Thursday, January 2, 2014

Cato/NPR's Welfare vs Min Wage

Welfare Isn’t Too Generous—Wages Are Too Low

Real earnings for workers, by gender, 1973–2011 (2011 dollars)

Real earnings for workers, by gender, 1973–2011 (2011 dollars)
Note: Shaded areas denote recessions.
Source: Current Population Survey Annual Social and Economic Supplement Historical Income Tables, Table P-41, "Work experience- All Workers by Median Earnings and Sex: 1987-2011," and Table A-4, "Number and Real Median Earnings of Total Workers and Full-time, Year-Round Workers by Sex and Female-to-male Earnings Ratio: 1960–2011."
NPR recently published a story that gives undue credence to a Cato Institute study lamenting the generosity of US safety net programs. In reality, welfare benefits are not nearly as generous or accessible as the study claims. The NPR piece provides useful stories from actual welfare recipients, whose experiences more faithfully represent reality.
An important part of Cato’s assertion is that these programs offer a higher level of income than do many low-wage jobs. The real problem here is that wages for the vast majority of Americans are too low, and haven’t kept up with the increased productivity of the labor force.
When the study was first released, we pointed out some of the problems with their analysis. Here’s a quick summary of why their study was so misleading:
The Cato Institute recently released a wildly misleading report by Michael Tanner and Charles Hughes, which essentially claims that what low-wage workers and their families can expect to receive from “welfare” dwarfs the wages they can expect from working. Using state-level figures, their paper implies that single mothers with two children are living pretty well relying just on government assistance, with Cato’s “total welfare benefit package” ranging from $16,984 in Mississippi to $49,175 in Hawaii. They then calculate the pretax wage equivalents in annual and hourly terms and compare them to the median salaries in each state and to the official federal poverty level. Tanner and Hughes find that welfare benefits exceed what a minimum wage job would provide in 35 states, and suggest that welfare pays more than the salary for a first year teacher or the starting wage for a secretary in many states.
So what makes this so misleading?
For one, Tanner and Hughes make the assumption that these families receive simultaneous assistance from all of the following programs: Temporary Assistance for Needy Families (TANF), Supplement Nutrition Assistance Program (SNAP), Medicaid, Housing Assistance Payments, Low Income Home Energy Assistance Program (LIHEAP), Women, Infants, and Children Program (WIC), and The Emergency Food Assistance Program (TEFAP). It is this simultaneous assistance from multiple sources that lets the entire “welfare benefits package” identified by Cato add up to serious money. But it’s absurd to assume that someone would receive every one of these benefits, simultaneously, and it ignores the fact that some programs have time limits.

What’s more, their report carries the clear implication that welfare is (or should be expected to be) pulling low-wage workers out of the labor market by making life on welfare so attractive. In actuality, many low-income working families receive assistance through these programs.
Sharon Parrott and LaDonna Pavetti at the Center on Budget and Policy Priorities provide some solid evidence against some of the claims made by Tanner and Hughes. They provide detailed statistics on how little overlap there is in the assistance families receive for multiple programs, and how few eligible families actually receive any benefits at all.
What’s striking to me is that even Cato’s overblown and exaggerated welfare benefits would leave families in eight states with incomes below the federal poverty line. I’d add that it’s a bit odd to look at hypothetical data, when real data on what low income families actually receive from welfare and work is available. The Congressional Budget Office provides comprehensive data on sources of income for households by income fifths. We looked at this in some detail in the poverty chapter of State of Working America (see here). These reputable data tell a very different story about how low-wage workers live their lives. They are getting far less from government assistance than the Cato report implies and are relying much more on income gained from working.
In 2009, average transfer income for the lowest fifth of workers was $4,633 and average labor income was $12,871. (To be comparable with the Cato report, I’m not including Medicare and Social Security income.) Two things are clear here: government transfers are far less than what Tanner and Hughes claim, and labor income far exceeds government transfers for the lowest income group, meaning that real-world low-income families don’t feel so coddled by lavish welfare benefits that they don’t need to work.
Tanner and Hughes are not telling a realistic story about the lives of low income Americans and the income provided to them by transfer programs. Where they have a point is how poorly work pays for too many American families, particularly low-wage workers. If they want to insure that work pays well for single mothers with two kids, it would seem more worthwhile to push for increases in the minimum wage and affordable child care. Cato’s view instead seems to be that since work alone is failing to provide secure living standards for many Americans, we should take away other sources of income from them, too.
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  • Minimum wage jobs are not meant to provide income to support a family. I'd like a questions answered: why haven't adults working for minimum wage developed a skill that allows them to earn more? Why have children you cannot support?
Mike bigdnyc
    • •3 months ago
      Perhaps that used to be the case, but it isn't anymore. In 2000, the average age of a fast food worker was 22. Eleven years later, it's almost 30. Older people aren't taking these jobs because they're unqualified for better paid work, they're taking them because they can't get work elsewhere. Productivity gains and overseas outsourcing have contributed mightily to the bottom line of many corporations, but the American workforce is paying the price.
My turn (Mark of this blog....)
  • In fact what's determining the "minimum wage" is an economic philosophy, not any "economic science" that minimum wage jobs are legitimate, or that sufficient job training and better jobs actually exist or are possible in the current policy environment. People are paid "minimum wages" because corporate executives want to "maximize profits," and because they have bullied society into accepting wage slavery of the rest of humanity as acceptable.  Moreover, as suggested by Mike here, US corporate policies most of all have ignored their social obligations in salary arbitrage overseas. Australia seems to be a good example of some insight into this, since their minimum wage is a "living wage." They pay salaries because jobs are means of allowing human beings to plan their lives and their families with their Human Rights, not just for gambling, get-rich-quick corp exec fantasies to come true to rule the world. Of course, given their current state of tyranny, I advocate co-op enterprise to create new jobs where there are owner-operators, as was begun in Rochdale, UK in 1844, Germany in 1850, Mondragon, Spain in 1959 and Emilia-Romagna, Italy since before the Second World War. The US has some examples, even if the Knights of Labor became defunct in the 1800s. New York City had bunches of food co-ops in the 1970s, some survived, and more have been created recently, as well, in fact.

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