Wages Are Rising for Low-Skill Workers, Driving Down Poverty and Inequality
By Elizabeth Nolan Brown
On March 10, 2023
Income inequality and poverty are falling, thanks to rising wages for workers in low-skill jobs. A lot of low-wage work is, in fact, becoming middle-wage work.
The shift stems—at least in part—from low unemployment, which means companies of all sorts must compete harder for workers. And they’re doing that by offering things like higher wages, better benefits, and bonuses.
Annie Lowrey detailed this half-decade wage compression in The Atlantic last week:
After a brutal few decades in which low-wage jobs proliferated and the American middle class hollowed out, the working poor have started earning more—a lot more. Many low-wage jobs have become middle-wage jobs. And incomes are increasing faster for poorer workers than for wealthier ones, a dynamic known as wage compression.
As a result, millions of low-income families are experiencing less financial stress and even a modicum of comfort, though the country’s surging rents and rising pace of inflation are burdening them too. The yawning gaps between different groups of American workers—Black and white, young and old, those without a college degree and those with one—have stopped widening and started narrowing. Measures of poverty and income inequality are dropping.
I hesitate to call this the “Great Compression,” given that earnings disparities remain a dominant feature of the American labor market and American life. (Plus, economists already use that term to refer to the middle of the 20th century.) But it really is a remarkable trend, a half-decade-old “Little Compression” that policy makers should do everything in their power to extend, expand, and turn great.
Alas, Lowrey sees a role for much government intervention to extend this trend.
Meanwhile, her colleague Conor Friedersdorf offers a more market-friendly solution to making life easier for lower-wage workers:
What’s needed next is enough new construction of houses, condos, and apartment buildings to bring costs down. All we have to do is stop preventing real-estate developers from erecting them.
The New York Times also took a look at poverty this week—albeit through a much less hopeful lens.
In “Why Poverty Persists in America,” sociologist Matthew Desmond noted that progressives today often blame poverty on cuts to government spending on anti-poverty programs since the Reagan era. But this is a myth:
Throughout Reagan’s eight years as president, anti-poverty spending grew, and it continued to grow after he left office. Spending on the nation’s 13 largest means-tested programs — aid reserved for Americans who fall below a certain income level — went from $1,015 a person the year Reagan was elected president to $3,419 a person one year into Donald Trump’s administration, a 237 percent increase.
Much of this increase was on account of health care spending. But excluding Medicaid spending from the equation still yields a 130 percent increase in federal anti-poverty programs between 1980 and 2018.
“There is no evidence that the United States has become stingier over time,” wrote Desmond. “The opposite is true.”
One might look at this and conclude that simply throwing more and more money at the problem won’t work. Progressives, meanwhile, will surely decide we just need to spend even more.
In any event, Desmond didn’t suggest the problem is lack of funding for anti-poverty programs, but government using these funds for things unrelated to material well-being. “Arizona has used welfare money to pay for abstinence-only sex education,” he wrote. “Pennsylvania diverted TANF funds to anti-abortion crisis-pregnancy centers. Maine used the money to support a Christian summer camp.”
Again, this calls into question the efficacy of trying to alleviate poverty solely through government-sponsored programs.
Desmond devoted the bulk of his piece to theorizing about the potential role of exploitation in driving poverty. He defined exploitation to include wages that he doesn’t think are sufficient—a situation for which he blamed all the usual left boogeymen, like declining union membership. But in recent years, it’s been market competition more than unions that have driven up wages.
There’s some dispute that Desmond is even measuring poverty right to begin with.
“I was appalled to see a leading scholar of poverty repeat the misleading claim that the poverty rate has not improved in the last 50 yrs in @nytimes,” tweeted Harvard’s Jason Furman. “This is only true if you look at data that ignores most [of] our major anti-poverty programs including the EITC, SNAP and more.”
This brings us to the question of what it means to truly alleviate poverty.
“Jason, I agree that broader measures show improvement in poverty. But this is almost all due to higher gov’t transfers to low-income people, rather than an increase in their earned income,” Jon Baron, the founder of the Coalition for Evidence-Based Policy, responded to Furman on Twitter. “We’re alleviating econ hardship but not breaking the poverty cycle.”
Increasing spending during the pandemic temporarily pulled more people above the poverty line, on paper. But poverty rates went up again when stimulus payments and extra unemployment benefits were taken away. Simply giving people cash might help with short-term needs but it doesn’t constitute sound help in the long run.
This is why the data on rising wages for low-skill workers—and its attendant effect on inequality and poverty measures—are so encouraging. Leveraging free markets is a much better way to pull people out of poverty in the long term than making them ever more dependent on the government.
FREE MINDS
A man in Montreal, Canada, was arrested for giving the middle finger to his neighbors. Police charged him with criminal harassment. Now, a judge has acquitted him—with some strong words about the fact that he was even prosecuted in the first place.
“To be abundantly clear, it is not a crime to give someone the finger,” Quebec court Judge Dennis Galiatsatos wrote in his decision. “Flipping the proverbial bird is a God-given, Charter-enshrined right that belongs to every red-blooded Canadian. It may not be civil, it may not be polite, it may not be gentlemanly. Nevertheless, it does not trigger criminal liability.”
“In the specific circumstances of this case, the Court is inclined to actually take the file and throw it out the window, which is the only way to adequately express my bewilderment with the fact that Mr. Epstein was subjected to an arrest and a fulsome criminal prosecution,” Galiatsatos added.
FREE MARKETS
“The administrative state is where most of the abuse in government is these days,” suggests The Wall Street Journal Editorial Board in a piece condemning Federal Trade Commission (FTC) overreach—and those who would give the agency even more power.
Republicans have been angry with the FTC lately over intrusion into Twitter’s affairs. But during the Trump administration, many were itching to grant the FTC even more authority. (One wishes this would serve as a lesson to the GOP, but alas, both parties seem ever content to expand government power when they’re in office and then complain about this expanded power when they’re not.)
QUICK HITS
• Is a proposed Food and Drug Administration rule about what products can be labeled “healthy” a violation of the First Amendment? That’s what General Mills, Kellogg’s, and Post Consumer Brands are arguing. “If finalized in its present form,” the rule “would be open to legal challenge in that it violates the First Amendment by prohibiting truthful, non-misleading claims in an unjustified manner and also exceeds FDA’s statutory authority in several ways,” they say.
• Massachusetts’ tobacco ban went about as badly as you’d expect.
• Fewer people are going to college—and that could be a good thing, writes Reason‘s Emma Camp.
• The Electronic Frontier Foundation, the Knight First Amendment Institute, and the Social Justice Legal Foundation are suing over a California county jail’s policy of digitizing mail sent to incarcerated people and destroying the physical copies.
This piece was republished from the Reason.