How Ending Poverty Will Save America Money


Why Ending Poverty Isn’t Just The Moral Thing To Do – It’s The Fiscally Responsible One As Well

The American Dream has not been a very good one for some people, even a nightmare for others in the neighborhood of, or at the borders of, poverty. About the war on poverty, President Lyndon Baines Johnson said in Jan 1964, “It will not be a short or easy struggle, no single weapon or strategy will suffice, but we shall not rest until that war is won. The richest Nation on earth can afford to win it. We cannot afford to lose it.”

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Despite President Johnson’s war on poverty speech over 50 years ago, poverty is still a part of our society. Past minimum wage increases were a bipartisan issue, though that’s not the case at present. In fact, House Speaker John Boehner refuses to allow a vote on minimum wage until other conditions are met by the Obama administration. Boehner’s also quoted as saying, “I’ll commit suicide before I vote on a clean minimum-wage bill” during an interview in 1996, when he was head of the House Republican Conference. He also voted against a wage increase in 2007. His stance in Feb 2013 was that a hike would actually hurt rather than help minimum wage earners because small employers would find it more difficult to hire people.

What might surprise many people, despite such strong opposition and arguments to the contrary, is that there are several financially- and socially-positive reasons to eliminate poverty. Two ways towards eliminating poverty are raising the federal minimum wage rate and providing more permanent shelter for the chronic homeless, the latter of which generally increases the likelihood of employment. The gist: less people taking government handouts and being able to support themselves.

 

The Poverty Line

The U.S. federal poverty guidelines for 2014 put earnings of $11,670 as being the “poverty level” — provided that we’re talking about a household of one person. So a person working a full-time job that pays the current federal minimum wage rate of $7.25/hour makes $15,080/year gross and so does not qualify for certain types of assistance including SNAP (Supplemental Nutrition Assistance Program, aka food stamps). If on the other hand, the same wage earner is part of a family of two (2 adults, or adult and child), their poverty line is $15,730 — meaning that they qualify for more forms of assistance. For a household of three, the poverty level is $19,790, immediately putting that household with one full-time minimum wage earner in the “poor” category.

You can see the full table of earning levels that make up the poverty line for different sizes of U.S. households at Families USA, with a comparison to 2013 earning levels.

 

The Working Poor

Arguments against a minimum wage increases sometimes claim that most Americans falling into the “poor” category do not work. Technically, based on how BLS (Bureau of Labor Statistics) branch of U.S. Dept of Labor collects data, this is true. That’s because these numbers include people who are retired, unable or unqualified to work: children and some non-working adults (disabled, retired, stay-at-home parent/ guardian, etc.) as well as those seeking work or “working poor.”

In the BLS’ Mar 2011 profile of the working poor, 14.3% of the 2009 American population, 43.6M people, fell below that year’s poverty level. Of those, 10.4M were “working poor” — an increase of 1.5M over 2008. (By the BLS definition, “working poor” are those who worked at least 27 weeks in a given year yet fell below the poverty level. The ratio of working poor to all workers was 7.0% in 2009, an increase of 1.0 percentage point from 2008. Additional data for 2012 from the BLS, as published by the UC Davis Center for Poverty Research shows:

  • 46.5M people in 2012 were in the “poor” category (part of a household earning below poverty level). Most of these people were not working, primarily because they were either children, disabled or retired adults, stay-at-home parents/ guardians or seeking work.
  • 10.6M people (23% of the poor and 7% of the total workforce) were “working poor.” That is, they worked at least 27 weeks working full-time in a given year, but for a variety of reasons, their total yearly income fell below the poverty level for that year.
  • This is 7% of the total workforce in 2012 — about the same ratio as in 2009, though the total number of poor is higher in 2012.
  • The breakdown of these 10.6M people: “14% of Blacks; 14% of Hispanics; 6% of Whites; 5% of Asians.”
  • Also: “21% of the labor force with less than a high school diploma; 9% of high school graduates with no college education; 5% for those with an associate’s degree and 2% for those with a bachelor’s degree or higher.”
  • This group is mostly young but not necessarily the “teenagers of rich parents” that some wage hike critics claim: “rates were highest for 16 to 19 year olds(13%) and 20 to 24 year olds (14%) and lowest for those over 65 (2%).”
  • For 2012, the working poor made up “16% of part-time workers; 4% for those employed full-time”
  • Finally, in 2012, “4.4 million people who usually work full-time were working poor. Of these, 84% experienced at least one labor market problem (unemployment, involuntary part-time employment or low wages (defined as less than $337.92 per week). Low earnings was the most common problem with 68% experiencing low earnings either alone or in combination with other labor market issues; 37% experienced unemployment either alone or in conjunction with other problems; and 12% experienced involuntary part-time work either alone or in combination.”

