112,000.

These were carefully chosen ratios, Norton says. Wal-Mart’s CEO pay ratio is believed to be about 1000-to-1, while most Americans believe the ideal CEO pay ratio is around 7:1.

The subjects were asked to what they would be willing to pay for the towels. People who thought the CEO was making $112,000 quoted a price that was 15 percent higher on average than people who thought the CEO was making $24 million.

In another, starker experiment, the researchers asked only if subjects would be willing to buy the towels given a certain price. People were split up into five groups, each shown different combinations of prices and pay ratios. They responded on a 7-point scale (1: Not at all likely, 7: Very likely).

Those who thought they were buying from a company with a high pay ratio were particularly unwilling to buy the towels, even at a discount. The researchers found that a company with a 1000-to-1 CEO pay ratio would have to slash its prices in half to keep up with a company that had a 5-to-1 CEO pay ratio.

These efforts will be all the easier following recent regulatory changes that will force public companies, by 2017, to report the ratio of CEO pay to that of the average employee. This is an important development given that most Americans still think CEOs at large corporations are paid 30 times as much as their average worker — when it is actually almost 300 times more.  Continue reading

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.