October 01, 2012
“The age of Men is over. The time of the Orc has come!”
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“The age of Men is over. The time of the Orc has come!”
The Bush recovery has been good for Wall Street, but not Main Street. The economic recovery that began in 2001 has brought slow job growth, limited wage gains, and continued rising inequality. While families at the top of the income ladder have seen their incomes rise faster than inflation, those in the middle and bottom have seen theirs fall.
Millions now work in what we call "bad jobs." While higher-wage workers take for granted that their jobs come with employer-based benefits like health insurance, a retirement plan, and maybe some paid time off, just over one-in-five workers (22.1 percent) are in a bad job -- a job that pays low wages and provides no benefits.
That's where government work supports -- programs that ensure that families can access basics such as healthcare, childcare, food, and housing -- are supposed step in and fill in the gaps.
The reality, however, according to research we released this week, is that nearly 41 million people live in families that don't earn enough to make ends meet, and government benefits do not fill in the gap. These families work, but their earnings aren't enough. Most low-wage workers don't get the kinds of employer-sponsored benefits common for higher-waged workers, so without government help, these families are left out in the cold, often unable to afford health insurance, decent child care or other necessities.
We do have work supports to help people. Child-care assistance, the Earned Income Tax Credit (EITC), food stamps, public housing and Section 8 housing programs, Medicaid, the State Children's Health Insurance Program (SCHIP), and Temporary Assistance to Needy Families are all available across the United States.
When families get these work supports, they help bridge the gaps left by low wages and lack of employer-sponsored benefits. Across nine states (Illinois, Iowa, Massachusetts, Minnesota, New York, North Carolina, Ohio, Texas, and Washington) and the District of Columbia, for example, work supports close nearly half (44 percent) of the gap between a family's earnings and what it takes to make ends meet.
But these policies leave out just as many as they help. Most of these work supports were initially intended to serve poor, unemployed families. The eligibility criteria require families to be very poor, earning so little in most states that many of those who are in need still earn "too much" to be eligible. The EITC and SCHIP were both designed to help working families, but even these programs leave many families out in the cold.
After decades of little or no growth in earnings for millions of workers, and with employers simultaneously paring back benefits, too many working-class families are being left out in the cold, without access to employer-sponsored benefits or government work-supports.
For nearly a century, the goal of U.S. social policy has focused on aiding the poor, while leaving workers -- regardless of their earnings -- to access benefits from their employer or the private sector. When a significant share of the labor force was in a union and economic growth was providing widespread income gains, this strategy might have made sense. But as employers pull back from their historic role as benefit providers, we need to refocus our attention on how to ensure that working families can make ends meet.
The U.S. work-support system was not set up to solve this problem and, as a result, does not reach most working families. Our research found that across ten states, just under half of people (46.9 percent) living in working families with income below that necessary to purchase a basic standard of living are eligible for Medicaid or SCHIP. Similarly, just over half (55.4 percent) are eligible for the EITC.
Many of those eligible do not actually receive benefits. Across the ten states we studied, about a quarter of children meeting the eligibility requirements for childcare actually received any child-care subsidy. The programs that reached the most people -- the EITC -- was the one that is fully funded and has the easiest application process.
It's not just the very poor who need our attention. As members of the middle class have been squeezed, more and more of us are struggling to maintain our standard of living. The past 30 years have brought rising wage and income inequality and an increase in low-wage, no-benefit jobs. If we want to see an economy that works for everyone, then we -- and our representatives in Washington -- must work for labor standards that support all workers.
This week marks the 10th anniversary of the Personal Responsibility and Work Opportunity Reconciliation Act -- commonly known as "welfare reform." The much hailed legislation abolished a cornerstone of the New Deal known as the Aid to Families with Dependent Children program which was criticized for discouraging work. But 10 years later, we know that the program Congress put in its place -- Temporary Assistance to Needy Families -- encouraged work, but many remain in poverty and struggle to make ends meet.
Since welfare reform was passed, poor women have moved into jobs in record numbers. In 1996, more than half (54 percent) of low-income mothers with children under 6 years old were in the labor force. By 2002, that share jumped to over two-thirds (67 percent).
But, the workplace has not adapted to the needs of the millions of new working single mothers. Studies of people leaving welfare consistently find that the wages of those leaving welfare average between $7 and $8 per hour , which are above the minimum wage but leave families close to or even below the poverty threshold. Further, most people found jobs that do not offer the kinds of benefits middle- and upper-class workers take for granted. Only about half of those leaving welfare report having employer-sponsored health insurance and no more than half had paid sick leave or pension coverage. Most do not have access to paid maternity/paternity or family leave and many do not even have access to unpaid leave.
In short, welfare reform was effective in getting more mothers to work, but not at making jobs work for low-wage mothers.
And, don't be fooled by the higher employment numbers into thinking that welfare reform eliminated poverty. Around the time of welfare reform's passage, Congress increased some of the benefits of working -- raising the minimum wage and expanding the Earned Income Tax Credit in 1996, and creating the Child Health Insurance Program in 1997. Yet it has not significantly expanded benefits in recent years. Rather, as states struggled to balance their budgets in the early 2000s, many work-support programs have been cut. Meanwhile, the real value of the minimum wage is lower today than it was when welfare reform passed, and so far Congress has resisted raising it at every turn.
