Category Archives: Poverty

Minimum Wage Hikes Won’t Mostly Help Kids

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One last note on minimum wage. The other line of attack against it is that it’s mostly going to benefit kids who work part time. Jared Bernstein pulls together the numbers that say it ain’t so.

From new analysis by the Economic Policy Institute of the President’s proposal:*

–84% of total affected workers are at least 20 years old.

–73% of the benefits of the increase go to those in the bottom half of the workforce by income level.

–47% of affected workers are full-timers, 83% work at least 20 hours per week.

–The average worker in the sweep brought home 46% of her household’s earnings in 2011 (from the White House fact sheet).

… But No One Is Sure Why

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As the last post showed, most of the data shows that hiking the minimum wage doesn’t kill jobs. But why? Researcher Jon Schmitt has a great little report that lays out what we know. The bottom line:

The strongest evidence suggests that the most important channels of adjustment are: reductions in labor turnover; improvements in organizational efficiency; reductions in wages of higher earners (“wage compression”); and small price increases.

This isn’t too surprising. When folks usually talk about the minimum-wage, they’ve got a simpleminded Econ 101 way of thinking about it: the cost of labor goes up, so employers hire fewer workers. But in the real world, it’s a different story.

The most likely reason for this outcome is that the cost shock of the minimum wage is small relative to most firms’ overall costs and only modest relative to the wages paid to low-wage workers. In the traditional discussion of the minimum wage, economists have focused on how these costs affect employment outcomes, but employers have many other channels of adjustment. Employers can reduce hours, non-wage benefits, or training. Employers can also shift the composition toward higher skilled workers, cut pay to more highly paid workers, take action to increase worker productivity (from reorganizing production to increasing training), increase prices to consumers, or simply accept a smaller profit margin. Workers may also respond to the higher wage by working harder on the job. But, probably the most important channel of adjustment is through reductions in labor turnover, which yield significant cost savings to employers.

What I found most interesting about his summary of the evidence is that there just isn’t a whole lot of it. Researchers haven’t dug deep to get hard data on what’s happening. An example from Schmitt:

Little direct evidence exists on operational and human resource efficiencies as a channel of adjustment. Hirsch, Kaufman, and Zelenska’s study of the impact of the federal minimum-wage increase on 81 fast-food restaurants in Georgia and Alabama, however, asked fast-food managers specifically about scope for efficiency improvements in response to the minimum-wage rise. About 90 percent of managers indicated that they planned to respond to the minimum-wage increase with increased performance standards such as “requiring a better attendance and on-time record, faster and more proficient performance of job duties, taking on additional tasks, and faster termination of poor performers.”68 Roughly the same share of managers said that they sought to “boost morale” by presenting the minimum-wage increase as a “challenge to the store” and using this as a way “to energize employees to improve productivity” Based on their interviews with store managers, Hirsch, Kaufman, and Zelenska suggest that a minimum-wage increase may function as a “catalyst or shock that forces managers to step out of the daily routine and think about where cost savings can occur.”

This example also reminds us of just how fragile the Econ 101 way of looking at the world is. In Econ 101, everyone is rational, has infinite knowledge, and is always doing everything they can to cut costs. In the real world, most managers are just trying to keep their heads above water, so raising the minimum wage may end up getting them to find new ways to reduce costs that they otherwise wouldn’t have taken the time to explore. But how much is this actually happening? We need more work to come up with real answers.

Hiking the Minimum Wage Doesn’t Kill Lots of Jobs…

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Now that President Obama has called for raising the minimum wage, you’re gonna be hearing a lot of arguments about how raising the minimum wage actually hurts the working poor because it did job killer. Here’s a helpful roundup of the data you’ll need to fight back.

