Poverty nation: How America created a low-wage work swamp

For decades, both parties supplanted a push for higher wages with well-intended public aid. The result: Calamity

Published December 15, 2013 12:00PM (EST)

Newt Gingrich, Barack Obama, Bill Clinton                    (AP/Ron Edmonds/Reuters/Joshua Roberts/AP/Stephan Savoia/Photo collage by Salon)
Newt Gingrich, Barack Obama, Bill Clinton (AP/Ron Edmonds/Reuters/Joshua Roberts/AP/Stephan Savoia/Photo collage by Salon)

2013 is the year many Americans discovered the crisis of the working poor. It turns out it’s also the crisis of the welfare poor. That’s tough for us: Americans notoriously hate welfare, unless it’s called something else and/or benefits us personally. We think it’s for slackers and moochers and people who won’t pull their weight.

So we’re not sure how to handle the fact that a quarter of people who have jobs today make so little money that they also receive some form of public assistance, or welfare – a proportion that’s much higher in some of the fastest-growing sectors of the workforce. Or that 60 percent of able-bodied adult food-stamp recipients are employed.

Fully 52 percent of fast-food workers’ families receive public assistance – most of it coming from Medicaid, food stamps and the earned income tax credit -- to the tune of $7 billion annually, according to new research from the University of California-Berkeley’s Labor Center and the University of Illinois.

McDonald’s workers alone receive $1.2 billion in public aid, the study found. This is an industry, by the way, that last year earned $7.44 billion in profits, paid its top execs $52.7 million and distributed $7.7 billion in dividends and stock buyback. Still, “public benefits receipt is the rule, rather than the exception, for this workforce,” the study concluded.

Then there’s Wal-Mart, which, as Salon’s Josh Eidelson recently reported, boasted to a Goldman Sachs conference that “over 475K” of its 1.3 million workers make more than $25,000 a year – which lets us infer that almost 60 percent make less.

Democrats on the House Committee on Education and the Workforce estimated that the giant low-cost retail chain benefits from many billions in public-assistance funding; one Wisconsin “superstore” costs taxpayers at least $1 million a year in public assistance to workers’ families. Remember, too, that six members of the Walton family own as much wealth as 48 million Americans combined.

But it’s not just fast food and Wal-Mart: One in three bank tellers receives public assistance, the Committee for Better Banks revealed last week, at a cost of almost a billion dollars annually in federal, state and local assistance. That’s right: One of the nation’s most profitable, privileged and high-prestige industries, banking, pays a sector of its workers shockingly low wages and relies on taxpayers to lift them out of poverty. In New York alone, 40 percent of bank tellers and their family members receive public assistance, costing $112 million in state and federal benefits.

Bank CEOs get multimillion-dollar bonuses as profits soar, while millions of tellers are so poor they get welfare. Something’s wrong with that.

Revulsion at subsidizing profitable corporations that pay poverty-level wages is helping fuel a wave of long-overdue organizing and protest on behalf of low-wage workers, from the fast-food strikes that have swept the country to Wal-Mart protests this holiday season. Taxpayers recoil at the notion, but so do many workers themselves. “I thought I could make it on my own. That didn't happen,” Wal-Mart worker Aubretia Edick, who makes $11.70 an hour and still gets public assistance, told the Huffington Post. That’s why she joined a one-day strike. “Wal-Mart doesn't pay my salary,” she said. “You pay my salary.”

The U.S. now has the highest proportion of low-wage workers in the developed world, according to the Organization for Economic Cooperation and Development. One in four make less than two-thirds of the median wage, which is the same proportion that relies on public aid. It’s becoming more widely accepted that the spread and persistence of low-wage work is behind rising income inequality and reduced social mobility. What’s less well known is the role Democrats have played in creating this trap.

* * *

In his widely admired speech on income inequality Dec. 4, President Obama seemed to share all of these concerns.

“We know that there are airport workers, and fast-food workers, and nurse assistants, and retail salespeople who work their tails off and are still living at or barely above poverty,” he said.

