By Lily Bickerstaff-Richard, Sofia Crouch, and Emily Peck
On November 30, 2020, the fellowship class had the opportunity to virtually host Professor Stephanie Luce of CUNY’s School of Labor Studies for a conversation on the living wage. Professor Luce’s research focuses on low-wage work, globalization and labor standards, and labor-community coalitions. She has written several books on labor movements and wages, including Fighting for a Living Wage and Labor Movements: Global Perspectives. She graciously agreed to share some of her work with us and answer our (many) questions.
Professor Luce shared research on the growing precarity of the working class, pointing out that the minimum wage has not kept pace with inflation, which has led to the phenomenon called “working poor”. According to the US Department of Labor, the working poor (also referred to as working poverty) are persons who spent at least 27 weeks in the last year in the labor force, including working or looking for work, but whose income fell below the official poverty level. As Professor Luce pointed out to us, the federal poverty line does not encompass all Americans who face substantial financial hardships and barriers, as the federal definition assumes a family spends ⅓ of its income on food and triples the cost of a basic “food basket” to calculate who is in poverty. As the cost of food has decreased and the cost of living has increased, this definition is significantly out of date. Other challenges that low-income workers and the working poor face, Professor Luce shared, are part-time hours, lax enforcement of wage laws, irregular work, and a lack of benefits like health insurance or retirement, job security, and workplace safety.
After our conversation with Professor Luce, the Work First fellows decided to dig deeper into the topic of working poor.
In 2017, roughly 4 million Americans classified as working poor. While policies such as the Earned Income Tax Credit (EITC), childcare tax credits, affordable housing, a federal jobs guarantee, a $15 minimum wage, and universal basic income have all been proposed as solutions to fix these gaps, as of yet no comprehensive solutions have been able to adequately address this growing issue. Today we look at a few of these proposed policy solutions.
Higher Wages
Various groups held a rally in the Minnesota capitol building calling for the Minnesota minimum wage to be raised to $9.50 by 2015. Source: "Rally to raise the Minnesota minimum wage" by Fibonacci Blue
One large contributing factor to working poverty is the reality that a full-time job at federal minimum wage is insufficient in covering the costs of living throughout the United States. According to the 2020 report by the National Low Income Housing Coalition, the average housing cost in the US for a single bedroom apartment was $19.56 an hour, more than double the federal minimum wage. The real value of the minimum wage has been declining since 1968, when the government decided to no longer keep the federal minimum wage up with inflation. Because of the declining real value of the minimum wage, a movement called “the fight for $15” began in 2012 calling for a $15 an hour minimum wage. At the time, this $15 an hour was much closer to a living wage in that it covered basic expenses such as food and housing. However, in today’s economy, a higher minimum wage would be more realistic. Despite this, many argue that raising the federal minimum wage to even $15 would significantly improve quality of life for many Americans and reduce rates of working poverty. Several cities, including New York City, and states including California, Massachusetts, and Florida, have already set their minimum wage to $15.
However, there are many considerations that must be taken into account when examining the issue of raising the federal minimum wage. One such consideration is the “benefits cliff,” which is a point at which a minor increase in pay for someone may lead to substantial loss of benefits, thus resulting in an overall financial loss for the employed person. Therefore, it is important to incentivize higher-wage labor while still addressing the issues of the benefits cliff through other policies and support programs. Critics of a higher minimum wage also argue that higher wages will drive small businesses out of existence. However, with the support of other research, Dr. Luce was able to explain to us how most small businesses will not be severely impacted by this. This is because small businesses, on average, have to pay their workers higher wages to combat high employee turnover and training costs, which larger businesses can afford by paying lower wages and keeping a high employee turnover rate.
Affordable Housing
The fact that our country suffers from a lack of affordable housing is undeniable, but the solutions to this issue are heavily debated and quite complex. According to a report from the National Low Income Housing Coalition, a working family living below the poverty line in 2020 could only afford to spend $655 a month on housing, thus making it virtually impossible for such families to afford the cost of housing in most urban areas. The COVID-19 pandemic has highlighted this housing crisis, as many people lack a stable housing option in which they can “shelter in place”. Even before the pandemic began, 7.7 million Americans were spending over half of their income on housing, significantly diminishing their assets available for saving or accessing services.
While some posit that the best way to tackle this issue is to get rid of all housing regulations and allow the free market to provide housing for all, others argue for the expansion of housing subsidies for low-income Americans. Other options include reducing zoning costs, replacing property tax with land tax, and acquiring land during times of low housing prices (e.g, a pandemic). All of these options could create more affordable housing. However, one thing that must be considered with expanding affordable housing, as Robert J. Chaskin explains, is the question of how to do so without “reproducing or exacerbating concentrated poverty and the segregation and isolation of the poor.” Taking this into consideration and understanding the complexities of the proposed solutions, creating more housing opportunities for low income families can help combat working poverty.
Earned Income Tax Credit (EITC)
An Earned Income Tax Credit is a refundable tax credit given to people of low and moderate income. Created to reward work for Americans of lower economic means while offsetting some barriers faced by low income workers, the EITC has garnered significant bipartisan support. The credit is largely designed to help families with children, as the amount of the credit increases for people with children. As the Bipartisan Policy Center details, the program has grown significantly since its creation in 1975. In 2018, the EITC lifted about 5.6 million people out of poverty, including about 3 million children, and reduced the severity of poverty for another 16.5 million people, including 6.1 million children.
Despite its strengths and supports, the EITC has many flaws including but not limited to its complexity in filling out, its high error rate, and the disparity it creates between workers with and without children. The most cited flaw of these is how complex it can be to file for EITC as it requires significant knowledge of bureaucratic systems which discourages many people from applying. Indeed, it is estimated that 20-25% of eligible families do not claim EITC. In addition, many low income workers are required to spend money on services to help them fill out their taxes in a way that ensures they have properly claimed the credit.
Career Advancement Assistance
America Works is a career training company in New York.
Not only are the working poor deprived of the ability to make a sustainable living through employment due to low-wages and insufficient benefits, but they are also often deprived of any chance to eventually work their way up to a position that offers such compensation. Career advancement assistance policies seek to directly combat this issue through relevant job training and education. Training and education programs aim to equip individuals with the necessary skills and credentials that are key to attaining long-term employment and increased earnings over time. A report done by the Center on Budget and Policy Priorities describes the most successful of these “welfare-to-work” programs as those that include “substantial access to education and training, together with employment services and a strong overall focus on work as the goal.” These programs involve partnerships across public- and private-sector organizations, including workforce development, community colleges, employers, unions, and community-based organizations.
While career advancement services can be useful in providing assistance and skills necessary to advance in one's career, some have pointed to a few drawbacks of such programs. For instance, the Urban Institute points to how long time commitments and institutional barriers faced by learners can provide barriers to the effectiveness of such services. It is also integral for the efficacy of these programs that public- and private-sector organization partnerships be established to integrate a variety of different services and opportunities for those enrolled in the programs. However, these partnerships can be challenging to establish, and programs that fail to do so can be inadequate for preparing low-income workers for secure employment.
Looking Forward
As the number of working poor continues to increase in the United States, it is important to consider all policy solutions which may increase opportunity and alleviate poverty. We are thankful to Dr. Luce for speaking with us about her research pertaining to the issue of working poverty, and for encouraging our continued research on the subject. While the issue of working poverty has been discussed continuously in recent decades, the COVID-19 pandemic has brought this issue to the forefront, encouraging us to consider new ways of dealing with this pressing issue.