If raising the minimum wage did destroy some jobs, it still might make a lot of sense to do it anyways. Think of it this way. If a new technology came out that was going to mean the elimination of some jobs but would end up increasing the pay of millions of people living in poverty, unless it destroyed lots & lots of jobs most folks would consider it a sign of progress. This is especially true for folks at the bottom of the economic ladder, many of whom have to work two or three jobs just to make enough to survive. If raising the minimum wage meant they could cut back on the number of jobs they had to hold, fewer jobs would again be a net plus. It all depends on how many jobs were destroyed.

But it turns out that we don’t have to worry about these kind of trade-offs. After a couple of decades of study, the answers are then: it may or may not make a difference in employment, but if it does most studies stay it’s a small one. Or as CEPR’s Jon Schmitt wrote in a summary of the research,

Across all of the empirical research that has investigated the issue, minimum-wage increases are consistently associated with statistically significant and economically meaningful increases in the wages of affected workers. At the same time, what is striking about the preceding review of possible channels of adjustment – including employment – is how often the weight of the empirical evidence is either inconclusive (statistically insignificant or positive in some cases and negative in others) or suggestive of only small economic effects.

One of the more recent, ingenious studies took advantage of the fact that because the minimum wage hasn’t gone up for a long time, some states have been taking action on their own.

Conservative economists, most notably David Neumark and William Wascher, have used this to compare all states against each other to show that states that raised their minimum wage often lost more jobs than states that didn’t. There’s only one teeny tiny problem with that approach. As researcher Arindrajit Dube explains, these studies assume

that we can find enough control variables to include in our regression that will make Texas look like Massachusetts. As it turns out, this is a heroic assumption that badly biases the results.…

Similarly, the growth rate in low-wage jobs has been quite different in states like Texas, North Dakota, and Indiana even thought these states have had the same binding minimum wage (i.e., the federal) over the past two decades. Unless one controls for the “unobserved” (or more accurately “not directly observed”) sources of heterogeneity in the growth prospects across areas, conclusions may be badly flawed. A telltale sign of this flaw that our studies revealed is that in the state panel model, the job losses occur substantially prior to the actual change in policy.

How to get around this problem? Dube and his compatriots took a trip from earlier research by Card and Krueger, by comparing areas that were right across a state border. Trying to uncover all of the differences between Texas and Massachusetts is pretty tricky, but if there are 2 districts on the border between 2 states where the main difference is that one of them has a higher minimum wage, odds are you can get a pretty clean comparison.

When comparing places directly across a border, many other (potentially unobservable) confounding factors are roughly similar. We implemented this strategy in numerous papers using a variety of data sets (QCEW, QWI, CPS, Census). The results were unambiguous: whatever group we considered — restaurant workers, teenagers, teenagers of disadvantaged backgrounds — the state panel approach always produced an erroneous negative estimate when it came to employment. Once we accounted for the regional heterogeneity, there was no employment loss to speak of. Other authors who have accounted for such heterogeneity largely confirm that employment effects from minimum wage increases in the US have been close to zero or even positive .

Up next: why hiking the minimum wage doesn’t kill lots of jobs.

Applied Research Center Report: Nitty-Gritty on Green Jobs in the Hood

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If you’re interested in learning more about the nuts and bolts issues behind yesterday’s post — about what it would take to create green jobs that would help folks in poor neighborhoods get out of poverty — you should check out the Applied Research Center’s report, Green Equity Toolkit: Standards and Strategies for Advancing Race, Gender, and Equity in the Green Economy. Although it was written in 2009, it’s still one of the best summaries out there.

Solving Poverty: How about We Try Good Jobs?

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On Sunday the New York Times‘s cover story was about Obama’s lack of progress in tackling one of the biggest issues that drove him into politics – solving poverty in desperately poor neighborhoods like Chicago’s Roseland, where Obama got his start as a community organizer. After doing a pretty decent job of describing life in Roseland and the president’s trajectory since, the article concludes:

What Roseland needs is not necessarily a big new infusion of federal dollars. What it needs more than anything else is an antipoverty strategy that is much more comprehensive and ambitious than what exists there today, an approach that focuses on improving outcomes for children from birth through adolescence…

Finding a new approach won’t be easy, of course. Back in Anacostia in 2007, Obama acknowledged that “changing the odds in our cities will require humility in what we can accomplish and patience with our progress.” But real change would take more than that, he said: “Most importantly, it will require the sustained commitment of the president of the United States.”

