Download 1 - Economic Literacy in Human Services

Credits
Editors
Mimi Abramovitz: Silberman School of Social Work at Hunter College
Shelley Horwitz: Silberman School of Social Work at Hunter College
Michael Lewis: Silberman School of Social Work at Hunter College
Jessica Rosenberg: Long Island University, Department of Social Work
Contributors
Richard Holody*: Lehman College School of Social Work
Roberta Herche: Yeshiva University, The Wurzweiler School of Social Work
Joanna Mellor*: Yeshiva University, The Wurzweiler School of Social Work
Rose Perez: Fordham University Graduate School of Social Service
Donna Wang: Touro College Graduate School of Social Work
* In Memoriam
About
Human services professionals are increasingly called upon to assist individuals,
families, and communities who are experiencing even greater uncertainties and
complex challenges as a result of the global financial crisis.
Our field has always been on the front line in supporting and advocating for those
in need. This course, “Advancing Economic Literacy in Human Services”, will
provide the necessary competencybased training, skill sets, and tools to enable
today’s human services professionals to help clients access needed entitlements
and asset-building strategies.
This comprehensive approach includes the big picture economic factors that
contribute to the economic well-being or economic stress experienced by clients.
The methodology takes into account real world events and allows professionals
and clients to more effectively engage in a dialogue to address economic
problems, identify potential resources and solutions, access benefits, become
knowledgeable around economic asset-building strategies, and make informed
decisions that will help strengthen stability and provide hope and opportunity.
Note: This curriculum was developed by social workers to enhance econoic
capacty building competencies of both social work students and professionals,
as they interact with clients in a wide variety of roles and kinds of human service
agencies. Although it references social work roles, values, and professional
standards, the authors and editors recognize that the content areas are applicable
to human service practitioners in a wide range of organizational settings. It is
deliberately designed for broad utilization and adaptation.
Navigation
Participants
General
Advancing Economic Literacy In Human Services
About Economic Literacy
Part A: Economic Literacy and the Professional Self
Unit One: Me, Myself, and Money
Unit Two: Transforming Traditional Human Services
Unit Three: Social Work and Economic Literacy – Guiding Competencies,
Values, Principles and Standards
Unit Four: Practice Considerations
Part B: The ABC’s of the Economy
Unit Five: Why now? The Loss of Economic Security
Unit Six: The Economy
Unit Seven: How the Government Manages the Ups and Downs in the
Economy - The Policy Tools
Unit Eight: The Labor Market - Where People Work
Unit Nine: The Wage Picture
Unit Ten: Controlling Prices
Unit Eleven: Deficit and the Debt
Unit Twelve: Unemployment
Unit Thirteen: Poverty
Unit Fourteen: Inequality
Unit Fifteen: Economic Growth — Part of the Problem or Part of the Solution?
Unit Sixteen: Public Benefits
Part C: Economic Literacy and Asset Building
Unit Sixteen: Public Benefits
Unit Seventeen: Tax Credits
Unit Eighteen: Savings, Credit and Debt
Unit Nineteen: Investments
Part D: Assesment and Intervention
Unit Twenty: Assessment -- Individuals and Families
Unit Twenty A: Assessment -- Individuals and Families: Practice Exercises
Unit Twenty-One: Interventions -- Money Management and Protection.
Unit Twenty-Two: Economics and the Human Services Organization
Unit Twenty-Two A: Economics and the Human Services Organization:
Practice Exercises
Unit Twenty-Three: Local Neighborhoods: Bringing the Neighborhood In - How to Conduct a Neighborhood Economic Assessment.
Unit Twenty-Four: Advocacy Tools and Resources
Self-Care Resources
Glossary
Me, Myself & Money
Goal: The aim of this unit is to increase self-awareness about how personal
vaues, feelings, beliefs, and attitudes toward money influence professional
pratice and interactions with clients.
H
uman services professionals and workers continually strive to understand
the impact of personal beliefs on professional practice in order to better serve
clients. Selfawareness is a central element of social work practice and is a tool
to regularly examine how our own beliefs about and experiences with age, race,
class, culture, religion, gender, sexuality, family traditions and other factors influences our work. The National Association of Social Workers’ (NASW) Standards
for Cultural Competence (2001) states that “social workers shall seek to develop
an understanding of their own personal, cultural values, and beliefs as one way of
appreciating the importance of multicultural identities in the lives of people.”
The process of developing and applying self-awareness takes place continuously
and is especially relevant in relationship to money, given its complex personal and
social meanings. Indeed, “each one of us has developed our own unique understanding of what money means and the story it keeps telling us.”1
People’s ideas about and relationships to money elicits a wide range of responses. There are people who desire endless amounts of money regardless of need
and others who hoard money. People may become envious or depressed when
they do not make as much money as their peers; there are those who feel uncomfortable or selfconscious for having more money than others. Still others find
themselves continually taken in by scam artists, believing against all rationality that
they will soon realize the dream of easy riches. These examples reveal the complex and emotionally-laden meaning of money.
The emotional pain caused by poverty and economic deprivation may persist even
when objective conditions improve. Some adults cannot forget the sting of youthful
embarrassment for not having the expensive trendy clothes worn by other teenagers. Decades later they may remain painfully self-conscious about fitting in. People
who feel emotionally deprived may compensate for these feelings through compulsive shopping or hoarding. The connection between consuming as a way to cope
with sadness and reduce stress is well-known. “Shop-therapy” is a common term
for the temporaryemotional feeling of well-being that shopping can bring.
A person’s early experiences often shape his/her level of comfort talking about
money. Many families shroud financial information in secrecy, and children learn
at an early age not to ask their parents how much money they make or have in
the bank. In contrast, immigrant families may have a child charged with translation
who also might have responsibility for financial transactions. A child growing up in
poverty may be well aware that money runs out before the end of the month. Food
insecurity, utility turnoffs or eviction due to non-payment of rent, can make financial
matters a painful, shameful, and uncomfortable topic into adulthood.
Cultural and social values also influence our approach to money. For example, in
many circles it is considered rude to ask someone at a social event, “How much
money do you make?” Likewise, most people would not casually ask an acquaintance how much they pay in rent or for their mortgage even though people routinely speculate about their friends’ and neighbors’ income and expenses. Money
and wealth are often a yardstick used to measure success. Being less wealthy than
one’s peers may elicit feelings of failure and low self-worth.
Self-awareness includes becoming cognizant of the implicit messages that our
words about money and financial matters convey. The language of money includes
terms such as broke, loaded, penny-pincher, spend-thrift, and shopaholic, which
communicate powerful messages that can send unconscious signals to others.
These language cues may induce feelings of discomfort or judgment.
Societal values further influence personal feelings about money and wealth. People
often measure success and failure of themselves or others monetarily. Until
recently, gender roles shaped attitudes toward money. In middle-class families, societal norms defined men as breadwinners and women as full-time homemakers.
Despite greater role sharing, many men and women, depending on their cultural
values, remain uncomfortable when a wife earns more money than her husband.
In the end, each of us has his/her own narrative or “money story” that affects our
attitudes and behaviors. We cannot assume that clients share our attitudes and values about money, even if they share our age, race, class, gender, ethnicity, gender
preference or sexual orientation
Given the many cultural taboos surrounding money as a topic of conversation, frank
and open discussions about money are not the norm and may make both clients
and social workers uncomfortable. The following exercises provide you with the
opportunity to explore your own attitudes toward money and economic security.
There are no right or wrong answers. The purpose of the exercises is to increase
practitioner self-awareness.
Reflect upon or jot down your childhood perceptions of economic security. Would
you say that you (or your family) often worried about economic security or that you
felt generally secure about finances? How do you think your childhood perceptions
influence your feelings about money and economic security as an adult?
Take a moment to reflect on your self-definition or your identity. How do you think
that these attributes affect your feelings about money? Describe how your age, gender, ethnicity, class status, and neighborhood/community influence your feelings
about yourself, money, and economic security.
Growing up, to what extent was money, financial assets or the lack thereof, openly discussed? Would you say that your family frequently or infrequently provided
you with information on these topics? Would you have felt comfortable orawkward
raising a question about family finances? How do you think your childhood perceptions, experiences, and family communications concerning money and finances
contribute to your comfort zone in discussing these issues today as an adult?
Words and phrases convey powerful and often value-laden messages. Despite our
best intentions and efforts to refrain from being judgmental, the use of language
inevitably communicates attitudes and biases. NASW Guidelines for Language Use
asserts that “language can reinforce either inequality or balanced, accurate, and fair
treatment of individuals.” The following exercise is designed to help social workers
become more self-aware of the meanings of money conveyed by the language we
use. In the table below, Column One (“Phrase”) contains a list of everyday phrases
about money. In Column Two (“Implied Value”), indicate whether the phase carries
a negative or positive association. Column Three (“Restate Meaning”), offers the
option to restate the meaning of the phrase using value-free language.
Phrase
Implied Meaning
Restated Value
Bread
Dough
Hundies
Trailer Trash
White Trash
Ghetto Fabulous
Deadbeat
Bling
Live Large
Filthy Stinking Rich
Sugar Daddy
Loaded
High Class
Low Rent
The first sets of exercises are designed to increase self-awareness about the ways
in which your “personal money story” might shape your attitudes, beliefs, behaviors, and language. The following case illustrations will enable you to explore real
world situations in relation to clients and illustrate how your “money story” may
influence your professional practice.
Case Example One: Julia M.
Ms. Julia M. is a single, 25-year-old Mexican-American woman who has been
admitted to a hospital emergency room. Her roommates brought Julia in because
they couldn’t wake her up. Medical reports indicate that Julia ingested a dangerous
combination of Ambien, Vicodin, and alcohol. When Julia is stabilized, the hospital
transfers her from the ER to the psychiatric unit. You, as the social worker, conduct
an initial intake interview.
You find Julia open and articulate, but very shaken and scared. Julia shares that
shegraduated from a well-regarded public university in Chicago in 2008 with a
Bachelor of Arts in Business Administration. Her family, recent immigrants to the
United States are extremely proud that she graduated from college. She is the first
person in her family to earn a college degree. Her parents were not thrilled when
she announced her plan to move to New York City to look for a job and live on
her own. Despite their reluctance, they gave her a modest amount of money (all
that they could afford) to help her get started.
Julia did not know many people in New York City. A mutual friend helped her find
a three-bedroom apartment in Manhattan renting for $3,000 a month that would
be shared with other young women. Julia also found a job working as a customer
service associate for a large bank, drawing an annual salary of $35,000. Between
rent, clothes, furniture, and other living expenses, Julia quickly ran up $11,000 in
credit card debt. Without savings and anticipating the pressure from her parents to
come home, she did not turn to her family for financial help.
Julia was determined to be independent, but in short, order she found that she
couldn’t pay her bills. A co-worker, who occasionally worked at a topless bar,
brought Julia there. After some hesitation, Julia started working at the bar on weekends. She earned good money, more than she had ever had. She made enough
to buy herself designer clothes, dinners at expensive restaurants, and a top-ofthe-line HDTV.
Julia started drinking and taking some pills that the other dancers gave her to help
get her through the day and to cope with inappropriate, annoying customers at
the bar. On a few occasions, Julia overslept and was late to her job at the bank;
she was fired. She began working four full shifts per week as a topless dancer,
something neither her roommates nor her family knew anything about. She started
having panic attacks and a surreal sense that she wasn’t “in my own body.” She
began using greater quantities of pills and alcohol, resulting in the episode that
brought her to the hospital. Julia is adamant that her overdose was an accident.
For Discussion:
The following questions are designed to help you consider how personal biases or
preconceived ideas may influence how unexamined, personal values, attitudes or
professional practice and could be detrimental to treatment interventions.
1. Discuss your views about women who work as topless dancers. How does
this fact about Julia impact your opinion of her or influence your conceptualization of her problems?
2. Julia quickly got into debt and overspent on rent and commodities. To what
extent do you think her financial problems contributed to her winding up in
a hospital? Would you consider economic problems to constitute part of the
presenting problem? Why or why not?
3. Julia graduated from a good college with a B.A. in Business Administration.
What do you know about the job market for new college graduates? How
would this impact your thinking about the choices that she made?
Case Example Two: Lucy W.
You are a social worker employed by the Legal Aid Society of New York City. The
Legal Aid Society is a private, not-for-profit legal services organization dedicated
to the belief that low-income New Yorkers should have access to quality legal
representation. As the worker assigned to the criminal practice unit, part of your responsibilities involve assisting the attorney in developing a defense for your clients.
The following case is based on a true story. Consider how your personal attitudes
and feelings about this case might influence you.
In 2003, Lucy W., an African-American mother of two young children (ages nine
and two) returned home after a 12-hour shift at McDonalds to find a horrific tragedy. Both children had perished in a house fire. The babysitter had failed to show up
to watch the children and there was no backup. Lucy feared that if she did not go
to work, she would lose her job as an assistant manager at McDonalds. As a single mother, Lucy’s job was the family’s only income. If she lost her job, she would
have no way to feed or house her children. The entire family could wind up homeless. Lucy decided to go to work, leaving the children alone. This choice resulted
in terrible consequences. Lucy not only lost her children to the tragic house fire;
she also faced criminal charges. The District Attorney charged Lucy with “reckless
endangerment” and “child endangerment” for having left her children unattended,
charges that could result in a sentence of up to 16 years in prison.
For Discussion:
1. How do you feel about mothers who leave small children unattended? How
could your feelings impact your work with Lucy? Do you think what Lucy did
was a crime she should be punished for? Why or why not?
2. Lucy faced a terrible choice: Leaving her children unattended or risk losing
her job. Why do you think she made the choice that she did?
3. In your capacity as a social worker employed by the Legal Aid Society, what
arguments would you make in Lucy’s defense?
4. Explain how race and gender and motherhood intersect in our society to put
people at increased risk for poverty.
5. What kinds of social programs can you think of that would help prevent
these kinds of tragedies from occurring?
NOTES
UNIT ONE
1. Kreuger, Richard and Mary Casey (2009), Focus Groups: A Practical Guide to
Applied Research, SAGE Inc.; 4th Edition
Transforming
Traditional Human
Services Roles
Goal: In this unit, the different roles that social workers and other human services
professionals utilize when working with clients are reviewed. These roles include
but are not limited to: advocate, analyst/evaluator, broker, educator, enabler, facilitator, initiator, negotiator, case manager, clinician, administrator, and community organizer. Understanding the meaning of these functions is useful for working with clients in all areas of professional practice.
S
killed practitioners take on different roles and interactions with clients, depending upon a careful assessment of a client’s needs and circumstances. When human
services professionals use their roles to identify economic concerns as central to
the issues that clients face, they can potentially transform lives by providing
information and resources that clients may not be aware of.
Frequently, human services workers link clients to community resources and services,
including public benefits, health and social services, legal aid, support groups and
financial planning assistance. Despite the importance of becoming economically literate, social workers must stay mindful that they are not trained or equipped to provide
financial advice or to assume the role of financial counselor or legal expert. In working
with clients, remember to explain your role. It would be unethical to offer financial or
other advice in an area outside of your professional expertise and training.
Clients may feel reluctant to reveal their ignorance about money and/or may feel
embarrassed about their lack of resources. They may be ashamed that they have
“gotten themselves into this mess.” It is important that personal beliefs or conflicts
about money matters do not intrude upon work with clients.
A. The Advocate. Advocacy comes into play when working with individuals and
families as well as with groups and communities. Practitioners advocate on multiple
levels: to foster both individual well-being and social change. The social work profession distinguishes between these two types of advocacy: case (micro level) and
cause (macro level) advocacy.
Case or individual/family advocacy involves working to provide information or obtain
services that clients may need to improve their economic situation. For example,
clients may have language or cultural barriers that prevent them from understanding and responding to financial demands, or be too scared or overwhelmed by
life circumstances and/or financial issues to confront institutions and systems. With
the client’s permission, the (social) worker may try to locate a banker or lawyer to
speak directly to the client and engage him/her in decisionmaking. Advocating for
individuals is strengthened when the worker engages the clients in developing and
reviewing the advocacy plans. It is important for workers and clients to construct
interdependent relationships that empower clients to develop the skills to advocate
for themselves if possible.
In the area of economic security, the more familiar cause or social change advocacy
includes supporting or working actively for social change by seeking job creation,
fair wages, safe and healthy working conditions, adequate public benefits, and regulated banking practices. This can include conducting lobbying efforts to change
local, state and/or federal government regulations or policies.
B. The Analyst/Evaluator. As analyst or evaluator, practitioners work on multiple levels to help clients make informed choices. The process can include helping clients
to reframe pressing problems and concerns by identifyingcomponent parts rather
than viewing them all together which can be overwhelming. The analyst/evaluator
helps clients to prioritize issues, assess plans and ideas, and evaluate the success
of an intervention.
On a practical level, this may involve helping clients to develop a realistic budget
based upon actual resources and expenditures, or to evaluate the cost and benefits of an economic opportunity. For example, a client may want to take a job that
involves two hours of travel each way. The social worker as analyst/evaluator might
work with the client to evaluate the cost effectiveness of this choice by looking at
any additional childcare or transportation costs, as well as the time taken away from
other responsibilities or opportunities. Economists describe this as evaluating opportunity costs. Workers involved in research and program evaluation also work as
analysts and evaluators.
C. The Broker. As brokers, social service workers link clients to relevant community
resources and make referrals to services such as public benefits, healthcare and
social services, legal aid, support groups, or financial planners. In this role, workers
may also serve as advocates or negotiators by following up on behalf of the client.
Some clients may experience ambivalence or shame about accessing public resources and benefits. If these feelings arise, the worker may well add the role of enabler to that of broker by working with clients to identify their strengths or that of an
educator who helps clients understand what will occur when they meet the financial
professional or other service providers.
D. The Educator. In general as educators, (social) workers seek to inform ourselves
about potential interventions and existing resources prior to making recommendations. This knowledge positions the worker to make appropriate referrals to agencies
that specialize in and are competent to help clients meet their economic needs or
resolve economic problems.
This may include opportunities related to the development of financial resources,
such as information on jobs and employment training programs, resume building
skills, accessing transportation, as well as information about bankruptcy, debt reduction, mortgages, investing, and free or low cost tax preparation. The educator then
uses this information to educate clients so that they can make meaningful decisions
among the available options.
E. The Enabler. As an enabler, a (social) worker may help clients cope with, or reduce stress related to financial pressures or struggles. Enabler skills include helping
the client recognize the financial sources of problems, reducing resistance and ambivalence around dealing with economic issues, recognizing and managing feelings
aroused by economic difficulties, identifying strengths and assets (personal, social
and economic), mobilizing support systems, and learning how to break down problems into manageable parts. The enabler also helps clients to focus on goals and
conveys hope.1
F. The Facilitator. As facilitator, the worker often takes the lead or mediating role in a
group situation such as a family therapy session. In facilitating communication related
to financial concerns, workers need to be aware that family members may be very
angry or blame each other for economic difficulties.
G. The Initiator. As initiator, the worker helps identify needs and may call attention
to an issue that could be problematic, and suggest a concrete plan with follow up
steps.2 For example, when working with a couple, if one partner defines spend
ing patterns as a problem, but the other partner does not, a discrepancy exists. By
drawing attention to the discrepancy, the worker initiates an exploration of the issue
and creates an opportunity to problem-solve, perhaps serving as a catalyst for preventative action or positive change related to a family’s economic well-being.
H. The Mediator. As mediator, the practitioner seeks to resolve disputes and conflicts
among various individuals or client systems while remaining neutral. Families and
couples often disagree about financial matters. By remaining neutral and helping
parties to explore their concerns, workers can help the parties to recognize patterns
and dynamics that they might not be aware of. Areas of concern or disagreement
that can benefit from mediation include when a couple disagrees about financial
expenditures, such as buying or leasing a car, going on an expensive vacation, how
to budget for child-care or household costs, and whether or not the family should
financially contribute to care for an aging parent.
I. The Case Manager. Serving as a case manager is an important role to employ
when working with clients who lack the skills, knowledge, or resources to negotiate
systems on their own. Clients who lack the skills and ability to manage finances on
their own may need a case manager to ensure that their basic needs are met. This
could involve coordinating appointments for the client, interfacing with the key individuals or agencies, such as the client’s landlord, local social security office, or bank.
Workers performing the role of case manager act as a negotiator between clients
and service delivery systems.
For Discussion:
1. Individually or in groups, compile a list of areas in which human services workers may advocate for clients in the area of economic literary.
2.
Which of the roles would you most likely use at the micro or direct-prac
tice level? What about the mezzo or at the level of small groups and
families? Which roles are suited for community organizing or macro
practice?
3. Revisit Unit One Case Example (Julia M., the 25-year-old woman, who
was hospitalized after an overdose.) What role(s) would you be most likely use to assist her?
NOTES
UNIT TWO
1. Zastrow, Charles & Karen K. Kirst-Ashman (2007). Understanding Human Behavior and the Social Environment (7th ed.) Belmont, CA: Brooks/Cole — Thomson Learning Inc.
2. Zastrow, Charles & Karen K. Kirst-Ashman (2007). Understanding Human Behavior and the Social Environment (7th ed.) Belmont, CA: Brooks/Cole — Thomson Learning Inc.
Social Work and
Economic Literacy
Guiding Competencies,
Values, Principles and
Standards
Goal: This section zeroes in on select principles and standards emanating from
core social work values that relate to economic literacy and social work practice.
In addition, this part of the curriculum delves into the meaning and definition of
economic literacy, and how it differs from financial counseling.
S
ocial workers are frequently on the frontlines of combating poverty. This is
especially true in times of major economic hardship such as the Great Recession, which began in 2008. The economic upheaval and devastation affected
large numbers of people throughout the country. The suffering has been enormous and economic recovery has been slow. The need for families to confront
ongoing economic challenges has resulted in the need to educate social workers
and other human service professionals to become more economically literate and
competent.
These competencies include the ability to:
• Identify and discuss financial issues
• Assist clients to obtain and retain appropriate benefits
• Help clients understand asset-building options
• Acquire a basic understanding of the market economy
• Understand how the broad economic picture contributes to the economic
well-being -- or to the economic stress -- experienced by individuals, families and communities.
Economic literacy and competency is broadly defined as increasing one’s skills and
knowledge so that you can better serve clients in addressing their economic problems. Baseline knowledge should include the ability to identify potential solutions
such as accessing entitlement programs, discussing economic asset-building strategies, and helping clients make informed financial decisions that are geared toward
strengthening household stability, hope, and opportunities.
Becoming economically literate will help practitioners better understand the economic forces that significantly affect the quality of their clients’ lives, so they can recognize, and point clients in a direction that will improve financial stressors.
While practitioners may educate clients about benefits and asset-building resources,
or refer clients to legal and financial advisory experts in asset management, economic literacy or economic capacity building is not financial counseling. Rather, it is
the ability to know about how economics work so that you can provide clients with
resources and options, and increase their basic knowledge base about managing
their money. This may include ideas for budgeting, savings, credit/debt, insurance,
investments, home ownership and pension/retirement planning.
A discussion about practice involving economic literacy must begin with professional
values. The National Association of Social Workers (NASW) Code of Ethics (1999)
represents a set of core values, principles and ethical standards, which inform all
areas of social work practice and provides a platform of values. The NASW Code
of Ethics asserts, “The primary mission of the social work profession is to enhance
human wellbeing and help meet the basic human needs of all people, with particular
attention to the needs and empowerment of people who are vulnerable, oppressed,
and living in poverty.” The Code of Ethics further references the significance of ongoing professional development and cites the importance for social workers to “develop and enhance their professional expertise.”
This curriculum honors these fundamental ethical considerations by providing information and resource tools for social workers and other human services professionals to use in honing their professional skills and advancing the well-being of their
clients. While the following broad principles are rooted in social work values, they
have wide application to the work of other human service practitioners.
A. Commitment to Social Justice. The NASW Code of Ethics identifies social justice
as a core social work value. It urges social workers to work for social change with
a primary focus “… on issues of poverty, unemployment, discrimination, and other
forms of social injustice,” all of which can undercut a client’s economic prospects,
opportunities, and security. The economically literate practitioner has the knowledge
to apply an economic lens to psychosocial problems. Commitment to social justice
and utilizing core competencies increases the social workers’ capacity to assess and
intervene on behalf of a clients’ economic needs, to understand the clients’ economic circumstances within an economic context at all levels, to engage in direct
practice with clients to access information, services and resources, and to advocate
with clients for greater equality of opportunity.
B. Ethical Standard of Self-Determination. The NASW Code of Ethics protects the client’s self-determination and obligates social workers to assist clients to achieve their
own goals, whether or not we agree with their choices. The over-riding exception to
selfdetermination occurs when a client’s behaviors are deemed harmful to the client
and others.
Supporting client self-determination requires that the social worker suspend his or
her own personal value judgments about money, including ideas and feelings about
client’s monetary values or spending behaviors. How clients manage their finances
varies considerably. Some people may prefer economic independence, others may
prefer interdependence, and still others may have to depend on friends or relatives.
The choice may reflect personal preferences, life circumstances, prevailing cultural
norms, or their assessment of their capacity to manage their own finances. In recognizing the mandate of self- determination, social workers assist clients to identify
their needs, preferences, and the feasibility of economic self-management.
