COLUMN-Finding new ways to make work pay

Reuters

By Reihan Salam

Nov 15 (Reuters) - One of the scariest notions aboutAmerica's sluggish labor market recovery is that it doesn'trepresent an aberration, but rather a new reality in which goodjobs are few and far between, particularly for those withlimited skills. It is certainly possible that the future will bebrighter than we think, and that we will soon enter a neweconomic Golden Age in which people with low education levelswill flourish as employers clamor for their services atever-higher wages. But if this happy outcome does not come topass, as the current evidence suggests, the United States andother market democracies will have to come up with a Plan B.

A number of interrelated developments, from automation toorganizational innovation to off-shoring, appear to have reducedthe willingness of employers to pay middle-income wages toless-skilled workers. That is, the problem is not that there isno wage at which employers will take on less-skilled workers. Ifthis were the case, agriculture and hospitality companieswouldn't be pressing lawmakers for an immigration overhaul thatwould allow for a large influx of less-skilled workers fromabroad.

Rather, the problem we face is that employers are onlywilling to employ less-skilled workers at very low wages,including wages that the voting public considers unacceptablylow. Public support for raising the federal minimum wage, now at$7.25, is overwhelming. A Gallup survey released on Monday findsthat 76 percent of voters favor a $9 per hour minimum wage, andone assumes that support for an even higher minimum wage wouldbe almost as robust.

Many will argue that an increase in the minimum wage to $9will not have a dramatic effect on the number of low-wageemployees or on hours worked, and that may well be true. Yet itis possible that job growth might decline in the wake of minimumwage increases, as new research by Jonathan Meer and Jeremy Westof Texas A&M University suggests. Nicole M. Coomer of RTIInternational and Walter J. Wessels of North Carolina StateUniversity, meanwhile, have explored the possibility that whileincreases in the minimum wage don't appear to have a significantimpact on total employment levels, they might cause workers toshift from jobs subject to the minimum wage to those that arenot subject to the minimum wage. For example, the minimum wagefor tipped employees, like restaurant servers, is lower than thestandard minimum wage. Regardless, the minimum wage debate won'tget resolved any time soon.

What we do know, however, is that in market democracies withhigh effective minimum wages, whether established by statute orcentralized collective bargaining, the lowest-wage employeestend to be more productive than their lowest-wage counterpartsin the United States. This implies that as minimum wagesincrease, employers might become more inclined to substitutecapital for labor and that they will be somewhat more reluctantto hold on to employees who can't handle a steep learning curve.Earlier this year, Sarah O'Connor of the Financial Times wrote abrilliant account of Amazon UK's Rugeley fulfillment center,where many employees are drawn from the ranks of the region'slong-term unemployed. Workers who can handle the intenseworkload are made full-time Amazon UK employees. Those who can'tare let go, and quickly. What O'Connor doesn't explore is thevery real possibility that Amazon UK's personnel policies flowfrom Britain's hourly minimum wage, which at 6.19 pounds ($9.84)is substantially higher than the U.S. minimum wage. The UK wageessentially mandates a reasonably high level of productivitythat young workers, workers with limited English languageproficiency, or workers taking on their first jobs a long spellof unemployment might struggle to reach.

The usual way around this dilemma is for policymakers toback wage subsidies and other social supports. If employersaren't willing to pay wages high enough to allow less-skilledworkers to achieve an acceptable standard of living, oneresponse is to provide these workers with a suite of benefits,from in-kind transfers like food stamps (or SNAP) and Medicaid,to cash transfers like the earned-income tax credit (EITC).Scott Winship, a scholar at the right-of-center ManhattanInstitute, has carefully documented the extent to whichtransfers have helped increase the incomes of poor families.According to Winship, households at the 20th percentile - thoseearning higher incomes than one-fifth of U.S. households, butlower incomes than four-fifths of U.S. households - saw theirmarket income increase by a mere 12 percent from 1979 to 2007,but factoring in taxes and transfers saw their incomes increaseby 28 percent to 46 percent, depending on how we valuepublicly-financed health insurance benefits. Though it'scertainly possible that without transfers, we might have seensocial and economic changes that would have increased marketincomes, but it looks as though rising transfers made a hugedifference in cushioning low-income households from anunfavorable economic environment.

If the labor market position of less-skilled workers isgoing to get even worse in the coming decades, we have to thinkseriously about finding new ways to make work pay. For example,we could try to streamline the various benefits federal andstate governments have used to raise incomes at the low end tofoster a more work-friendly approach to fighting poverty. OrenCass, domestic policy director of Mitt Romney's 2012presidential campaign, recently outlined such an approach inNational Review. The basic idea is that while the non-workingpoor will continue to receive in-kind transfers, channeledthrough state governments, the working poor will receive cashtransfers instead. Low-income households will receive support ineither case, but they will receive support with fewer stringsattached if they find and hold on to gainful employment.University of Arizona sociologist Lane Kenworthy, author of theforthcoming Social Democratic America, has called for anexpanded employment-conditional earnings subsidy that would risein sync with economic growth. And in Switzerland, a coalition ofactivists are campaigning for a basic income, an idea that hasbeen championed by left-libertarians, egalitarian socialists,and even a number of pro-market conservatives who see it as aless bureaucratic, more straightforward alternative to thewelfare state. This basic income would not beemployment-conditional, which raises the danger that it wouldencourage people to exit the workforce, as Annie Lowrey observedin the New York Times. But some still find the idea compelling.

New York City is embarking on an experiment to figure outthe best way to better the lives of the working poor. Right now,the earned income tax credit delivers the biggest benefits tothe parents of dependent children, and far smaller benefits tosingle adults. Paycheck Plus, an initiative of New York City'sCenter for Economic Opportunity in partnership with the researchorganization MDRC, will provide low-income single adults withoutdependent children with a more generous wage subsidy. Though wewon't know the results for some time, these efforts will helpinform the all-important conversation about the future of thegrowing number of Americans who find that their paychecks aren'tbig enough to make ends meet.

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