I really, really don’t understand why in 2012, in the middle of the worst economic crisis we’ve had since the Great Depression, moderate do-gooders still don’t get it. Yes, poverty is complicated. But getting folks out of poverty isn’t freaking rocket science. First and foremost, it takes lots and lots of good jobs.

How can I be so sure? Take what happened to black unemployment – not a bad proxy for what’s happening to poor folks overall – during the 1990s tech bubble.

The tight labor market of the late 1990s was very beneficial for African Americans. The black unemployment rate fell from 18% in the 1981-82 recession, to around 13% in the early 1990s, to below 7% in 1999 and 2000, the lowest black unemployment rate on record.

In a span of a few years, black unemployment was cut in half. Was it because we had suddenly cured the “pathologies” of poor neighborhoods? No. It was because as hundreds of tech companies scrambled to hire enough workers, the labor market got tighter.

What was particularly striking about this dramatic drop in black unemployment was that it happened without aggressive action. Employers in Silicon Valley incessantly wined about how hard it was to find employees – and how much they had to pay to get them and keep them. And yet there was Oakland, right across the bridge from Silicon Valley, with tons of young people without jobs. Silicon Valley was drenched in money, and yet no one was interested in investing in the dozens of community groups and community colleges who knew how to give these young people many of the skills Silicon Valley desperately needed. As a Bay Area lefty working in tech, it infuriated me. But in spite of this obscene neglect, the tight labor market was enough to lift an awful lot of folks out of poverty – at least while the bubble lasted.

So if we could cut black employmennt in half when we weren’t trying, what could we do if we were trying?

Suppose we said that for 11 years – as long as we’ve been in Afghanistan – we’re going to create plenty of good jobs targeted at folks who live in high poverty areas?

We wouldn’t want to pay for these jobs forever. In the long run, having the government directly create lots of jobs isn’t very efficient. We could approach it with the same kind of mindset the Japanese had towards their auto industry before it took off – massive government intervention will ruthlessly aimed at a very specific goal. In our case, we’d want to go in with a plan to build up for six years followed by a five-year build down and transition.

The jobs we’d temporarily create wouldn’t be makework; we’ve got lots of needs we could use them to address. The most obvious is combatting climate change: painting rooftops white, retrofitting buildings to be energy efficient, planting trees – which will also help cool down cities – installing solar panels, etc. There’s also plenty we could do to increase community resilience in the face of climate change, much of which requires a mix of low-skill and high-skill jobs. And we could create pools of startup capital for sustainable coops, using the very successful Cleveland -based Evergreen Cooperatives as an example.

And as we were doing so, we could provide job training, including wraparound services using the Pinderhughes model, provides

• Case management and follow up—Each student is managed by a mentor, who personally tracks the student’s progress through the program and follows up with the alumni for up to 12 months after graduation and placement into the first green job.
• Applied basic skills—Reading and math classes accompany specific technical training that is constructive and relevant to their chosen career path.
• Job readiness, life skills and financial literacy skills—Training in a variety of professional and personal skills is provided, helping students overcome institutional and internalized barriers associated with race and gender inequities.
• Critical thinking and curriculum in environmental and social justice—Students learn to develop their skills to find 21st century employment and understand their role in the large movement to sustain the planet and its peoples—an awareness that contributes to satisfaction with one’s profession.
• Stipends, housing vouchers, paid internships, childcare, training centers accessible by public transportation

Like Tough, I think comprehensive services are good idea. But if good jobs aren’t the driving force of our plans for tackling poverty, we don’t have much chance for success. As an Applied Research Center report points out,

. Since the 1980s, much of the federal funding for workforce development has supported training over actual job creation. For example, under the Job Training Partnership Act (JTPA), training is funded but actual jobs are not. Therefore, young and adult workers graduate from training without a job awaiting them. In addition, training programs and providers haven’t been linked to union apprenticeship programs. As a result, graduates have been unable to secure specialized skill jobs or the pathways they provide into the middle cla

Would this strategy get rid of all poverty? Maybe not. But it could make a much bigger dent than anything else we’ve tried.

