Why Inequality Matters

Finally, the third part of our response to Barton Hinkle’s critique of economic populism.

Hinkle in effect poses this question: why care about inequality at all, as opposed to simply caring about poverty?

After all, he reasons, if real living standards are improving for everyone, why worry that some are getting much more than others?

That question invites five kinds of responses.

The first is simply to observe that for the bottom quintile, life has not gotten a whole lot better as measured by income standards in the last quarter century. In 1979 the bottom quintile had an average post-tax income of $13,500 (in 2003 dollars). In 2003, they had $14,100. Over that same time period, the proportion of families in poverty has actually risen, from 9.7% in 1975 to 10.2% today. All this has taken place over the same time period that the real (post-tax) average income of the top 1% of the income pile has more than doubled, from $305,000 to over $700,000.

Nor, as Hinkle suggests, does the advance of technology make up for the stagnant prospects of the poor. Yes, some of the poor have access to cable TV and computers and cell phones and Playstations—more sophisticated forms of entertainment. But do they really derive dramatically greater utility, satisfaction, and happiness from those items than they did 30 years ago from black-and-white network TV and old-fashioned pinball machines? That’s questionable. What’s not questionable is that an American child or family that does not have access to most of those items is going to feel left out, socially excluded.

That observation points us to our second response: there is good reason why the “goalposts” (Hinkle’s term) of living standards should change over time as a society develops. The necessaries of life are to a substantial degree socially determined. In some societies historically, it was not a big deal not to have a pair of shoes. But in contemporary societies, to go shoeless would be unthinkable, and a sure sign of utter exclusion from mainstream society.

 In short, what people need is not simply calories and shelter and medicine, but also the goods which make it possible to be a fully functioning, fully-respected, and indeed self-respecting member of society. The content of those goods changes over time, and as societies get richer, people need access to more and/or better goods in order to perceive themselves and be perceived by others as full members of the society.

Third, consider again the issue of class mobility across generations. Many conservatives, cogently, insist we should be concerned with not just inequality but with social mobility. But few recognize or acknowledge that there is an internal connection between increases in inequality and rates of mobility. Simply put, the wider the gap there is between classes, and in particular between the very top and everyone else, the more difficult it will be for those in the bottom to climb all the way to the top (and the harder it will be for those at the top to slide very far down the ladder).

Fourth, apologists for growing inequality often write as if workers are simply getting their just desserts in the marketplace. But there is strong evidence that since the mid-1970s, the American worker has simply not been getting a fair share of the economic growth his or her efforts have helped produce. Average productivity per hour jumped 76% between 1973 and 2004; but the median compensation only increased by 18.5% over that same time period. If compensation had increased at the same rate as increases in productivity over that entire time period, the median compensation in 2004 would have been $25.76 per hour, not the $17.36 it actually was.

That huge gap can be explained by two primary factors. First, average compensation only went up 46.4% for workers as a whole over that time period, compared to productivity growth of 76%. In short, workers’ compensation as a whole grew just over 60% as fast as the increase in their own productivity. Second, the best-off workers captured the lion’s share of the increase in compensation which did take place. When the top end gets huge gains and the majority not very much, you end up with what the data show–a big difference between the average increase and the median increase in compensation.

Finally, and perhaps most fundamentally, large-scale inequalities call into serious question the meaning and relevance of two fundamental American ideals: equal opportunity and democracy. Hinkle (and others) seem all too willing to accept as “normal” the fact that some persons within this society have dramatically less promising life prospects than others. But would conservatives who say inequality is no big deal be willing to take their chances and trade places with someone in the bottom quintile of the income bracket? Would they be willing to send their kids to a randomly selected public school within the city of Richmond?

The idea that anyone can make anything that want to of themselves is fundamental to Americans’ conception of this country and what it stands for. The fact that, increasingly, it just ain’t so points to a troubling and growing contradiction between what American claims (or aspires) to be and what it actually is.

The other threatened value is democracy. Democracy is not simply about the right to cast a ballot; it’s about the right and ability to exercise meaningful self-governance over the conditions that shape one’s life. In short, the ability to have a genuine say about decisions and policies which affect them, and the ability to have one’s ideas and viewpoints be taken seriously by others.

 Democracy in this sense requires a fairly substantial degree of equality, if it is to be real. Incomes and wealth do not need to be literally equal, but opportunities, skills, and resources to participate in politics need to be broadly distributed over the population. Moreover, no group should be so wealthy or so powerful that they can exercise disproportionate influence over the political process and claim unequal access to and influence over decisionmakers.

