With an unemployment rate now down to 4.2% and the average wage rising 3.1% in the past year, the U.S. is finally recovering from the Great Recession which ended in June 2009. My last several posts have described an optimistic scenario for the U.S. economy going forward.
The American idea is thriving. The U.S. is the world’s most competitive large economy. Amazon, Apple, Facebook and Google are in the process of revolutionizing all aspects of life, all over the world. Productivity growth in the digital industries has grown at the annual rate of 2.7%, much faster than for physical industries. Democracy is mostly flourishing around the world.
Ecommerce is one example of a thriving industry. Fulfillment center weekly wages are 31% higher on average than for brick and mortar retail in the same area. Total ecommerce related jobs have increased much faster in the last two years than have traditional retail jobs been lost.
Income inequalitycan be addressed effectively by speeding up economic growth (with tax and regulatory reform), improving educational (especially with early childhood) opportunities and with better training programs for the unemployed and underemployed to qualify them for the millions of skilled jobs going begging for lack of qualified applicants.
One additional feature needed is “A balanced and sensible anti-poverty program,” to help many of the down and out get back on their feet.
The way to accomplish this is with:
Work requirements as a condition of public assistance. The work first approach has been shown to have better outcomes with regard to attachment to the labor force (see above chart) than even approaches which focus on training and education.
Conclusion. The U.S. economy is basically sound. We lead the world in many industries and especially in digital technology. There are lots of good jobs going begging for lack of qualified applicants. The best anti-poverty program is job training.
Work requirements as a condition of public assistance. The work first approach has been shown to have better outcomes with regard to attachment to the labor force than even approaches which focus on training and education.
Robust work supports for those who are working at low wages. The Earned Income Tax Credit accomplishes this and should be extended to childless adults.
Business growth and investment. Policies that raise the cost of doing business and deter growth do little to create what the poor need most: jobs.
Foster married, two-parent families. We need to mitigate marriage penalties in public assistance programs and we need to be honest about the consequences for children of single parenthood.
Mr. Doar points out that 10.2 million American’s are unemployed at the present time, 3.6 million have been jobless for more than 27 weeks, 7.3 million are involuntarily working part-time and 837,000 workers are so discouraged that they have stopped looking for work. Labor force participation has dropped from over 66% in 2007 to 63% today while the poverty rate has risen from 12.5% to 15%. Raising the minimum wage will not help the job prospects of most poor Americans. Only 11.3% of individuals who would benefit from raising the minimum wage are living below the poverty line. The Congressional Budget Office estimates that raising the minimum wage to $10.10 per hour would lead to 500,000 people losing their jobs. CBO also estimates that the Affordable Care Act will reduce full-time employment by 2.3 million by 2021. Given the strong anti-correlation (see the above chart) between labor participation and poverty, this means that the poverty rate may go higher yet.
The conclusion to draw from this excellent poverty synopsis (with lots of references) is that there are intelligent and effective ways to fight poverty and also much poorer ways to try to do it. Good intentions are not enough!
The Budget Committee of the House of Representatives has just issued a report “The War on Poverty: 50 Years Later”, providing an excellent summary of federal antipoverty programs and their cost at the present time (budget year 2012). Highlights are:
The federal government spent $799 billion on 92 different programs to combat poverty
Over $100 billion was spent for 15 different food aid programs
Over $200 billion was spent on cash aid
Over $90 billion spent on education and job training (over 20 programs)
Nearly $300 billion spent on healthcare
Almost $50 billion spent on housing assistance
The report also points out that many low-income households face very high effective marginal tax rates, approaching 100%, if any members are employed, because making more money means losing welfare benefits. This discourages low-income individuals from working at a time when the labor-force participation rate has fallen to a 36-year low of 62.8%. Here’s the situation: we have a rapidly growing federal budget with huge deficit spending (see above chart), a stalled economy with low labor-force participation, and an inefficient welfare system which encourages people not to work. Surely our goal should be to motivate welfare recipients to become productive citizens by returning to the workforce. So doesn’t it make sense to revamp our welfare system to be more efficient as well as to create more incentives for recipients to get and hold a job?
Apparently this does not make sense to the New York Times. Two days ago they ran an editorial “Mr. Ryan’s Small Ideas on Poverty”, castigating Paul Ryan for “providing polished intellectual cover for his party to mow down as many antipoverty programs as it can see.” The editorial goes on to say that “it’s easy to find flaws or waste in any government program, but the proper response is to fix those flaws, not throw entire programs away as Mr. Ryan and his Party have repeatedly proposed. . . . For all their glossy reports, Republicans have shown no interest in making these or any other social programs work better.”
Putting it as charitably as possible, the NYT is being unhelpful. It is a beacon of progressive thought for millions of Americans. But it is apparently unwilling to give any credence to a sincere effort by fiscal conservatives to reform a major government program to make it operate more efficiently and effectively.