While Edin and Schaefer address the growing advantage the working poor have over nonworkers, Lawrence Mishel, president of the liberal Economic Policy Institute, raises a different set of issues. He agrees with the general finding that “government programs — transfers and tax subsidies — have helped lift low incomes, and poverty, correctly measured, has fallen.” But focusing on these findings, Mishel argues, diverts attention from the more serious problem of “the failure of the labor market to adequately reward low-wage workers.”
To support his case, Mishel points out that hourly pay for those in the bottom fifth grew only 7.7 percent from 1979 to 2007, while productivity grew by 64 percent, and education levels among workers in this quintile substantially improved.
The effectiveness of government programs rewarding work, according to Mishel, means that in practice, taxpayers “are subsiding low-wage employers,” who, he wrote, “are not putting in enough relative to the publicly provided social safety net.”
A report by the White House Council of Economic Advisers, “The War on Poverty 50 Years Later,” which was published last year, provides support for Mishel’s case that falling private sector wages are a major factor in the problems of those in the bottom quintile of the income distribution. The following chart, Figure 1, shows that if there had been no new government initiatives after 1967, the poverty rate now would be higher than it was 48 years ago.