That’s a test that American democracy simply can’t meet right now, and growing inequality is both cause and symptom of that failure.

So what would a more fair distribution of income look like? That’s a difficult question to answer with a high degree of specificity, but we can begin to gauge the gap between where we are and where we might and should be by considering this hypothetical scenario: what if, between 1979 and 2003, the bottom three quintiles of the income distribution experienced an increase in income equivalent to the average growth of the income of society as a whole over that time period?

Well, people in those groups would be dramatically better off. After taxes, the average family in the poorest quintile would now earn in $17,900, not $14,100—equivalent to an annual raise of over 25%. Families in second poorest quintile would have post-tax income of $36,200, not $30,800. And families in the middle quintile would earn $51,600, not $44,800. (All figures in 2003 dollars.)

That would have been an economy in which economic growth led to broadly shared prosperity. It also would have been an economy that lifted millions of people out of poverty and made life better and easier for the bulk of workers and middle class folk who form the backbone of American society.

But that’s not the economy we have, and it’s not the economy we are going to have in the absence of some substantial shifts in public policy aimed at bolstering workers’ bargaining power and distributing the benefits of economic growth much more equitably.

That’s where economic populism comes in.

We can’t go back and undo the enormous increase in inequality of the 25 years. But we can take steps to assure that the next quarter century (and beyond) produces something quite a bit better for ordinary people.

 All data derived from charts compiled by the Economic Policy Institute

Defending Economic Populism, Part One and Part Two

Published in: on December 7, 2006 at 4:44 am  Comments (1)  

Income Mobility and the Social Structure

Okay, let’s get down to brass tacks here in looking at Barton Hinkle’s critique of Jim Webb’s populism. The topic here is one of the most fundamental social questions we can possibly ask—whether or not the American social order is a just one—so it’s worth sinking our teeth in just a bit.

In tackling that question, we need to distinguish between two related yet distinct concerns. The first is whether the basic structure of American society is just or fair; the second is whether the long-term trend in the United States has been towards more or less fairness and equality. This is an important distinction:  if, for instance, long-term trends are static, but the basic structure of society is unjust, then we should be less than heartened to learn that an unjust society is not getting any more just.  

Keeping that in mind, let’s look at the data.

 

The specific data in question here are snapshot analyses of income distribution, divided by quintile, i.e. how much income is the top 20% getting compared to the bottom 20%, and each sector in between? Hinkle, like many others, correctly notes that this sort of snapshot, taken in itself, provides only limited information about the fairness of the overall structure of society.

Why isn’t the snapshot data enough? Because the snapshots don’t provide us information about mobility over time between the quintiles. Consider the child of an affluent family who goes to a selective private college. As a young adult that person might well be in the middle or bottom quintiles of income as he or she finds her feet in the labor market or struggles through graduate school. But eventually that person has a very good chance of making it to one of  the higher quintiles—at least until he or she retires (or gets laid off), when they will likely see income decline.

The quintile snapshot essentially abstracts from all this churning and provides a static shot of how the income distribution looks at a given time. So it’s a limited tool, if we think that we should take not just absolute levels of inequality but also social mobility into account in evaluating the justice of the social structure.

If we compare several quintile snapshots over a long period of time, however, we can garner useful information about the long term trend in the distribution of income, towards more or less inequality. Indeed, looking at how these snapshots have changed over the past three decades produces some striking results:

In 1974, the bottom (poorest) quintile of American families captured 5.7% of aggregate family income; in 2004 that same group captured just 4.0% of such income. In 1974, the top (richest) quintile of American families captured 40.6% of aggregate family income; in 2004 that same group captured 47.9% of such income. Perhaps most strikingly, in 1974 the top 1% of American families, captured 14.8% of aggregate family income; in 2004 those same fortunate few claimed 20.9% of such income. (This data comes from the Economc Policy Institute.)

This is exceptionally strong evidence that the distribution of income in the United States has gotten (just as Jim Webb claims) substantially more unequal over time. In fact, the trend is so strong that it simply is not in dispute among economists and other social scientists who study inequality—in those circles the live debate is not about whether inequality has grown sharply, but what the causes of that growth have been.

Even so, we might not be so disturbed by this growing inequality if it were offset by an increase in social mobility. But how best to measure social mobility?