 

The Current Federal and State Minimum Wages

At the time of writing, the federal minimum wage is $7.25/hour. According to the NSCL (National Conference of State Legislatures), here are some of the most recent stats related to minimum wage rates for U.S. states, districts and protectorates.

  • Minimum wage bills were introduced in 38 states in 2014, of which 34 considered raising the state minimum wage.
  • In total, 10 states (“Connecticut, Delaware, Hawaii, Maryland, Massachusetts, Michigan, Minnesota, Rhode Island, Vermont and West Virginia”) and Washington, D.C., raised their minimum wage rate.
  • As of Aug 1, 2014, D.C. and 23 states have a minimum wage rate higher than the federal rate.
  • 18 states plus Guam and the U.S. Virgin Islands match the federal rate of $7.25/hr.
  • 3 states are below $7.25/hour: $5.15/hr (Georgia, Wyoming), $6.25/hr (Arkansas).
  • 1 state (New Hampshire) repealed in 2011, but there’s an implicit $7.25/hr minimum wage.
  • 5 states actually have no minimum wage rate: Alabama, Louisiana, Mississippi, South Carolina, and Tennessee
  • Puerto Rico: $7.25/hr for employees covered by FLSA (Fair Labor Standards Act), $5.08/hr otherwise. American Samoa is below $7.25/hour; however, their FLSA-based minimum wage will increase by $0.50/hour each May 25th until reaching the U.S. federal minimum wage.

Additionally, from the BLS’s own data published Jan 1, 2014:

  • Montana has a rate of $7.90/hr; however, businesses with less than $110,000 annual gross can pay as little as $4.00/hr.
  • Similarly, the U.S. Virgin Islands has a minimum wage rate of $7.25/hr; however, businesses there grossing less than $150,000/year can pay a minimum wage of $4.30/hr.
  • The highest state or district minimum wage is $9.50 (Washington, D.C.), followed by $9.32 (Washington state) and $9.10 (Oregon).

As well, some cities have their own minimum wage rates. San Francisco is tops at $10.74/hr in 2014.

 

Ripple Effects of a Minimum Wage Increase

Proponents of a federal minimum wage rate increase point out that there would a “ripple effect” that could positively impact as many as 35M American workers as well the people who depend upon them — not just the 10 million or so “working poor” that critics state would be the only beneficiaries.

Specifically, the Brookings Institute, in their Jan 2014 Hamilton Project economic analysis, found that a federal minimum wage increase could mean a raise for up to 35M workers — nearly 1/3 (29.4%) of the American workforce. Both workers earning minimum wage or below, and those earning up to nearly 150% of the minimum wage could see raises, based on historic BLS data. [Brookings note: “Throughout this analysis we only consider non-self-employed workers age 16-64. By our calculations, the size of that workforce was 122.2 million workers in 2012.”]

To break down how the 35M worker estimate is calculated, consider that in 2012, 32 states had a collective total of 3.7M workers earning the federal minimum of $7.25h/hr, and 15.2M workers making up to 150% of that rate. Washington, D.C. and the other 18 states had a higher minimum wage, with 3.9M earning the state minimum wage and 12.1M earning up to nearly 150% of federal min wage. For 2012 figures alone, that’s almost 35M (34.9M) Americans who would benefit from a wage increase — not just the 10M-plus working poor. This is not even including any dependents of workers, if any.

Some people argue that most minimum wage workers are teens. Economist Arin Dube (University of Massachusetts-Amherst) found that a declining percentage of low-wage workers (at or near minimum wage) are teenagers. His research shows that for 2011, less than 25% of people earning up to $7.25/hr were teenagers. Also, only 12% of people making over $7.25h/hr but less than $10/hr were teenagers (this metric was 26% in 1979)

Overall, a wage hike means more income to spend on necessities, including food, transportation, better living arrangements, children (including college), an occasional dinner out. In general, it would likely lead to stimulation of the local and possibly state economy, thereby eventually creating jobs — rather than the loss.

In fact, over 600 (602) economists from various colleges/ universities, institutes, organizations and companies signed a letter of support for raising the federal minimum wage to $10.10. The economist names are listed at Economic Policy Institute (EPI).