Welfare recipients are virtually all single-parent families and they now face the same problems faced by millions of low-income working families: not enough time and not enough income. For working parents, gainful employment requires not only a good job, but also reliable child care. While the wages of most parents leaving welfare are relatively low, child care costs remain high -- more expensive than attending the state university in most states -- and subsidized slots continue to be elusive.
For many families, moving to work has meant become "working poor," rather than "welfare poor." Work supports are available for some low-income workers, but evidence indicates that the percentage of eligible families receiving food stamps, earned income tax credits, housing assistance or child care vouchers is quite small relative to the need. Those lucky enough to access work supports find that they often phase out too rapidly, as each rise in income reduces benefit levels. Thus, employment creates the "running in place" dilemma: Every additional dollar earned means close to a dollar lost in benefits.
And, those finding jobs are the lucky ones. While the poverty rate has fallen dramatically since 1996, welfare caseloads have fallen even more. Between 1996 and 2004 , the poverty rate for single mothers fell from 42 to 36 percent, a 14.3 percent decline, but the percentage of families using welfare fell by close to 60 percent, meaning that far fewer poor families are being served by welfare. Families who face enormous barriers to employment still need cash assistance, especially when family circumstances preclude a single parent from holding any job or a full-time job.
Nobody liked the old welfare system. It provided disincentives to employment, treated people poorly, and didn't provide enough income to support a family.
But, the current system isn't working very well, either. Too many families struggle too hard in a country that has enormous wealth. Ten years later, many low-income working families are wondering when we will insist that work should work for families -- that jobs pay enough to afford the basics, that they come with health care and access to paid sick leave, and that every parent has access to safe, affordable and enriching child care for their children while they're at work.
The word he bandies about is "reform," which harks back to progressive causes such as voting-rights reform. In those cases, to reform a system meant to change it to work more fairly for more people.
But this Bush-era reform is no way reformist in this sense. For women in particular, it could be a huge step backward.
Bush is pushing individual accounts, arguing that workers will benefit from investing in a broad mix of stocks and bonds. However, most employer-sponsored 401k plans allow workers to do just that. What most Americans no longer have is a pension that provides guaranteed, inflation-adjusted income during retirement – regardless of longevity. Social Security fills that gap.
If we move to a privatized system and it fails, it will be women who will have to pay the price. Not only do women depend disproportionately on Social Security, we are more likely than men to care for an aging parent. So without the insurance of inflation-adjusted lifetime income, more retirees could wind up relying on the time and generosity of their children. And that means more women would take on the added burden of elder care.
4 Percentage Point Plan
Bush has proposed allowing workers to invest up to 4 percentage points of their Social Security tax dollars in private retirement accounts. This money could be invested in broadly diversified stock and bond funds, much like the 401k plans that many Americans already have. Upon retirement, a worker could either draw down the account over time or convert the savings into an annuity or, in other words, a financial instrument that makes regular payments. For the duration of this annuity, it would pay a guaranteed income stream for the beneficiary and his or her surviving spouse (but not other dependents).
Workers will continue to have the remaining 2.2 percentage points of their Social Security tax dollars in the traditional Social Security plan, which provides inflation-adjusted benefits throughout retirement. The move to privatized accounts would be phased in only for those born after 1950, so today's retirees would see no changes under this reform.
On the upside, if a worker's portfolio earns more than 3.3 percent per year, he or she see would see higher benefits than those who left all their tax dollars in the traditional Social Security plan.
However, if returns are less, benefits will be comparable to those in the traditional plan. This might not sound so bad, until you keep in mind that the Bush administration is also expected to announce benefit cuts in addition to the private accounts. Regardless of whether an individual chooses a private account, once these proposed cuts are phased in over time, a worker who is 45 today would see a 15-percent cut in their future benefits, while those who are 35 today will see a 25 percent cut.
Women Have Much to Lose
Social Security, unlike private accounts, insures workers. As currently structured, it is designed to provide minimal income for retirees and income for people who become disabled and cannot work. (Supplemental Social Insurance addresses the needs of those who are disabled but have not worked.)
Women account for almost 60 percent of elderly Social Security beneficiaries and this guaranteed income allows them a decent standard of living.
Women continue to be more likely to stop working to care for a child or ill family member, which has implications for lifetime earnings. A recent study from the Institute for Women's Policy Research found that, over a 15-year span, women's earnings are 38 percent of men's. The causes are women's shorter employment histories, as well as women's lower wages when they work. Last year, full-time, full-year, women workers earned 75 cents on the dollar, compared to men.
Progressive Structure Helps Women
But even though women earn less from paid employment than men over a lifetime, the progressive structure of the current system – in which those with a lifetime of low earnings receive larger benefits relative to their contributions – benefits women. The system also provides disability insurance and dependent benefits. Thus, women relying on husbands for income are not destitute if something befalls him.