As an example, a recently widowed older woman, who has been financially supported by her husband for most of her life, may not know how to write a check or
balance a checkbook. She may feel that she cannot carry out these tasks or may not
care to learn at this point in her life. Instead she may want or expect her children to
pick up where her deceased husband left off. In this situation, the social worker can
explore the feasibility of this preference with the client. If her children are not able
or willing to accept this responsibility, the social worker might engage the client in
restructuring her expectations of her children, and help her to discover that she can
manage her finances, and/or explore other options.1
C. Ethical Standard of Cultural Competence and Social Diversity. As explored earlier, it
is essential that social workers seek to understand and respect diversity of all kinds,
including differences in culture, race, ethnicity, religion, age, sexual orientation, physical and mental abilities, family structures and income. Economically- literate social
work practice recognizes that attitudes about money are significantly influenced by
many factors that are frequently subsumed under the term “cultural differences” or
“cultural competency.”
Financial preferences are often subtle or can be manifest by material choices. Examples of value judgments include disparaging people with limited means who spend
money on costly electronics rather than healthy food; criticizing people who receive
public assistance when the social worker thinks that they should be working; or belittling people for their “excessive shoe collection” or “flashy” jewelry. Other examples include judging clients based upon the type of car s/he drives, or viewing them
as “cheap” or “stingy” based upon the amount money they spend on themselves or
their families. In order to effectively engage clients, social workers should understand
their clients’ choices within the context of culture and diversity.
Such stereotypes and reactions illustrate dominant societal values that the popular
media reinforces. If left unexamined, these ideas can negatively affect the quality of
services provided. Drawing on personal ideas about what is proper and improper
economic behavior can quickly translate into a value judgment. Unrecognized, it can
interfere with an accurate assessment of the client’s needs, limit the ability to build a
relationship, and block development of an effective problem-solving strategy.
Instead of passing judgment on client choices—even those that we think may cause
harm or distress—we can work with clients to help them understand the consquences of their behavior, assess the pros and cons, and /or collaborate with clients who
want to make changes in their financial behavior(s). Utilizing a lens that includes
awareness of financial diversity is central in economically literate practice. It involves
self-awareness and reflection about how one feels about people who have different
financial styles and behaviors from our own in order to avoid conscious or unconscious, malicious, or well-meaning judgments.2
D. Conflicts of Interest. The NASW Code of Ethics explicitly prohibits “conflicts of
interest that interfere with the exercise of professional discretion and impartial judgment.” Such conflicts can arise when a client requests assistance with financial
matters, for example, if he or she asks the social workers to cash the client’s check
or to become guardian over a legal matter.3 This ethical consideration differs from
legal guardianship that an agency may assume if a person lacks decision-making
capacity.
E. Privacy and Confidentiality. Ethical issues can surface around the areas of privacy
and confidentiality. What actions are you expected to take if a client reveals that s/he
obtained money illegally, through drug dealing, prostitution or extortion? In another
instance, one member of a family may ask you not to tell another family member about certain economic behavior such money laundering, gambling, spending
money, etc. Clients may share such information, and believe that this information
will remain confidential. Legal considerations about confidentiality should be directly
shared with clients and made clear.4
F. Clients Who Lack Decision-Making Capacity. Some clients may have mental health
issues or cognitive impairments that limit their decision-making capacity. At what
point do we limit their rights to decision-making and what are the criteria for such
decisions? Subtle but powerful signals can serve to undermine clients’ rights to
self-determination and are communicated when social workers or others participate
in a discussion in a way that renders the client invisible. These include failing to
make eye contact or not directly addressing the client, or discussing the client with
others in the room as if he or she was not present or able to participate in
decision-making.5
For Discussion:
1. Review the sections of the NASW Code of Ethics referenced above. What questions arise for you about how they might guide your conduct when working with clients around financial issues?
2. What would you do if one of your clients disclosed that s/he was involved in prostitution? Would your perspective or intervention change based on whether or not his or her prostitution was by choice or by coercion?
3. Have you come across an ethical dilemma when working with a client? If so, how did you handle it? Moving forward, how would you handle a simi
lar situation?
NOTES
UNIT THREE
1. National Association of Social Workers. (approved 1996, revised 1999). Code
of Ethics of the National Association of Social Workers. Washington, DC: Author.
Retrieved from http://www.socialworkers.org/pubs/code/default.asp
2. NASW Code of Ethics: 1.05. Retrieved from http://www.socialworkers.org/
pubs/code/default.asp
3. NASW Code of Ethics: 1.06. Retrieved from http://www.socialworkers.org/
pubs/code/default.asp
4. NASW Code of Ethics: 1.06. Retrieved from http://www.socialworkers.org/
pubs/code/default.asp
5. NASW Code of Ethics: 1.14 Retrieved from http://www.socialworkers.org/pubs/
code/default.asp
Practice
Considerations
Goal: This unit presents practice considerations to bear in mind and apply in
direct work with clients.
The social work profession is in formed by the strengths-based perspective.
The strengths-based perspective focuses on a client or client system’s inherent
strengths as a place to build from for assistance and empowerment. It differs from
the medical model that tends to focus on the pathology of “what is wrong?” A
starting point from a strengths-based model could be inquiring “what knowledge
and skills do you possess”?
Professor Dennis Saleebey states that practicing from a strengths orientation means
that...“everything you do as a social worker will be predicated, in some way, on
helping to discover and embellish, explore, exploit the client’s strengths and resources” to help them ‘”achieve their goals, realize their dreams,” and shed their
own misgivings, inhibitions and societal domination.1
Rather than focus exclusively on problems, social workers and clients work together
to think about hope and possibility. Strengths-based practice is a collaborative process empowering clients to recognize their own skills and resources, to learn how
to use them to mobilize needed resources, and/or to take other steps to achieve
greater economic security.
For example, a client may have a family member or access to community support
that could help with a financial difficulty, such as a loan of money or providing childcare. But the client may be resistant, embarrassed, or ashamed to ask for such help.
Insuch a situation, one can work with the client to overcome the resistance, and/or
use roleplaying to prepare the client to ask for what he/she may need.2
B. Problem Solving: Strengths-based practice and the belief in client self-determination suggest that (social) workers help clients to build their problem-solving capacity rather than simply “hand out” solutions. To avoid the latter, (social) workers
can assist clients to acknowledge personal problems and also understand that these
issues may be rooted in larger environmental challenges. These could include unmet needs for food, housing or jobs; insufficient community supports (i.e. child care,
after-school programs or home health aides); or interpersonal challenges and troubles at home or on the job. The process of engaging clients to frame their problems
within this context may make tasks more manageable and contribute to problem
solving. Understanding that the broader social or economic environment may be a
contributing factor rather than the result of an intrinsic deficit or flaw can be helpful.
When clients who are facing home foreclosure or find themselves chronically unemployed understand that the “problem” may be rooted in a larger economic context
and not their own inadequacy, it supports their self-esteem.
Once a problem-solving strategy has been identified, practitioners can work with
clients to identify the strengths and resources needed to accomplish their specific
goals. This can include supporting the client emotionally, helping the client to reframe and break down issues of concern into manageable discrete components
in order to resolve problems, prioritizing problems, and assisting in accessing resources. The client who is facing home foreclosure may decide to work with his or
her social worker on identifying concrete steps and to develop an action plan that
enables him or her to re-negotiate a mortgage loan.
C. Engaging Clients in Discussing Financial Issues: The ability to speak openly about
sensitive topics is essential to working effectively with clients. Direct practice typically
involves discussing topics that elicit powerful emotions, and success in developing a
productive and collaborative working relationship with clients relates, in large part, to
the practitioner’s ability to establish a comfort level in exploring highly charged material. As discussed in Unit One, individual and cultural discomfort about discussing
money issues may interfere with establishing rapport and building trust, especially in
the engagement phase where the worker and client do not know each other very
well or come from different backgrounds. The more comfortable workers feel about
raising financial issues with clients and their own capacity to sensitively respond to
client reluctance to disclose financial details can make a significant difference in the
ongoing relationship.
Human service workers can increase their comfort level though the conscious use of
self-awareness. This, in turn, depends on the worker’s own ability to explore issues
that stimulate ambivalence, uncertainty, and/or discomfort internally or with clients.
These topics may include sexuality, spirituality, religion, race or gender identity; discrimination due to race, gender, class, religion, sexual orientation, disability or other
personal attribute; as well as behaviors that elicit counter-transferential responses on
the part of the worker.
Discussing finances often poses a similar challenge to people’s comfort levels. Some
providers and clients view talking about money as a taboo or polarizing topic since
society tends to define this as a private issue. People may also hesitate to talk openly about money because others may use information about their income and assets
to derive positive or negative associations about status. Given that both workers and
clients may experience these reactions, the challenge becomes two-fold: firstly,
developing enough confidence and comfort to raise questions about income, assets,
budgeting, and debt with our clients; and secondly, recognizing that clients may not
be ready or too reluctant or conflicted around money to discuss these issues immediately, if at all.
D. Identify the Relevance of Economic Issues: Social workers are trained to recognize the importance of completing a bio-psycho-social assessment. This tool helps
the social worker (and the client) understand the presenting problem in a broader
context including, but not limited to, the client’s hopes, wants, needs, resources, and
coping patterns. A client’s “presenting problem” is often a starting point for change.
It’s not that clients are “wrong” in their identification of what they believe needs to
be changed. The presenting problem is often something that needs immediate attention, but may require other issues be tackled that the client does not see clearly
or does not wish to address. Addressing these other issues might be central to deal
with the root cause of a presenting problem. When helping people enhance their
social functioning, discussing only the presenting problem may reduce the “symptoms” but not eliminate or change the client’s circumstances. If the assessment is
narrowly focused, the underlying concerns will likely result in continued concerns in
the client’s life.
For example, the veteran who returns from military service and cannot find employment, despite repeated efforts, may become angry and disillusioned and begin
drinking excessively. The social worker who sees the client is likely to identify the
presenting problem as alcoholism or seek to rule out Post Traumatic Stress Disorder. However, for the client the pervasive sense of being a failure may be intimately
connected to chronic unemployment, as well as to the alcohol abuse.
A solid bio-psycho-social assessment should include an economic component.
An economically literate social worker explores and is attuned to the central role of
economic and financial issues in a person’s life and can discuss entitlements and
asset building strategies if needed.
For Discussion:
1. How might teaching or incorporating problem-solving skills for issues around money differ from other problem-solving skills?
2. Reflect on a client who has very different values or spending habits around
money. Is your perception (or judgment) of this individual based on person
al values? Societal values?
3. As you read through the section concerning engaging clients in discussing financial issues, to what extent did you think that personal finances were a taboo or polarizing topic? If you agree, to what extent are your thoughts a reflection of your family upbringing or other personal experiences?
4. If you have had direct practice experience either at work or in an intern
ship, was the client’s financial status (income and/or assets) a factor? If so, how was the topic addressed and made a part of the work? If not, how might it have been, now that you reflect upon your work?
NOTES
UNIT FOUR
1. Saleebey, Dennis, (2002). The Strengths Perspective in Social Work Practice,
Longman.
2. Shulman, Lawrence (2006). The Skills of Helping Individuals, Families, Groups,
and Communities. Thomson; Wadsworth; 5th edition.
Why now?
The Loss of
Economic Security
Goal: This unit profiles the rising economic insecurity over the past three decades that has intensified since the 2008 economic collapse. The traditional
poor are falling deeper into poverty and many middle class households face
poverty for the first time, underscoring the need for an economically literate human services workforce.
B
y 2008, it became clear to most people that the United States was facing the
first economic crisis of the 21st century. Dubbed “The Great Recession”, it represented the greatest economic upheaval since the Great Depression of the 1930s.
The suffering has been enormous and the economic recovery far too slow. The resulting hardship has placed financial concerns front and center for both the people
who were poor before the onset of the meltdown and for the new poor who have
been driven out of the working and middle classes.1
As employers continue to downsize, relocate in search of cheaper labor, or make
do with fewer workers, Americans face growing competition for increasingly scarce
jobs, longer than usual spells of joblessness, and/or paychecks that are shrinking
along with their housing and retirement nest eggs.2 As the government continues to
cut cash and social programs that serve the traditional poor, countless individuals
and families find themselves sicker, hungrier and living in poor housing or on the
street.
Hoping to stimulate change, advocates and researchers have documented the loss
of economic security within the wider population. According to the Brandeis University Economic Security Index by 2007 (before the current economic meltdown)
fewer than one-in-three families had the necessary combination of income, financial
assets, education, and affordable health care to ensure middle-class security.3 One
in four middle-class families risked slipping out of the middle class altogether -with higher risks for families of color.
Based on its recently created Economic Insecurity Index, the Rockefeller Foundation
also reported that a growing share of Americans are economically insecure. Economic insecurity is defined as suffering an income decline of 25% or more in one
year without having the financial resources or assets to offset that loss. The Foundation counted approximately 46 million Americans as insecure in 2007, up from 28
million in 1985 with some trends dating back to 1960.4 Public opinion polls regularly
report that Americans are deeply worried about their jobs and finances.5
Economic insecurity is especially intense among NYC‘s poor. Long before the current downturn, it had already become clear that steady work does not lift everyone
out of poverty. In the mid-2000s, The Office of Financial Empowerment of the New
York City Department of Consumer Affairs offered the following financial profile of
the typical working poor family in New York City: “a typical family has an income
of $15,000, relies on check cashers for basic financial transactions, holds multiple
credit cards with outstanding balances and has less than $500 in savings, if they
have any savings at all”.6 By 2012, more than 21% of all New Yorkers (over 1.7
million) lived below the official, but understated federal poverty line ($23,314 for a
family of four).7
Economic insecurity is closely linked to problems of unemployment, poverty and inequality, issues that are more fully discussed in the next units. Not surprisingly, more
and more individuals, agencies, and communities turn to human service agencies
for all kinds of help. As our profession becomes more economically literate, we can
respond more effectively to these pressing economic needs, help to reduce economic stress and increase economic well-being.
For Discussion:
1. Have you seen the continuing impact of the recession and the associated
jobless recovery on your clients, agency or your family/friends? If so, what trends have you observed? What kind of coping mechanisms,
responses or strategies have you witnessed?
2. How do you see the trends discussed above affecting your work? Your
clients? Your agency?
NOTES
UNIT FIVE
1. Wheary,.Jennifer, Thomas M. Shapiro & Tamara Draut (2007, November 28) By a
Thread: The New Experience of America’s Middle. Class . Retrieved from:
http://iasp.brandeis.edu/pdfs/2007/By%20A%20Thread%20New%20Experience.
pdf
2. Economic Policy Institute (2009, September 4) Labor Day 2009 Report: Collapse
of Wage Growth Imperils Recovery. Retrieved from http://www.epi.org/page//pdf/20090904_labor_day_pr_final.pdf
3. Wheary, Jennifer, Thomas M. Shapiro & Tamara Draut (2007, November 28) By
a Thread: The New Experience of America’s Middle Class. Demos: A Network for
Ideas & Action and the Institute on Assets and Social Policy at Brandeis University. Retrieved from http://iasp.brandeis.edu/pdfs/2007/By%20A%20Thread%20
New%20Experience.pdf
4. Hacker, Jacob, Gregory Huber, Philipp Rehm, Mark Schlesinger, & Rob Vallett
(2010,July). Economic Security at Risk: Findings From the Economic Security Index.
NY: Rockefeller Foundation. Retrieved from: http://www.rockefellerfoundation.org/
news/publications/moreamericans-are-financially-insecure
5. Gallup.com (2010) Polls: Business and Economy. About 40% of Americans worrying about money. Retrieved August 19, 2010 from www.gallup.com/tag/Business%2band%2bEconomy.aspx
6. New York City, Office of Financial Empowerment, Department of Consumer Affairs
(2010, June) Financial Empowerment Brief.
7. Jones, David (2013, September 1) Statement on Latest New York City Poverty Rates. Community Service Society. Press Released. Retrieved from: http://www.
cssny.org/news/entry/statement-on-latest-new-york-city-poverty-rates
The Economy
Goal: Unit Six provides a definition of the economy, and an overview of three
types of economies reflecting different degrees of government regulation. It also
distinguishes between short business cycles and long-term economic crises that
affect the economic hardship experienced by individuals, families, and
households. Practitioners using this economic lens will be better equipped to
guide and support clients through both challenging and prosperous economic
times.
The economy refers to the system of production, distribution, exchange, and consumption that a society uses to transform natural resources, labor, capital (factors of
production), into useful goods and services (the act of production) and to distribute or allocate the products to useful ends for consumption. Virtually all economies
accomplish these tasks. Economic decision makers consider three basic economic
questions. What to produce? How to produce it? For whom should it be produced?
The answers to these questions and who decides, depends on how leaders in
business and government define the nature of the relationship between the government and the market economy. When we look around the world we see that nations
answer these questions and organize their economies in one of the following three
ways.1
1. Free Market Economy.2 The free market economy refers to an economic system
where the government allows for the interaction of supply, demand and other regular market dynamics to determine what to produce, where to produce, what prices
to set, and how to allocate scarce resources between alternative uses. A true free
market or laissez-faire (let it be) economy has little or no government planning, regulation or other influences.
Free markets were common in the 1700s and early 1800s. This was prior to the
rise of large corporations and economic markets dominated by one (monopoly) or a few (oligopoly) sellers. Few economies exist in such a pure form in the
modern world as societies rely on governments to regulate market forces in varying degrees rather than allow total self-regulation. The question of how much the
government should regulate business and other parts of the economy has always
been a topic of considerable public debate, but the debate intensified in recent
years as negative views of the government took hold.
2. Mixed Economy.3 A mixed economy refers to an economic system in which both
the government and private enterprise play important roles with regard to production,
consumption, investment, and savings. That is where both the government and private enterprise address what output is produced, how it is produced, and for whom
it is produced. Most Western industrial nations, including the United States, have a
mixed economy. Mixed economies rely more heavily on government intervention
than do free market economies but have less reliance on government regulation
than in a planned economy. Mixed economies involve market mechanisms but also
government-operated institutions and controls.
In a typical mixed economy, the government may operate the postal service, rail
lines, libraries, and in many cases, the health care service. Even in industries that are
not owned or run by the government, the government plays a central role through
activities including raising taxes and issuing regulations. Minimum wages, fair labor
standards, Social Security, anti-trust laws, banking regulations, the Tax Code, as well
as consumer and environmental protection are examples of government involvement
in the market economy in the United States.
In mixed economies, governments also address issues beyond the reach of market
forces, including the provision of social welfare benefits to people who cannot find
a job or earn enough in the market and activities that cannot yield a profit but may
benefit society. Examples are a lighthouse in the harbor or the paving and maintenance of roads and bridges.
3. Planned or Command Economy.4 A command or centrally planned economy refers to an economic system where a central government authority makes decisions
about allocation of resources, production, distribution, and consumption rather than
allowing market forces to play a major role. A planned economy may consist of
state-owned enterprises, private enterprises directed by the state, or a combination
of both. Central planners determine the assortment of goods to be produced, allocate raw materials, fix quotas, and set prices.
Most socialist and communist countries have tried to implement parts of a command economy. Capitalist countries may also adopt such a system during national
emergencies (i.e. wartime) in order to mobilize resources quickly. Beginning in the
1980s and 1990s, many governments presiding over planned economies began to
deregulate and move toward mixed economies by increasing the role of the private
sector and allowing private enterprise to make more pricing, production, and distribution decisions.
4. The Underground Economy. The underground economy consists of market transactions and productive activity that are unreported, sometimes illegal, and escape
the watchful eyes of official record keepers. It is sometimes referred to as the informal, parallel or shadow economy. Many people work only in the shadow economy,
because they find it more profitable to do so or because they are barred from the
official economy—as is the case for most undocumented immigrants. Off-the-books
employment is not taxed and is not calculated into benefits calculations. Some people receiving unemployment, SSI, or Public Assistance might work off the books so
their reported income will not rise above the income requirements of the case assistance programs. In this way they supplement their typically low income.
By most estimates, a substantial amount of productive activity takes place in the
underground economy for the United States. Of course, these are only estimates
because such activity, by definition, goes unreported. Were activity in the underground economy added to official activity in the “overground” economy, then gross
domestic product could be boosted by as much as 25 to 50%.5
http://economix.blogs.nytimes.com/2010/08/30/
nannies-under-the-table/?_r=0
The economy is dynamic in nature. Its activities fluctuate in response to both short
business cycles and longer economic waves. Both economic cycles and waves
deeply affect human services practice and social welfare policy. Their turbulence
can create widespread economic insecurity and market instability that falls heaviest
on the most economically vulnerable individual, families and communities.
1. What is The Business Cycle? The United States and all other modern industrial economies experience regular business cycles, often called economic ups and
downs. In some years, most industries are booming and unemployment is low; in
other years most industries are operating far below capacity and unemployment is
high. Economists refer to periods of economic prosperity as expansions or booms
and periods of economic decline as recessions, depressions, contractions or busts.
They call the combination of booms and busts the business cycle or the periodic
but irregular fluctuations (ebb and flow) of economic activity. Each of these wavelike movements typically contains a complete cycle that lasts from three to five years
but could extend to ten years or more.6
Fig. 6.1 Phases of the Business Cycle
The peak of the cycle occurs at the point when the economy is running full-steam.
That is, key economic indicators, such as employment, output, and new housing
starts reach a high. After experiencing a great deal of growth and success, income
and employment begin to decline. In other words, the peak marks the end of the
expansion and the beginning of a contraction that leads into a trough, that is, the
lowest point of the contraction. This point in the business cycle--when output and
employment bottom out--can last a short time, be prolonged, or end rather quickly.
In any case, the point of the trough identifies the end of contraction/recession and
the beginning of the recovery or expansion. In the expansion or recovery phase, the
economy begins to grow once again, moving away from the low experienced at the
trough. Employment, production and income all undergo a period of growth and the
overall economic climate improves.8 These standard downturns stem from ordinary
imbalances in the market and are typically resolved with minimal political conflict and
little or no structural change.9
The nature of the business cycle has changed in recent years in ways that affect
human service clients, workers, and agencies as well as the broader society. A
surge in jobs used to be a reliable sign of the end of a recession — but not any
longer. Economists describe four of the most recent economic recoveries (1981,
1990, 2001, 2009) as “jobless recoveries” because employment growth fell far behind economic growth. The 2008 recession was both the longest post-World War II
recession and the deepest.10 That is, the unemployment rate reached historic highs
comparable to the early 1980s and the post-recession job growth was unusually
weak. People who lose their jobs, homes, and other important economic supports
during such economic slumps often turn to human services agencies for help.
2. Measuring the Business Cycle. The National Bureau of Economic Research, an
independent research institution, determines the official dates of peaks and troughs
in U.S. business cycles.11 It dates the beginning and end of a business cycle according to when the direction of economic activity changes. Because key economic
indicators often change direction at slightly different times, the dating of peaks and
troughs necessarily involves a certain amount of subjective judgment. The 20th century had 25 business cycles.12
3. Long Economic Waves and Economic Crises. An economic crisis is defined as an
economic collapse that is part of a long economic cycle. According to some economists, long economic waves refer to 30-to-50 year cycles that include about 15 to
25 years of strong economic growth and prosperity followed by 15 to 25 years of
economic decline (or slowed economic growth) that often end in a major economic
crisis. The resulting crisis reflects the deterioration of the institutional arrangements
that had previously supported profitability and productive economic growth (see
below).
Fig. 6.2 Not a Recession13
The resolution of such a crisis typically follows considerable political conflict that
eventually forces a reorganization of major social, economic, and political institutions.14 Such a deep crisis differs from a recession that represents the low point in
the ordinary, more frequent and short-lived business cycle discussed earlier.
Fig. 6.3 Main Street vs. Wall Street
4. Background Leading to the Current Economic Crisis. The U.S. has faced two
long-term economic crises during the 20th century. The first, the Great Depression,
surfaced with the collapse of the economy in the 1930s. The second, less dramatic
but equally important, crisis surfaced in the mid-1970s marked by slow economic
growth and falling profits. Each crisis resulted in a major reorganization of the nation’s economic institutions and sparked very different governmental responses.16
The nation’s leaders defined the causes of the Great Depression to be failures of
the free or laissez-faire market system that had long governed economic activity.
For the first time, they actively called upon the federal government for help. After
considerable political struggle, Washington responded with the New Deal policies
that ushered in a major restructuring of the economy based on redistributing income
downwards from the haves to the have-nots and expanding the role of the federal
government.
Among other institutional reforms the strategy included: a progressive income tax
(i.e. 25 brackets), a tax rate of 94 percent on the top bracket, a high rate of corporate taxation, and the 1935 Social Security Act. The Social Security Act launched the
modern welfare state in the United States by transferring social welfare responsibility
from the states to the federal government and creating an entitlement program.