To answer this question we must again introduce another distinction: between the movement of individuals up and down the quintiles due to variations in income over the course of the life cycle, and between genuine social mobility, in which an individual sees a permanent increase (or decline) in one’s relative position. Conservatives are correct to point out that the income quintiles are not very static over time, with individuals moving in and out of each group all the time, but many (including Hinkle in this case) make the mistake of confusing variation in income over the course of the life cycle—the fact that you’re likely going to make more money in your 40s and 50s than when you’re in your 20s or 70s– with genuine mobility.

The best way to measure mobility is not via snapshots of the whole population, but by tracking a set of individuals over the course of their lives and seeing how they do compared to how their parents did. Economists who undertake such studies have found that, at a minimum, genuine social mobility has not increased over the past generation, and in fact may have actually slowed.

This is important because if mobility has been static, but the distribution of family income has gotten sharply more unequal, than we can only conclude that the American social system as a whole has in fact become more unequal and less fair to the folks on the bottom over the past generation.

But the mobility data can also give us needed insight into the justice of the social structure itself. If you are born into the bottom 10% of families, income-wise, what are your chances of making it out of that bottom 10%? What are your chances of making it into the top 10?

The best recent data on that question comes from Tom Hertz’s study “Rags, Riches, and Race,” which examines mobility among black and white families using data from the Panel Study of Income Dynamics. (The paper is reprinted in the book Unequal Chances: Family Background and Economic Success, the best collection of recent academic work on this set of questions.) 

After adjusting for changes in household size, Hertz finds that if you are born into a family in the bottom decile (poorest 10%) of the income distribution, you have a 36.6% chance of remaining there as an adult, and a 57.1% chance of staying in the bottom quintile. You have just a 2.3% chance of making it into the top quintile, and a mere 0.5% chance (1 in 200) of making it into the top decile.

Conversely, if you are born into a family in the top decile, you have a 26.7% chance of staying there as an adult, a 43.2% of being in the top quintile, and a 77.7% chance of being somewhere in the top half of the income distribution. You have just a 5% chance of falling into the bottom quintile, and only a 1.4% chance of falling into the bottom decile.

In short, if you are born in the poorest rung (decile) of American society, you are over 26 times more likely than someone born in the top rung to stay on that bottom rung as an adult. And if you’re born into the top rung, you’re over 53 times more likely to get there yourself as an adult that someone born on the lowest rung.

Is that fair? Not if you take seriously the notion that America should be characterized by substantive equality of opportunity. (And by the way, from the point of view of African-Americans, the actual picture is even worse than these figures suggest, as Hertz found that upward mobility among African-Americans from the bottom to top quartile was less than half the rates observed among whites.)

Confronting the actual data about intergenerational mobility in the United States forces one to confront some hard truths about the basic structure of this society. Where you start has a huge impact on where you end up, and there is no evidence that it’s getting easier for people to move up. And, as we have also seen, the consequences of ending up near the bottom as opposed to near the top have become more severe, as income inequality has grown over time.

None of those conclusions are controversial among academics who study these questions, and in fact some of those scholars have been trying to ring the alarm on this issue for a number of years. Jim Webb just happened to be the Virginia politican who answered the bell.

Next installment: Do the rich pay too much in taxes? 

Published in: on November 22, 2006 at 4:09 pm  Comments (2)  

Jim Webb’s Economics, II

The Times-Dispatch finally saw fit to give Jim Webb space to air his economic views on Tuesday, reprinting an op-ed which originally appeared in the Wall Street Journal last week. Curiously, however, the op-ed staff chose to give top billing on the printed page to a piece by regular columnist Barton Hinkle—even though Hinkle’s piece is clearly a response to Webb.

Webb writes that many of the relatively privileged have put great effort into downplaying the scale and significance of the vast increase in economic inequality witnessed over the last generation. Hinkle proves Webb’s point in his article, intended to persuade us that Webb’s economic populism only “skims the surface” of the real economy.

Hinkle’s piece trots out several old chestnuts of conservative “wisdom” concerning economic justice. First, Hinkle assures us of the degree of social mobility which American capitalism affords, by pointing to the fact that many people rise and fall through the income quintiles over the course of the life cycle. Second, Hinkle assures us that the rich are already paying a great deal in taxes. Third, Hinkle argues that inequality measures really aren’t important anyway, because the real standard of living is rising over time.

Each of those claims is contentious and, I believe, either wrong or seriously misleading. To provide an adequate response to each of those points would be too much for a single humble blog posting. So over the remainder of the week, this space will roll out responses to each of those core claims in three separate blog postings; look for the first one tomorrow morning.