A privatized system does none of these things. Privatized accounts, unlike the benefits in Social Security, are based entirely on an individual's savings and returns. Therefore, while a mother is taking time off to care for a child, she (and her family) forgoes not only her earnings, but also on the ability to put funds into her privatized account.
Further, a privatized system would be riskier for women because they tend to live longer than men. Social Security provides guaranteed benefits to until death. A privatized system would pay benefits until the savings run out.
All of this raises a big question. If privatization is so risky, why do it?
The answer is that some proponents – Wall Street participants, in particular – will gain. Currently, administrative fees make up less than 0.5 percent of every dollar of Social Security benefits. Bush's Social Security commission estimated that the administrative costs of individual accounts would be about 10 times as high, much of which would go to brokers and Wall Street financiers. That's a lot more than what's being paid on Social Security and it could even be a low estimate. Just look at other nations that have moved to privatized plans: England and Chile have seen administrative costs as much as 30 times higher than our present system.
The bottom line: Bush's proposed plan entails risk and women have much too much to lose from it if it doesn't go according to the administration's optimistic scenarios.
This month, Congress must reauthorize the welfare reform law passed in 1996. As Congress considers welfare reform's track record, let's look at what really helped low-income families find jobs and care for their families. The list is short: good jobs, child care, and health insurance. Without these, welfare reform is a sham.
A look at the facts shows that the punitive measures embodied in the welfare reform law were not the primary cause of its success. Welfare reform was successful because the economy was good and because work supports -- child care and health insurance -- helped make work pay.
During the late 1990s when the states implemented welfare reform, jobs were plentiful and wages were rising, especially for low-wage workers. The tight labor market led to historically high levels of employment among Americans and more mothers were at work than at any previous time.
The strong economy meant that finding employment was easier than it would have been if welfare reform passed in the middle of a recession or in a period of falling inflation-adjusted wages.
Finding a job, however, is not enough to ensure that former welfare recipients are successful off welfare. What made the difference for many welfare mothers was the increased availability of child care and health care that were a part of welfare reform. Since most former welfare recipients found jobs that did not offer health insurance and since child care is critical for working mothers, these work supports often made the difference between keeping a job and not.
Welfare reform recognized that a low-wage job might be insufficient to sustain a family through the notion of "making work pay." As a part of this, welfare reform gave states the flexibility and the funds to provide assistance to welfare mothers who began working. Fortuitously, states had more money per welfare recipient in the late 1990s than they had previously because welfare rolls fell faster than funding levels.
Many states did use this extra cash to make work pay. Over the four years between 1997 and 2001, states gave an extra $7.7 billion to help pay for child care for low-income families. They gave an extra $24 billion to cover low-income children under the new Children's Health Insurance Program. They also gave more money for transportation and job training.
These extra funds helped mothers transition into the world of work. Access to child care was critical. Finding child care in most American communities is tough for any parent. It is even harder for low-income families. On average, for low-income families -- those below 200 percent of poverty -- child care eats up about 14 percent of their family budget, compared to only about 7 percent for other families.
Money spent on child care directly supports the employment of mothers. Mothers who use child care centers are more likely to stay employed than are mothers who turn to informal kinds of care, such as their grandmother, sister, or neighbor. Informal care can be wonderful -- when it works. However, informal care is frequently not reliable, which means that it is inadequate for workers who can get fired if they must take off work to care for children.
Money spent on increased access to health care was also critical since most low-wage employers do not provide their employees with affordable health insurance. Among low-wage workers, only about one-third receive health insurance from their employer. The Children's Health Insurance Program, implemented in 1997, sought to increase coverage for children of the working poor, many of whom were former welfare recipients.
This is not to say that funding levels for child care or health care were entirely sufficient in the late 1990s. The Department of Health and Human Services reported that only about one in eight children eligible for federal child care subsidies actually received any assistance in 1999. Further, even though health insurance coverage increased for low-income children, millions remained uninsured.
The picture has worsened through the recession and tepid recovery. As states sought to balance their budgets over the last two years, child care and health care subsidies to working parents were often first on the chopping block. Thirty-two states have made cuts to their low-income child care programs and the Children's Health Insurance Program has been cut back in 22 states.
The Bush administration had the opportunity to prevent these drastic cuts. They could have offered real budget assistance to the states to limit these cuts. This would have both helped their fiscal bottom line, as well as helped provide valuable assistance to families struggling to make it in a job-loss recovery. Instead, the administration gave tax cuts to the wealthiest Americans.
The issue before Congress now is what worked and what didn't in welfare reform. The administration believes that what worked were the sticks, not the carrots. Their proposed changes would limit child care spending while increasing the hours of work required for welfare recipients. The administration wants welfare moms to work 40 hours per week -- more hours than the typical mom works -- with no additional money to help pay for child care.
This blindness to understanding what working families need to make work work will only hurt families doing their best to find and keep jobs in today's economy. It is most telling that even though the economy has more than 2 million fewer jobs today than it had when Bush took office, the administration expects the lowest-paid workers to put in more time at work.
Dr. Heather Boushey is a research economist with the Center for Economic and Policy Research in Washington, D.C.