The U.S. invested in social welfare about 50 years after the majority of industrial
states.17 It was followed in the 1960s and 1970s by the War on Poverty and Great
Society programs that continued government social investments. From 1935 to 1975
increased revenues and greater administrative capacity allowed the federal government to respond more fully to population growth, the emergence of new needs, and
the demands of social movements. The expanded role of the government, including
the welfare state, was accompanied by prosperity, steady economic growth, falling
poverty, and less inequality. Some call it the “golden era of capitalism.”18
The second crisis surfaced in the mid-1970s and signaled the end of postwar
prosperity and growth. Many national leaders blamed this crisis on “big government” (especially the welfare state), “personal irresponsibility” and the gains of the
post-war social movements, especially the labor, civil rights and women’s liberation
movements. Instead of turning to the government for help as they did in the past,
leaders sought to limit the role of the (what they saw as a “bloated”) welfare state.19
This created growing tension with what others saw as the government responsibility
to protect people in need. More specifically, national leaders tried to undo the New
Deal and Great Society programs by redistributing income upwards from the havenots to the haves and downsizing the state. Since then public policy has systematically: cut taxes, dismantled social programs, shifted social welfare responsibility from
the federal government back to the states (devolution) and from the government or
public sector back to the private market (privatization).
Public policy has also limited the influence of social movements (whose post-war
victories, some argue, contributed to economic growth) as well as individual societal
well-being.) They add that if social movements regained their strength, they might
successfully resist the new austerity plan.
The New Right’s revival of laissez-faire economics, known as Reaganomics or Supply-Side Economics has driven U.S. economic policy since 1980. The proponents
of Reaganomics promised that benefits of their pro-market, anti-government strat-
egy would trickle down to the average person. The resulting tax and spending cuts
vastly increased the wealth of individuals and profits of many corporations. Instead
of trickling down, the standard of living of the average household fell. Reaganomics
also promised the taken together these policies would promote economic growth.
Fig. 6.4 Welfare State in Danger
20
But the data show that during this period economic growth slowed. From 1947 to
1973 - the big government era - the economy grew by an average of 4% a year.
In the era shaped by Reaganomics (aka Neoliberalism) (1979-2013), the annual
growth rate dropped to 2.65 percent.21
Over the long haul, the slowed economic growth led to ever-increasing jobless
recoveries. These brewing economic problems contributed to the first economic
crisis of the 21st century, marked by the burst of the housing bubble, record high
unemployment, very low levels of investment, reduced liquidity, and the stock market crash in 2008. Between 2007 and 2009, economic growth slowed even more,
measuring minus 1.01%. President Barack Obama’s short-term response to this
economic calamity included the well known stimulus package – a combination of
remedies such as tax cuts, state aid, and support for “shovel-ready” (i.e. construction) projects. He also extended unemployment insurance benefits as part of the
deal made with the Republicans that allowed the “Bush tax cuts” to continue until
2012.
Congressional stalemates have stalled most spending during the Obama
Presidency. Therefore, the major economic stimulus came from the Federal Reserve
Board (“The Fed”). The FED’s policies both lowered interest rates and initially bought
$85 billion in government bonds. These policies are also known as “monetary
easing” or “quantitative easing” (see Monetary Policy below). More recently, as the
economic improved, the FED began to reduce the dollar value of bonds
purchased, and to lessen its effort to stimulate the economy in other ways.
Longer-term solutions to the deep crisis depend on the capacity of the currently
deeply divided Congress to find common ground.
For Discussion:
1. How do you see the effects of large economic policies and business
cycles on your clients and agencies?
2. How could you use this information to inform a strengths-based
conversation with a client about economic hardship like the loss of a job or difficulty paying expenses?
NOTES
UNIT SIX
1. Economic Glossary Economic (n.d.) Definition of the Economy. Retrieved from
http://glossary.econguru.com/economic-term/economy
2. Macmillan Dictionary, Market Economy. http://www.macmillandictionary.com/
dictionary/american/market-economy
3. Macmillan Dictionary, Mixed Economy. http://www.macmillandictionary.com/dictionary/british/mixed-economy
4. Macmillan Dictionary, Command Economy. http://www.macmillandictionary.com/
dictionary/american/command-economy
5. Thale, Christopher (n.d.) The Underground Economy. Encyclopedia of Chicago Retrieved from http://www.encyclopedia.chicagohistory.org/pages/1280.html;
Hans F. Sennholz, Hans. F.(2003). The Underground Economy. Online version. The
Ludwig von Mises Institute. Retrieved from http://mises.org/etexts/underground.
pdf; Venkatesh, Sudhir (2006) Off the Books: The Underground Economy of the
Urban Poor. Retrieved from: http://www.npr.org/templates/story/story.php?storyId=6195673
6. Romer, Christine (n.d.) Business Cycles. the Concise Encyclopedia of Economics
(2nd ed) Retrieved from http://www.econlib.org/library/Enc1/BusinessCycles.html
7. Phases of the Business Cycle (n.d.) Financial Crisis Survival Guide. Retrieved from
http://www.investopedia.com/articles/02/100402.asp
8. Romer, Christine (n.d.) Business Cycles. The Concise Encyclopedia of Economics
(2nd ed) http://www.econlib.org/library/Enc1/BusinessCycles.html; Investopedia
(n.d) Financial Crisis Survival Guide. Retrieved from http://www.investopedia.com/
articles/02/100402.asp
9. Kotz, D. (2003) Neoliberalism and the Social Structure of Accumulation: Theory
of long run capital accumulation. Paper presented at the Allied Social Science Associations Convention, Washington, D.C.: Kotz, D. (2003). Neoliberalism and the US
expansion of the 1990s. Monthly Review, 54(11), 15-33; Bowles, S.M., Gordon. D.,
& Weisskopf, T. (1986). Power and profits: The social structures of accumulation
and the profitability of the post war economy Review of radical political economics,
18 (1&2) 132-167.
10. Rampell, Catherine (2010, September 20) Recession May Be Over, but Joblessness Remains. The New York Times. Retrieved from: http://www.nytimes.
com/2010/09/21/business/economy/21econ.html
11. Rampell, Catherine (2010, September 20) Recession May Be Over, but Joblessness Remains. The New York Times. Retrieved from: http://www.nytimes.
com/2010/09/21/business/economy/21econ.html
12. Romer, Christine (n.d.) Business Cycles. The Concise Encyclopedia of Economics (2nd ed) http://www.econlib.org/library/Enc1/BusinessCycles.html
13. National Bureau of Economic Research (2010 April 12) US Business Cycle: Expansions and Contractions http://www.nber.org/cycles/cyclesmain.html
14. O’Keefe, Michael (2008, May 28) Not A Recession. Retrieved from http://politicalhumor.about.com/od/economy/ig/Economic-Cartoons/Not-a-Recession.-2zL.
htm
15. Lippit, Victor D. (2010) Social structures of accumulation theory. David. M. Kotz,
Terrence McDonough, & Michael Reich (eds). Contemporary Capitalism and its Crises (pp. 45-71). New York: Cambridge University Press.
16. Luckovitch, Mike (2009 October 15) Main Street vs Wall St. Retrieved from
http://politicalhumor.about.com/od/economy/ig/Economic-Cartoons/Wall-Streetvs--MainStreet.0ymN.html
17. Abramovitz, Mimi (1996). Regulating the lives of women: Social welfare policy
from colonial times to the present (2nd ed.). Boston: South End Press.
18. Abramovitz, Mimi (1996). Regulating the lives of women: Social welfare policy
from colonial times to the present (2nd ed.). Boston: South End Press.
19. Bowles, S.M., Gordon. D., & Weisskopf, T. (1986). Power and profits: The social
structures of accumulation and the profitability of the post war economy. Review of
Radical Political Economics, 18 (1&2) 132-167.
20. Rodrigo (2008) Social State in Danger. Retrieved from http://it.toonpool.com/
cartoons/Social%20state%20in%20danger_100923
http://www.thebluecollarinvestor.com/blog/wp-content/uploads/2008/11/business-cyclegraph-better.jpg
21. Measuring Worth (n.d.) Annualized growth rate of various historical economic
crises. US GDP (real). Retrieved November 9. 2014 from http://www.measuringworth.com
The Policy Tools
How the Government
Manages the Ups and
Downs of the Economy
Goal: This unit provides an overview of important fiscal and monetary policy
tools used by the Federal government daily as it tries to manage economic ups
and downs and reduce economic insecurity. It also includes a lively policy debate about the use of economic policies to reform the U.S. health care system.
T
he federal government plays a central role in managing the economy in good times and in bad. After the Depression and World War II, Congress passed the
1946 Employment Act that for the first time (other than during wartime) gave the
federal government significant economic oversight. The act authorized the government to develop fiscal and monetary policies to “promote maximum employment,
production, and purchasing power”1 while maintaining stable pricesand employment
levels. The federal government also regulates the behavior and practices of business, labor, consumers, and the quality of the environment. It oversees and guides
the reorganization of basic institutions that respond to an economic crisis and the
smaller changes that follow the downside of a business cycle.
Fiscal policy is one way the federal government regulates the economy. It is usually
defined as the taxing and spending policies of the federal government. These policies include deciding how much revenue to raise and how much to spend on the
provision of goods and services, such as highways, libraries, schools, social welfare
and national defense among many others.
Fiscal policies include the power of the federal government to tax and spend.2 The
use of these tools to keep the economy going is sometimes referred to as Keynesian economics after the British economist John Maynard Keynes. Keynes argued
that private sector decisions sometimes lead to economic instability. Therefore, he
advocated active government fiscal policy to stabilize the business cycle including
the creation of modest budget deficits when necessary.
a. Taxes. There are three main types of taxation progressive taxation regres
sive taxation and proportional.3 Each is defined in relation to the average tax rate. The average tax rate: is calculated by dividing the amount a per-
son owes by their total income.
• Progressive taxation is where the average tax rates increases as income increases. It based on the assumption that taxpayers earning more
can afford to pay a higher percentage of their income in the taxes needed to cover the costs of running the government without sacrificing their
quality of life. For example, a progressive tax rate would place a 10 %
rate on the first $10,000 of income and increase the rate by 5 % per
each additional $10,000 up to a maximum of 50 % on all income over
$80,000. In the U.S. progressive taxes include the personal income tax,
wealth taxes (inheritance, capital gains) and corporate income (profit)
taxes. Those who support this approach also argue that the more affluent
should pay more. The U.S. income Tax Code is still considered moderately progressive, but less so than in the past due to fewer tax brackets
and a lower tax rate on the top tax bracket.
• Regressive taxation is where the average tax rate decreases when income increases. Based on the principle that individuals should be taxed
based on the benefit received, the tax rate applies equally to all persons.
That is, everyone pays the same share of their income in taxes. For example consumption taxes (i.e. sales taxes on consumer goods and services) place the same tax rate on the same item for everyone regardless
of their income. The Social Security payroll is also regressive because
there is a single rate for everyone and a cap on the amount of income
that is subject to tax. Those who support regressive taxation argue that
people have a choice as to what they want to buy. Those who oppose
regressive taxation argue that this method falls more heavily on the poor.
For example, if two individuals pay the same $4 for a gallon of milk and
both pay the same 36 cents in taxes, the 36 cents represents a lower
percentage of the total income of the higher income individual. That is,
the higher income person is paying a lower average tax rate.
• Proportional taxation is where the average tax rate is the same for all
incomes, often called a flat tax. Those who support the flat tax argue
that everyone should be treated equally. Those who oppose the flat tax
say that, like the regressive tax, it falls heaviest on those with the lowest income They also fear that it would be set at too low, below what is
needed to raise sufficient government revenues. The federal government
draws its revenues from the various tax categories. As the following pie
chart shows, almost half of our tax dollars are based on regressive taxation:
Fig. 7.1 Where Do Our Tax
Dollars Come From?4
b. Spending. Government spending (also called expenditures or outlays) falls into
two categories according to how Congress appropriates the money: discretionary
and mandatory spending.
• Discretionary spending refers to the portion of the budget that goes through the
annual appropriations process. Congress directly sets the level of spending on
these programs. It can decide to increase or decrease this kind of spending in a
given year. Thus spending on these programs becomes subject to budget politics.
The discretionary budget is about one-third of total federal spending. Figure 7.2
indicates how discretionary spending was divided up for fiscal year 2011.
• Mandatory spending includes programs that Congress pays for based on preset eligibility or payment rules. Most of the major entitlement programs fall into this
group so it is sometime referred to as the entitlement budget stream. The amount of
money that Congress appropriates for the program is not based on annual budget
politics. Instead it is automatically determined by estimates as to how many people
will apply and become eligible for benefits. If Congress wants to adjust spending,
it has to change the rules of eligibility or benefit levels. This kind of programmatic
cutback is not taken lightly since the entitlement programs include Social Security,
Medicare, SNAP (i.e. Food Stamps), and others used by large numbers of peo-
ple. However, those in favor of smaller government keep trying to retrench these
large programs. Mandatory spending makes up about two-thirds of the total federal
budget. The following chart, Figure 7.2, shows the breakdown of different types of
mandatory spending for the period 2010 - 2011.
Fig. 7.2 Where Do Our Tax Dollars Go?5
Fiscal policy influences the economy in two basic ways. When the government
wants to expand or stimulate the economy (to pull out of a recession), it uses
expansionary fiscal policy. This injects more dollars into the market by increasing
government spending and/or decreasing taxes. When the government wants to
slow or cool off the economy or to limit inflation, it uses contractionary fiscal policy,
which withdraws dollars from the market by decreasing government spending and/
or increasing taxes.
Monetary Policy refers to the set of decisions a government makes, usually through
its central bank, regarding the amount of money in circulation in the economy. In the
United States, the central financial institution is the Federal Reserve System, popularly known as “the Fed”.6
1. The Goals of Monetary Policy. Monetary policy goals mirror fiscal policy
goals. They include helping to promote high employment, economic growth,
low inflation, limited unemployment and a sustainable pattern of international
transactions. It can be difficult to reconcile the twin goals of maintaining price
stability and maximizing employment.
2. The Money Supply. The Federal Reserve System defines “money” as the
total of cash in circulation, the deposit liabilities of banks and thrifts (i.e. liquid
assets owed to other people) and demand deposits (checking accounts held
by individuals and banks) that are available for transactions and investment
in the economy. The term “the money supply” implies that a certain amount
or supply of money exists at any given time, even though the quantity may
be unknown. (The Fed attempts to stabilize the economy by controlling the
money supply.)
3. Monetary Policy Tools. The Fed has three tools to manipulate the money
supply. They are the reserve requirement, open market operations, and the
discount rate.
• The most powerful tool is the reserve requirement or the percentage of money
that the bank is not allowed to loan. When the Fed lowers this amount, it requires
all the member banks to keep less money at the bank. This increases the amount
of money in circulation. When the Fed raises the reserve requirement, the member
banks have to keep more money inhouse. This means that there is less money in
circulation. A bank may have to collect on loans in order to meet the new higher
reserve requirement.7
• The open market operations also control the overall money supply. It influences
money and credit operations by buying and selling government securities on the
open market. When interest rates are near zero and have not produced the desired
economic stimulus, the Fed can increase the supply of money in circulation by
purchasing financial instruments such as government bonds and corporate bonds
from banks and other financial institutions. This gives the banks the funds needed
to create new money that stimulates the economy. Some worry that this quantitative
easing (see above) will lead to inflation. If the Fed believes there is too much money
in the economy, it sells the securities back to the banks.8
• The discount or interest rate refers to the cost of borrowing money. When member banks want to raise money, they can borrow from Federal Reserve Banks. Just
like other loans, they must pay the loan back with interest. The Fed can control the
amount of borrowing by raising and lowering the discount or interest rate.9 The Fed
also controls another interest rate known as the federal funds rate or the interest
rates charge to banks when they borrow from each other.
Like fiscal policy, monetary policy can work to expand or contract the economy.
To pursue an expansive monetary policy, the Fed can add reserves to the banking system, which stimulates the growth of the money supply, making it easier for
member banks to make more loans. It can also stimulate the economy by buying
government securities on the open market, putting more money into circulation and
lowering interest rates making it less expensive for businesses and consumers to
borrow money which they then spend. To contract or “cool off” the economy, the
Fed can require banks to keep more cash on reserve and to raise the interest rate.
The battle over the inclusion of “the public option” in the health care reform legislation enacted in early 2010, resulting in the Affordable Care Act, reflected this debate
over the use of fiscal policy. The public option (sometimes called the single payer
plan) would have operated like the Medicare program for seniors or the Veteran
Administration’s (VA) for veterans and allowed people to buy government-provided
health insurance.
• Proponents of the public option argued that a government-run insurance program
would be less expensive because it would eliminate the need to build the cost of
advertising and profits into the price of the premium, incur fewer administrative expenses, exercise its massive bargaining power to secure a better deal from both
insurance and drug companies, and lead private insurers to lower their premiums
for the same package of benefits if they wanted to compete for customers.
• Opponents of the public option, including private health insurers and drug companies, countered that the low-cost of the public option and the government’s negotiating power would put them out of business. They argued that they could not afford
to sustain their levels of service or keep paying their investors. They also feared that
many people would flock to the public option, resulting in the U.S. having a single
payer system in which health care is paid for by one entity, the government. Some
doctors also opposed the public option saying its lower reimbursements would lead
them to reject patients. Those who generally objected to government programs also
lobbied against the public option.
While public option was eventually dropped from the bill as a political compromise,
some experts believe that it will eventually become part of the payment system.
For Discussion:
The following videos argue for and against an active role for the government in the
economy.
Interactive Quiz (2011) 20 Questions on Proper Role of Government (for survey
scroll down) http://www.wnyc.org/articles/its-free-country/2011/feb/28/rolegovernment-poll
Opposed to Active Government Role (social welfare in particular)11 Milton Friedman
(well-known free market economist and welfare-state critic) From Cradle to Grave
http://www.youtube.com/watch?v=VWliEiLeqRA
http://www.youtube.com/watch?v=4FjjDtBhweM&feature=related
The Role of Government in the Economy (YouTube) (2.5 min)
http://www.youtube.com/watch?v=sSwmiGPbiaU
(Speech) (You Tube: 3.50 min)
https://www.youtube.com/watch?v=yMeLcBcAnmM
1. To what extent do you agree or disagree with the different views?
2. What values about money influence your views?
3. What professional values influence your views?
4. State your perspective with consideration to the impact of government social welfare policies on the lives of individuals you know and communities with
whom you are familiar. How would you argue for your position?
NOTES
UNIT SEVEN
1. Fisher Louis (2004) Major Acts of Congress, Employment Act of 1946. Retrieved from http://www.encyclopedia https://www.nationalpriorities.org/budget-basics/federal-budget-101/spending/.com/topic/Employment_Act_of_1946.
aspx
2. Fiscal Policy (n.d) Fiscal Policy. Retrieved from http://www.businessdictionary.
com/definition/fiscal-policy.html\
3. Abramovitz, Mimi & Sandra Morgan (2006) Taxes Are A Women& Sandra Morgan (2006) tion/fis New York, NY: The Feminist Press.
4. National Priorities Project -Federal Budget 101, Charts Projected Federal Revenues by Source, FY 2015, (n.d.) Retrieved from
https://static.nationalpriorities.org/images/fb101/2014/projected-tax-revenue.png
5. National Priorities Project (n.d). Federal Budget 101. Charts. Proposed Total
Spending FY2015 Retrieved from: https://www.nationalpriorities.org/budget-basics/federal-budget-101/spending/
6. Federal Reserve System (n.d.) Monetary Policy. Retrieved from
http://www.federalreserve.gov/monetarypolicy/fomc.htm
7. Federal Reserve System (n.d.) Reserve Requirement. Retrieved from
http://www.federalreserve.gov/monetarypolicy/reservereq.htm; Business Dictionary (n.d.) Reserve Requirements. Retrieved from: http://www.businessdictionary.
com/definition/reserve-requirements.html
8. Federal Reserve System (n.d.) Open Market Operations. Retrieved from
http://www.federalreserve.gov/monetarypolicy/openmarket.htm; Business Dictionary (n.d.) Open Market Operations. Retrieved from http://www.businessdictionary.com/definition/open-market-operations.html; Business Insider (n.d.)
What is Quantitative Easing. Retrieved from http://www.businessinsider.com/
what-is-quantitative-easing-2010-8.
9. Federal Reserve System (n.d.) Discount Rate. Retrieved from:
http://www.federalreserve.gov/monetarypolicy/discountrate.html
10. Procon.org (n.d.) The Right to Health Care: Should All Americans Have the
Right to Health care? Retrieved from: http://healthcare.procon.org/\
11. Friedman, Milton. [Speaker] (2010, May 23) From Cradle to Grave [1/7].
Milton Friedman’s Free to Choose (1980). [Lecture] http://www.youtube.com/
watch?v=VWliEiLeqRA.
The Labor Market
Where People Work
Goal: Unit Eight provides a basic understanding of the workings of the labor
market by defining labor, distinguishing between the high wage (primary) and
the low wage (secondary) labor market, and exploring categories of unemployment and underemployment. These definitions connect to labor market metrics
and policies that influence benefits, such as unemployment insurance.
According to some economists, the labor market contains two basic types of employment markets: primary and secondary. The type of labor market in which people are employed has a significant impact on their standard of living and economic security.
1. Primary Labor Market.1 This market is dominated by large firms, often monopolies, with a large amount of investment capital. The firms employ skilled
workers, pay well, have good fringe benefits, decent working conditions,
opportunities for advancement, and provide job security. Workers in these
“good” jobs tend to be unionized and therefore able to make greater wage
demands than workers in a secondary labor market (see below). Historically,
white males have predominated the primary labor market jobs. While these
jobs still offer better wages and working conditions, the number of unionized
workers in these jobs has become smaller in recent years. (Many professionals also hold “good” jobs in the service sector although they may or may not
be unionized.) The service sector refers to jobs in retail fast food, health, the
financial institutions, among other types of non-manufacturing jobs.
2. Secondary Labor Market.2 This market is dominated by labor-intensive
industries with small firms that employ low or unskilled workers in highly
competitive commercial markets, and tend not to be unionized. They pay low
wages, offer few fringe benefits, provide poor working conditions, offer few
opportunities for advancement, and report high turnover and insecure employment. Workers in these jobs tend to be women, immigrants, and persons
of color. This sector includes low-paid service as well as manufacturing jobs.
1. What is Labor? Labor is the effort of human beings engaged in the production
and provision of goods and services. Commonly thought of as those who work in
factories, labor, in fact, refers to all human efforts, from clerical workers to company
presidents in manufacturing and service industries, in the public and private sector
of the economy.3
The labor market includes all people who perform paid work. Workers in the labor
market comprise part of the labor force. The labor force consists of people between
16 and retirement age who are officially employed or actively seeking employment.
Persons not included in the labor force include: active duty military personnel, institutionalized persons, students, and discouraged workers. Feminists remind us that
the labor of women in the home makes a significant contribution to both families and
to the economy, but that it remains unpaid. Women performing unpaid labor in their
home (stay-at-home moms) are not counted as part of the labor force because
they are not actively seeking paid work. The same applies to stay-at-home dads.
2. Workers in the Labor Force.4
Employed workers are people with paid jobs. The Bureau of Labor Statistics (BLS)
of the U.S. Department of Labor considers people to be employed if, during a week
in which they are surveyed by the Department of Labor, they: did any work for pay
or profit; did at least 15 hours of unpaid work in a family-owned enterprise operated
by someone in their household; or were temporarily absent from their regular jobs
because of illness, vacation, bad weather, industrial dispute, or various personal reasons, whether or not they were paid for the time off. The latter are counted among
the employed and tabulated separately as “with a job but not at work” because they
have a specific job to which they will return. Employed workers fall into two main
groups: regular and contingent.
a. Regular Workers. Regular employees can be part-time, full-time, or seasonal
employees that work solely for one legal entity.
• Full Time Workers. The Fair Labor Standards Act (FSLA) does not define full-time
or part-time employment. This is generally determined by the employer and put in
writing. The standard for full-time work has fallen from 40 hours to 37.5, 35 or 30
hours a week. There are no requirements for employers to provide benefits to employees other than those mandated by law. Benefits can include a pension, health
insurance, paid vacation, and sick time. Such benefits are not usually offered to parttime employees, but that is up to the discretion of the company.5
• Part Time Workers. Part-time workers typically work fewer hours in a day or during
a work week than full-time employees. They may also work only during certain parts
of the year (seasonal work). Employers hire part-timers to adjust to changes in the
demand for products and services. In the last decade employers have increasingly
hired parttime labor to avoid paying for a range of fringe benefits that are offered
to full-time employees and to lower labor costs. Individuals take parttime work for
a variety of reasons including that they cannot find fulltime work, prefer part-time
in order to attend school, care for children or other family members, have medical
limitations, or to stay within certain income limits for tax reasons (i.e. Social Security
recipients).6
b. Contingent Workers. Contingent workers go by various names, including temporary employees. The title refers to any worker who is contracted, leased, or borrowed
by another organization, usually a staffing agency, for a fixed period of time or a
specific project. Contingent workers range from high-paid consultants to low-paid
unskilled workers. They often replace full-time permanent workers, receive few, if
any, fringe benefits, and have limited protections or job security. These workers do
not have an implicit or explicit contract for ongoing employment. The contingent
workforce acts as a flexible workforce from whom organizations can hire individuals
to perform specific projects or complete specialized projects.7
Fig. 8.1 The Very Temporary Worker
8
c. Underemployed Workers. A worker is underemployed when working in a job that
requires less skill or training than he/she possesses, does not pay as much as
one wants or expects, or is part-time when the worker requires income from fulltime employment. More people fall into this category during economic hard times
and when the supply of workers exceeds the demand for workers. After a long job
search when people cannot find a job that meets their skills, they may feel compelled to take any job even if it does not make full use of their capacities.