Published in: on November 21, 2006 at 4:00 pm  Leave a Comment  

Food Stamp Follow-Up

The Times-Dispatch has two excellent letters to the editor on Thursday calling the RTD to account for its misleading and mean-spirited editorial on food stamps and immigrants that was critiqued in this space a couple of weeks ago.

One is from Richmond resident Jill A. Hanken; the other is from Nancy Montanex Johner, Under Secretary for Food, Nutrition, and Consumer Services for the U.S. Department of Agriculture.

Hanken calls the RTD’s attack on a Spanish-language outreach program in California “absurd and insulting to all legal immigrants who happen to speak Spanish.” Johner informs the editors that “legal immigrants in the United States may be eligible to receive benefits if they meet residency, income, and asset requirements” and that the “USDA is proud of our efforts to ensure that all eligible families, and in particular underserved populations including the elderly, working poor, and legal immigrants, have access to this critical nutrition program.”

Unlike whoever wrote the “Four-Hour Obscenity” editorial, both these letter-writers know what they’re talking about.

Published in: on November 9, 2006 at 3:38 pm  Leave a Comment  

Do Immigrant Children Have the Right to Eat?

This morning the Richmond Times-Dispatch offers a shot across the bow of anyone inclined to regard immigants as human beings worthy of basic respect. In an editorial titled” Four Hour Obscenity,” the newspaper criticizes a California program designed to increase immigrant enrollment in food stamp programs in which (under federal law) they are legally entitled to participate. A little research reveals that the real obscenity is not in California’s program, but in the sheer mean-spiritedness of the RTD’s stance.

Two background points are in order. First, it is estimated that less than 60% of persons in the United States eligible for Food Stamps actually claim such assistance. Given the negative impact of poor nutrition on child development as well as numerous other outcomes, there is a clear public interest in minimizing the number of Americans who are inadequately nourished. Consequently, the general idea of outreach programs to expand use of food stamps is a sound one that both advances the public interest and can help alleviate both short-term suffering and long-term negative consequences of hunger and malnutrition.

Given that federal law (under the Food Security and Rural Investment Act of 2002) specifically provides that adult aliens living in the U.S. for at least five years are eligible for federal food stamps and thatall children of legal immigrants living in the United States are eligible for support (regardless of length of residency), and given that enrollment rates for legal immigrants typically are lower than among U.S.-born residents, it makes perfect sense that there be outreach and education programs specifically targeted at immigrant populations–if we accept limiting hunger as an important public goal.

Second, administration of food stamps programs, including oversight of outreach programs, is left to the states, with the Department of Agriculture playing a supportive role. It’s unclear why a Virginia newspaper should be so agitated by another state’s decision on how to implement its own program. Apparently it’s not enough for the RTD’s editorialists to have influence in Richmond and Virginia politics; they want and policy and administrative decisions in the other 49 states to conform to their editorial stance as well.

Be that as it may, it would be wrong to suggest (as the RTD editorial might lead you to believe) that the California program is some wild deviation from the intent of federal law. In fact, the federal government itself publishes materials aimed at educating immigrants about food stamps similar in spirit and content to the California program.

But the real kicker is this: the RTD editorial fundamentally mispresents the California program by suggesting that one of its key aims is to help illegal aliens. As the Los Angeles Times explains, California does not in fact offer food stamp assistance to illegal alien adults, who are ineligible under federal law. Rather, California (like other states) permits illegal aliens to apply for food stamps on behalf of their American-born children who (under the 14th Amendment) are citizens and hence entitled to such assistance under federal law. In its eagerness to crack down on illegal immigrants, the RTD is willing to deny not just adults but also their American-born children access to nutrition.

There is no compelling argument for denying such residents benefits to which they are legally entitled–or for criticizing efforts to ensure such persons obtain the benefits for which they are eligible. The very desire to deny such benefits reflects, at best, a lack of humanity.

Couple that hard-heartedness with a fundamental factual error, and the result is a disgraceful piece of commentary.

The RTD’s real objection is not to the outreach programs in California, which in fact represent a quite intelligent application of federal law fully consonant with the legislative aim of minimizing hunger. Rather, what the RTD objects to is the idea that children growing up in the United States should not go hungry, regardless of where their parents come from.

Published in: on October 27, 2006 at 7:16 am  Comments (6)  

One Step Forward, One Step Back

In the last couple of days, the RTD editorialists have seen fit to revisit a couple of issues previously blogged about in this space.