 

Benefits to Taxpayers

Taxpayers benefit with a federal minimum wage hike, too, albeit indirectly. This is because minimum and low-wage earners often qualify for food stamps (SNAP) and other income aid programs. Besides helping between 28-35 million minimum and low-income earners, a minimum wage increase to $10.10/hr could result in as much as a $4.6B savings per year for the SNAP program alone — or $46B in 10 years.

With more income for better food and housing, low-income earners are likely to have improved health, which also reduces the national cost of healthcare. The savings could be applied elsewhere, including affordable housing, job creation, skills retraining and more. This savings difference could essentially be used to “teach someone to fish,” instead of keeping low-income earners dependent on government handouts. The ultimate payoff is less tax dollars spent and more citizens self-sufficient.

 

Effects on Businesses

One of the more common concerns about raising the federal minimum wage is the impact it will supposedly have on businesses. There are, of course, small and medium-sized businesses (aka SMBs) and large businesses. Let’s look at the large business first.

Here are some relevant data points, according to a NELP (National Employment Law Project) data brief published Jul 2012.

  • 92 – the percentage of the top 50 largest employers of low-wage workers who were profitable in 2011.
  • 78 – the percentage of the same employers who were profitable over the three years 2009-2011, inclusive.
  • 75 – the percentage of these employers with higher revenues than before the recession started.
  • 73 – the percentage with higher cash reserves.
  • 63 – the percentage with higher operating margins.
  • $9.4M – the average yearly compensation to top executives, or over $4,500/hour ($4,517). So it would such an executive barely over three hours to earn what a full-time worker at $7.25/hr takes a year to earn. Some, of course, make more than that in a single hour.
  • $174.8B – the amount paid out “to shareholders in dividends or share buybacks over the past five years.”
  • $1.97 trillion — the total profits by Q3 2011 for U.S. corporations — a record high.
  • 66 – the percentage of low-age (not just minimum wage) workers employed by companies with 100 or more employees. Only 34% of such workers are employed by small businesses.

In other words, the larger employers of low-wage workers can afford a wage increase. According to the Center for American Progress, the four largest of these companies, based on 2013 net incomes, are Wal-Mart ($17B), McDonald’s ($5.59B), Target ($3B) and Yum! Brands ($1.09B). Yet these companies and others pay some of their employees so little that the workers qualify for food stamps, making taxpayers foot the bill instead.

If you want further proof that these and other companies can afford a wage increase, see the AFL-CIO’s paywatch.org Web site, where it lists that Wal-Mart CEO Michael T. Duke makes so much money that one of his full-time minimum wage employees would have to work 1,372 hours to earn what he makes in just one hour. There are also a number of important statistics at paywatch.org. For example, the profit made in 2013 by S&P 500 companies averaged to $41,249.

What about small and medium-sized businesses (SMBs)? Smaller employers are understandably afraid. There are concerns that a minimum wage hike would mean letting employees go or reducing their hours. Either that or increase prices on goods and services, or worse — go out of business. These are valid concerns, and it’s possible that some SMBs will have to take some drastic action, especially if their cash flow is low. However, RaiseTheMinimumWage.com points out that research shows jobs are historically not lost upon minimum wage increases.

Economists apparently agree, at 4 to 1 ratio, that the benefits of a minimum wage increase generally outweigh the costs. Here are some of the benefits various studies have found:

  • One study showed that, in some cases, worker turnover declined dramatically (from 95% to 19% for San Francisco Airport security screeners).
  • 35% of employers saw improved employee performance,
  • 47% saw better employee morale,
  • 44% had fewer disciplinary concerns,
  • 45% found better customer service given.
  • Other research, collectively, found:
  • less employee theft;
  • increased productivity;
  • lower employee turnover and longer employment durations in general – in one fast-food restaurant, 3.5 months longer, on average;
  • increased consumer purchasing power from employees, which often increases their local spending at small/medium and large businesses;
  • improved company reputation.

Something that should be taken into consideration is that some states and U.S. protectorates have a lower minimum wage for small employers grossing less than a certain amount. If more states implemented such a rule for qualifying businesses for a limited duration, more SMBs might support a federal minimum wage increase.

 

Support for a Federal Minimum Wage Increase

The first federal minimum wage was set in 1938 at $0.25/hr. The rate of $1.60/hr set in 1968 was worth $10.86 in 2014 dollars. Meaning, had federal minimum wage kept up with inflation for the past 40-plus years, it should be about $10.90/hr. The last time it was last raised was Jul 24, 2009, when it increased from $6.55 to $7.25h per hour. It was increase in two other $0.70 increments in Jul 2008 and Jul 2007. The DOL has a table of the federal minimum wage history dating back to 1938.