The economic costs of underemployment are disproportionately borne by workers
at the lower end of the income spectrum. Thus, underemployment contributes in an
important way to the high and rising degree of income inequality in the United States
and to growing poverty during the recession.9
d. Unemployed Workers. Unemployed workers are people without a paid job. There
are several categories of jobless workers. The unemployment rates varies with the
state of the economy as shown in Figure 8.2
Actively Seeking Work. People are
classified as unemployed if they do
not have a job, have actively looked
for work in the prior four weeks,
and are currently available for work.
Actively looking for work may
consist of any of the following
activities: contacting an employer
directly or having a job interview
with a public or private employment
agency, friends, or relatives, a school
or university employment center;
sending out resumes or filling
out applications; placing or answering
advertisements; checking union or
professional registers; or some other
means of job search.11
Figure 8.2
10
Discouraged Workers. Discouraged workers are persons who have stopped looking
for work because they believe no jobs are available for them. Because they are not
currently job hunting, they are not counted in the official unemployment rate. Levels
of discouraged workers are reported by the Bureau of Labor Statistics.12 Among
discouraged workers are the marginally employed who currently are neither working
nor looking for work but indicate that they want and are available for a job and have
looked for work sometime in the past twelve months. When official data includes
discouraged workers, the official unemployment rate climbs significantly.
http://www.nytimes.com/2011/07/26/business/help-wanted-ads-exclude-the-long-termjobless.html
Displaced/Dislocated Workers. These are workers who have been permanently laid
off, or have received a layoff or termination notice from their employers due to the
failure of a firm, a plant closure or a substantial layoff and are unlikely to return to
previous industry or occupation.14 This term also applies to displaced homemakers. In general, a displaced homemaker is person who is at least 30 years old,
unemployed and has not worked as an employee for a number of years. Displaced
homemakers have worked their homes providing unpaid services for family members. They have been dependent on the income of another family member but are
no longer being supported by that income. They are receiving public welfare assistance for dependent children or underemployed and finding it difficult to locate a
better job. Displaced or dislocated workers may be eligible for special government
benefits and job training.15
3. Underutilized Pool of Labor refers to the sum of the officially unemployed, but also
jobless workers, who have given up looking for work and people who want full-time
jobs but have had to settle for part-time work. This labor pool is sometimes referred
to as the U-6 Measure of Labor Underutilization. It does not include people who
are underemployed in the sense that they have taken a job that is below their skills,
training, or experience level.16 Each of these three groups is mutually exclusive. A
new term “missing workers” has surfaced to capture the workers who dropped out
of (or never entered) the labor force during any downturn.
To assess the strength or weakness of the complex labor market, it is important to
look at various measures of labor market health. Fig. 8.3 shows that the number of
underemployed workers (i.e. unemployed, part-time and marginally attached workers) by gender. Underemployment fell during the late 1990s when the economy improved and soared during the Great Recession (2008-2009). The rate has dropped
in recent year but remains higher than in the mid -1990s.
Fig 8.4 Both Genders Suffer Sustained and High Under Employment
Rate Underemployment Rate of Worker Age 16 and older by gender
4. How Is Employment Measured? The government counts the number of people
who are employed in various ways. The Employment Rate, also called the
employment-population ratio, is the number of people 16 years or older currently
employed divided by the adult population (or by the population of working age that
is not institutionalized). The ratio measures the economy’s ability to provide jobs for
a growing population; its consistent cyclical properties and the relative accuracy of
its seasonal adjustment make the ratio especially useful for evaluating demographic
employment trends.18
Fig. 8.5 Employment Population Ratio
The Labor Force Participation Rate is the proportion of the total non-institutionalized
civilian population age 16 years and older who make up the labor force. This ratio
tells us the share of the available working age populace that is willing and able to
work and that is either employed or actively seeking employment. But labor force
participation rates vary by age, racial, gender and ethnic group.20 These differences
are often linked to some form of discrimination, which makes it harder for people in
these groups to find employment.
Fig. 8.6 Labor Force Participation Rate
21
For Discussion:
Please identify the type of employment each of the following people represents and
other potential service needs. Is an intervention needed? If so, what resources would
be helpful?
1. Beatrice Hogan lost her job when the local plant closed down. She began
visiting personnel offices. She looked intensively for over a year trying to find a
job. For the past six months she rarely goes out of the house. Beatrice is afraid
to spend money and feels she will never find a new position.
2. Tony Green was laid off from his job at a motor company when the firm
began retooling to produce a new model car. He knows he will be called back
to work as soon as the model changeover is completed. He also knows it is
unlikely that he would be able to find a job for the period he is laid off. Therefore
although he is available to work, he is not seeking a job.
3. Elizabeth Berg reported to the government survey that she works 40 hours
per week as a sales manager for the Western Beverage Company.
4. Yvonne Rodriquez reported that two weeks ago she applied for a job as a
receptionist at a Brooklyn Travel Agency and the Equity Mortgage Lending
Company. She is awaiting the results of her applications.
5. Last week Linda Brown was occupied with her normal household chores. She
neither held a job nor looked for a job. Her 80-year-old father who lives with
her has not worked or looked for work because of a disability.
6. Marie Jenkins was thinking about looking for work in the prior four weeks but
made no specific effort.
To this day mainstream economists (and most everyone else), do not consider fulltime homemakers as workers because their labor is unpaid. The Women’s Movement
challenged this idea and called for a redefinition of women’s work in the home as
care work and recommended compensation. This led to a movement called Wages
forsHousework. The debate died down as more and more women entered the paid
work force. Even so, women earn only a share every dollar earned by men.22
For Discussion:
1. How does this layered understanding of the labor market help you understand
your location in the work force, that of your family and your clients?
2. What category of employment do most of your clients fall into? How has that
affected their economic security in the past few years?
NOTES
UNIT EIGHT
1. Gordon, David, Richard Edwards, & Michael Reisch (1986) Segmented Work,
Divided Workers: The Historical Transformation of Labor in the United States. Cambridge University Press, Cambridge; London, pp.200-226
2. Gordon, David, Richard Edwards, & Michael Reisch (1986) Segmented Work,
Divided Workers: The Historical Transformation of Labor in the United States. Cambridge University Press, Cambridge; London, pp 200-226.
3. Economic Glossary (n.d.) Economic Definition of Labor. Retrieved from
http://glossary.econguru.com/economic-term/labor
4. U.S. Department of Labor, Bureau of Labor Statistics (n.d.) What Are the Basic
Concepts ofz Employment and Unemployment? Retrieved from http://www.bls.gov/
cps/cps_htgm.htm#concepts
5. U.S. Department of Labor (n.d.) Work Hours, Full Time Employment. Retrieved
from http://www.dol.gov/dol/topic/workhours/full-time.htm
6. U.S Legal (n.d.) Contingent Workers Law and Legal Definition. Retrieved from
http://definitions.uslegal.com/c/contingent-workers/
7. U.S Legal (n.d.) Definitions. Part-Time Employees Law and Legal Definition. Retrieved from http://definitions.uslegal.com/p/part-time-employees; Yates, Michael
D. (1994) Longer Hours, Fewer Jobs: Employment and Unemployment in the United
States, New York: Monthly Review Press
8. Simpson, Carole (1992) The Very Temporary Workers. Retrieved from http://
www.cartoonwork.com/archive/workplacecartoons/eighthour.htm\l
9. Sum, Andrew & Khatiwada, Ishwar (2010) Labor Underutilization Problems of U.S.
Workers Across Household Income Groups at the End of the Great Recession: A
Truly Great Depression Among the Nation’s Low Income Workers Amidst Full Employment Among the Most Affluent. Retrieved from http://www.clms.neu.edu/publication/documents/Labor_Underutilization_Problems_of_U.pdf
10. Bivens, Josh (2014 Sept. 29) Long Term Unemployment Has Not Damaged the
Productivity of Workers. Economic Policy Institute Retrieved from: http://www.epi.
org/publication/long-termunemployment-scarring/
11. U.S Department of Labor, Bureau of Labor Statistics (n.d.) What Are the Basic
Concepts of Employment and Unemployment? Retrieved from http://www.bls.gov/
cps/cps_htgm.htm#concepts
12. U.S. Department of Labor, Bureau of Labor Statistics (n.d.) Glossary, Discouraged
Workers. Retrieved from http://www.bls.gov/bls/glossary.htm#D
13. Tapajna, Ray (n.d.) Unemployment Double Talk in the US. Retrieved from
http://www.toonpool.com/cartoons/Unemployment%20double%20talk%20in%20
USA_87517
14. U.S. Department of Labor, Bureau of Labor Statistics (n.d.) Glossary, Displaced
Workers. Retrieved from http://www.bls.gov/bls/glossary.htm#D
15. U.S. Department of labor, Bureau of labor Statistics (n.d.) What are the Basic
Concepts of Employment and Unemployment? Retrieved from http://www.bls.gov/
cps/cps_htgm.htm#concepts
16. Shierholz, Heidi (2010 December 3).Labor market falters in November. Economic Policy Institute. Retrieved from http://www.epi.org/publications/entry/november_jobs_picture
17. State of Working America 12h Ed (2012) Economic Policy Institute, Cornell
University Press. Retrieved 9/24/15 from: http://www.stateofworkingamerica.org/
charts/underemploymentgender/
18. U.S. Department of Labor (2010, December 3) Bureau of Labor Statistics Economic Situation Summary. Household Data. Table A-1. Employment status of the civilian population by sex and age. Retrieved from http://www.bls.gov/news.release/
empsit.t01.htm
19. Stone, Chad (2010, June 4) CBPP Statement. Press Release. Economic Recovery Watch. Retrieved from http://www.cbpp.org/cms/index.cfm?fa=view&id=3200
20. U.S. Department of Labor (2011, August ) Bureau of Labor Statistics Economic
Situation Summary. Household Data Table A-1. Employment status of the civilian
population by sex and age. Retrieved from http://www.bls.gov/news.release/empsit.nr0.htm
21. Bureau of Labor Statistics (n.d.) The Labor Force Participation Rate. Retrieved
from http://data.bls.gov/PDQ/servlet/SurveyOutputServlet
22. Hegewisch, Arlene,U Williams Claudia( 2013 March) The Gender Wage Gap:
2012. Institute for Women’s Policy Research (IWPR) #C350 Retrieved from : http://
www.iwpr.org/publications/pubs/the-gender-wage-gap-2012-1
The Wage Picture
Goal: Learning about income and wage adequacy, the minimum wage and income and wealth disparities by gender and race. Also includes policy debates
and discussions on efforts to improve wage levels.
Income earned from working provides a foundation for ensuring economic security.
Most people seen in human services settings rely heavily on wages from employment for income, income from government programs or a combination of wage income and cash benefits. If people have income above and beyond what they need
to cover their daily expenses, they may save and/or invest.
1. What are Wages? Wages are compensation for employment that includes wages,
salaries, tips, overtime payments, commissions, bonuses and earnings from self-employment. Earned income can include fringe benefits such as retirement pensions,
health insurance, and subsidized meals. Earned income is taxed at regular income
rates. Some fringe benefits are also taxable as income.
2. What is Wealth? Wealth refers to the market value of investments and other assets
that you own. Examples include the value of a home, car and other possessions but
also income from stocks and bonds. Income from wealth can include interest from
a savings account or bonds, capital gains, dividends from stock income from rental
property as well as gifts, inheritances, royalties, in-kind support, awards, prizes, al-
imony and child support. This income is taxable though sometimes at rates lower
than regular income.
While a lack of jobs is arguably the biggest problem facing workers in recent years,
another major concern is that today’s job market does not guarantee that all jobs
provide wage adequacy. In fact some of the fastest growing jobs are among the
lowest paid. Low-income workers served by services agencies often work in these
jobs.
Fig. 9.1 Jobs with Highest Share of Low Wage Workers
1
1. The Minimum Wage. The Fair Labor Standard Act (1938) instituted the federal
minimum wage, which created a wage floor. It is defined as the lowest hourly, daily,
or monthly wage that an employer may legally pay to employees as set by law or
contract. Effective July 24, 2009, the federal minimum wage rose to $7.25 per hour.
It stood at $3.80 in 1990, $5.15 in 1997, $5.85 in 2007.2
But when adjusted for inflation, the current federal minimum wage would need to be
more than $8 per hour to equal its buying power during the early 1980s and more
nearly $11 per hour to equal its buying power during the late 1960s. Some states
have a higher minimum wage rate including New York where it is $8.00 a hour and
will rise to $9;00 an hour in 2015. When the state minimum wage rate is higher than
the federal rate, workers are paid the higher amount.3
Fig. 9.2 Declining Minimum Wage
4
1. Con: The minimum wage hurts consumers and workers especially low wage and
young workers.
The industries that rely most on minimum-wage workers include fast food
restaurants, small-scale independent retail stores, day care establishments, and
hotels. Thus minimum wage increases typically target low-wage, low-skilled
workers as well as teens and young adults. Minimum wage critics, such as
the pro-employer Employment Policies Institute, like to focus on teenagers and
part-time workers. They report that 83.5 percent of people who earn the minimum wage are not the primary breadwinner in a family.5
Many people believe that increasing the wage floor is not that important, saying
that it mostly affects students, teenagers in summer jobs and other part-time
workers. The Wall Street Journal, which many argue represents the interest of
employers, maintains that early work experiences are more important than the
pay. The editors state, most people remember the work habits they learned from
their first job6, e.g. showing up on time, being courteous to customers, learning
how to use technology, etc. Developing such habits are often more valuable
than the actual paycheck. Studies have confirmed that when teens work during
summer months or after school, they have higher lifetime earnings than those
who don’t work. So raising the minimum wage may inadvertently reduce lifetime earnings.”7 Finally, critics state that higher minimum wage hurts consumers
as many employers convert the cost of higher wages into higher prices. Some
workers fear a higher minimum wage will cost them their jobs.8
2. Pro: The minimum wage: improves the lives of low-income workers and their
families.
Those in favor of the higher minimum wage argue that it benefits disadvantaged
workers without the adverse effects that critics claim.9 The pro-worker Economic
Policy Institute (EPI) and others in favor of a higher minimum wage report: three
quarters of those working at or near the minimum wage are adults; nearly half
work full-time; and that another third work between 20 and 34 hours per week.
According to the US Department of Labor, 88 percent of those who would benefit from a federal minimum wage increase are age 20 or older, and 55 percent
are women; that is, the average minimum wage worker often brings home more
than half of their family’s weekly earnings.10
The minimum wage also helps to equalize the imbalance in bargaining power
that faced by low-wage workers on the job and is an important tool in fighting
poverty. While there is some evidence indicating that the minimum wage may
increase unemployment, there is considerable evidence that it has no effect one
way or the other on employment. The US Department of Labor Reports that a
review of 64 studies on minimum wage increases found no discernable effect
on employment and that more than 600 economists, seven of them Nobel Prize
winners in economics, signed onto a letter in support of raising the minimum
wage to $10.10 by 2016. Several studies have suggested that it can even increase employment. Given the mixed findings, many pundits pick and choose
which data to emphasize.11
1. The Gender Wage Gap. Two laws protect workers against wage discrimination.
The Equal Pay Act of 1963 prohibits unequal pay for equal or “substantially equal”
work performed by men and women. Title VII of the Civil Rights Act of 1964 prohibits wage discrimination on the basis of race, color, sex, religion or national origin. In
1981, the U.S. Supreme Court clearly stated that Title VII broadened the Equal Pay
Act by prohibiting wage discrimination even when the jobs are not identical. However, wage discrimination laws are poorly enforced and cases are extremely difficult
to prove and win in court.12
Despite comprising nearly half of the workforce, women account for 60 percent of
the nation’s lowest paid workers. The vast majority of “women’s jobs” in industries
such as retail and hospitality pay considerably less than those in traditionally male
career paths, such as construction, engineering, and energy. Even when women
have the same levels of education, seniority, and work experience, they still received
less pay than their male colleagues. According to the Institute for Women’s Policy
research, women earn less than men in all of the 112 occupations for which the U.S
Bureau of Labor Statistics published weekly full-time earnings data for both women
and men.13
The wage gap is a statistical measure that captures the status of women’s earnings
relative to men’s. At the time of the passage of the 1963 Equal Pay Act, women
earned just 58 cents for every dollar earned by men. The gender wage gap was
wider in 2011 than in 2010 and was actually at the same level as in 2009. By 2013,
that rate had increased to 82 cents, an improvement of less than half a penny a
year. However, much of the improvement for women can be accounted for by the
fall in men’s wages during the period’s hard times.
If the calculation included part-time workers, the gender wage gap would be much
greater since more women than men work reduced schedules to balance work and
family responsibilities.14
Closing the gap would make a big difference. Nearly 60 percent (59.3 percent) of
women would earn more if employers paid working-women the same as men of the
same age with similar education and hours of work. The poverty rate for all working
women would be cut in half, falling to 3.9 percent from 8.1 percent. The very high
poverty rate for working single mothers would fall by nearly half, from 28.7 percent
to 15.0 percent, and two-thirds would receive a pay increase. For the 14.3 million
single women-divorced, widowed, separated and never-married women living on
their own, equal pay would mean a very significant drop in poverty from 1.0% to
4.6% (falling by more than half).15
The proposed Paycheck Fairness Act was the most recent effort to achieve pay
equity. It plugged significant loopholes in the Equal Pay Act of 1963 by requiring
employers to provide an explanation for wage differences between women and men
doing the same type of work. It would protect women workers by ensuring that they
can obtain the same legal remedies as those subject to racial or ethnic discrimination, bolstering the federal collection of wage data, and prohibiting retaliation against
workers who ask bosses about their wages. As of 2014, Congress had not passed
the Act.
Fig. 9.3 Rosie the Riveter
16
Below are explanations of the Gender Wage Gap moving from individual responsibility and control to more systemic causes.
1. A Natural Consequence. Some refer to the wage gap as “purported”, “perceived”,
or a “myth” on the grounds: that gender wage differences reflect the natural
consequences and roles and/or that discrimination is economically inefficient for
employers. If a woman does equal work for 25 percent less, why should an
employer hire a man? No rational employer would do that.17 Other economic approaches suggest discrimination reduces employer costs and thus might be rational.
2. Personal Choice. The male-female wage difference reflects personal choices
made by individual men and women. More men than women choose to invest in
their own human capital meaning (i.e. more education and work experience) and
to pursue jobs that require longer commuting times, safety risks, frequent travel and
long hours. Due to the simple laws of supply and demand, the occupations men
choose pay more.18 In contrast, some women value relationships and flexibility more
than careers or money. More women than men work part-time, move in and out
of the workforce, and otherwise take more time away from the job to balance work
and family responsibilities. Understandably, if you enter and reenter the work force
many times, you will have lower levels of earnings.19 In this view, personal choice
reflects women’s biological drive to have children and fulfill her or socialization to be
the primary family caregiver.20
3. The Gender Division of Labor. The gender wage gap results, in large part, from
the gender division of labor and sex role socialization, both of which influence the
choices made by women and men. Sex role socialization shapes the work and family preferences of women and men as does the gender division of labor. If women
“choose” to take more time out of the workforce, it has less to with a biological
maternal instinct than by the fact that women still do most of a family’s care-giving
work, even when working outside the home. In addition economically rational couples who want a full-time caregiver in the home are more likely to send the higher-paid worker into the labor force and to keep the lower paid worker at home. For
heterosexual couples, the former is more likely to be a man and the latter a woman.
4. Discrimination. Although part of the gender wage gap can be explained by differential investments made by women and men in increasing their human capital a
significant portion cannot be explained by these factors. The role of discrimination is
indicated when women are not considered for certain jobs. As for wages, employers
tend to pay lower wages for job typically filled by women or people of color.21
5. Occupational Segregation. The gender wage gap exists, in part, because many
women and people of color are still segregated into low-paying jobs. Occupational
segregation by sex is widespread in all industrialized societies.22 In the U.S., more than
half of all women workers hold sales, clerical, service, and other jobs that often mirror
the care work assigned to women in the home. Despite the growing similarity between
women’s and men’s skills, a significant gap exists even when their age and educational
levels are the same.23
24
F. The Race Wage Gap
Title VII of the Civil Rights Act of 1964 protects against wage discrimination.25 Despite
anti-poverty programs dating back to the 1960s, the median annual income for African-Americans has consistently lagged behind non-Hispanic Whites since 1987.
And as the above chart shows, Hispanic men and women fare even worse. These
data suggest that, race and ethnicity play a role in determining job placement, career
opportunities, and the opportunity to acquire and build assets. The racial wage gap is
measured by comparing the earnings of other races and ethnicities to those of White
males (a group generally not subject to race-or sex-based discrimination). However,
some refer to affirmative action on behalf of women and persons of color as creverse
discrimination.
Data also suggests that the U.S. labor market is not race blind. Figure 9.5 which compares the median family income by race and ethnicity, illustrates that persons of color,
on average, take home about one-third less than white persons.
Figure 9.5 Median Family Income by Race
and Ethnicity (1947-2010) (2011 dollars) 26
Source: The State of Working
America 12th edition, Table 2.5
The most comprehensive data on racial inequality in income and wealth comes from
the Federal Reserve Board’s triennial Survey of Consumer Finances. The racial gap in
median income closed slightly over the last 20 years. Nonwhite families earned about
half of what white families earned in 1989. This closed to 70 percent in 2007 and
slipped back to 65 percent in 2010.27
Figure 9.6 CEO-Worker Pay Gap
29
But the gap in assets runs much wider. White families claim about six times the net
worth of non-white families, a gap that has changed little over the past generation.28
http://inequality.org/racial-inequality/
Figure 9.6 shows the gap between the pay received by Top Executives (CEOs) and
the average workers. This figure shows both the dollar amount and the ratio of CEO
pay to worker’s pay since 1983 (see box in table). This is another kind of wage gap
that affects the lives of poor and working class people. CEOs have always made much
more money than the workers the gap reach new heights in recent years.
G. Policy Debate: What Causes the Racial Wage Gap?
Below are a number of policy explanations for the Racial Wage Gap from personal
responsibility to a more systemic view.
1. Individual Deficits. This view argues that intelligence is hereditary, that IQ scores are
linked to race and therefore, that Blacks earn less than Whites because they are less
intelligent. Proponents of the individual deficit view include conservative social scientist
Charles Murray and the late Harvard psychologist Richard Herrnstein.30
Those who do not subscribe to this biological argument point to other individual deficits. They suggest that persons of color earn less than white persons because they
lack a strong work ethic or otherwise do not subscribe to mainstream values and behavior. Another line of thinking is that they enter the labor market lacking needed skills
and experience that would enable them to be as productive as workers with more
schooling.31 The proposed remedy lies in greater access to education and employment
opportunities.
2. Discrimination. This view argues that race and ethnicity account for more of the
wage differences between Whites and persons of color than the amount of education
or work experience.32 It holds that even when workers of color and white workers have
the same education and work history, workers of color fare worse,33 suggesting that
discrimination does play a role.
Black workers — male and female — often have a harder time finding work in the first
place and securing decent wages once they do regardless of education or work history. The same trend holds true for Latino workers. The reasons for this include prejudice
about worker’s expected productivity based on prior beliefs (i.e. stereotypes) about
their ethnic or racial group; preference among White employers to hire White workers;34
weak enforcement of anti-discrimination laws; difficulty of proving and winning antidiscrimination cases; and occupational segregation on the basis of race.
3. Occupational Segregation by Race is key to the racial wage gap. This process, by
which men and women of color are channeled into a number of low-paying occupations “reserved” for them, is referred to occupation segregation by race. More than an
education or experience deficit, it is this practice that drives race (and sex) differences
in earnings. Approximately half of the historical earnings difference between Black and
White women35 has been attributable to differential allocations among occupations and
industries.
4. Labor Market Structures. Some research shows that family background and school
quality explain less than half of the racial differences in school test scores; and that
even when test results are equal, the racial earnings gap remains. Others argue that
changes in the labor market and lingering racial discrimination best explain the racial wage gap.36 This view suggests that the wage gap reflects seemingly race neutral
macro-economic labor market factors that fall more heavily on persons of color. These
factors include a limited amount of jobs created during periods of economic expansion,
the shift away from manufacturing to service sector jobs, the increased exportation of
production abroad, and the diminished power of unions among others.
More than education or experience alone, these trends explain why the wages of the
bottom half of the Black wage earners (and the bottom third of White wage earners),
have failed to keep pace with moderate-skilled Whites and high-skilled Blacks and
Whites, who have fared better. Given that a larger proportion of Black workers face
these challenges, a disproportionate share find themselves disadvantaged. However,
since the recent economic meltdown, a growing percentage of White workers now experience the same kinds of economic challenges that most Black workers have been
facing since the 1970s.
5. Accumulated Disadvantage. This view asserts that persistent earnings inequality reflects the legacy of slavery and segregation, the injuries of social class, and the historical wealth gap. It also reflects the impact of racialized public policies that for many
years have excluded Blacks and Latinos from the Social Security program, federal
housing assistance, the benefits of the GI bill, and the refusal of banks to offer mortgages to Black households after World War II. Wealth outcomes are often affected by
seemingly race neutral policies. For example, the wealthiest disproportionately benefit
from tax cuts on investment income, inheritances, tax deductions for home mortgages,
retirement accounts, and college savings.37
http://inequality.org/racial-inequality/#sthash.rWA3U2iq.dpuf
Wealth (i.e. homes, savings, and investments) differentials contribute to the race wage
gap because families with wealth can more easily buy a home, start a business, and
take time off from work to care for children or parents, or advance their careers by
returning to school. Since wealth is passed down from generation to generation, the
wealth differential means that parents from disadvantaged racial and ethnic groups
have fewer financial resources with which to invest in their children’s human capital.
