Strong Wage Growth Would Complement the Safety Net in Reducing Poverty
Last week, we published Broad-Based Wage Growth Is a Key Tool in the Fight Against Poverty, which argued that our fight against poverty over the last few decades has been missing a key element: strong wage growth for the majority of workers. To substantiate this claim, we simulated the impacts on poverty rates in a few scenarios in which wages grew across the board according to different benchmarks (e.g., average wage growth, productivity, and productivity and full employment).
Judging by a recent blog post, Matt Bruenig seems unimpressed. He spends a large part of the first part of his post suggesting that efforts to boost market incomes (i.e., wages) will necessarily fall short because the majority of those who are in poverty (namely, the elderly, children, the disabled, and caregivers) do not work. He ends by assessing the result of our simulation as uninspiring largely because the “employable” poor make up only a minority of those in poverty. Given the alleged ineffectiveness of wage-growth, he calls for increased transfers to fight poverty.
We think Bruenig overlooks two key aspects of the role of wages in reducing overall poverty. First, we believe he ignores the extent to which children would benefit from the spillover of increased wages for their parents. Second, he ignores the fact that people move in and out of poverty—by raising the income floor for many families, broad-based wage growth plays an important role in preventing more of them from falling under the poverty line.
Of course government transfers play an important role in alleviating poverty for people who are not available to work. But our question was how many of those people would be pulled out of poverty if someone in their family got a wage boost to their income. Bruenig himself acknowledges that many of those people who are not available to work (especially children) live with “employable” family members, but he writes off the impact that boosting market incomes can have on those populations. For example, we find that children are helped more than anybody by stronger wage growth. Children might make up a disproportionate share of those in poverty, but they also make up a disproportionate share of those lifted out of poverty by stronger wage policies. Children make up 23.1 percent of those in market-based poverty (16.8 million out of 72.6 million). By growing wages with productivity and simulating a full employment economy, they would make up 36.6 percent of those pulled out of poverty (4.4 million out of 12.0 million). This represents a 26.1 percent reduction in child poverty. The entire tax-and-transfer system, meanwhile, represents a 37.8 percent reduction in child poverty, leading us to feel that our market income approaches are nothing to sneeze at.
Bruenig labels the results of our simulations for overall poverty “disappointing,” but according to what benchmark? Our paper suggests that what the vast anti-poverty machine has ignored is the fact that millions of poor people depend on work to make ends meet. And not only that—our paper also suggests that the weak labor market has led some of these would-be workers into poverty. The poor aren’t a static group, year in and year out. Rather, quite a number of people—almost a third—will fall below the poverty line in any one month over a two-year period, and a fifth will fall below the poverty line for 6 months or more in a two-year period. Our agenda would not only reduce the burden of the safety net by up to $30.1 billion (or 7.6 percent of the total poverty gap) and 11.2 million people, it would also help those at 150, 200, and 300 percent of the poverty line where wages have also been lagging. As a result, broad-based wage growth and a full-employment economy provide people with a more solid financial foundation that will keep them from falling into poverty in the first place, thereby reducing the burden left for the seemingly finite dollars spent on poverty reduction.
Unimpressed by the result of leaving 1 in 7 people in poverty, Bruenig asserts that there are limits to the impacts of increasing wages. True enough—it would be great if we could make a bigger dent in the 52.4 million non-elderly people in poverty in this country (with productivity wages and full employment, we’d still be left with 41.2 million in poverty). However, if you calculate the impact of the full breadth of government tax credits and transfers, you leave 1 in 8 people in poverty. That’s still 32.4 million people in poverty.
Yes, these programs need to be strengthened. Yes, the safety net should do a better job of providing people with an adequate standard of living. In fact, all progress in reducing poverty over the past three decades has been achieved by the safety net (see Figure I in the paper) and if we leave wage inequality unchecked, the safety net has to worker harder and harder just to keep poverty from increasing. But we also need to do everything we can to keep people from falling into poverty in the first place. Bruenig would probably agree that individuals who work full-time, full-year should be able to lift themselves and their families out of poverty. Unfortunately, many can’t. And the fact is that wage and income inequality didn’t happen by accident; they are the result of intentional policy decisions made on behalf of those with the most income, wealth and power that have shifted bargaining power away from workers. So along with fighting to alleviate poverty through a stronger safety net, we should use all the tools available to raise America’s pay and raise Americans out of poverty.
 The poverty gap is the total amount of money required to pull everyone above the poverty line.