There have been 14 wage increases over the past 40 years, but min wage workers do not have the same buying power. For 2014, the average American minimum wage worker would have to work 104 hours /week to afford the rent on a “modest two-bedroom rental unit” (based on average Fair Market Rent). That’s nearly 15 hours per day, 7 days per week (105 hours). (Or 17 hours, 20 minutes per day, 6 days /wk if you need a day off.) The 15-hr workday figure (or thereabouts) would leave you about 9 hours/day for sleeping, getting ready, commuting, meals and anything else you might normally do daily. Obviously, this unhealthy, but there are people who have to work multiple part-time jobs to survive and provide. The cost: increased assistance, increased healthcare costs and more.

The fact is, minimum wage increases have not always kept up with inflation. As noted early, several states and some cities have implemented their own minimum wage rates exceeding $7.25/hr. Various polls in 2013 and 2014 show that many Americans support raising the federal minimum wage rate. A Nov 2013 Gallup poll suggests that 76% of Americans supported an originally proposed $9/hr federal minimum wage, with 22% against, 2% no opinion. This is a five-point increase in support from a Mar 2013 poll that had 71% in favor, 27% against, 2% no opinion. Other polls in 2014 have shown that an even large percentage of Americans might just support an increase to $10.10/hour.

 

Housing for the Chronically Homeless

Contrary to popular belief, you can have a full-time job and still be homeless, sometimes with children in tow. This is a new reality for some Americans. Not everyone has a friend or relative with whom they can stay for a while; sometimes friends or family are in a similar situation. An increase in the minimum wage will help reduce instances of the “working homeless.” Then there are those people who are “chronically homeless.” Some are mentally ill, others are war veterans or simply disenfranchised due to sudden loss of employment, or becoming ill without health insurance, or a number of other reasons.

Either way, shelter is often a problem for people with low income, let alone those with no income. It’s even harder for a household with one low-income earner and the need for two bedrooms. According to ongoing yearly studies by the NLIHC (National Low Income Housing Coalition), in 2014, there is no state in the U.S. where a full-time (40 hrs/week) minimum wage earner can “afford a two-bedroom rental unit at Fair Market Rent” (FMR), unless they pay more than the maximum recommended 30% of their income.

Only 20 states plus Puerto Rico have workers who can afford rent (two-bdrm) by working 80 or less hours per week (without spending over 30% of income). In Puerto Rico, minimum wage workers could afford a two-bdrm rental at FMR by working 56 hours per week.

Minimum wage workers in all the remaining states would have to work more than 80 hours per week to afford the same type of unit. New York state clocks in at 124 hrs/wk, California at 130, D.C. at 137, Maryland at 138 and Hawaii at 174. There are, of course, only 24×7 = 154 hours in a week. So a person would have to work 4.4 full-time minimum wage jobs to afford an FMR at 30% or less of their income. Either that or get a full-time job paying $31.54/hr. Unfortunately, even a one-bdrm rental at FMR is barely affordable for a full-time minimum wage worker everywhere in the U.S.

Of course, not every low-income/ no-income person needs two bedrooms. In the case of the chronic homeless, who often have little to no income, reliable shelter and a bed would be a start. While this sounds like something taxpayers would have to foot the bill for, the state of Utah found that they were actually spending around $16,000 per homeless person per year (at least in Salt Lake City), based on the costs of jailing and emergency room visits. This realization resulted in the program Housing First, to give a chronically homeless person somewhere to live and access to a social worker.

The result is a savings of $5,000 per homeless person per year, while simultaneously doing social good. The program has been effective. Between 2005-2013, chronic homelessness has decreased by nearly 80% (78%). People helped by the program are then able to get a job and maintain some form of lifestyle. Utah’s goal is to entirely eliminate chronic homelessness by 2015.

In Portland, Oregon, Mayor Charlie Hales is planing to endorse micro-communities similar to one in Austin, Texas, to be built on public land. These communities would have micro- and mini-homes built, which would give homeless and low-income residents more affordable places to live.