Living from paycheck to paycheck, these historically disadvantaged families are less
able to help their children when a crisis arises, contribute college tuition, or help with
a down payment on their children’s homes. This makes it more likely that the children
of poor parents will struggle more to get a good education and thereby to secure a
decent paying job. These children are more likely to live with debt, have difficulty accumulating savings or assets without taking on risky high-interest loans, and will therefore
as adults be more likely to have lower levels of wealth.38
H. How Workers Address Wage Issues.
1. Individual Action
• Personal Negotiation. Workers can try to increase their earnings by negotiating for a
higher wage when they are hired or during employment.
• New Skills. Workers can pursue additional training to develop new job skills or anticipate and receive education in areas their employers and/or industry will eventually
desire or require.
• New Career. Workers can prepare for another job or career change through education or a vocational training program.
• File a Charge with the U.S. Equal Employment Opportunity Commission (EEOC). If
workers believe that their low wages reflect discrimination, they can file a charge with
the EEOC, the governmental agency that is responsible for enforcing federal laws that
make it illegal to discriminate against a job applicant or an employee because of that
person’s race, color, religion, sex (including pregnancy issues), national origin, age (40
or older), disability or genetic information.39
• It is also illegal to discriminate against a person who complained about discrimination, filed a charge of discrimination, or participated in an employment discrimination
investigation or lawsuit. EEOC laws apply to most employers with at least 15 employees
(20 employees in age discrimination cases). Most labor unions and employment
agencies are also covered. The laws apply to all types of work situations, including
hiring, firing, promotions, harassment, training, wages, and benefits. These protections
are crucial for workplace equity, but they are not always well enforced.
2. Collective Actions
• Join a Labor Union. Workers can seek to improve their wages and reduce economic
insecurity by organizing, joining, or supporting a labor union. A labor or trade union
refers to an organization of workers or employees who act jointly to negotiate with their
employers over wages, fringe benefits, working conditions, and other facets of employment. The main functions of unions are to counterbalance the ability of business to
control labor and to increase job security, safety, and continued employment for their
members.
During the past 30 years, trade union strength has dwindled as the economy has shifted from one with a large number of well-paid, highly unionized, primary sector jobs in
manufacturing, to a large number of low-paid, largely non-unionized secondary labor
market jobs in service industries. The fall in the percent of workers in unions (see Fig.
9.8 Union Membership in the U.S.) and reduced union bargaining power reflects larger
economic trends especially the deindustrialization of production at home, the increased
exportation of production abroad, and the well-known effort to weaken the influence of
trade unions since the mid-1970s.
Fig. 9.8 Union Membership in the U.S.40
The decline of union membership was fueled by the assault on labor unions, starting
in 1981, when President Reagan (1980-1988) broke the air traffic controllers’ strike.41
Most of the decline occurred in the private sector where in 2012, less than seven
percent of all workers belonged to a union.
However, the public sector unions which had represented about one third of
government workers for the last 30-40 years, held firm. The effort to weaken public
sector unions (to which many human service workers also belong) gained intensity in
2011 as governors around the country tried to strip these unions of the right to bargain
collectively, most famously, Republican Governor Scott Walker of Wisconsin.
The relationship between women and people of color and unions has been strained
at times since some unions have a history of exclusion. At the same time, the union
movement has been a force for greater opportunity and upward mobility for women
and persons of color. To the extent that organized labor has been weakened, so has
it as source of greater earnings equality.42
• Campaign for a Living Wage. The Living Wage Campaign seeks higher wages.
A “living wage” is based upon the cost of living in an area rather than an arbitrary
minimum. Under an ideal living wage, someone who works an ordinary 40-hour
per week job would be able to afford housing, food, health care, and other basic needs. Living wage laws require that any company receiving city contracts or
subsidies must pay its workers a wage above the federal minimum. Since 1994
Living Wage coalitions comprised of unions, low-income residents, local officials
and advocacy groups have won passage of living wage laws in more than 140
cities including Baltimore, New York, Chicago, Pittsburgh, San Diego -- and the
list is growing.43
I. How the Government Addresses Wage Issues
1. Legalized Collective Bargaining. Collective bargaining refers to the process of voluntary negotiation between employers and trade unions aimed at reaching agreements
that regulate wages and working conditions. Typically, the agreement establishes wages, hours, promotions, benefits, and other employment terms as well as procedures for
handling disputes arising under it.
The 1935 National Labor Relations Act (aka the Wagner Act) made it illegal for employers to discriminate against, spy on, harass, or terminate the employment of workers
because of their union membership. Employers were also forbidden from retaliation
against workers for engaging in organizing campaigns or other “concerted activities”
to form company unions, or to refuse to engage in collective bargaining with the union
that represents their employees.
2. Labor Regulations. The U.S. Department of Labor enforces the Fair Labor Standards
Act of 1938 (FLSA), which sets basic minimum wage and overtime pay standards.
-Minimum Wage. The FLSA established the minimum wage, which places a floor un-
der wages for workers. Defined as the lowest hourly, daily, or monthly wage that an
employer may legally pay to employees, it is set by law or contract. (see above for
minimum wage rates). States also set their own minimum wage rates. In cases where
an employee is subject to both state and federal minimum wage laws, the employee
is entitled to the greater of the two wages.44
-Overtime Pay. Overtime pay is also set and regulated by the FLSA. Overtime is defined as not less than one and one-half time the regular rate of pay and is required
after 40 hours of work during each week. Certain exemptions apply to specific types
of businesses or specific types of work.
-Tips. Employers who allow workers to keep tips must pay a cash minimum wage of
$ 2.13 an hour if they claim a “tip credit” against their federal minimum wage obligation. In other words, if tips plus cash wages do not equal the prevailing minimum wage
rate, the employer must make up the difference but the practice is not well enforced.
Low-income workers and their advocates have campaigned for raising the tipped minimum wages
-Government Contracts. The government has enacted various laws that require government contractors to pay their workers not less than the prevailing wage rates and
fringe benefits for corresponding classes of workers employed on similar projects in
the area (see Davis Bacon Act, Service Contract Act, Walsh Healey Public Contracts
Act, etc.).
-The Migrant and Seasonal Agricultural Worker Protection Act (MSPA) protects most
migrant and seasonal workers engaged in agriculture. This law requires, among other
things, that workers receive the rate that was disclosed upon recruitment or hire. The
disclosed wage cannot be less than the higher of the
applicable state minimum wage or the federal minimum wage established in the FLSA.
-The Immigration and Nationality Act allows U.S. employers to hire foreign workers on
a temporary or permanent basis to perform certain types of work. The Department of
Labor’s Employment and Training Administration (ETA) certifies employers to hire foreign workers where there are insufficient qualified U.S. workers available and willing to
perform work at wages that meet or exceed the prevailing wage paid for that occupation in the area of intended employment. In most cases, these workers must be paid
the higher of the prevailing wage or the actual wage paid by the firm to workers with
similar skills and qualifications.
-Anti-Discrimination Laws both banned wage differentials based on gender or race and
created the Equal Employment Opportunities Commission that enables workers to file
charges if they believe that they have faced discrimination.
-Public Benefits. The government offers Earned Income Tax Credits (EITC) as a wage
supplement to workers whose earnings fall below a specific amount. The government
also provides cash benefits to people who lack wage income due to old age, unemployment, illness, disability, or family responsibilities. The basic income supports include Temporary Aid to Needy Families (TANF, aka “Welfare”), Supplemental Security
Income, Unemployment Compensation, Food Stamps (Supplemental Nutrition Assistance Program, SNAP), and Social Security benefits, which include pension benefits for
disabled workers under certain circumstances, and survivors (i.e. children of parents
who died while covered by Social Security employment).
For Discussion:
1. What type of work do your clients do? Do they work full or part-time? Are they
permanent or temporary workers? Do they have union representation?
2. Do they feel that that they have faced wage or job discrimination during their
adult work life?
3. If they are working, what is their assessment of the adequacy or fairness of their
wage?
NOTES
UNIT NINE
1. Thompson, Derek (2014, April 30) The 10 states with the 10 jobs with the most Low
Paid Workers. The Atlantic. Retrieved from: http://www.theatlantic.com/business/
archive/2012/04/the-10-states-and-10-jobs-with-themost-low-wage-workers/256553/
2. Department of Labor, Wage and Hours Division, Minimum Wage , History of Changes
in the Minimum Wage. Retrieved from: http://www.dol.gov/whd/minwage/coverage.
htm
3. Parlapiano, Alicia (2014, April 4) State Acton on the Minimum Wage. The New York
Times, Retrieved from: http://www.nytimes.com/interactive/2014/04/02/us/politics/
stateaction-minimum-wage.html
4. Neumark, David (2013) The Minimum Wage Ain’t What it Used to Be? Economix. The New York Times .Retrieved 9/25/14 from: http://economix.blogs.nytimes.com/2013/12/09/the-minimum-wage-aint-what-it-used-tobe/?_php=true&_
type=blogs&_r=0
5. Employment Policies Institute (n.d.) Minimum Wage. 5 Things You Didn’t Know About
the Minimum Wage. Retrieved from http://epionline.org/index_mw.cfm
6. Wall Street Journal (2010. March 5) Review and Outlook:The Lost Wages of Youth.
Retrieved from http://online.wsj.com/article/SB10001424052748704761004575096
150953378366.html
7. Tuttle, Brad (2010, June 22). Should the Minimum Wage Be Reduced to Teenagers? Time.com. Retrieved from http://money.blogs.time.com/2010/06/22/
should-the-minimumwage-be-reduced-for-teenagers
8. Tuttle, Brad (2009, July 22) Is the Minimum Wage Hike a Good Idea. Time.com.
Retrieved from http://money.blogs.time.com/2009/07/22/is-the-minimum-wagehike-agood-idea/; Employment; Policies Institute (2010, July) The Teen Employment
Crisis: The Effects of the 2007 - 2009 Federal Minimum Wage Increases on Teen
Employment. Retrieved from http://epionline.org/study_detail.cfm?sid=128
9. Employment Policies Institute (n.d.) Minimum Wage. 5 Things You Didn’t Know About
the Minimum Wage. Retrieved from http://epionline.org/index_mw.cfm
10. U.S. Department of Labor (n.d.) Minimum Wage MythBusters. Retrieved from:
http://www.dol.gov/minwage/mythbuster.htm
11. U.S. Department of Labor.nd. Minimum Wage MythBusters. Retrieved from:
http://www.dol.gov/minwage/mythbuster.htm
12. National Committee on Pay Equity(2010) Questions and Answers on Pay Equity.
Retrieved from http://www.pay-equity.org/info-Q&A.html
13. Hegewisch, Ariane, Keller Hudiburg Stephanie,.2013. . The Gender Wage Gap by
Occupation and by Race and Ethnicity, 2013 - www.iwpr.org/publications/pubs/thegender-wage-gap-by-occupation-and-by-race-and-ethnicity-2013
14. Hegewisch, Ariane, Keller Hudiburg Stephanie,.2013. . The Gender Wage Gap by
Occupation and by Race and Ethnicity, 2013 - www.iwpr.org/publications/pubs/thegender-wage-gap-by-occupation-and-by-race-and-ethnicity-2013
15. Heidi Hartmann, Hayes, Jeffrey & Clalrk Jennifer .2014/ How Equal Pay for Working
Women would Reduce Poverty and Grow the American Economy, IWPR #C41..
Retrieved 9/18/14: http://www.iwpr.org/publications/pubs/how-equal-pay-forworkingwomen-would-reduce-poverty-and-grow-the-american-economy
16. Rosie the Riveter. J. Howard Miller, artist employed by Westinghouse, poster used
by the War Production Coordinating Committee. Retrieved from http://en.wikipedia.
org/wiki/File:We_Can_Do_It!.jpg
17. Mitchell, Daniel, (2000, September 20) Fixing the ‘Wage Gap.’ The Heritage Foundation Retrieved from: http://www.heritage.org/research/commentary/2000/09/fixing-the-wagegap?query=Fixing+the+’Wage+Gap; ABC News .(2005, May 27) Is The
Wage Gap Women’s Choice? Retrieved from http://abcnews.go.com/2020/GiveMeABreak/story?id=797045&page=3
18. ABC News (2005, May 27) Is The Wage Gap Women’s Choice? Retrieved from
http://abcnews.go.com/2020/GiveMeABreak/story?id=797045&page=3
19. Mitchell, Daniel, (2000, September 20) Fixing the ‘Wage Gap.’ The Heritage Foundation. Retrieved from http://www.heritage.org/research/commentary/2000/09/fixing-the-wagegap?query=Fixing+the+’Wage+Gap
20. Kang, Anthony ( 2010, Sept. 18) The Wage Gap Myth. American Thinker. Retrieved from http://www.americanthinker.com/2010/09/the_wage_gap_myth.html
21. National Committee on Pay Equity.( 2010) Questions and Answers on Pay Equity.
Retrieved from http://www.pay-equity.org/info-Q&A.html
22. Marshall, Gordon (1998) Occupational Segregation. A Dictionary of Sociology,
Encyclopedia com. Retrieved from http://www.encyclopedia.com/doc/1O88- occupationalsegregation.html
23. Boushey, Heather (2002,March) Closing the Wage Gap. EPI Viewpoints Retrieved
from http://www.epi.org/publications/entry/webfeatures_viewpoints_gender_gap/
24. The Wage Gap by Race and Gender.(n.d.) Chart Based on Data from U.S. Current
Population Survey and the National Committee on Pay Equity. Retrieved from:
http://www.infoplease.com/ipa/A0882775.html
25. National Committee on Pay Equity.( 2010) Questions and Answers on Pay Equity.
Retrieved from http://www.pay-equity.org/info-Q&A.html
26. Economic Policy Institute .2012). Median Family Income by Race and Ethnicity (1947- 2010) (2111 dollars) State of Working America ,12th ed. Retrieved from:
http://www.stateofworkingamerica.org/data/
27. Racial Income and Wealth Gaps, Inequality.org http://inequality.org/racial-inequality/z
28. Racial Income and Wealth Gaps, Inequality.org - http://inequality.org/racial-inequality/z
29. Brewtown Gumshoe. Chart. Retrieved from: http://brewtowngumshoe.blogspot.
com/2012/02/ceo-pay-unionization-middle-class.html
30. Herrnstein, R. & Murray (1994) The Bell Curve: Intelligence and Class Structure in
American Life. New York: Free Press.
31. Paige, Rod & Elaine Witty (2009) The Black-White Achievement Gap. Retrieved
from http://books.google.com/books?id=ifBmMsR3VtMC&pg=PA50&lpg=PA50&dq=causes+of+the+racial+wage+gap&source=bl&ots=BAf3dEly78&sig=_UYUMtqoGdVZlNttgNjZFRSWhI&hl=en&ei=Y2DlTPS8B5TWtQPwj8SwCw&sa=X&oi=book_result&ct=result&resnum=9&sqi=2&ved=0CEsQ6AEwCA#v=onepage&q=causes%20of%20the%20
racial%20wage%20gap&f=false
32. Dillanhunt, Ajamu, et al. (2010) State of the Dream 2010: Drained: Jobless and
Foreclosed in Communities of Color. Retrieved from
http://www.faireconomy.org/files/SoD_2010_Drained_Report.pdf
33. Antonovics, Kate (2002, October 12) Persistent Wage Inequality. Retrieved from
http://weber.ucsd.edu/~kantonov/aaest10.pdf
34. Conrad, Cecilia A. (2010, Nov.18) Race, Earnings and Intelligence. (Charles Murray
and Richard Herrnstein’s book, The Bell Curve, implies Blacks earn less than Whites
because Blacks are less intelligent than Whites) Black Enterprise. Earl G. Graves
Publishing Co.Inc.1995. HighBeam Research. Retrieved from: http://www.highbeam.
com/doc/1G1-16767570.html
35. King, Mary C. (1992, April) Occupational segregation by race and sex, 1940-88.
Monthly Labor Review. Retrieved from http://findarticles.com/p/articles/mi_m1153/
is_n4_v115/ai_12247205/?tag=content;col1
36. Rogers, William (2008, September) Understanding the Black-White Earnings Gap.
The American Prospect.Retrieved from: http://www.prospect.org/cs/articles?article=understanding_the_black_white_earnings_gap
37. Naked Capitalism (2010 May 18).Racial Wealth Gap Quadruples Since Mid-1980s.
Retrieved from: http://www.nakedcapitalism.com/2010/05/racial-wealth-gap-quadruplesin-since-mid-1980s.html\
38. Ross, Janell (2010, Aug 3) A Set of Facts about the Racial Income Gap, Otherwise
Known as the Truth. Change.org, Poverty in America. Retrieved from http://uspoverty.change.org/blog/view/a_set_of_facts_about_the_racial_income_gap_oth erwise_
known_as_the_truth
39. U.S. Equal Employment Opportunity Commission( n.d.) Filing a Charge of Employment Discrimination. Retrieved from: http://www.eeoc.gov/employees/charge.cfm
40. Jacoby, Jeff ( 2011, March 3) Union “Rights” that Aren’t.” TownHall.com Retrieved from:
http://4.bp.blogspot.com/-P_Fva9ls8uk/TWbQnAyYbI/AAAAAAAAPAs/0PYvSN0HC_A/s1600/union.jpg
41. Abramovitz, Mimi (1992) The Reagan Legacy: Undoing the Class, Race and Gender Accords. Journal of Sociology and Social Welfare 19 (1) (March) pp.91-110
42. Economic Policy Institute. 2011. Unionization Declines Slow and then Accelerates.
The State of Working America. Washington, D.C.: Economic Policy Institute. Retrieved
8/8/11 from www.stateofworkingamerica.org/charts/view/43
43. Living Wage NYC (n.d.) A Growing Movement. Retrieved from http://www.livingwagenyc.org/pagedetail.php?id=5; Wood, Daniel( 2002, March 15). ‘Living wage’ laws
gain momentum across US. Christian Science Monitor. Retrieved from http://www.
csmonitor.com/2002/0315/p01s02-usec.html
44. Filion Kai (2009, May 28) Stealthy Stimulus How Boosting The Minimum Wage Is
Helping To Support The Economy. Economic Policy Institute, Issue Brief.#255. Re
trieved from http://www.epi.org/page/-/IssueBrief255_Final.pdf
45. U.S. Department of Labor (n.d.) Wages and Hours Worked. Overtime. Retrieved
from http://www.dol.gov/compliance/topics/wages-overtime-pay.htm
46. Jayaraman, Saru ( 2013) “Living Off Tips Restaurant Workers Campaign for a Living
wage. Women’s Media Center. Retrieved from: http://www.womensmediacenter.com/
feature/entry/living-off-tips-restaurant-workers-campaign-for-a-living-wage
47. U.S. Department of Labor (n.d.) Wages. Government Contracts. Retrieved from
http://www.dol.gov/dol/topic/wages//govtcontracts.htm
48. U.S. Department of Labor (n.d.) The Migrant and Seasonal Employee’s Protection
Act. Retrieved from: http://www.dol.gov/compliance/laws/comp-msawpa.htm
49. U.S. Department of Labor ( n.d.) The Immigration and Nationality Act. Retrieved
from: http://www.uscis.gov/laws/immigration-and-nationality-act
50. Equal Employment Opportunity Commission (n.d) History. Retrieved from: http://
www1.eeoc.gov/employers/upload/eeoc_self_print_poster.pdf
Controlling Prices
Goal: The goal of this unit is to understand the impact of price controls (inflation, deflation, and stagflation) on economic security for individuals, families and
communities.
1. Defining Inflation. Think back a few years. How much did a gallon of gasoline cost? A loaf of bread? A10-inch pizza? A movie ticket? In almost all
cases, these items now cost more. This routine price increase is called inflation. Inflation is defined persistent increase in the average price of goods and
services over time. It causes the overall purchasing power of the dollar to fall.
That is, the dollar you made last year will buy less of the same good or service this year.1 Inflation is related to high utilization of production capacity (i.e.
factories and plants), high employment, higher wages (price of labor) but also
higher prices for consumer goods. It typically occurs during periods of economic expansion when average prices increase over time.
2. Types of Inflation. Inflation may result from “too much money chasing too
few goods,” (i.e. demand inflation) or from increases in the costs of production
such as labor, equipment, etc. (i.e. cost-push inflation).
3. Measuring Inflation. The United States uses the Consumer Price Index (CPI)
to measure the inflation rate. The CPI is reported monthly by the U.S. Bureau of
Labor Statistics, a division of the U.S. Department of Labor. It is one the most
frequently used
statistics for identifying periods of inflation (or deflation) because large rises in the
CPI during a short period of time typically denote periods of inflation and large drops
in CPI during a short period of time usually mark periods of deflation.
The CPI is based on the actual retail prices (i.e. a typical market basket) of a variety
of goods and services purchased by urban consumers at a given time and compared to a base set of prices that is periodically changed.
Fig. 10.1 Rising Food Prices
2
The CPI prices refer to those experienced by a wide range of urban or metropolitan
areas residents, including professionals, the self-employed, the poor, the unemployed and retired people, as well as wage earners and clerical workers. It does not
include the spending patterns of people living in rural areas, farm families, people in
the Armed Forces, and those in institutions, such as prisons and mental hospitals.
The government calculates the CPI based on detailed information provided by families and individuals on what they actually bought or put into a market basket.
The information in the current CPI is collected from Consumer Expenditure Surveys
for two specified years. In each year about 7,000 families from around the country
provide quarterly information on what they spent for housing, clothing, transportation, medical care, recreation, education, communication, and a few other goods
and services. Information on frequently purchased items, such as food and personal
care products, is recorded in diaries kept by the same 7,000 families, detailing what
they purchased during a two-week period. Taken together over that time period, the
survey gathers expenditure information from approximately 28,000 weekly diaries
and 60,000 quarterly interviews used to determine the importance, or weight, of the
more than 200 item categories in the CPI index structure.4
The Inflation Rate is how much the CPI increases in a given year. The percentage
increase is calculated by averaging price changes for each item in the predetermined basket of goods.
Fig. 10.3 U.S Inflation Rates Since 1900
5
CPI vs. Cost of Living. The CPI is widely used as a cost of living index, but technically, it is not. The CPI measures the average change over time in the prices paid
by urban consumers for a relatively fixed market basket of goods. A cost of living
index would measure changes over time in the amount that consumers need to
spend to reach a certain “standard of living.” The CPI ignores important changes
in taxes, health care, water and air quality, crime levels, consumer safety, and educational quality. Furthermore, the experience of any individual may vary dramatically
from what the CPI indicates, because an individual’s purchasing patterns may differ
considerably from the standard. Families with children have considerably different
buying patterns than elderly households, for example. The CPI also does not attempt
to represent the experience of people living in rural areas.
4. Who Benefits and Who Loses from Inflation?
Inflation creates problems for some groups and helps others. This reflects what
economists refer to as the “time value of money”.6
a. Inflation helps individuals and firms carrying substantial debt called “debtors.”
Debtors benefit from inflation because each dollar that needs to be repaid in
the future is worth less than when it was borrowed. A person or a business
pays back less in real terms than the amount that was borrowed. That is, the
dollar goes further. But this is not meant to encourage getting deeper and
deeper into debt, which brings its own problems.
b. Inflation hurts people working for cash wages and those on a fixed-income, especially those with low-incomes. Why? When inflation exists but
income stays the same, one can buy less with the same amount of income.
The dollar just doesn’t go as far as it once did.
The people most likely to be harmed by inflation are workers whose wages
do not keep up with inflation. With less money to spend on basic needs,
their standard of living falls. This can include many low earners such as the
semi-skilled and unskilled, persons of color, older women, single mothers
and their families. If the average worker also has his or her “wealth” tied up
in savings and retirement funds, that person’s savings can also lose value in
an inflationary period because when you save money for retirement in the
future, that money will be worth less than it is today.7
During inflationary periods, banks are also less willing to lend money because they will be repaid with dollars that are worth less than when the
money was loaned. To protect themselves banks charge higher interest
rates on credit and loans. This makes borrowing more expensive and less
possible for the average person but also for business and industry leaving
them less able to expand. Finally, if the rate of inflation varies from month
to month or year to year, it becomes problematic as individuals, families,
business, and government have more trouble planning for the long-term.8
5. How Individuals and Families Manage Inflation
Individuals and families manage the impact of inflation on their finances by working
overtime, taking a second job, sending additional family members to work, lowering
their consumption (i.e. cutting back on food, clothing, and entertainment expenditures), hunting for bargains, sharing with others, trying to save and/or making their
own food and clothing.
