www.bread.org
Figure 2
Share of bottom-fifth household income accounted for by wages, cash
transfers, and in-kind income, 1979–2007
2007:
50.5%
50%
1979:
40.4%
Share of pretax income
Among the 34 industrialized countries
in the Organization for Economic Cooperation and Development (OECD),
the United States has the fourth-highest
percentage of households in poverty
where two people or more are working.4
Families are poor (and, as a result,
food insecure) because wages are low
and social insurance programs do not
provide enough to make up the difference. Most other industrialized countries dedicate far more tax revenue to
social safety nets. In the United States,
government benefits as a share of household income has been in decline since
1973 (see Figure 2). We will say more
about social safety net programs later—
for now, let’s focus on wages.
In 2011, 28 percent of workers earned
$11.06 or less an hour, with the average
hourly wage for this group just $8.66.5
The federal minimum wage is now
$7.25 an hour. That’s significantly lower
than in 1968, when the minimum wage
peaked at almost $10.60 in 2012 dollars.6
There’s a widespread myth that most
minimum wage workers are teenagers
living with their parents. In fact, 80 percent of minimum wage earners are at
least 20 years old.7 To put the minimum
wage in perspective, consider the cost of
housing. In no state could someone working full time at minimum wage afford
a two-bedroom apartment.8 According
to the National Low Income Housing
Coalition, an average full-time worker
would need to earn $18.25 an hour just
to afford a two-bedroom apartment at
the fair market rate (which means that
people pay no more than 30 percent of
their income for rent).
By some measures, such as GDP, the
national economy has performed exceptionally well for decades. Yet real wages
have been stagnant or eroding for almost
all workers.9 “From 1979 to 2007, had income growth been equally distributed,”
according to the Economic Policy Institute’s most recent edition of The State of
Working America, “the poverty rate would
have been 5.5 points lower, essentially,
44 percent lower than what it was.”10
There are many reasons that wages
Wages
34.3%
Cash transfers
40%
30%
20%
20.3%
In-kind income
13.1%
15.4%
10%
0%
1979
1983
1987
1991
1995
1999
2003
2007
Note: Wages, cash transfers, and in-kind income comprise, on average, 88 percent of all pretax income for the
bottom fifth. The other 12 percent is made up of capital gains, proprietors’ income, other business income, interest and dividends, pensions, imputed taxes, and other income.
Source: Economic Policy Institute, The State of Working America, 12th Edition.
have not kept pace with economic
growth, but a key component of the
problem is that government has not
done enough to counter the downward
pressure on wages. Clearly, there’s a lot
of scope for governments to make mistakes while trying to correct problems
in the labor market; in the end, government power in this sphere is limited.
Rather than focusing on discrete policies, such as raising the minimum wage
or ensuring that workers are able to
form unions, in this paper our focus is
on calling for a stronger commitment to
full employment.
Nothing has proven more effective
in reducing poverty than a “tight” labor
market, meaning that the economy is effectively operating at full employment.
The accurate definition of full employment is not a zero unemployment rate.
It basically means jobs are available to
all workers except those who are voluntarily between jobs, a group that will always be a fraction of the overall labor
market. In the late 1990s, unemployment fell to 3.9 percent, and that was
regarded as full employment.
Poverty rates decline when labor
markets are tight for the simple reason
that people without jobs can start earning a paycheck, and more people who
are working part-time involuntarily are
able to move into full-time jobs. Employers are prompted to raise wages and improve working conditions in order to retain workers. Low-wage workers, whose
unemployment rate is generally higher
than the average for all workers, benefit
the most when labor markets are tight.
Full employment is supposed to be
a U.S. government priority. Along with
maintaining a stable rate of inflation, it
is one of the pillars of monetary policy.
Many policymakers argue if unemployment is too low, the result will be soaring inflation rates. Yet the last time the
U.S. economy was at full employment,
in the second half of the 1990s, inflat ion
did not rise. The labor market was tighter than it had been for decades, driving
faster growth in incomes for most American households. Most importantly for
our purposes, it was low-wage workers
who experienced the fastest growth in
income.11
SNAP and other nutrition programs must
form a bulwark against hunger for all
those in need of their assistance.
The Supplemental Nutrition Assistance Program (SNAP), formerly the
Food Stamp Program, is the country’s
flagship nutrition program. It is the
Bread for the World Institute 3