At the end of his article, Tough worries:

It’s a challenge for any politician in troubled economic times: how do you persuade voters to devote tax dollars to help the truly disadvantaged when the middle class is feeling disadvantaged itself? The problem is that universal economic progress will not help those in deep poverty — or at least not enough. Places like Roseland need specific, targeted, effective help if they are ever going to change.

That, in a nutshell, is what’s wrong with the approach that people like Tough take. If targeted efforts aren’t tied to “universal economic progress,” they’re dead in the water. The only way we could build the political coalition needed to break poverty’s back is if speaks to the needs of the 99%.

But the problem we’ve had so far isn’t that we’ve adopted programs to create universal economic progress that haven’t helped the poor. The problem is that we haven’t had programs to create universal economic progress. Giving the bottom 15% more help while we’re trying to help the 99% isn’t that hard a sell (especially if you tell folks we’re not creating more welfare, we’re giving people who’re willing and able to work hard a real chance at a good job and a career). The Tough sell is agreeing we need to help the 99%.

Radical Algebra and Ella Baker-Style Organizing

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After hearing a talk by civil rights veteran Robert Moses about the possibility of transforming the DC school system using a similar style of community organizing to the one he and other SNCC members used in the Mississippi Delta, I’ve been reading a book he cowrote, Radical Equations: Civil Rights from Mississippi to the Algebra Project, about an organizing project he helped develop to change the way math is taught in inner-city schools. In the book, there’s a great quote about the difference between education researchers and Ella Baker-style community organizers:

Working in the tradition of Ella Baker, the community organizer seeking an innovative breakthrough in education will use the principle of “cast down your bucket where you are.” The organizer becomes part of the community, learning from it, becoming aware of its strengths, resources, concerns, and ways of doing business. The organizer does not have a complete answer in advance – the researcher’s detailed comprehensive plans for remedying a perceived problem. The organizer wants to construct a solution with the community. He or she understands that the community’s everyday concerns can be transformed into broader questions of general import. The form of these questions and actions that follow from them are not always known in advance. I did not know that my concern for [his daughter] Maisha’s math education would lead to the Algebra Project’s raising questions about ability grouping, effective teaching for the children of color, experiential learning, and community participation in educational decision-making. I pulled these issues up flycast at my bucket. Finally, unlike the researcher, the organizer helps community members air their opinions, question one another, and then build consensus, a process that usually takes a great amount of time to complete.

This is a long journey and not a linear progression. It is a journey with zigs and zags, a process of push and pull, if you are successful in some classrooms, that gives you an opening to approach the community. In order to get into all the classrooms, however – to all the students – we need the community’s political commitment and clout. You have to work both sides of the street at the same time. You have to learn how to move effectively in all arenas. I have thought of the Algebra Project as a young child who is trying to stand up and teetering and falling down a little, then getting back up, falling down a little, and getting back up again.… It doesn’t really matter how many times young children fall down, they keep getting up, attempting to walk. Probably part of the reason that happens is that they have a lot of people around them who are walking. (pp. 112-3)

I’m not sure how this ties back to my framework. Clearly it’s got something to do with how you think about power and shaping the economy from a Movement Perspective, but beyond that I can’t put the connection in the words. But it feels like there’s something important in what he’s saying that goes beyond community organizing, that ties back in a deep and powerful way to how we should think about the economy. So for now, I’ll just let it simmer on the back burner.

Southern Grassroots Economy Project

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Over the holiday break, I ended up watching two very interesting videos from the March founding conference of the Southern Grassroots Economy Project. According to their website:

SGEP sees its work centered in working with the communities most affected by the economic crisis—women, African Americans, immigrants, youth and poor whites. We are working on not just getting a piece of the pie but developing cooperative business and making our own pies.