These financial pressures can lead to marital difficulties, health and mental health
issues, and other problems that may show up in practice. In some cases, financial
problems many not be included in a client’s presenting problems but should still
be explored at some point. Financial pressures may also generate hostility toward
government and politicians or toward business and industry, depending on whether
they blame the public or private sector for the prevailing economic ills.9
6. How Government Manages Inflation
Congress manages inflation by using its tax and spending powers (see Economic
Policy unit) to promote stable price and stable employment levels. For example,
higher taxes and less government spending can put a brake on rising prices by
reducing consumer and government demand for goods and services. The Federal Reserve System can also use its control over the money supply (see Economic
Policy unit) to reduce the rate of inflation or to “cool off” the economy. As noted
earlier, the Fed can also “tighten” the money supply by requiring banks to hold
more in reserves and by raising interest rates that make it more expensive for both
business and households to borrow money. This limits purchasing power, which is
also referred to as consumption or aggregate demand.10
Fig. 10.4 Inflation
11
B. DEFLATION
1. Defining Deflation. Deflation is the opposite of inflation. Deflation refers to a sustained fall in the general price level over a specific time period. It tends to be associated with periods of negative or stagnant economic growth such as the Great
Depression, the Japanese economy of the 1990s and 2000s (the “lost decade”)12,
and possibly the U.S. in the second decade of the 21st century.
Economists describe deflation that stems from slow economic growth or excess
capacity as “too much supply chasing too little demand.” That is, there is too little
spending by the government, households, investors and/
or a short supply of money and credit. When spending
and credit dry up, business is left with more goods and
services than can be sold. If the demand continues to
fall, it can lead to a downward spiral as firms reduce
prices in a desperate attempt to get people to buy their
products and services. They also slash their inventories,
buy less from other manufacturers, reduce wages and
Fig. 10.5 Deflation
salaries and/or employ fewer workers. This translates
into higher unemployment and even less consumer spending, which cuts deeper
into the economy.
2. Types of Deflation. Deflation typically follows on the heels of a major societal
buildup in the extension of credit (and its flip side, the assumption of debt). But
deflation can also stem from an increase in a nation’s productive potential if that
increase leads to an excess of aggregate supply over demand, that is, more goods
are produced than can be sold. This creates a downward pressure on prices.13
The psychological impact of deflation cannot be overstated. As creditors become
more conservative, they slow their lending. As debtors and potential debtors become more conservative, they borrow less or not at all. When producers become
more conservative, they reduce expansion plans. And as consumers become more
conservative, they save more and spend less. These behaviors press prices down.
In sum, this is a rapid decline in prices and spending triggers in an accelerating,
downward spiral that tends to be self-reinforcing and difficult to stop.14
Deflation is not common in the U.S. economy. It is most likely to occur during a
depression, a prolonged period of stagnation or a lengthy recession. But in the
summer of 2010, talk of deflation surfaced among many U.S. economists and politicians who worried that the weak economic recovery, high unemployment rate, and
extremely low rates of inflation signaled an increased risk of deflation.15
3. Measuring Deflation. Deflation is officially measured by a decrease in the Consumer Price Index (CPI). However, this measure can provide misleading cues given
the items that are officially included or excluded from the CPI. That is, deflation or
falling prices may not be consistent across all categories and it may be specific to
a specific sector.16
4. WHO BENEFITS AND WHO LOSES FROM DEFLATION?
• Who Benefits? For individuals, a little deflation may not be a problem as
long as it does not turn into an ingrained deflationary spiral. With a little deflation, paychecks will stretch further because shoppers will enjoy sales and
lower prices, especially those needing to make a big-ticket purchase (i.e.
stove, car, new home, etc.). Deflation also benefits people on fixed-incomes
because they receive a fixed number of dollars, but due to low prices, each
dollar buys more.17
• Who Loses? At first glance deflation may seem positive for consumers.
However, falling prices also worsen the position of debtors, by increasing the
real burden of their debts and causing them to cut their spending.18 Companies whose prices fall faster than theirs costs face lower profits. Weaker profit
margins can press companies to go out of business or to reduce costs by
laying-off or firing workers. Falling prices also have a negative effect on stock
markets because of a fall in expected profits and dividends to shareholders.19
5. How Individuals Manage Deflation: Buyer Procrastination
When businesses and individuals expect falling prices, they become less willing to
spend and borrow. This buyer procrastination can have a negative impact on corporate profits and employment as well as business and consumer spending. Once
people expect price declines, they delay purchases as long as possible. They gamble on the belief that the longer they wait, the lower the price will be. After all, when
prices are falling, just sitting on cash becomes an investment with a positive real
yield.
Economists talk about the risk of a deflationary trap: When people expect deflation,
the economy may get and stay depressed – and deflation may continue because
the economy remains depressed. This further decreases demand, contributing to the
downward spiral noted above.
Fearing job loss, underemployed workers do not dare protest their falling wages because they don’t think they can find other jobs. On the other hand, individuals may
also accelerate debt payments in order to pay while the prices are down or to avoid
a future increase in the value of the money that they owe.20
6. How the Government Manages Deflation: Stimulate Spending
To combat deflation, the government has to stimulate the economy with expansionary monetary or fiscal policy. It can try to jump-start the economy using one or all
of its monetary policy tools to increase the money supply and deliberately cause
prices to rise (i.e. inflation). The goal would be to encourage individuals and firms to
start spending in hopes of causing prices to rise in the future. The government can
also offset deflation with expansionary fiscal policy. It can increase consumption by
lowering taxes, increasing government spending, and incurring a temporary deficit.
However, deflation is very difficult to combat once it is entrenched because it sets
in place a cycle of problematic behaviors by business and individuals as previously
described. In November 2010, to forestall deflation, the Federal Reserve purchased
$600 billion of U.S. Treasuries, designed to expand the money supply thereby encouraging banks to increase lending.
C. STAGFLATION
Stagflation refers to the economic trend in which inflation and unemployment rise
while general growth of the economy slows down. Economists coined the term in
the 1970s, when inflation soared to 12% and the unemployment rate nearly doubled
to 9%.
The principal factors were the fourfold increase in oil prices imposed by the Organization of Petroleum Exporting Countries (OPEC) in 1973-74, increases in the price
of other raw materials, and the end of the Vietnam-era government wage and price
controls.
Economists disagree on the causes of stagflation and how to correct it. Governments
try to avoid stagflation through fiscal policy that promotes growth and prevents inflation. However stagflation can be difficult to correct because focusing on one aspect
of the problem can exacerbate other aspects.
For example, the use fiscal and monetary policies to stimulate the economy and reduce unemployment can exacerbate inflation.21 Years of continued stagflation in the
1970s helped to undermine the Carter Presidency and Democratic Party proposals
for welfare, health care, and labor law reforms.
D. POLICY DEBATE: WHAT IS COMING NEXT - INFLATION OR DEFLATION?
There has been a non-stop debate in U.S. policy circles that began in 2008, concerning whether deflation or inflation was on the horizon. Most conservative economists predicted massive amounts of inflation due to the Fed’s easy monetary policy
(low interest rates), and the trillions of dollars of government spending by the Obama
Administration. Most liberal economists worried about deflation, which would lead to
further declines in home prices and the CPI.21
1. It’s Deflation. Paul Krugman, the liberal Nobel prize-winning economist, has
argued that there was little sign of inflationary pressure in the U.S. and that
high unemployment rates would rule out inflation anytime soon. He was more
worried about deflation. He suggested that period’s depression might be akin
to the depression that followed the Panic of 1873 that was somewhat less
devastating than the Great Depression of the 1930s. Krugman also stated that
the economic turbulence in Europe — especially plans to cut government
spending —would negatively impact the U.S. economic recovery. He called on
the U.S. government to spend more money to prevent a slip into a deflationary
depression.
Krugman noted that the worries about inflation amounted to fear-mongering
by economists and was at least partly political. These economists inconsistently supported government tax cuts that contributed to the deficit but scolded
government spending to rescue the economy. He charged that their real goal
was to bully the Obama administration into abandoning those rescue efforts,
Those who think inflation will stay at the current low rates for several years urge
the government to inject more money into the economy to address deflation
and to get the economy back on its feet. To this end, in November 2010 in
a bid to lower unemployment and avert deflation, the Federal Reserve Board
Chairperson announced the purchase of $600 billion in U.S. Treasuries. To
counter his critics who feared such a large stimulus would lead to inflation, the
chair of the Fed added that “we do not want inflation to be too high but you
also don’t want it to be too low.” 24
2. It’s Inflation. Former International Monetary Fund (IMF) chief Simon Johnson
argued that the economy was more susceptible to inflation than deflation. He
held that by injecting money into the system (i.e. printing money), the Fed will
cause inflation even if unemployment remains high and there is still a lot of
slack in the system. He stated that spending to offset deflation will increase the
budget deficit and eventually force the U.S. government to print more money
to pay off its debt.25
3. A third position holds that the deflation is part of the normal workings of the
market and if left alone the market will adjust back to normal. Finally some
economists have argued that a deliberate policy of moderate inflation can usefully encourage lending and reduce private debt burdens.
For Discussion:
Inflation comes in cycles. Imagine that inflation returns and that instead of just inching
up, prices soar. The media reports that the Fed will be raising interest rates.
1. What fiscal and/or monetary policies would you recommend to the federal
government and why?
2. Your client, a divorced mother of three, came to you suffering from
depression and panic attacks. She mentioned that she is having difficulty
managing mortgage payments and doesn’t know how she’ll pay for her children
to attend college. She told you that two people from her work group have just
been laid off. Without giving financial advice, what would you think about as you
helped your client figure out her next steps?
NOTES
UNIT TEN
1. Romer, Christine (ND) Business Cycles. The Concise Encyclopedia of Economics.
(2nd ed.) Retrieved from: http://www.econlib.org/library/Enc1/BusinessCycles.html
2. Rodrigo (n.d.) Rising Food Prices. Retrieved from: http://www.toonpool.com/
cartoons/Rising%20food%20prices_32172
3. Rosie Piter Graphics (n.d.) Royalty-Free (RF) Clipart Illustration of an Indian Woman Pushing Bagged Groceries In A Shopping Cart. Retrieved from http://www.clipartof.com/details/clipart/83860.html
4. U.S. Department of Labor, Bureau of Labor Statistics (n.d.) Frequently Asked
Questions (FAQs) What is the CPI? Retrieved from: http://www.bls.gov/cpi/cpifaq.
htm#Question_1
5. Observations and Notes (2011, March 15):100 years of Inflation Rate History.
Retrieved 9-25-14 from http://observationsandnotes.blogspot.com/2010/01/subject-indexhistoryanalysis.html#BOND
6. Economic Glossary (n.d.) Economic Definition of Inflation Problems. Defined. Retrieved from http://glossary.econguru.com/economic-term/inflation+problems
7. Aldous, Joan (1991) Families and Inflation: Who Was Hurt in the Last HighInflation
Period. Journal of Marriage and the Family, 53 (1) (February) pp. 123- 34.
Retrieved from http://www.eric.ed.gov:80/ERICWebPortal/custom/portlets/
recordDetails/detailmini.jsp?_nfpb=true&_&ERICExtSearch_SearchValue_0=EJ428154&ERICExtSearch_SearchType_0=no&accno=EJ428154;
8. The Money Alert (n.d.) Inflation vs. Deflation. Retrieved from http://www.themoneyalert.com/inflationdeflation.html; Economic Glossary (n.d.) Economic Definition of
Inflation Problems Defined. Retrieved from http://glossary.econguru.com/economic-term/inflation+problems
9. Caplovitz, David (1981) Making Ends Meet: How Families Cope with Recession.
The ANNALS of the American Academy of Political and Social Science. 456 (1) , pp.
88-98 Retrieved from http://ann.sagepub.com/cgi/content/abstract/456/1/88
10. Business Dictionary (n.d.) Aggregate Demand. Retrieved from http://www.businessdictionary.com/definition/aggregate-demand.html
11. Inflation. Retrieved from:
http://www.australian-realestate.net.au/investing/2010/08/04/australian-inflation-eases-in-july-2010- survey/. Also from:
http://images.google.com/images?hl=en&biw=1111&bih=687&gbv=2&tbs=is
ch%3A1&sa=1&q=inflation+cartoon&btnG=Search&aq=f&aqi=&aql=&oq=&gs_rfai=
12. InvestorWords (n.d.) Deflation. Definitions. Retrieved from http://www.investorwords.com/1376/deflation.html; Economic Glossary (n.d) Economic Definition of
Deflation. Defined. Retrieved from http://glossary.econguru.com/economic-term/
deflation
13. SNP/Nifty (BD) What is Deflation and What Causes It to Occur? Retrieved from
http://www.snpnifty.com/Deflation.html;
Tutor2U. (ND) A2 Macroeconomics / International Economy http://tutor2u.net/economics/revision-notes/a2-macro-deflation.html
14. [Zuckerman, Mortimer (2009, November 2) Forget Inflation, Deflation Is a Bigger
Danger. U.S. News and World Report. Retrieved from http://www.usnews.com/opinion/mzuckerman/articles/2009/11/02/forget-inflationdeflation-is-a-bigger-danger.html;
Atkinson, Rebecca (2009) Deflation -- will you win or lose out. Money Wise. Retrieved from http://www.iii.co.uk/articles/articledisplay.jsp?article_id=10007301&section=Plann ing.
Schoen, John E. (2008, November) Falling Prices Raise Worries About Deflation. Eye on the Economy, MSNBC. Retrieved from http://www.msnbc.msn.com/
id/27823694/;
Krugman, Paul (2009, May) Falling Wage Syndrome. The New York Times, http://
www.nytimes.com/2009/05/04/opinion/04krugman.html; SNP/Nifty (BD) What is
Deflation and What Causes It to Occur? Retrieved from http://www.snpnifty.com/
Deflation.htm
15. Moffatt, Mike (n.d.) What is Deflation and How Can it Be Prevented? Retrieved
from http://economics.about.com/cs/inflation/a/deflation.htm; Economic Glossary.
Deflation http://glossary.econguru.com/economicterm/deflation;
Christensen, Jens (2010, October 25) TIPS and the Risk of Deflation, Federal Reserve Bank of San Francisco. Economic Letter ( 2010-32) from http://www.frbsf.
org/publications/economics/letter/2010/el2010-32.html
16. Haverland, Chris (2010, August 27) Updating the Deflation Debate. Wells Fargo Bank. Retrieved from https://www.wealthmanagementinsights.com/userdocs/
pubs/MU_Updating_the_Deflation_Debate_TAGGED.pdf.
17. McMahon, Tim (2009, November) Which is Better - High or Low Inflation.
Retrieved from http://inflationdata.com/inflation/Inflation_Articles/HighorLow_inflation.asp
18. Zuckerman, Mortimer (2009, November 2) Forget Inflation, Deflation Is a Bigger
Danger. U.S. News and World Report. Retrieved from http://www.usnews.com/opinion/mzuckerman/articles/2009/11/02/forget-inflationdeflation-is-a-bigger-danger.html;
Schoen, John E (2008, November) Falling Prices Raise Worries about Deflation. Eye on
the Economy, MSNBC. Retrieved from http://www.msnbc.msn.com/id/27823694;
Krugman, Paul (2009, May) Falling Age Syndrome. The New York Times. Retrieved
from http://www.nytimes.com/2009/05/04/opinion/04krugman.html
19. Tutor2U. (n.d.) A2 Macroeconomics /International Economy. Retrieved from
http://tutor2u.net/economics/revision-notes/a2-macro-deflation.html\
20. Zuckerman, Mortimer (2009, November 2) Forget Inflation, Deflation Is a Bigger
Danger. U.S. News and World Report. Retrieved from http://www.usnews.com/opinion/mzuckerman/articles/2009/11/02/forget-inflationdeflation-is-a-bigger-danger.html;
Atkinson, Rebecca (2009) Deflation -- will you win or lose out? Money Wise. Retrieved from: http://www.iii.co.uk/articles/articledisplay.jsp?article_id=10007301&section=Planning;
Schoen, John E. (2008, November) Falling Prices Raise Worries about Deflation. Eye on the Economy, MSNBC. Retrieved from http://www.msnbc.msn.com/
id/27823694/;
Krugman, Paul (2009, May) Falling Wage Syndrome. The New York Times. Retrieved from http://www.nytimes.com/2009/05/04/opinion/04krugman.html
21. Economy Watch (n.d.) Theories of Stagflation. Retrieved from http://www.economywatch.com/inflation/stagflation/theories.html
22. Lindgren, Hugo (2010, July 1) Krugman or Paulson: Who You Gonna Bet On?
Bloomberg Businesweek. Retrieved from http://www.businessweek.com/magazine/
content/10_28/b4186004424615_page_2.htm
23. Krugman Paul (2009, May 28) The Big Inflation Scare. New York Times. Retrieved from http://www.nytimes.com/2009/05/29/opinion/29krugman.html?_r=2;
Publus, Gius (2010, Oct 19); Krugman, Deflation Still a Risk. Americablog. Retrieved
from http://www.americablog.com/2010/10/krugman-deflation-still-risk.html
24. Lindgren, Hugo (2010, July 1) Krugman or Paulson: Who You Gonna Bet On?
Bloomberg Businesweek. Retrieved from http://www.businessweek.com/magazine/content/10_28/b4186004424615_page_2.htm. See also http://www.gurufocus.com/news.php?id=99007
25. Johnson, Simon (2009, May 28) Inflation Fears. Economix. The New YorkTimes Retrieved from http://economix.blogs.nytimes.com/2009/05/28/inflationfears/#more-14731
Deficit & the Debt
Goal: This unit provides definitions of the federal debt and the debt ceiling. What
is the difference between the federal deficit and the national debt? What is their
importance?
T
he Federal budget can have a surplus or a deficit in the same way individuals
may have in their personal budget. However, the Federal budget includes
spending and services that affect the quality of life for millions of Americans.
A budget surplus exists when the government spends less than it collects in tax revenues in any one year. President Clinton was the last president to oversee a budget
surplus.
A budget deficit exists when the government spends more money than it has raised
in taxes in any given year. In fiscal year 2010, the deficit of $1.26 trillion or 8.9 percent of the GDP was the second highest shortfall since 1945. By 2014, the deficit
had fallen to an estimated $506 billion or 3.9 GDP.1
THE DEBT
The federal budget deficit is often confused with the national debt. The government
deals with the budget deficit by borrowing money to cover its expenses in any fiscal year. To cover (or finance) the deficit the government issues long-term, interest-bearing bonds and pays its bills with the proceeds. The total stock of government bonds and interest payments outstanding, from both the present and the past,
is known as the national debt. In 2010, the national debt amounted to more than
$9 trillion. As of 2013, federal interest payments equaled $415.6 billion.1 In early
2014, the national debt had risen to more than $17.3 trillion. When the government
finances a deficit by borrowing, it increases national debt. The government has to
pay interest on these loans taken out tocover the debt.
Debt Ceiling
The national debt has been subject to a legal limit since 1917 when Congress
passed the Second Liberty Bond Act. The debt ceiling is the amount the government
can legally borrow to enable it to cover its costs, that is: to keep it running. Since
2001, Congress approved an increase in the debt ceiling eight times. Failure to raise
the debt limit means that the government must make difficult choices when it comes
to paying at least some of its bills. That is, deciding which expenses will be cut.2
A few years ago the debt ceiling became subject to partisan differences over the
proper role of government. The inability of the two parties to reach a compromise
led to a two week government shutdown 2013.3
http://www.bread.org/hunger/budget/pdf/debt-ceiling-summary-analysis.pdf
POLICY DEBATE
Many public policy debates center on how active or hands-off the government
should be when it comes to using fiscal and monetary policy to manage the economy. The question as to the proper amount of government intervention reflects ideological differences. Those in favor of a more active government say that government
interventions are needed to take the edge off problematic market outcomes. The
opponents say that government intervention interferes with individual freedom and
distorts the natural workings of the market, That is without government intervention,
the market or private charity would provide god and services to those in need.
For Discussion:
1. What has been your experience of personal debt?
2. Does your personal or professional experience affect your view of our national
debt and what policy changes should be enacted?
3. Do you think the role of the government should change in difficult economic
times? Should it increase? Decrease? Stay the same?
NOTES
UNIT ELEVEN
1. National Debt Clock. retrieved from: www/brillig.com/debt_clock/
2. Krugman, Paul (2010, Nov 22). There will be Blood. The New York Times, p.A3.
Retrieved from http://www.nytimes.com/2010/11/22/opinion/22krugman.html
3. Weisman, Jonathan & Peters, Jeremy, W. (2013, September 30), Government
Shuts Down in Budget Impasse. New York Times. Retrieved from: http://www.n
times.com/2013/10/01/us/politics/congress-shutdowndebate.html?pagewanted=all
Unemployment
Goal: This unit provides information on unemployment ranging from
measurements to policy debates.
Most people in the United States believe that every person willing to work should
have access to a job. But this goal has yet to be achieved. Economists refer to the
natural rate of unemployment as the lowest rate of unemployment that a healthy and
stable economy can expect to achieve, given the inevitability of some frictional, cyclical, and/or structural unemployment. Between 1945 and 1975, for the most part
considered good economic years, the natural rate of unemployment ranged from
four to five percent.
Fig 12.1 The Worst Recession1
3
Fig. 12.2 No Work
In the latest deep recession the economy stopped contracting in the middle of 2009.
However, the hoped for economic growth did not materialize enough to create the
jobs needed to keep pace with normal population growth. Nor was there enough
job growth to employ the backlog of thousands of workers who lost their jobs during
the economic downturn. Since then, the still high unemployment rates declined but
not fast enough to absorb all those who lost their jobs during and after the recession. Economists refer to state of affairs as a “jobless recovery.”2
B. Types of Unemployment.
Economists distinguish between frictional, cyclical, and structural unemployment.
1. Frictional Unemployment is a temporary type of unemployment that results
from normal labor market turnover such as the period of unemployment that
people experience when they move between jobs.4 When it is based on personal decision like the choice to change a changing a job, it is somewhat under
one’s control. During periods of low unemployment, much of the joblessness
reflects frictional unemployment. This type of unemployment is less serious than
cyclical or structural unemployment, which are largely due to factors beyond the
control of individual workers.
2. Cyclical Unemployment is the temporary unemployment that results from economic downturns (i.e. recessions), which are part of the normal business cycle.
It also reflects the ups and downs of the seasonal demand for goods and services that periodically reduce the need for production and therefore employed
workers. Also known as “demand deficient” unemployment, this type of joblessness ends when the economy improves or a new season begins. Cyclical
unemployment gets its name because it varies with the business or seasonal
cycle and tends to produce rising unemployment rates. In the past, most unemployment stemmed from temporary layoffs (i.e. cyclical unemployment) after
which workers would return to their jobs, or at the very least jobs within the
same occupation.
3. Structural Unemployment. Economists say unemployment is “structural” when
the skills of the unemployed workers are not well suited for the jobs available.
Their training may be inadequate; their skills may have become outdated or
may not be suited for the expanding industries. Structural unemployment also
refers to unemployed workers who do not live where existing jobs are located.
This is often called a mismatch between available workers and available jobs.
The definition includes the loss of jobs that occurs when employers revamp
their production processes, thereby eliminating the need for many of the types
of workers or when economic disaster changes the need for certain workers.
An example of the latter is the bursting of the housing bubble that led to the
downsizing of the construction industry. The jobs lost to the slowdown in construction are not likely to return, leaving many workers in need of jobs in different
industries.5
If the displaced workers are not qualified or cannot be quickly trained in new
fields, they may remain out of work or underemployed for a long time, if not
permanently. Structurally unemployed workers need more time to search for
work and upgrade their skills and as a result the duration of unemployment and
the accompanying hardship increases significantly. Some economists assert that
more of today’s unemployment stems from structural changes in the economy.
Fig 12.3 Not Enough Jobs For Too Many People
The job seekers ratio (the number of unemployed
workers per every job opening)
C. Measuring Unemployment
1. The Unemployment Rate. The U.S. calculates the unemployment rate by dividing the number of people without a job by the total number of people in the
labor force (i.e. employed or actively seeking work)7(See Labor Market unit.)
The unemployment rate is further calculated for different population groups,
such as youth, persons of color and women. The Department of Labor surveys
of unemployment are not designed to determine the legal status of workers so
that some do not capture undocumented workers.8
Other countries define the unemployed to be the total number of persons filing
claims for or receiving Unemployment Insurance payments or the number of
persons registered as available for work with a government employment office.
This type of data is available in the United States, but is not used to measure total unemployment since several important groups such as self-employed workers, unpaid family workers, and workers in certain not-for-profit organizations
are excluded from the calculations.9 Also, an unemployed person may not be
eligible for unemployment insurance or may not qualify for some other reason.
2. Hidden Unemployment. The unemployment or underemployment of workers
may not be reflected in official unemployment statistics because of the way these
statistics are compiled. Only those who are not at work but who are actively
looking for a job are counted as unemployed. Those who have given up looking, those who are working less time than they would like to work, and those
who work at jobs in which their skills are underutilized are not officially counted
among the unemployed. These groups constitute “hidden unemployment”.10
For example, a 2009 study found that the incidence of hidden unemployment
problems was seven times higher among those in the bottom 10 percent of
household income than among those in the top 10 percent. Potential workers
in the lower income groups were the most likely to have either withdrawn from
active labor force participation or had chosen not to enter the depressed labor
market of late 2009 in search of paid work.11
D. Who Benefits and Who Loses from Unemployment?
1. Who Benefits? Employers tend to benefit from unemployment because the
number of people looking for work (the labor supply) is greater than the number
of available jobs (the labor demand). The resulting competition for jobs allows
employers to pay less, which leads to higher company profits. This is called a
slack labor market. In contrast a tight labor market exists when there are more
jobs available than workers seeking employment. In a tight labor market, employers lose because they have to pay more to attract workers so wages go
up and profits may fall. High unemployment also means that employers may be
able to cut costs by doing things that make worse less safe or in other ways
less appealing for employees. Low unemployment makes this less likely.
