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Why poverty stayed flat over three decades of strong economic growth

June 6, 2014
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Building on several in-progress campaigns to raise the minimum wage and expand unions, the Economic Policy Institute released a study yesterday showing how, since the early 1970s, huge gains in economic growth have not made any dent in the U.S. poverty rate. One takeaway:

Wage-driven inequality has severed the link between poverty reduction and overall economic growth. If poverty reduction and growth were correlated as tightly as they were between 1959 and 1973, growth would have driven the poverty rate, which grew from 11.7 percent in 1979 to 15.0 percent in 2012, to essentially zero by now.

This chart gets at the problem:


The report received favorable coverage around the economic blogs and even in the New York Times,  which quoted the study’s author:

“It used to be that as G.D.P. per capita grew, poverty declined in lock step,” said Heidi Shierholz, an economist at E.P.I. and an author of the study. “There was a very tight relationship between overall growth and fewer and fewer Americans living in poverty. Starting in the ′70s, that link broke.”

This severely pissed-off Forbes contributor Tim Worstall, who took to the blog comments (as well as his Forbes perch) to attempt to debunk the EPI’s work. As with the Forbes-based attack on Thomas Piketty’s gigantic and important book about rising wealth inequality, Worstall’s response to the EPI is suitably apoplectic, yet weak.

Using impressive charts and stuff, Worstall asserts that poverty “pretty much doesn’t exist in the US today,” an argument which is considerably less compelling when one shifts one’s eyes from said charts to the lives (and increasing numbers) of actual people begging on the median strip.

Counting and correcting all the mistakes a Forbes columnist makes when imputing what he imagines is the true poverty rate would take most of the rest of my week and more pixels than you’d like to see. But he does have a point. EPI’s work would be much more compelling if it acknowledged and adjusted itself for the transfer payments in-kind.

The larger point: Forbes’ spluttering is the surest indication I’ve seen that the era of transparently bogus “returns to skill”  and “skills gap” explanations for the nation’s increasing economic inequality is finally coming to an end—20 years after it should have, but whatever.

Now brace yourselves for some long-overdue news coverage of a raft of economic phenomena that have long been central to the lives of many working people—and as studiously ignored by most major media outlets. From the EPI report:

Raising America’s Pay seeks to give overdue recognition to the labor market policies and business practices that have suppressed wage growth by robbing American workers of key protections and diluting their bargaining power. As just noted, the most obvious examples of corrosive policies and practices are the continued erosion of both union coverage and the real (i.e., inflation-adjusted) value of the federal minimum wage. But a range of other, less visible factors have also undercut pay, from the inappropriate classification of employees as independent contractors to increasing incidence of “wage theft” that occurs when workers—particularly low-wage and immigrant workers—are not paid for the work they have performed. Indeed, those looking to boost the bargaining power of employers have fought efforts to allow certain low-wage workers to qualify for overtime pay and have tried to impede institutions that help thwart wage theft.

“Inappropriate classification” means you call your employee an “independent contractor.” Taxi companies pioneered this scam in the 1970s but many others—especially including the tech industry—followed suit. Only lately are the drivers getting any traction opposing it, and I hope the white collar victims will do so soon as well.

Wage theft? Oh yeah. It’s an actual thing. It may even be happening to you. Unlike most states, Maryland lets you do something about it.

I’m eagerly looking forward to those liens and the stories behind them.

 

 

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  • http://www.atomicfangirl.com Denise

    “poverty ‘pretty much doesn’t exist in the US today,’”

    Well now. Care to take a stroll through my Pigtown neighborhood? There are plenty of people desperately trying to make ends meet, and failing in the attempt.

    Blatant disregard for the real picture – and lying with statistics – are some of the reasons why poverty is still rampant in our country. Bravo, Mr. Worstall.

  • Sean Tully

    Americans still don’t get it. Once more – we are being duped by free trade. Here is how it works:
    1. Send jobs overseas to the lowest wage workers possible.
    2. Slowly but surely strip unions of all their powers.
    3. Create “right to work” states (largely in the south).
    4. Allow millions of illegal immigrants to cross the border and to take jobs working for peanuts.
    5. Once people start squealing a little, start bringing some jobs back to the U. S., but mostly to “right to work” states, mainly in the south.

    A good sign that you have been duped by the free traders is if you think that someone working at McDonald’s should somehow be earning a “living wage”.