On the issue of gun control, the RTD, noting that New York City has reduced its crime rates while maintaining tough gun laws, has backtracked remarkably from its August editorial. The RTD now says that one can cite evidence for or against gun control’s effectiveness. This is hardly a sophisticated social science position, but it represents progress. (See our original post on gun control here.)

On the other hand, Tuesday’s RTD takes up the Chicago Wal-Mart ordinance again; the Chicago Board of Aldermen narrowly failed in its effort to override Mayor Daley’s veto of an ordinance to require large big-box retailers to pay a living wage. The RTD congratulates Daley on dashing the ordinance, using arguments no more impressive than its original August editorial on the matter. That big-box retailers threatened to scale back plans to expand in Chicago is not a strong argument for not implementing this ordinance. As noted in our earlier post on this topic, claims for strong employment gains resulting from big box expansion need to be taken with a grain of salt.  Moreover, there is good evidence that in urban economies, total retail earnings actually decline when big box stores move in, as local retailers are displaced.

But perhaps more annoying than the RTD’s position on that particular ordinance is its insistence on speaking of a “so-called living wage” and on mocking efforts to improve the wages of working people in the U.S. The RTD gives little if any indication that there is anything wrong people working full-time and not being able to make ends meet or provide their families a measure of security; in the RTD’s reckoning, the interests of the millions of working poor in the U.S. (and the many thousands in Richmond) can be ignored, or simply brushed aside as a fact of life not worth the effort to correct.

Published in: on October 3, 2006 at 1:49 pm  Leave a Comment  

Affordable Housing

Credit the RTD with trying to call public attention to housing affordability issues in the Richmond region. Sunday’s paper carries articles in the news and real estate sections about housing affordability, as well as two useful commentaries by Francis Stayley of the Virginia Local Initiatives Support Corporation and Connie Chamberlin of Housing Opportunities Made Equal, Inc.

Chamberlin’s article makes the key point well:  “Communities in which everyone is alike, and everyone earns the same amount of money, are essentially ghettos — whether rich or poor. They just don’t work very well. Healthy communities rely on many different kinds of people to function effectively — waitresses as well as businessmen, schoolteachers, and stockbrokers. If our vision of the future is of a viable, energetic community that has a place for everyone and that can compete for people and jobs, we need to make sure everyone has a decent, affordable place to live.”

RTD is also sponsoring a public forum on housing affordability issues in Richmond Monday night; publisher Thomas Silverstri explains why here. Kudos to the paper for this effort to practice civic journalism on a critical issue.

Published in: on September 24, 2006 at 4:01 pm  Leave a Comment  

On the Minimum Wage

The featured op-ed in the RTD Tuesday is a relatively lengthy piece on the economics of the minimum wage by David Henderson of the Hoover Institution. Not surprisingly, Henderson concludes that the minimum wage has perverse effects, and certainly should not be increased.

This piece is actually more sophisticated than many standard conservative statements about the minimum wage, which simply ignore the mass of empirical evidence indicating that the employment effects of minimum wage increases are negligible, especially among adult workers. Henderson at least takes the trouble to cite influential research by David Card and Alan Krueger on the (limited to non-existent) impact of minimum wage increases on fast food employment.

Along the way, however, Henderson makes some baffling claims. For instance, Henderson charges the pro-labor, pro-minimum wage Economic Policy Institute with “admitting” that a higher minimum wage may lead not to reduced employment but reduced training and increased productivity. Henderson concludes that this must mean cutbacks in training of workers and a faster work pace. Wrong. Productivity might increase and training costs decline if turnover among low-wage workers decreases in response to a higher minimum wage. When wages go up, the cost to workers of losing their job go up as well, so they may become inclined to work harder to hold onto it even in the absence of greater workplace discipline. Likewise, if there is less turnover in a firm, there will be less need for firms to spend money training new workers.

Second, Henderson argues that the minimum wage doesn’t really benefit the least well off, since “only” 9% of those affected (some 1.4 million workers) are likely to be affected by the increase are single parents with children. (Never mind that this is a higher proportion than the percentage of single parents with children in the workforce as a whole–here is the data.) So we shouldn’t care about poor households in which both parents are working, or individuals who happen to be poor? In any case, Henderson draws a seriously misleading picture: some 80% of affected wage earners are adults, 54% are full time workers, and 26% are parents.