2. Who Loses? Business and industry also lose when prolonged unemployment
reduces consumer demand for their products. It may be rational for an individual
employer to lower wages and cut costs in other ways when unemployment is
high. But when all or most employers behave this way, workers may get paid
too little to consume what firms produce which is harmful to employers or collectively irrational. Workers lose because without a job or income they cannot
pay their rent or mortgage or otherwise support themselves or their families.
Workers also lose when unemployment rises because, as noted earlier, the increased competition for jobs presses wages down.
Prolonged unemployment has psychological as well as economic consequences. It can shake the core of an individual’s identity and make a person feel
discouraged, insecure about the future, less confident, depressed and so forth.
According to a recent Gallup Poll, Americans who are unemployed for more
than six months are much more likely to experience daily negative emotions,
including worry, sadness, and stress and somewhat less likely to report positive
emotions, such as happiness, than are those who are unemployed for a shorter
time.12 These common reactions can interfere with interpersonal relationships as
well as the job search.13
Unemployment varies by gender
and race:
Gender: In October 2014, 4.3
million women ages 16 years
or older were unemployed.
Women’s unemployment rate
stood at 5.9 percent less than
in many prior months. In
October 2014, 4.6 million men
16 years or older were jobless.
The male unemployment rate
stood at 5.6%, lower than in
many prior months.15
Fig. 12.4 Middle Class Aspirations
14
Black: In July 2011, 2.6 million African Americans were jobless. Unemployment rates
for Blacks stood at 10.9 percent, less than in prior months. The rate was 11.0 percent
for men, 9.6 percent for women and 30.5 % for youth ages 16-19.16
Latino: In October 2014, 1.7 million Latino persons were jobless. The Latino unemployment rates stood at 6.8 percent somewhat lower than in prior months. The rate
seasonally unadjusted was 5.1% for men, 7.0 for women and 20.2% for youth age
16-18.17
Their rates for persons of are higher than the unemployment rate for whites. Almost
6 million white persons or 4.8 percent were unemployed in October 2014, lower
than in many prior months. The rate was 4.2 percent for men, 4.6 percent for women
and 16.3 percent for youth age 16-19.18 Figure 12.5 (below) illustrates sharp racial
disparities in unemployment rates between 1973 and 2011.
Everyone Loses. Unemployment also
hurts the economy as it wastes productive labor that could otherwise be
put to good use. People who lose
their jobs are forced to cut spending,
which can further depress the economy as noted in the discussion of deflation. High rates of unemployment
are also associated with health and
social problems as well as social unrest.
Fig. 12.5 Unemployment Rates by Race: 1973-2011]19
E. Managing Unemployment
1. How Individuals Manage Unemployment. Unemployment is a reality in the lives
of many workers. About 85 percent of experienced workers have had at least
one spell of unemployment in their careers.20 When individuals lose their job they
may be eligible to collect Unemployment Insurance for a limited period of time
while looking for a new job. Because it is both time limited and a limited wage
replacement, Unemployment Insurance is not a long-term solution to the problem of unemployment. While receiving Unemployment Insurance, some people
may return to school to upgrade their skills and human capital. If funds run out
they dip into savings, borrow from friends or family, take out a loan, rely heavily
on their credit card, participate in the underground economy, or apply for public
benefits such as food stamps or public assistance. If people remain without a job
for too long, their skills are eroded and they can become less employable when
the economy picks up.
Fig. 12.6 Work Shirker
21
2. How the Government Manages Unemployment. The federal government has various programs to help smooth out the hardships experienced by jobless workers
and their families. These benefits enable workers to escape poverty temporarily.22
The four main types of programs are unemployment insurance, income support, job
training, and job creation programs.
• Unemployment Insurance (UI) temporarily replaces part of lost wages, currently
about one-third with an absolute weekly payment cap. Created in 1935, as part
of the Social Security Act, the UI program tides eligible workers over temporarily
until they find another job.23 However, only about 38 percent of all workers qualify
for unemployment insurance.24 The permanent Extended Benefits (EB) program
provides an additional 13 or 20 weeks of compensation to jobless workers who
have exhausted their regular benefits in states where the unemployment situation
has worsened dramatically.25 During a deep recession — such as during the
Recession of 2008 — states extended benefits to up to 99 weeks. Congress extended Unemployment Insurance again in December 2010 (after a long political
battle) for 11 months. However, in 2014, Congress ended the program which
had become entangled in legislative politics.
• Income Support Programs. When workers exhaust their UI benefits, or if they
do not qualify, they may turn to other income support programs, including public
assistance (Temporary Aid to Needy Families), Supplemental Nutrition Assistance
Program (SNAP, formerly Food Stamps) or Medicaid that pays for health care.
In addition to assisting individuals and families, these programs help to sustain
the economy by providing a continuing stream of dollars that families spend on
goods and services. Because these and the other income support programs kick
in automatically when the economy sags, economists refer to them as ”automatic
stabilizers.” While cash benefits are not typically regarded as a benefit to busi-
ness and industry, by increasing purchasing power (i.e. consumption of goods
and services) during economic downturns, cash assistance programs can be
described as helping business and industry as well as individuals and families.
• Job Training. The federal government operates several dozen loosely coordinated programs that assist unemployed workers with job training or job placement.
Most of these programs are located in three federal departments: the Department
of Labor, the Department of Education, and the Department of Health and Human
Services. These programs serve one or more of the following groups: welfare
recipients, other poor adults and youth, and workers who have lost their jobs due
to foreign trade practices. The most recent job training program is the Workforce
Investment Act (WIA) of 1998. It consolidated a number of Labor Department job
training programs and created One-Stop-Centers in each state, including New
York State (as well as New York City) to help job seekers negotiate their way
through what could be characterized at times as a bewildering system of federal
job-training programs.26
https://www.youtube.com/watch?v=tc976f-t45g&feature=related
https://www.youtube.com/watch?v=hwWGzQ_FUtQ&feature=related
• Job Creation. The term job creation typically refers to the use of public funds to
create wage-paying jobs at public or private non-profit agencies. These temporary jobs generally range from 6 to 24 months, with most set at a year or less.
They tend to pay around the minimum wage, provide less than full-time work
and are designed to motivate participants to move into the regular job market as
quickly as possible. The jobs are usually available only to individuals who cannot
otherwise find employment in theregular job market. Participants gain work experience, marketable job skills, an employment track record, and additional income
to help support themselves and their families. Communities increase their stock
of jobready individuals. The work performed by participants in job creation programs typically addresses a broad range of community needs, provide valuable
services (i.e. child care/after-school programs, communitysupport, construction,
education, environmental/conservation, food service, health services, office/clerical support, public safety, and social services). These jobs also improve the
quality of life for the entire community.27
A variety of employment services are available to workers who have been laid off due
to plant closings or downsizing, as well as to displaced homemakers. Core services
include job-search and job-placement assistance; intensive services, including career
counseling, a comprehensive assessment of an individual’s employability, and the
development of a personal employment plan for dislocated workers who are unable
to find jobs through core services. Occupational training linked to local job opportunities and supportive services, such as transportation and needs-related payments,
also may be available. These services —funded by grants awarded to states on the
basis of need—are intended to help dislocated workers get new jobs with benefits
and to develop a more secure future.28
F. Scapegoating.
History includes too many examples of individuals who scapegoat others because
they’re searching for an explanation as to why they lost their jobs. This phenomenon,
which increases in challenging economic times, tends to become part of political
debate. During election cycles, politicians sometimes decide to scapegoat groups as
a way to deflect blame from themselves or their political backers (whether individual,
public or corporate entities).
“I just lost my job... Don’t know why, but
I think it’s all your fault!...”
Fig. 12.7 The Intolerable Intolerance
29
G. Policy Debate: Wrong Skills or Scarce Jobs?
Is the current high unemployment rate due to the mismatch of skills and jobs or the
lack of jobs? What has caused the high rate of joblessness and what is the best
policy solution?
• Wrong Skills. One narrative suggests that unemployment difficulties reside in the
workers who are unemployed. That is, millions of workers are jobless because of
dramatic changes in work processes that have rendered them unqualified for work
due to a mismatch between their skills and/or location and available jobs.
In other words, the firms have jobs but workers either do not have the right skills or
are located in the wrong place for the currently available jobs.30 If high unemployment is primarily structural (due to lack of proper skills) then macroeconomic tools
such as fiscal policy (spending or tax cuts) or monetary policy (lowering interest rates
or increasing the monetary supply) may not address the long-term unemployment
situation as the actions might not lead to jobs that can utilize the skill pool of available
workers. The more effective policy strategy would be to offer education and training
to the unemployed to help them make a transition to new occupations and sectors
as long as the training does not outpace changing labor market demands.
• Scarce Jobs. Another narrative suggests that high unemployment stems from the
failure of the economy to produce the number of jobs needed to employ everyone
who is willing and able to work. This explanation of scarce jobs focuses on the functioning of an economic institution and blames the faltering labor market rather than
the skill set of individual workers. If unemployment stems from an underlying lack of
jobs, then education and training, while inherently useful, will not solve the problem
until the private and the public sectors create more jobs. Instead the solution requires
less exportation of jobs abroad, fewer wage subsidies for employers, more public
sector job-creation programs,31 and consideration of a right to work where the government would guarantee a job for anyone not able to find one in the private sector.
For Discussion:
The explanations as to why people become unemployed vary widely. The range of
theories became evident in recent Congressional debates about whether or not to
extend emergency unemployment benefits.
http://www.npr.org/templates/story/story.php?storyId=128696646
Conservatives tended to oppose the extension on the grounds that people without
jobs could find work if they only looked longer and harder. Liberals favored the extension, pointing to the persistently high rate of unemployment and that even in good
times the economy cannot produce enough jobs for all those willing and able to
work.
1. What are your views on this Emergency Unemployment Benefits debate?
Explain the reason for your views, citing examples.
2. Think about your caseload or that of your coworkers. Is the agency finding that
more clients are coming in with question about financial assistance? Are more
clients expressing more general concerns about money and their own economic
security? How does your agency address this situation?
3. Have you or a close family member experienced job loss? Where there
emotional and practical implications as a result?
NOTES
UNIT TWELVE
1. Economic Policy Institute. 2011. The Worst Recession, The State of Working
America. Washington, D.C.: Economic Policy Institute. Retrieved 8/9/11 from
http://www.stateofworkingamerica.org/charts/view/4
2. Zuckerman, Morton (2013, July 15). A Jobless Recovery is a Phony Recovery.
Wall Street Journal Retrieved from http://online.wsj.com/articles/SB100014241278
87323740804578601472261953366
3. Easterly, Derek (2009, September 18) No Work. Retrieved from http://www.toonpool.com/cartoons/n%20Work_57887
4. EconModel (n.d.) Frictional Unemployment. Retrieved from http://www.econmodel.com/classic/terms/frictionalunemployment.htm
5. National Employment Law Project (n.d.) Research on Unemployment. Retrieved
from http://www.nelp.org/site/issues/category/research_on_unemployment
6. The State of Working America (2014, October 7) Job Seekers ratio: December2000- August 2104. The Economic Policy Institute Retrieved from : http://stateofworkingamerica.org/charts/jobseekers-ratio-total/
7. U.S. Department of Labor (n.d.) Bureau of Labor Statistics. Labor Force Statistics.
Unemployment. Retrieved from http://www.bls.gov/cps/lfcharacteristics.htm#unemp
loyment
8. Rambell, Catherine (2009) Friday’s Job’s Report: FAS. Economix. Retrieved from
http://economix.blogs.nytimes.com/2009/04/02/fridays-jobs-report-faq/#unemployment
9. U.S. Department of Labor, Bureau of Labor Statistics. What are the Basic Concepts of Employment and Unemployment ? Retrieved from http://www.bls.gov/cps/
cps_htgm.htm#concepts
10. Yates, Michael D. (1994) Longer Hours, Fewer Jobs: Employment and Unemployment in the United States NY: Monthly Review Press.
11. Sum, Andrew & Ishwar Khatiwada (2010) Labor Underutilization Problems of U.S.
Workers Across Household Income Groups at the End of the Great Recession: A
Truly Great Depression Among the Nation’s Low Income Workers Amidst Full Employment Among the Most Affluent. Retrieved from http://www.clms.neu.edu/publication/documents/Labor_Underutilization_Problems_of_U.pdf
12. Gallup Poll (2010, January) Worry, Sadness, Stress Increase With Length of
Unemployment. Retrieved from http://www.gallup.com/poll/139604/Worry-Sadness-Stress-IncreaseLengthUnemployment.aspx?utm_source=alert&utm_medium=email&utm_campaign=syndication &utm_content=morelink&utm_term=Wellbeing
13. Blustein, David L (2009) Unpacking Psychological Costs of Unemployment. Psychology Today, Blogs 21 century. Retrieved from http://www.psychologytoday.com/
blog/the-21st-centuryworkforce/200912/unpacking-the-psychological-costs-unemployment
14. Simpson, Carole (2009) Middle Class Aspirations. Retrieved from http://www.
toonpool.com/cartoons/Middle%20Class%20Aspirations_47244
15. U.S. Department of Labor, Bureau of Labor Statistics (2014, Nov 7) Household
Data Table A-1. Employment Status of The Civilian Population By Race, Sex, and Age
Retrieved from: http://www.bls.gov/news.release/empsit.t01.htm
16. U.S. Department of Labor, Bureau of Labor Statistics (2014, November 7). Table
A-2; Household Data. Employment Status of Civilian Population by Race Sex Age.
Retrieved from: http://www.bls.gov/news.release/empsit.t02.htm
17. U.S. Department of Labor, Bureau of Labor Statistics (2014 November 7). Table
A-3 Household Data. Employment Status of Hispanic or Latino population by sex and
age.. Retrieved from : http://www.bls.gov/news.release/empsit.t03.htm
18. U.S. Department of Labor, Bureau of Labor Statistics (2014, November 7). Table A-2 Household Date. Employment Status Civilian Population by Race Population
by Race, Sex and Age. Retrieved from http://www.bls.gov/news.release/archives/
empsit_08052011.htm
19. Economic Policy Institute (n.d.) Racial and Economic Disparities Persist Over Time:
Unemployment rate of population age 16 and older by race and ethnicity, 1973 2011. Retrieved from: http://www.stateofworkingamerica.org/files/images/orig/racial%20and%20ethnic%20disparities.png
20. National Employment Law Office (n.d.) Filling the Gaps in the Unemployment
Safety Net. Retrieved from http://www.nelp.org/index.php/site/issues/category/Filling_the_Gaps_in_the_Unemployment_Safety_Net/
21. Easterly. Derek (2008, November 3) Work Shirker. Retrieved from http://www.
toonpool.com/cartoons/WORK%20SHIRKER_27740
22. National Employment Law Office (n.d.) Filling the Gaps in the Unemployment
Safety Net. Retrieved from http://www.nelp.org/index.php/site/issues/category/Filling_the_Gaps_in_the_Unemployment_Safety_Net/
23. U.S. Department of Labor ( n.d.) Unemployment Insurance. Retrieved from: http://
www.dol.gov/dol/topic/unemployment-insurance/
24. U.S. Department of Labor (n.d.) Employment and Training Administration. Financial Handbook Data, Unemployment Insurance Data Summary. Retrieved from
http://workforcesecurity.doleta.gov/unemploy/content/data_stats/datasum10/DataSum_2010_1.pdf
25. U.S. Department of Labor ( n.d) Unemployment Insurance Extended Benefits. Retrieved from: http://www.oui.doleta.gov/unemploy/extenben.asp
27. Johnson, Clifford M. (1998, December 3) Frequently Asked Questions About
Public Job Creation Programs. Center on Budget and Policy Priorities. Retrieved from
http://www.cbpp.org/cms/index.cfm?fa=archivePage&id=pjc-faq.htm
28. U.S. Department of Labor, Employment and Training Administration (n.d.) Dislocated Workers Programs. Retrieved from: http://www.doleta.gov/programs/factsht/
pdf/dislocated.pdf
29. Rodrigo (2009) The Intolerable Intolerance. Retrieved from http://www.toonpool.
com/cartoons/The%20intolerable%20intolerance_37281
30. Mishel, Lawrence, Heidi Shierholz and Kathryn Anne Edwards (2010, September
22) Reasons for Skepticism about Structural Unemployment. Retrieved from: http://
www.epi.org/publications/entry/bp279/
31. Allegretto Sylvia & Andrew Stettner (2009, May 6) The Severe Crisis of Job Loss
and theAccompanying Surge in Long Term Unemployment. National Employment
Law Project and theInstitute for Research on Labor and Employment. Retrieved from:
http://www.nelp.org/page/-/UI/LTU2009.pdf?nocdn=1
Poverty
Goal: This unit provides information on poverty ranging from measurements and
causes to policy debates and solutions.
Definitions of poverty range from narrow economic to broader social terms. In economic terms, poverty is the state of having little or no money and few or no material
possessions. More broadly poverty refers to a level of material deprivation that is
greater than subsistence living. Even more generally poverty has been described as
a condition of not having the means to address basic human needs such as clean
water, nutrition, health care, education, clothing and shelter. Regardless of the definition, poor individuals suffer physically, emotionally and socially.
On the international front, The World Bank defines poverty as not having enough to
eat, the lack of shelter, not being able to see a doctor when sick, not having access
to school, not knowing how to read, not having a job, lack of access to clear water,
living one day at a time, fear for the future, powerlessness, lack of representation
and freedom.
The poor are not a single homogenous group. They include people without jobs
who live far below or just below the federal poverty line. The poor also includes
people with jobs, known as the working poor. In hard economic times, more and
more working and middle-class people fall into poverty for the first time. Today
some refer to this group as the new poor.
Fig. 13.1 Growing Share in Deep Poverty Share
of poor below half the poverty line, 1975-20131
Working Poor is a term used to describe individuals and families who maintain
regular employment but whose earnings fall below the federal poverty line due to
low pay, lack of fringe benefits, little job security and dependent expenses. For this
group, “work does not pay.” The working poor are typically distinguished from the
jobless poor who are supported by government aid or charity. Both groups often
seek cash benefits and social services.
Fig.13.2 Race to the Bottom.
2
https://www.youtube.com/watch?v=do1QDRIhiEE
B. Measuring Poverty
Most people have an inherent sense of what it means to be poor. But choosing
a definition is much trickier. Is poverty an absolute or relative condition? What is a
decent standard of living? In the United States, the federal government has a developed poverty line to count the poor, to show how the numbers have increased
or decreased over time, and to plan anti-poverty programs. Most measurements of
poverty focus primarily or exclusively on income and use one of two standards to
measure poverty absolute or relative measures.
1.Absolute measures of poverty set an income threshold below which an individual or family is considered to be poor, regardless of general living standards.
While it is unlikely that poverty will actually disappear, it is true that using the
fixed or absolute poverty measure means that the number of people counted
as poor can diminish leading to the conclusion that poverty has successfully
been reduced. The ability to lower the number of people considered to be living in poverty is one reason that elected officials and policy makers favor the
absolute measure.3
2. Relative measures typically set the poverty level at a percent of median income or some measure the floats with changing economic condition. Therefore, the number of people counted as poor varies with the economic fortunes
of the population as a whole. By this measure, the poor are those who lack
what is needed by most Americans to live decently because they earn less than
a specified percentage of the nation’s median income, typically 40 to 60 percent. Based on this standard over the past several years, approximately 20%
of Americans live in poverty. Using this measure, which follows changes in the
overall level of income, some people will always be poor. With this measure,
the poor can be defined as having significantly less income and wealth than
other members of society making it rough measure of income inequality. Using
the relative measure is more difficult to show that poverty has been reduced or
eradicated.4
3. The U.S. Poverty Line. The U.S. uses an absolute poverty measure developed
in the 1960s to accompany the War on Poverty. At this time families spent
about one-third of their income on food. Therefore the federal government set
the official poverty line by multiplying these food costs by three. If a family’s total
income is less than this threshold, then that family and every individual in it is
considered living in poverty. This multiple is still used but no longer reflects the
impact of different expenses. The federal poverty level is adjusted by family size
but does not vary geographically. It does not take into account cost-of-living
differences between families living in rural or urban communities. Despite such
differences the income threshold for poverty is the same in New York City as it
is in rural West Virginia. The standard poverty threshold has not been revised
to reflect the reality that U.S. households now spend only about 13% of their
income on food rather than one third. The cost of health care, housing, and
energy have risen and new costs such as child are have become commonplace but are not included when calculating the federal poverty line. The federal
poverty line is only updated annually using the Consumer Price Index (CPI-U).
Figure 13.3 The 2014 Poverty Guidelines for the 48
Contiguous States and the District of Columbia 5
In 2013, 14.5% of all Americans lived in poverty (up from 12.1. % in 2002). Initially the poverty rate tended to decline year by year. The 1959 rate of 22.4%
dropped to 11.1% in 1973. During this period of more active government involvement, the economy grew and poverty fell. However in the mid-1970s, the poverty
rate started to rise and reached an all-time high of 15.2% in 1983. The rate hovered between 13% and 15% during the 1980s and 1990s. It dropped to 11.3 %
in 2000, following the economic boom of the late 1990s. It rose to 15% in 2012.
The drop to 14.5% in 2013 was not statistically significant.6
C. The Racial Divide
Poverty Rates have always varied by race. In 2013, 27.2% of African Americans,
23% of people of Hispanic origin, 10.5% of Asians and 9.6% of White (non-Hispanic) were poor. This pattern of poverty rates for persons of color that are twice
as high a poverty rates for White persons has not changed much over the years.7
Figure 13.4 Poverty rate, by Race, Ethnicity, Nativity and
Citizenship Status 8
Median Income. In a 2013, the median income for all households was $51.939.
The median income also varies by race. In 2013 Asians earned $67,065, White
(non-Hispanic) $58,270, and African Americans $34,595.9 The Role of Family
Structure.
Fig. 13.5 Poverty rates of types of various families, 1959-201310
D. The Gender Divide
Poverty Rates. The poverty rate for adult women has been substantially higher than
for adult men in every year since the government began measuring poverty. In 2013,
more than one in seven women, nearly18 million lived in poverty. The poverty rate
among women was 14.5% in 2013, the same as 2012 and the highest rate in two
decades. In contrast 11.0 adult men lived in poverty in 2013 also unchanged from
2012. More than half (58.8%) of poor children lived in female-headed families in
2013 — a statistically larger share than in 2012 (56.1%).
Poverty rates were particularly high for women who head families (39.6 percent),
African American women (25.3 %), Hispanic women (23.1 %), and women 65 and
older living alone (19.0 %). Poverty declined for Hispanic women between 2012
and 2013; among these groups, they were the only one to see a statistically significant change.
More than two-thirds (68.1 %) of elderly poor are women. The poverty rate for
women 65 and older increased to 11.6 % in 2013 from 11.0 in 2012, a statistically
significant change.
E. Alternative Poverty Measures
It is widely acknowledged that the federal poverty measure in the U.S. seriously understates how much it takes to support a family. Therefore researchers have devel-
oped alternative measures that more realistically quantify basic living costs in specific
localities.
1. Supplemental Poverty Measure (SPM). The National Academy of Sciences
introduced its new Supplemental Poverty Measure (SPM) in 2011. The SPM
will not replace the Federal Poverty Line. Instead it will provide a new and
improved measure of how many people are living in poverty in the U.S. The
SPM was piloted for local use by the New York City Center for Economic Opportunity (CEO).11
The SPM estimates the cost of food, clothing, shelter and utilities, then adds a
further 20% for other expenses. This threshold is adjusted for the cost of living
in different regions and for whether a family owns or rents its home. To assess
a household’s ability to pay for basic expenses, the SPM counts cash income
as well as food stamps, tax credits and other government support, minus tax
payments, work expenses and out-ofpocket medical costs.12 Using the SPM
the overall poverty rate was higher than the official poverty rates, but for some
groups it was lower (See Figure 13.6).
Fig 13.6. Poverty rates, Official and Under the Supplemental Poverty Measure, by Age Group 2012 13
Measures Matter. The following chart shows the poverty rate by age Group, official
and under the Supplemental and two relative measure of poverty. While children
under age 18 have the highest poverty rate for all measures, this rate is considerable higher when poverty is counted based on income that is 60% of the median
income. This relative poverty measure reveals the highest poverty rates for all age
groups.
Figure 13.7 Poverty Rates by Age Group Using Official,
Supplemental and Relative Measure of Poverty, 2011. 14
2. The Self Sufficiency Standard 2010 (SSS) was developed by Diana Pierce,
Director of The Center for Women’s Welfare at the University of Washington
School of Social Work in Seattle. The Center has calculated the SSS for many
cities, including New York City. The Standard includes the cost of six basic
needs common to working families: housing, child care, food, health care,
transportation and miscellaneous items as well as the cost of taxes and the
impact of the tax credit. The SSS is not a poverty line. It does not say how
many people are poor. Rather it provides a detailed measure of what it takes
to make ends meet in each of the five boroughs of New York City. That is, it
reflects the standard of living. The NYC Self Sufficiency Standard was published
by The Women’s Center for Education and Career Advancement (WCECA).15
F. How Does The Government Address Poverty?
Poverty brings harm to individuals and families but also to communities and to the
wider society. Governments can create policies to mediate the impact of market
forces on economic well-being. The 1935 Social Security Act enacted in the middle
of the Great Depression is one such policy.