Based largely on that speech, and some West Wing whispers, Politico announced Friday "President Obama turns left." But outside of saying again that it’s time to raise the minimum wage, the president hasn't yet put much meat on a "left" agenda for low-wage workers.

It would also be nice for Obama to recognize: The fact that so many Americans “work their tails off and are still living at or barely above poverty,” receiving public assistance, is not just an unhappy accident. It’s the result of public policy supported by many Democrats -- and he hasn’t done much to change or challenge it. In fact, the chair of Obama’s Council of Economic Advisors has made the most spirited defense of it.

The truth is, a bipartisan consensus emerged in the 1990s, that a job, practically any job, was better than long-term public assistance for so-called able-bodied adults, including mothers with young children. It led to controversial 1996 welfare reform legislation that had ramifications way beyond the realm of welfare.

Republicans demanded work from welfare recipients; (most) Democrats went along, but demanded new support for low-wage workers: an expanded earned income tax credit, wider Medicaid and food stamp eligibility, new (though not nearly sufficient) childcare subsidies. (As an Illinois state senator, Obama was critical, but later endorsed the deal.) The new support programs also helped millions of low-wage workers who never relied on welfare; as wages continued to stagnate and even decline, more people became eligible.

But as labor advocates began to realize and protest the extent to which employers were relying on taxpayers to support their workforce a decade ago, some liberals told them not to worry about it. Responding to an earlier wave of organizing against Wal-Mart’s labor practices, President Obama’s Council of Economic Advisers chair, Jason Furman, wrote a hugely influential 2005 paper, “Wal-Mart: A Progressive Success Story.” (Eight years later, it sounds like he was trolling us.) The former Clinton economic adviser argued that the big box chain’s low prices helped poor people, and that its employees’ reliance on public assistance wasn’t a bug but a feature of progressive social policy.

Furman credited President Clinton with presiding over “the transformation of our social safety net from a support for the indigent to a system that makes work pay … expansions in support for low-income workers, including a more generous Earned Income Tax Credit (EITC) and efforts to ensure that children did not lose their Medicaid if their parents took a low-paid job.” Essentially, Wal-Mart employees’ reliance on such programs represented good social democratic policy, Furman argued. And in a memorable exchange with Barbara Ehrenreich in Slate, he chided Wal-Mart’s progressive critics for “playing on the atavistic anti-welfare, anti-government, anti-tax instincts of some conservatives.” (Leave it to a Clinton-era Democrat to blame progressives for the well-established “atavistic anti-welfare instincts” of the right.)

Although Furman’s Wal-Mart paper is eight years old, it was widely cited as a reason for progressives to question his appointment as CEA chair earlier this year (though progressive economists from Jared Bernstein to Paul Krugman endorsed his selection). Just a few months ago, when the Washington, D.C., City Council passed a bill requiring non-union big-box retailers to pay a $12.50 minimum wage, Wal-Mart emailed reporters Furman’s piece in defense.

Interestingly, I’ve never seen Furman defend or qualify or update the paper, even in the face of a new wave of anti-Wal-Mart organizing. I wasn’t entirely comfortable using an eight-year-old paper to stand in for his views, so I asked White House communications officials if he would talk to me about it. I got no reply.

As a social democrat, I don’t think Furman is wrong to defend the role of social programs in making life better for low-wage workers. Lots of progressives believe we should detach health insurance from employment entirely, for instance, and make it a universal benefit supported by higher corporate and top-rate taxes plus sliding-scale individual contributions. Throughout the developed world, workers at almost every level can rely on government-funded healthcare, childcare, job training and retraining, and even (at lower wage levels) wage supplements.

But it’s not punitive Calvinism or welfare shaming to question the extent to which it’s now a given that low-wage workers are going to have to rely on food stamps and other public assistance, often for a long time, perhaps permanently. By not also demanding regular minimum wage hikes or putting muscle behind union organizing, Democrats have helped create a vast low-wage labor pool that hovers just above the poverty line, and sometimes still below it, thanks to public assistance, and lacks the economic and political muscle to improve their wages and working conditions. This can’t be good for anyone.