The folks who attended the Southern Grassroots Economy Project were from cooperatives or cooperative networks all across the South. And as you would expect from a founding conference held in the Appalachians at the Highlander Research and Education Center, they’re trying to do so in a way that is also focused on movement building.

Given the South’s rich history of cooperatives and fighting for social justice, it’ll be interesting to see what they’re able to pull off. Stay tuned for more info in the spring, when they’re getting together again in Epes, Alabama, at the Rural Training Center of The Federation of Southern Cooperatives.

The Full Cost of the Deficit Obsession Disorder

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How much is the insane obsession with deficits costing us? Krugman explains, using the latest projection from the Congressional Budget Office, which optimistically assumes that the economy will bounce back by 2015:

the projection says that we’ll have a cumulative output gap of $5.1 trillion, with $2.8 trillion of that having already happened.

Surely it would have been worth making an extraordinary effort to avoid this outcome. In particular, an $800 billion stimulus, a significant fraction of which was stuff that would have happened anyway (like extending the patch on the alternative minimum tax) looks ludicrously underpowered. Yet policy has been timid and conventional….

The CBO also projects unemployment staying above 8 percent until late 2014 — again, with no clear explanation of why it should fall sharply in 2015. This translates into a human catastrophe for the long-term unemployed.

Our side has got to get our ass in gear.

To Leave No Poor Child behind, Follow in Britain's Footsteps

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How hard would it be to cut child poverty rates in half? Not as hard as we think, writes Nancy Folbre, if we take a page from the UK:

Britain has used standard policy tools to reduce its child-poverty rate by more than half since 1994 and has effectively defended this progress against the pressures of the Great Recession. By contrast, the child poverty rate has trended upward in the United States since 2000, and children have proved economically vulnerable to increased unemployment….

The ordinary policies in Britain that led to what many Americans would consider extraordinary results were these: an increase in the national minimum wage (currently about $9.70 an hour, compared with our $7.25), tax incentives to encourage single parents to move into paid employment, increased public benefits for parents, provision of universal preschool and regulations making it easier for parents of young children to request flexible work schedules.

Many similar, though less generous policies are already in effect in the United States, at the federal or state level.

And this isn’t unique to the UK.

Most other rich countries rate higher on indicators of child well-being than either Britain or the United States. But we have more in common with Britain than most other countries, and rightfully pay closer attention to it.

Maybe it’s time for a little more of that audacity of hope I remember someone campaigning on.

Mass Transit: Good for the Environment, Critical for Economic Justice

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Great piece in Huffington Post by William Alden about what happens when we cut mass transit:

Peggy Schulz was fed up. In March, after being unemployed for nearly two years, she performed an experiment: She went to a job-search website, limited the search to the Milwaukee area and typed in a simple term: “bus line.”

The results displayed what had long been plaguing her. Job posting after job posting featured similar caveats: “this is not on a bus line,” “need reliable transportation not on bus line,” “positions are NOT on a bus line,” “our client that is not located on a bus line is interested in having you work …”

“Here it was in black and white,” she later recalled with a bitter laugh. “It’s been very frustrating to look through the want ads, look online, think about places I could work and realize, ‘Nope, can’t get there on the bus.’”…

In Milwaukee, bus service cuts have rendered more than 40,500 jobs inaccessible to people dependent on the bus, according to a study from the University of Wisconsin Milwaukee, released in 2009.

Not only does it hurt folks at or near the bottom of the job ladder, it hurts the economy overall:

Milwaukee has reached a point at which cuts, necessitated by a weak economy, make the local economy even weaker.

“We’re going to start bleeding red ink,” county executive Marvin Pratt said while sitting at a heavy wooden table in his stately office on the third floor of the county courthouse. “If you’re talking about getting people to jobs and creating jobs, we have to maintain that transit system. We have to make it better.”