 

Other Efforts to Blunt the Effects of Poverty

Of course, there are those who believe – probably rightly – that you cannot always wait for city, state or the federal government to do something and are taking action on their own. Huffington Post published a small list of grassroots actions happening in different American cities and in Canada and Spain, along with some city and state-level government efforts, summarized here:

  • Los Angeles Unified School District has an educational program for homeless students (nearly 14,000), and even supplies them with necessities such as school supplies, a hygiene kit and a backpack to hold it all, plus wellness centers.
  • An Oakland, California, artist is producing mini shelters for homeless people using “trash” that other people have thrown out.
  • 33 cities in the U.S. in 2013 alone passed rules against feeding the hungry in public. Daytona Beach is one such city, but that didn’t deter one couple who hosted barbeques to help feed the homeless and hungry, despite getting their getting fined $700 and being threatened with jail time (charges were dropped).
  • A non-profit organization in San Francisco has mobile showers set up in a donated bus, to supplement the city’s meagre eight shower facilities to which 6,500 homeless have access. Water for the bus-based showers comes from fire hydrants.
  • Community First Village in Central Texas is a 27 acre planned neighborhood with micro- and mini-homes sufficient to house 200 chronically homeless people. Included is a garden and medical facilities.
  • Detroit has around 20,000 homeless — around 1/5 of Michigan state’s total. One group of advocates launched a “green” gym with electricity-generating stationary bikes, which make the place cost-effective. This will be particularly useful to those homeless people with diabetes or heart disease.
  • A mission in Seattle put pictures of various homeless residents on t-shirts and used the revenue to help the homeless there.
  • In Vancouver, Canada, the non-profit RainCity Housing partnered with Spring Advertising to create some public bench advertising units which flip out and provide temporary shelter.
  • The Arrels Foundation in Barcelona, Spain, teamed up with an advertising agency to take the handwriting from cardboard signs made by the homeless, turn it into fonts and sell those, with revenues used to help the homeless.

A couple of other examples of people contributing include New York City stylist Mark Bustos, who gives free haircuts to the homeless on his days off, and Kentucky State University’s interim president, Raymond Burse, who is giving $90K of his $350K annual salary towards the wages of the lowest paid workers on campus ($7.25/hour). As a result, these people will now make $10.25/hr. A number of other university presidents have done something similar. The reason Burse did this was because despite the Kentucky state legislature tabling a wage bill for $10.10/hr, it failed the state senate. The living wage for Frankfort, where Kentucky State is, is $8.29/hr for a single adult, and $17.37/hr for an adult with a child.

 

Moving Forwards

Despite all the evidence that shows that eliminating poverty is a good thing for most if not all parties, some people have their reasons for not supporting a minimum wage increase, often based on partial evidence. If anything, there needs to be more widespread general education about the positive outcomes of a wage increase, to dispel the fears and notions based on isolated cases or incomplete information. This is one hurdle. Another is making a wage increase a bipartisan issue once again, so a federal minimum wage increase can be passed. While it will not solve all poverty-related problems, and not everyone will be happy about it or benefit, the positives will be significant and benefit far more people than those labelled the working poor or the homeless.

 

Citations

  1. http://www.americanprogress.org/issues/economy/news/2014/03/05/85165/infographic-taxpayers-pick-up-the-tab-for-corporations-that-can-afford-to-pay-their-employees-more/
  2. http://www.bls.gov/cps/cpswp2009.pdf
  3. http://www.brookings.edu/blogs/up-front/posts/2014/01/10-ripple-effect-of-increasing-the-minimum-wage-kearney-harris
  4. http://www.dol.gov/whd/minwage/america.htm
  5. http://www.gallup.com/poll/165794/americans-raising-minimum-wage.aspx
  6. http://www.huffingtonpost.com/2014/07/30/homelessness-cities-ingenuity_n_5545477.html
  7. http://videos.huffingtonpost.com/entertainment/utahs-plan-to-end-homelessness-518103973
  8. http://www.ncsl.org/research/labor-and-employment/state-minimum-wage-chart.aspx
  9. http://www.nelp.org/page/-/rtmw/NELP-Big-Business-Corporate-Profits-Minimum-Wage.pdf
  10. http://nlihc.org/sites/default/files/oor/OOR2014_MW-Map.pdf
  11. http://oregonstate.edu/instruct/anth484/minwage.html
  12. http://www.oregonlive.com/portland/index.ssf/2014/08/tiny_houses_for_homeless_peopl.html
  13. http://www.raisetheminimumwage.com/sites/nelp2/index.php/pages/research
  14. http://www.vox.com/2014/8/4/5967181/kentucky-state-university-president-minimum-wage

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