The proponents of a “living wage” in the US have argued that setting minimum wages at a level that leaves full time workers at below subsistence level is bad policy, both economically and socially. While opponents argue that increasing pay for the lowest earners will reduce the number of jobs, elasticity of demand isn’t all that high. A 10% increase in wages only results in a 2-3% decrease in employment, resulting in a marked gain in aggregate earnings.
Further confirmation of the downside of low wages comes in this article from MarketWatch. It’s noteworthy that the authors have fallen into the Wal-Mart syndrome of looking for explicit public subsidies to compensate for inadequate wages. But does it make sense for taxpayers to augment the incomes of the working poor, rather than require employers to pay adequate wages? The issue needs to be addressed explicitly.
From MarketWatch:
About 1 in 5 Americans in working families can’t afford basic needs, and many are scraping to get by on insufficient income and government aid, policy researchers conclude in a report released Wednesday.
Many of these workers earn too much to qualify for “work supports” such as Medicaid and food stamps, while their employer-provided health insurance doesn’t cover enough of their basic medical costs, according to the report by the Center for Economic and Policy Research and the Center for Social Policy at the University of Massachusetts.
“We no longer live in a world where having a job means you’re automatically able to make ends meet,” said Heather Boushey, co-author of the report. “Our work-support policies need to be updated to support the millions of families with earners in bad jobs.”
About 41 million people in working families can’t afford such basic necessities as health care and housing, according to the report. The study, which examined conditions in nine states and the District of Columbia, found that government programs close abut two-fifths of the “hardships gap” — a measure of the difference between a family’s income, including all aid programs, and the local costs of goods and services.
“Families fall into the hardships gap because the low-wage labor market provides meager pay and few employment-based work supports for low- and moderate-wage workers,” the report noted.
The report’s authors recommend steps such as focusing on better wages and mandates for employers to provide employment-based benefits, and simplifying the eligibility criteria and application requirements for work supports.
“Public policy has not caught up to the reality that even working families may need public work supports,” the authors wrote. “Without public work supports, they and their families go without health insurance, adequate child care, safe housing, or other necessities. Many of those in the hardships gap earn too much, or do not meet other eligibility criteria, to qualify for work supports, even through they are low-income.”
In 2005, about one-fifth of workers were in “bad jobs” — those that paid less than the median wage in 1979 in inflation-adjusted dollars, and did not offer health insurance or a retirement plan, according to the report. Employer-based benefits are good for people with access to them, but most low-wage workers aren’t offered or can’t them, the report said.
“While workers with moderate or high earnings commonly receive health insurance, paid time off, and retirement plans, low-wage workers most often do not,” the report noted.
The median monthly hardship gap for families in the states covered by the report was $1,524. After work supports, that gap decreased to $855. Therefore, the typical family with a hardships gap sees a savings of about $8,000 in work supports.
“However, we find that many low-income working families are either ineligible for work supports, or do not receive the supports to which they are entitled,” the authors wrote.Part of the problem is that the work supports don’t reach all who are eligible due to a complex registration process and a lack of resources.
Boushey said government financial aid programs could draw a lesson from the earned income tax credit, which has a relatively straightforward system for eligible recipients to receive benefits.