Third, in his conclusion, Henderson makes the bizarre claim that unions’ support for the minimum wage is motivated by “greed” and is akin to protectionism. Well, it’s no secret that unions support increases in the price of labor–if that is “greed,” then fair enough. But Henderson implies that unions’ interest is in reducing the jobs available at the bottom of the labor market. This is just silly: higher unemployment rates weaken, not strengthen, unions’ bargaining power and their ability to organize new workers. No one has a more vested interest in a full employment economy than labor unions.

The empirical evidence for large employment affects resulting from an increased minimum wage is suspect at best. Interested readers might check out Card and Krueger’s 2000 article, this summary of the issue from a “neutral” government economist that explores some of the theoretical reasons why minimum wages don’t damage employment, or a recent journalistic piece on economists’ shifting views on the minimum wage.

A few orienting observations might help put the discussion in perspective: the debate about raising the minimum wage can be more accurately characterized as a debate about keeping the minimum wage level from falling further. With each passing day, Americans earning the minimum wage effectively recieve a wage cut.

Indeed, the real value of the minimum wage is now about one-third lower than in the 1960s. The value of the minimum wage rose over the course of the 1960s from around $6/hr (current dollars) to nearly $8/hr by 1969. Yet unemployment fell during that same decade from 5.5% in 1961-1965 to just 3.9% during 1966-1970.

Three decades later, history repeated itself. Unemployment during the first Clinton term (1993-1996) averaged 6.0%; although the minimum wage was increased in 1997, unemployment during the second term (1997-2000) fell to just 4.4%.

In short, even if the increased minimum wage had some slight negative impact on employment during these periods, that effect was simply overwhelmed by larger macroeconomic factors.

One more example: In 1999, the United Kingdom implemented a minimum wage for the first time; according to this study (and others), the sky has hardly fallen.

Given this set of experiences, it’s not reasonable to assert that a modest increase in the minimum wage will have serious perverse effects on employment, especially when combined with sensible macroeconomic policies. And if we reject that conclusion, two fundamental moral reasons for maintaining and increasing the minimum wage carry the day.

The first as that we as a society have an interest in forbidding certain kinds of deeply exploitative relationships. A fundamental tenet of American labor law (and that of every other advanced nation) is that there is an asymmetry in power between employers and employees. The employment relationship is not a simple transaction like buying a banana, but represents an “incomplete contract”; employers and employees agree on what wage will be paid, but not on how much work will be performed. That depends on how much labor is extracted during the labor process. Employers use the threat of unemployment as well as systems of authority to extract as much labor as possible from their workers. The role of the minimum wage is simply to provide a counterweight to the power employers wield, by establishing a minimum threshold of compensation and prohibiting purely exploitative relationships between employers and workers.

Contrary to conventional economic theory, the wages paid by employers are not determined by the marginal contribution made by a given employee; rather they are based on how easily the employee in question can be replaced by a functional equivalent.

Current fast food technology, for instance, might allow a worker to produce $10 of “value” an hour. In a full employment economy in which it is not so easy to find a replacement worker, the employer may feel it necessary to pay $9/hour to a fast food worker. But in an economy with 10% unemployment and the employer is receiving dozens of job applications a day, the employer might be able to hire an equivalent employee who will produce the same value of goods for as little as $4/hour–or much less, in the absence of a minimum wage law. While a minimum wage law does not limit on what some might term the “rate of exploitation” in a given employment relationship, it does put a limit on how little a worker can receive. Indeed, taken to its logical conclusion, the argument against minimum wage morphs into what is in effect an argument for legalizing voluntary slavery.

The second point is more straightforward: Our aim as a society should be to reach the point where if you work, you will not be poor. A higher (and eventually, inflation-indexed) minimum wage is one tool for reaching that goal; the Earned Income Tax Credit is another.

In theory, the EITC could do all the work–some economists claim this is a more efficient approach. But this is at best a politically unrealistic proposition (since it would depend on greater taxation of the better off), and flat out cynical when proposed by conservatives who know that a Republican Congress will never approve large increases in the EITC. Moreover, not all eligible workers claim the EITC to which they are entitled, meaning its efficiency as an anti-poverty measure is often overrrated.

Independent of that concern about the EITC, there is also a strong case to be made for the notion that a higher minimum wage will contribute to the social respect conferred upon low-wage workers. Americans tend to regard income received from employers–whether it’s our own income or someone else’s–as “earned,” and a greater source of moral worth and pride than income channelled through the government.

Seen in this light, higher minimum wages have a key role to play in securing what should be seen as a central goal of social policy: to ensure that all citizens and especially all workers are treated with basic respect.

Published in: on August 22, 2006 at 4:19 pm  Comments (1)