In The Real Cause of Our Economic Crisis - Poor Jobs I argued that pundits who are trying to sort out how to deal with our financial crisis are overlooking a factor that is so obvious it ought to be at the top of the list. And yet it appears to be on no one's list. That factor is the poverty wages that are paid to so many US workers.
crossposted from unbossed
For example, pundits talk as if there were some absolute price for houses and that houses have been overpriced. True, there has been a steep run up in housing prices. True, at least some people were irrationally exuberant, assuming that house prices could not go down.
But, that said, ultimately and in all the ways that matter, houses are overpriced only in comparison to the ability of buyers to pay their mortgages. When people are paid more they can afford to pay more for houses and other basic needs.
A couple new reports on poverty and inequality are worth pondering.
First, International Labor Organization, International Institute of Labor Studies (IILS), Income Inequalities in the Age of Financial Globalization (2008).
Among the findings in this report are those that show the US with huge and increasing inequality.
Advanced Economies: only Denmark, France, Germany and Switzerland recorded declines in income inequality, while the largest increases occurred in Belgium, Finland and Sweden. Generally, levels of income inequality remained low compared to
other regions, although in the Republic of Korea, the United Kingdom and the United
States, which have the highest levels in the region, they are almost as high as the highest
levels in other regions.
That inequality is captured in an increasing wage gap between high- and low-wage earners
The wage gap between the highest 10 per cent and lowest 10 per cent earners has also tended to increase. An examination of existing data for OECD countries and microdata for Brazil, China and India reveals that inequality has risen in 18 of the 27 countries since the early 1990s for which data are available.The highest wage dispersion occurred in Brazil, China, India and the United States and the lowest in Belgium and the Nordic countries.
Over the past two decades, large increases have occurred in Hungary, Poland, Portugal
and the United States, where the ratio is now near or above 4, but also, interestingly, in developing countries and in countries that have low inequalities overall such as the Nordic countries. Such a development in these countries, where low inequality is seen as a major element of social cohesion, provides an illustration of the trend toward increasing inequalities.
The people who are struggling to pay mortgages on their dream houses are regularly condemned for having housing dreams beyond reason.
But can we blame people who have less and less but who are bombarded with the national consensus that more is good. Is it any wonder they their wants would stoked by laudatory reports on executive excess and an obsessive news focus on acquisition and greed as positive goods?
And we seem to forget that there was some chicanery going on that rooked many people into making these very bad deals. The mechanics of those deals are explained on a "This American Life" episode:
A special program about the housing crisis produced in a special collaboration with NPR News. We explain it all to you. What does the housing crisis have to do with the turmoil on Wall Street? Why did banks make half-million dollar loans to people without jobs or income? And why is everyone talking so much about the 1930s? It all comes back to the Giant Pool of Money.
And while we are condemning the working poor, shouldn't we consider that CEOs, businesspeople, and professionals are not the only ones how work hard for their money.
Here is the story from the Working Poor Families Project, Working Hard, Still Falling Short. The report says:
The economy is comprised of a larger share of low-paying jobs, with an increase of 4.7 million jobs paying a poverty-level wage from 2002 to 2006.
Here are their Myths & Facts About Low-income Working Families
MYTH Low-income families do not work.
FACT 72% of low-income families work.
MYTH Low-income families do not work hard.
FACT The average annual work effort for lowincome working families is 2,552 hours,
roughly one and one-quarter full-time jobs.
MYTH Low-income working families are headed by single parents.
FACT 52% of low-income working families are headed by married couples.
MYTH Low-income working families are headed by immigrants.
FACT 69% of low-income working families have only American-born parents.
MYTH Low-income working families have very young parents.
FACT 89% of low-income working families have a parent between the ages of 25 and 54.
MYTH Low-income working families are overwhelmingly minority.
FACT 43% of low-income working families have white, non-Hispanic parents.
MYTH Low-income working families are dependent on public assistance.
FACT 25% of low-income working families receive food stamp assistance.
Like it or not, the reason we have so many poor people is that they are poorly paid.
Nationally, more than one in five jobs, or 22 percent, is in an occupation paying wages that fall below the federal poverty threshold. In eight states, more than one-third of all jobs are in poverty-wage occupations.
And consider the rise in costs that the wages of the poor must meet. According to Families USA, Premiums vs Paychecks 2008:
Throughout the first eight years of the new millennium, health care costs have skyrocketed, while working families’ wages have stood still. Other factors have also threatened families’ economic well-being, including rising gasoline prices and the downturn in the housing market, but the confluence of stagnant wages and rising health care costs has become a significant strain on family budgets. Numerous national studies have documented this damage.
As important as these studies are, they do not reflect the varying burdens experienced by families in different states. Just as labor markets, health systems, and economic circumstances vary from one state to another, the impact caused by rising health care costs and stagnant earnings differs considerably among the 50 states.
In 2006, Families USA undertook the first state-by-state analysis of growing health care premiums versus stagnant earnings in the new millennium. Since then, state economies have weakened, while health insurance premiums have continued their upward trend. Health care costs are now an even greater burden on American families. These reports, which are based on data from the U.S. Census Bureau, the Department of Labor, and the Department of Health and Human Services, examine what these trends mean for working families.
We are living in a time when we can see that they myth of the market and its inerrancy has been shattered. We are living in a time when so many of us have newly learned that it is better to trust in Social Security than in a 401(k).
But have we yet reached the point where we see that we have poorly paid workers for reasons that we can change. We can raise the minium wage to something that approaches a living wage. Heck, why be so stingy. Let's pay living, family wages.
The chorus will be raised that this will destroy small businesses. Maybe and maybe not. Things are not all one way. Small businesses will gain by having more people with money in their pockets.
And consider the outrageous pay given to CEOs who have used their positions to suck money out of productive uses and into their pockets, while destroying millions of lives. They and we would be better off if we spread that wealth around instead of practicing wealth distribution only for the benefit of those who have way, way more than enough.