In fact, the notion that so many millions of people work so hard and are still poor enough to receive public aid is galvanizing: It helps make vivid that low wages, not lack of effort or “dependency,” are part of what’s shrinking the middle class. Not just taxpayers but low-wage workers themselves think rising out of poverty with the help of food stamps and Medicaid and the EITC should only be a temporary victory on the way to a solid place in the labor market where work is fairly compensated.

I’m certainly not demonizing public assistance. We still spend a pittance helping low-wage workers compared to the social support enjoyed by their counterparts in other prosperous nations. Progressives are rightly proud of a recent study that found anti-poverty programs do indeed lift people out of poverty – roughly a quarter of Americans would live below the poverty line without social support, as opposed to a still dismal 16 percent today. That should obliterate Reagan’s ugly canard that “We fought a war on poverty, and poverty won.”

But every dollar taxpayers spend subsidizing corporations that are paying poverty wages is a dollar not spent on early childhood programs, building universities or funding college education. Yes, we need safety nets, but we also need ladders of opportunity. The government spending that built the post WWII middle class invested in education and research, and it was backed by the New Deal’s most effective anti-poverty initiative, the Wagner Act, which eased labor union organizing.

Today, we’ve got a threadbare safety net, but those ladders of opportunity are even more rickety and unreliable. We’re just not building them anymore – and that’s why we’re facing a crisis of income inequality and a stalling of the social mobility that used to be the heart of the American dream.

* * *

President Obama seemed to recognize at least some connection between the proliferation of low-wage work and the crisis of income inequality in his landmark Dec. 4 speech. Decrying the rising number of jobs paying poverty-level wages, he declared, “It’s well past the time to raise a minimum wage that in real terms right now is below where it was when Harry Truman was in office,” and added that “it’s time to ensure our collective bargaining laws function as they’re supposed to so unions have a level playing field to organize for a better deal for workers and better wages for the middle class.” He also pledged to rebuild the “ladders of opportunity” that launched his family and millions of others, including mine, from the working to the middle class. Given the far-right swing of the Republican Party, however, he’s not likely to be able to make much of that happen.

Which brings me to the other problem with low-wage workers being forced to depend on public assistance: They’re sadly vulnerable to political scapegoating and backlash politics. Rep. Paul Ryan calls the safety net a “hammock,” which is horrifying when we know so many people are working at least one and maybe two jobs and still remaining poor. Mitt Romney inveighed against the 47 percent of Americans who pay no federal income taxes, which includes millions of low-wage workers on the earned income tax credit, even though the EITC was a Republican idea, signed into law by President Gerald Ford and expanded by both Presidents Bush.

But Republicans aren’t pushing to raise the minimum wage or make it easier for low-wage workers to organize unions. Their answer is to pull the safety net out from under these workers without building ladders that let them climb. And with sequestration and food stamp cuts, they’re getting their way.

Right now the best answer is an invigorated labor movement on behalf of low-wage workers, and it’s bracing to see it develop. On one level, it’s surprising it’s taken so long. Many low-wage jobs have the advantage of being place-based; they can’t move to the developing world. Drones are not going to deliver your McDonald’s hamburgers any time soon, and Wal-Mart can’t sell everything online, or else it would. The ranks of bank tellers have already been decimated by ATMs and online banking; those who still have jobs are needed.

But it would also be important for more people – more Democrats – to acknowledge the role policy has played in creating this swamp of low-wage work made slightly less miserable with public aid. As income inequality has widened, America’s trademark social mobility has declined. The crisis of low-wage work is increasingly recognized as part of what’s widening inequality and slowing social mobility. In the fifth year of his presidency, Obama is getting better at describing the problem, but he needs to do more to back the workers who are trying to press for solutions.

By Joan Walsh

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