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September 26, 2004
David Warsh, Proprietor


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Who Cares About the Working Poor?

I have been trying to imagine a world in which David Shipler’s new book, The Working Poor: Invisible in America would enjoy success comparable to that of Michael Harrington’s 1962 classic, The Other America.  It was easier to stir voter interest in the problem of poverty in the 1960s. The mood was different then, and the poor seemed to be concentrated in a few geographical pockets, mostly Appalachia, the South and inner-city ghettos. Today’s working poor are all over. That’s why they are invisible.

Indeed, the news last week that might have been of the greatest interest to the working poor, (if only they had the money to buy the papers that reported it and the time to rerad them), had to do with the tax bill that swept through Congress — $146 billion, much of it benefiting middle class families. The much-resented Alternative Minimum Tax was prevented for another year from reaching those with lower incomes ($45,000 married and $33,750 single). A popular child tax credit was continued at $1,000, instead of slipping back to $700. (A credit is money the government pays you.)

Specifically excluded, however, was a measure pushed by Democrats that would have sharply lowered from its current $10,000 the income threshold necessary to qualify for the child credit. Instead, as sharp-eyed reporter David Rogers of The Wall Street Journal pointed out, the threshold will climb to $11,000 next year, thereby carefully protecting the public purse from inflation — and putting the credit out of the reach of even full-time minimum wage earners if they are the only wage-earners in their family. An earlier edition of Economic Principals described last year’s shenanigans with the same measure.

For those with the spark to read it, Shipler’s book provides an even-tempered introduction to a world in which small sums of money like these (small, that is, for the United States), make an enormous difference.  There have been a steady stream of works like this in recent years — Barbara Ehrenreich’s  Nickel and Dimed: On (Not) Getting By in America, the liveliest of them; Jason DeParle’s American Dream: Three Women, Ten Kids and a Nation’s Drive to End Welfare, the most touching; The Economic Policy Institute’s biannual The State of Working America: 2004-05, the most comprehensive and dependable.

But Shipler’s book surely is the best tour d’horizon of an increasingly pressing problem for the United States: the fact that some significant fraction of its workers are trapped in low-paying dead-end jobs which produce standards of living that never seem to change.  Why? Here’s what happens, for example, when Shipler visited an H&R Block office in a poor neighborhood in Washington, DC, after the annual rush to file for the Earned Income Credit had passed.

“Each form the taxpayer needed carried a fee: $41 for a 1040, $10 for an EIC, $1 for each W-2, and so on. Electronic filing cost another $25.  So a simple return with two W-2s filed electronically would cost $78.  But it didn’t stop there.  Block has a smorgasbord of services for people who lived in the edge. If you had no bank account, your refund could be loaded onto an ATM card that charged $2 per withdrawal. Or a temporary account could be opened into which the IRS payment could be deposited for a fee of $24.95. If you were enticed by Block’s offer of a “rapid refund” and wanted a check in a day or two, you paid H&R Block an additional $50 to $90, depending on the amount you were getting.  The fee on 14th street could be as much as $50 on a $200 refund up to $90 for $2000 or more.”

That adds up to an annual rate of interest that could run as high as 410 percent on $2000 and 2,281 percent on $200, Shipler calculated, depending on the speed with which the government paid. Ordered by a court to stopping describing the loan program a “rapid refund,” H&R Block renamed the service a “refund anticipation loan.” Some 4.8 million taxpayers received such loans in 2000. “Poverty is like a bleeding wound,” writes Shipler. “It weakens the defenses. It lowers resistance.  It attracts predators.”

Shipler was for many years a reporter for The New York Times. He describes the working poor this way: “The man who washes cars does not own one. The clerk who files cancelled checks at the bank has $2.02 in her account. The woman who copyedits medical textbooks has not been to a dentist in a decade… They serve you Big Macs and help you find merchandise at Wal-Mart.  They harvest your food, clean your offices and sew your clothes…

“Moving in and out of jobs that demand much and pay little, many people tread just above the official poverty line, dangerously close to the edge of destitution. An inconvenience to an affluent family — minor car trouble, a brief illness, disrupted child care — is a crisis to them, for it can threaten their ability to stay employed.  They spend everything and save nothing. They are always behind on their bills… Even when the economy is robust, many wander through a borderland of struggle, never getting very far from where they started. When the economy weakens, they slip back towards the precipice.”

There are reasons why this problem has intensified. They have to do mainly with computerization and globalization.  As MIT’s Frank Levy and Harvard’s Richard Murnane have written in The New Division of Labor: How Computers are Creating the Next Job Market, these developments have sharply reduced the number of assembly-line, clerical and other repetitive jobs — jobs traditionally held by high school workers.  Meanwhile, the number of jobs requiring better-educated workers has been steadily increasing.  The result is a glut of workers competing for low-paid jobs, and a shortage of more highly-skilled workers. Harvard University’s David Ellwood carefully surveys the outlook in his working paper, The Sputtering Labor Force of the 21st Century.

There are solutions, too — or at least palliatives. They have little to do with the minimum wage. It is some combination of education and training reforms of the sort advocated by Levy and Murnane’ of various forms of financial support to individuals known as the “negative income tax” and exemplified by the child tax credit; and various subsidies to employers designed to increase the rewards to work — the enhanced-wage jobs offered to scholarship students by universities being a case in point.  The latter is perhaps the least familiar and most promising idea; its economics have been described by Columbia University professor Edmund Phelps in a seminal book, Rewarding Work: How to Restore Participation and Self-Support to Free Enterprise.

It doesn’t matter, of course, if no one cares — if no one reads David Shipler’s book, if the program of “the Reagan Revolution” really turns out to mean repealing the advances of the New Deal. Anti-tax activist Grover Norquist recently expressed the view that people who care about equality and fairness are gradually disappearing. “Two million people who fought in World War II and lived through the Great Depression die every year. That generation has been an exception in US history, because it has defended anti-American policies. They voted for the creation of the welfare state and for obligatory military service. They are the Democratic base, and they are dying.”

But the rising generation in politics is always the young.  That is why I remain so interested in the Deaniacs, the young supporters of the candidacy of former Vermont Gov. Howard Dean who were banished from the leadership scene — for now.

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