The programs began by the 1935 Social Security Act and the anti-poverty initiatives
that followed (i.e. War on Poverty, the Great Society, among others), established the
major programs that continue to this day proving a safety net to ameliorate extreme
poverty. These include universal social insurance programs that are administered
by the federal government and selective public assistanceprograms administered
through federal-state partnerships. Groups of people not covered by either of these
two federally funded programs are dependent on state and local programs for assistance.
The key difference between the two types of programs is that the universal programs
provide benefits to individuals and families regardless of income, whereas the selective measures are designed solely for the poor and have an income threshold.
Some universal and selective programs are also referred to as categorical programs
because they serve particular groups of people, such as single mothers, veterans,
the working poor, elderly individuals, or persons with disabilities.
1. Universal Programs reflect the idea that living and working in an industrial
society entails risks over which individuals have little or no control. In the U.S.,
most of the universal programs follow the social insurance model. Like private
life, health, automobile, and homeowner’s insurance, social insurance programs reflect the advantages of pooled protection against known risks such as
the loss of income due to unemployment, old age, illness, disability, and death
of a breadwinner. The nation’s three main social insurance programs provide
retirement pensions (Social Security), unemployment compensation (Unemployment Insurance) and medical care reimbursement (Medicare).
2. Selective Programs reflect the ideal that scarce public resources should be
targeted to those most in need and offered on a temporary or emergency basis.
Therefore, applicants for the programs must establish need, typically by proving that their income and assets fall below a specified amount. Many income
maintenance and social service programs fall into the selective group. The nation’s means-tested income support programs include direct cash assistance
programs (Temporary Aid to Needy Families, Supplemental Security Income,
and general assistance) and non-cash income support programs (Supplemental Nutrition Assistance Program, public housing, and Medicaid). Selective
programs tend to be funded by some combination of federal and state income
tax revenues (paid by individuals and corporations). Policy makers often refer
to these selective programs as the nation’s safety net because, at least in theory, they together catch people before they plunge totally into poverty.
Harold L. Wilensky and Charles H. Lebeaux (1965)16 capture this difference by
distinguishing between institutional and residual approaches to social welfare.
The institutional approach assumes that everyone living or working in a modern
economy at some time will face the risk of losing income due to age, illness,
disability, joblessness, change in family composition or the need for health,
education, employment or other social services. This approach concludes societies need to develop permanent social welfare programs, by institutionalizing
a social welfare system that helps people address these needs. The residual
approach assumes that the except for emergencies, individuals, families and
communities can and should address these basic needs on their own. Therefore societies only need a temporary and minimal social welfare system.
G. Impact of Government Spending On Poverty
Spending: The federal government devotes roughly one-sixth of its spending to10
major means-tested programs and tax credits, which provide cash payments or
assistance in obtaining health care, food, housing, or education to people with relatively low income or few assets. Those programs and credits consist of the following:
In 2012, federal spending on those programs and tax credits totaled $588 billion.
These programs include: Supplemental Security Income (SSI), Temporary Assistance for Needy Families (TANF), The Supplemental Nutrition Assistance Program
(SNAP, formerly called the Food Stamp program), Child nutrition programs, Housing
assistance programs and Pell grants. They also include Medicaid, the low-income
subsidy (LIS) for Part D of Medicare (the part of Medicare that provides prescription
drug benefits), the refundable portion of the earned income tax credit (EITC), the
refundable portion of the child tax credit (CTC).17 Larger federal benefit programs,
such as Social Security and Medicare, are not considered means-tested programs
because they are not limited to people with specific amounts of income or assets. If
the share of dollars spent on low income households was includes the dollar figure
would be higher.
Total federal spending on the 10 programs listed above (adjusted to exclude the
effects of inflation) rose more than tenfold—or by an average of about 6% a year—in
the four decades since 1972 (when only half of the programs existed). As a share
of the economy, federal spending on those programs grew from 1% to almost 4%
of gross domestic product (GDP) over that period.
Figure 13.8 Low Income Program Spending as a % of all federal
Spending on Low Income Programs, Other than Health, 2013.18
However, low-income programs are not driving the nation’s long-term fiscal problems. In fact, virtually all of the recent growth in spending for low-income programs
is due to two factors: (1) the economic downturn and (2) rising costs throughout the
U.S. health care system, which affect costs for private-sector care as much as for
Medicaid and other government health care programs.
The Center on Budget and Policy Priorities’ recent examination of public benefits
found that this spending is more effective in reducing poverty than previously known.
When both the broad social insurance benefits (i.e. Social Security, Unemployment
Insurance) and the means-tested programs targeted to lowincome people (i.e.
TANF, SNAP, etc.) are considered, the safety net lifts tens ofmillions of people out of
poverty. The programs help make work pay (by supplementing wages) and enable
millions of American to get health care who otherwise could not afford it.
Fig. 13.9 Budget Cutting Madness
19
In 2011 (the latest year for which comprehensive data is available), public programs
lifted 40 million people of poverty including 9 million children (based on SPM) .Social Security lifted the largest number of people overall out of poverty. In 2011, SNAP
also kept 4.7 million Americans, including 2.1 million children, out of poverty. The
EITC kept 6.1 million Americans, including 3.1 million children, out of poverty. Unemployment Insurance kept 3.5 million Americans above the poverty line including
nearly 1 million children. Medicaid and CHIP provided health insurance to 66 million
Americans during 2010 — roughly 32 million children, 18 million parents, 10 million
people with disabilities, and 6 million seniors.
Fig. 13.10, Impact of Government Spending on Poverty
20
H. Policy Debate: What Causes Poverty?
Poverty is an exceptionally complicated social phenomenon and people have strong
and differing opinions as to why people become poor.21
1. Flawed individuals. Based on the notion that anything is possible in America, this
view concludes that the poor cause their own poverty because they have the wrong
values and attitudes and/or make the wrong choices. The poor have little concern
for the future, prefer to “live for the moment,” and willfully engage in self-defeating
behavior such as refusing to work, having children outside marriage, taking drugs,
committing crimes, engaging in unsafe sex and so on. Still others characterize the
poor as fatalists who have resigned themselves to a culture of poverty in which
nothing can be done to change their economic outcomes. In this culture of poverty — which is passed from one generation to the next — the poor feel negative,
inferior, passive, hopeless, and powerless. The social welfare system causes the
poverty rate to rise because cash assistance programs create disincentives to work
and marry. Also, the social welfare system acts as an incentive for undocumented
immigrants to enter the U.S. and use public services such as health care and public
housing. In the final analysis, the poor are personally responsible for their own poverty or do too little to help themselves.
2. Flawed Institutions. A second view argues that while people may have made
bad choices, run into bad luck or lack personal responsibility; they do not act in a
vacuum. Rather the real trouble has to do with the workings of societal institutions
that fail to provide equal access to needed resources and opportunities required to
succeed in the market. This includes:
• labor markets that do not provide enough jobs for all those willing and able
to work and/or that contain too many jobs that pay poorly,
• under-funded, overcrowded public schools that fail to educate children,
• the lack of universal health care coverage,
• the shortage of affordable housing, as well as
• weak enforcement of the nation’s laws that bar discrimination on the basis of
age, race, gender, sexual orientation, and disability. The bottom line is that many
middle and upper-class people make bad choices and behave irresponsibly,
suggesting that poverty has less individualized causes, and that control over or
access to resources shapes life chances. Most poor people are able and willing
to work hard and they do so when given the chance. People are poor due to
circumstances beyond their control and socio-environmental factors are part of
the equation.
3. Flawed System. A third view argues that structural features built into the economy
produce poverty. In this view: 1) Poverty is inevitable in a market economy where
profits depend on high rates of unemployment and weak unions that help to press
wages down. In contrast, high wages, low unemployment, and strong unions protect
people from falling into poverty and are also the basic requirements for successful
family functioning and well-being. 2) The forces of institutionalized racism, sexism,
and heterosexism reflect power relationships that allow White people to dominate
people of color, men to dominate women, and straight people to dominate gay people. Excluded from the societal mainstream, members of subordinated groups are
denied the right or opportunity to a share of social output that is sufficient to lift them
out of poverty. 3) In contrast to the view that a culture of poverty is passed on from
one generation to the next, the flawed system explanation argues that poverty is a
product of accumulated disadvantage. Parents who are blocked from accumulating
wealth and the benefits of opportunity have fewer building blocks to pass on to their
children than more affluent parents.
For Discussion:
Ask the following Gallup Poll question to two people you know: “People who have
income below a certain level can be considered poor. That level is called a poverty
line. What amount of annual income would you use as a poverty line for a family of
four (husband, wife, two children) living in this community?”
1. How does their answer compare to the official (U.S. government) 2010 poverty line of $22,050 for a family of four and $18,310 (family of three) and to the
Self-Sufficiency Standard.
2. Discuss the difference between this estimate, the poverty line, and the Self-Sufficiency Standard with the people to whom you talked.
3. Indicate their reaction as well as your own to any discrepancies that emerged.
4. Ask the same people why they think the poor are poor? What do they think
causes poverty? What do you think causes poverty?
NOTES
UNIT THIRTEEN
1. Economic Policy Institute The State of Working America. “Share of Poor in
”Deep Poverty.” Chart. State of Working America 2014. Retrieved from: http://
www.stateofworkingamerica.org/chart/swa-poverty-figure-7g-share-poor-deeppoverty/
2. Simpson Carole (2008) Race to the Bottom. Retrieved from http://www.toonpool.com/cartoons/Race%20to%20the%20B_47261
3. U.S.Census (n.d.) Poverty. Measures. Retrieved from: https://www.census.gov
hhes/www/poverty/methods/definitions.html
4. Fremstad, Shawn (2013, March 14) . Relative Poverty Measures Can Help
Paint a More Accurate picture of Poverty in 21st Century America, Center for
Economic and Policy Research Retrieved from: http://www.cepr.net/index.php/
blogs/cepr-blog relativepoverty-measures-can-help-paint-a-more-accurate-picture-of-poverty-in-21st-centuryamerica
5. U S. Census, 2014 Poverty Guidelines Retrieved from http://aspe.hhs.gov/poverty/14poverty.cfm
6. U.S. Census Bureau (n.d.) Poverty. People, Historical Poverty Tables. Table 2.
Poverty Status of People by Family Relationship, Race, and Hispanic Origin: 1959
to 2013. Retrieved from http://www.census.gov/hhes/www/poverty/data/historical/people.html
7. U.S. Census Bureau (n.d.) Poverty. People, Historical Poverty Tables. Table 2.
Poverty Status of People by Family Relationship, Race, and Hispanic Origin: 1959
to 2013. Retrieved from http://www.census.gov/hhes/www/poverty/data/historical/people.html
8. Economic Policy Institute (2014) Poverty Rate by Race, Ethnicity, Nativity and
Citizenship Status, 1959-2013. State of Working America Retrieved from: http://
www.stateofworkingamerica.org/chart/swa-poverty-figure-7c-poverty-rateraceethnicity/
9. U S. Census (2014, Sept 16). Income and Poverty in the United States: 2013.
(P60-249) Table 1: Selected Characteristics: 2012 and 2013. Retrieved from :
http://www.census.gov/content/dam/Census/library/publications/2014/demo/
p60-249.pdf
10. Economic Policy Institute (2014) Poverty Rates of Various Family Types, 19592013. State of Working America. Retrieved from: http://www.stateofworkingamerica.org/chart/swa-poverty-figure-7e-poverty-rates-types/
11. U.S. Census (n.d.) Poverty- Experimental Measures Retrieved from:
http://www.census.gov/hhes/povmeas/about/index.html
12. Short, Kathleen (2014, October) : Supplemental Poverty Measure, US Census,
Current Population Reports ( P60-251) Retrieved from: http://www.census.gov/
content/dam/Census/library/publications/2014/demo/p60-251.pdf
13. Economic Policy Institute (2014), Poverty rates, official and under the Supplemental Poverty Measure by age group, 2012, Chart. State of Working America. Retrieved from http://www.stateofworkingamerica.org/chart/swa-poverty-figure-7h-poverty-rates-official/
14. Fremstad, Shawn (2013, March 14) . Relative Poverty Measures Can Help
Paint a More Accurate picture of Poverty in 21st Century America, Center for
Economic and Policy Research Retrieved from: http://www.cepr.net/index.php/
blogs/cepr-blog/relativepoverty-measures-can-help-paint-a-more-accurate-picture-of-poverty-in-21st-centuryamerica
15. Diana M .Pierce, (2010, June) The Self Sufficiency Standard for New York
City, 2010, Prepared for the Women’s Center for Education and Career Advancement, NYC Retrieved from: http://www.wceca.org/publications/NYC_SSS_2010_
WEB_062310_v2.pdf
16. Wilensky, H., & Lebeaux, C.H. (1965) Industrial society and social welfare. New
York: The Free Press
17. Congressional Budget Office, (2013. February 11). Growth in Means-Tested
Programs and Tax Credits for Low-Income Households. Retrieved from: https://
www.cbo.gov/sites/default/files/43934-Means-TestedPrograms_one-column.pdf
18. Greenstein, Robert,& Kogan Richard, (2013, October). Low-Income Programs
Are Not Driving the Nation’s Long-Term Fiscal Problem. Center on Budget and
Policy Priorites. Retrieved From: http://www.cbpp.org/cms/?fa=view&id=3772
19. Simpson, Carole (2010) Budget Cutting Madness. Retrieved from http://www.
toonpool.com/cartoons/Budget%20Cutting%20Madness_80910
20. Sherman, Arloc, Trisi Danilo, Parrot, Sharon (2013, July 20) Various Supports
for Low Income Families Reduce Poverty and Have Long-Term Positive Effects
On Families and Children. Center on Budget and Policy Priorities. Retrieved from:
http://www.cbpp.org/cms/?fa=view&id=3997
21. Blau, Joel & Mimi Abramovitz (2010) The Dynamics of Social Welfare Policy.
New York: Oxford University Press, Ch 5. Ideological Perspectives and Conflicts,
esp. pp.139-143.
Inequality
Goal: Inequality is a persistent challenge to the dignity and opportunities of many
human services clients. In this unit we discuss the definition, measurement and
policy debates that surround inequality.
A. Defining Inequality. Equality is based on the belief that human beings have
equal worth and value, and therefore are equally worthy of respect, recognition,
love, care, solidarity, power, working, learning, and an adequate standard of living.
Inequality refers to disparities in the distribution of these rights, resources and privileges. If poverty reveals what most disadvantaged members of society need, inequality reveals where we stand in relation to one another.
B. Measuring Inequality.
Most measures of inequality only focus on economic
inequality, typically the distribution of income and
wealth. The three standard measures are: the Gini
Index; the “share of national income held by each
fifth of the population; and the share of national
income going to wages and profits.
1. Gini Index. One measure of economic inequality is
the Gini Index (or coefficient of inequality) where 0%
represents perfect equality or proportional distribution
of income and 100% represents perfect inequality.
Perfect inequality exists in a zero-sum world where
one person has all the income and the rest have
none. The following table shows that the level of
Table 14.1 U.S. Gini Index 1929-2008 (Selected Years)3
income inequality in the U.S. differs from a proportionate distribution (where everyone would have the same income). The rising numbers in the table indicate that
inequality has increased steadily since 1947.
2. Shares of the National Income. The distribution of income is also reported as a
share of the total national income. The U.S. Census Bureau calculates the proportion
or percentage of the national income held by each fifth of the population (quintiles).
Figure 14.2 indicates that in 2013, the
highest fifth of the population received
almost 52% of the national income compared to 3.2 %for the lowest fifth. The
gap between these two groups on the
ends of the income distribution spectrum
has steadily increased since 1967.
Fig. 14.2 Share of Aggregate Income 1967-2013
4
Table 14.3 shows that the real income of
the top 5 % of American families rose by
almost 75 % between 1979 and 2013,
while the real income of the bottom 20
% fell by 12.1% % during the same time.
This sharply contrasts with the 1947-79
period, when all income groups saw similar income gains, with the lowest income
group actually seeing the largest gains.
Fig. 14.3 Change in Real Family Income 1979-2012
5
Figure 14.4 presents the share pre-tax
income received by the top 1% from
1913 to 2012. We see that the share
held by the top 1% peaked in 1928
just before the stock market crash and
the onset of the Great Depression. This
share fell sharply during the Depression
(1928-1941) and remained lower during
the post war years characterized by economic growth (1945-1975). It reached a
record low of 8.9 % in 1976. From the
late 1970s to 2007 the share of the top
1 % jumped, reaching 22.46% in 2012,
nearly three times their 1976 share.
Fig. 14.4 Share of Total Pre-Tax Income for Top 1%: 1913-2012
6
Figure 14. 5 shows that average hourly
pay rose steadily during the three decades following World War II. But since
the early 1970s, wages stagnated. Between 1947 and 1972, the average
hourly wage, adjusted for inflation, rose
76 %. Since 1972, by contrast, the average hourly wage has barely risen at all.
Table 14.5 Real Average Hourly Wages, 1947-2001
7
3. Distribution of Wages and Profits. Another measure of inequality is the share of
national income going towards wages/salaries versus profits. Figure 14.5 show
downward trend in wages and all compensation (including costs of fringe benefits,
Social Security payments, etc.). The wage share has been coming down faster than
the overall compensation share, initially, because more workers were getting more
of their pay in nonwage benefits, though more recently, employers have been shedding health and pension benefits. The share of the population with employer-provided health coverage has declined over the last decade from about 73% to 63%.8
TABLE 14.6 Shares of National Income Going to Wages, 1955- 2012.
According to the economist Robert Samuelson In 1947, labor’s share of nonfarm
business income was 65 %; in 2000, it was 63 %. But by 2013, it had dropped to
57 %, effectively shifting $750 billion annually from labor to capital.9
C. The Equality Gap
A certain amount of inequality in the income distribution of a country is to be expected since resources are never evenly distributed. However, poverty and inequality together can reflect an environment with limited opportunities. With minimal
government intervention, an unequal distribution of income tends to persist and to
perpetuate itself.
1. Racial Inequality Gap.
Income inequality tells only part of the story of economic gap between white persons
and persons of color in the United States. The wealth gap is much larger. For every
dollar in assets owned by whites in the United States, blacks own less than a nickel,
a racial divide that is wider than South Africa’s at any point during the apartheid era.
The $4,955 median net worth for black households is about 4.55% of the median
household wealth or $110,729 for whites in in 2010.10
Table 14.7 Wealth Inequality by Race and Ethnicity Has Grown Since 2007
Since the 2009 Recession, economy recovery has restored at least some of the
lost wealth for many but not all households. However, wealth inequality has widened
along racial lines. In 2013, the median wealth of white households was 13 times
greater than the median wealth of black households up from eight times the wealth
in 2010. Likewise, the wealth of white households is now more than 10 times the
wealth of Hispanic households, compared with nine times the wealth in 2010.11
This racial wealth gap, much larger than then income gap has not improved over the
past 30 years.12 The current Black/white wealth gap has reached a level not seen
since 1989 when whites had 17 times the wealth of Black households. The current
white-to-Hispanic wealth ratio has reached a level not seen since 2001. (Asians
and other racial groups are not separately identified in the public-use versions the
survey that reports this data).
But these values may be anomalies driven by fluctuations in the wealth of the poorest --those with net worth less than $500. Given this, the 2013 racial and ethnic
wealth gaps are at or about their highest levels observed in the 30 years for which
we have data.13
2. Gender Inequality Gap. On the surface, the financial gender gap appears to be
closing. Women make up 47% of the labor force earn 78 cents for every dollar men
earn, and those under 25 working full-time earn 95% of what their male peers earn.
However, gender is rarely taken into account in analyses of the distribution of wealth,
and evidence on women’s ownership of wealth is surprisingly scarce. The gender
wealth gap is harder to measure because wealth is typically a household-level character. However, thanks to the work of Mariko Chang,14 we now know that although
women’s earnings amount to 78% of men’s, women own only 36% as much wealth.
And this gender wealth disparity has been on the rise since 1998.
Some women fare far worse than others. Never-married women own only 6% of
the wealth of never-married men. Single Black and Hispanic women own a penny
of wealth for every dollar owned by men of their race, and they own a fraction of
a penny compared to white men. Given the interdependence racial and gender inequalities, one cannot close if the other remains open.
3. Where Does the U.S. Stand? Richard Wilkinson and Kate Pickets, both British
epidemiologists, looked at more than 20 rich nations and found that the U.S. has
the highest income inequality gap of all the nations in the sample. In addition to all
the 50 American states, the largest inequality gap exists in New York State.15 A UN
report concluded that New York City ranks as one of the most unequal cities in the
world.16
D. Impact of Inequality.
Human service organizations work to secure the well-being of clients, so it is important to understand how inequality contributes to the problems experienced by the
individuals, families and communities.
Problem 1: Social Problems.
It is commonly understood that unequal income contributes to inequalities in health
outcomes, education, and so on. However, Wilkinson and Pickets conclude that
income inequality worsens the average level of health, education, safety, trust, and
other good things. They found that the nations with the largest inequality gap also
had higher rates of health and social problems such as lower life expectancy; higher infant mortality; higher rates of mental illness, crime, obesity, teen births, school
drops out, murder, and less upward mobility.16 They also found that the rate of
inequality predicted the presence of these problems even more than did the poverty
rate.
Fig. 14.8 Inequality and Health and Social Problems?
17
Figure 14.8 Shows that inequality also erodes the sense of trust in one’s community.
18
Fig. 14.9 Levels of Trust Higher in More Equal Societies
Problem 2: Inequality is Associated with Major Economic Problems.
As inequality rises, consumer demand often falls as many households lack the
means to make the purchases required for a healthy family and a healthy economy.
This, in turn, slows economic growth. Inequality can also contribute to economic
crises. If households go into debt to make ends meet, it can lead to a credit bubble
that can pop and spark a severe economic downturn, if not a deeper crisis. The
2008 crisis is a perfect example of this problem.
Mounting inequality also leaves the affluent with more money than they can spend.
To put this money to work, they may look for higher yield, often risky, investments
that can have the effect of making the economy more fragile and crisis prone. 19
Unfortunately, the historic record links a wide inequality gap with major economic
crises. The share of the national income held by the top 1% peaked at 23 % in
1928. The following year, the stock market crashed, leading to the Great Depression.
The share of the top 1% peaked at 23 % again in 2007 and the U.S. stock market
crashed in 2008, leading to the Great Recession.20
Problem 3: Inequality and Democracy.
Inequality in the distribution of income and wealth typically results in an unequal distribution of social and political power. Even in countries with elections, civil liberties,
and the right to organize, extreme economic inequality has the potential to undermine the functioning of democratic institutions. The concentration of wealth has been
associated with a corrupt political process and control by entrenched interests, a
press that’s less free, greater public helplessness, lower voter turnout, weaker social
movements, reduced civic participation, and a frayed social fabric.21
In the absence of effective public pressure, elected officials are less likely to create
measures to protect the most vulnerable, or to counter the interest of major donors.
Without effective democracy, inequality can widen, posing a threat to the desired
economic growth. The more that wealth becomes concentrated in the hands of a
few, the more likely it is that a society will develop negative economic incentives that
disadvantage almost everyone.22
In brief, inequality can intensify many of the issues human services clients face every
day. It has the capacity to undercut the economic and general well-being of clients
and practitioners. For these reasons, human services professionals who serve individuals, groups and communities are often strong advocates for social justice and
social change.
The Disappearance of Inequality
23
E. Policy Debate: Should the U.S. Strive for Equality of Opportunity or Equality of
Outcome?
Equality of Opportunity. This policy approach calls for the creation of conditions to
ensure that everyone has the same chance to compete – on equal terms – for success in the market economy. This requires government policies designed to eliminate barriers such as lack of income and/or the discrimination that deprives certain
individuals or groups equal access to education, income, employment, health care,
and other basic resources. Most U.S. social welfare policy follows the equal opportunity approach.
Equality of outcome, equality of condition, or equality of results. This policy approach
refers to the creation of conditions that will reduce or eliminate inequalities in material conditions between individuals or households in a society. This usually means
equalizing income or wealth to a certain degree by granting a greater amount of
income and/or total wealth to poorer individuals or households and less to wealthy
individuals or households. The progressive income tax, a robust social welfare system, and systems that distribute income downwards fit this model. Very few, if any,
U.S. public policies adhere to this approach. The two efforts to create an equality of
outcome – the use of busing to mediate the impact of segregated schools and affirmative action to mediate labor market discrimination – sparked huge controversies,
public backlash and political polarization.
NOTES
UNIT FOURTEEN
1. Baker, John, Kathleen Lynch, Sara Cantillon & Judy Walsh (2004) Equality: From
Theory to Action, London: Palgrave, Ch. 2. Dimensions of Equality: A Framework for
Thery and Action: htt(n.d(ps://www.census.gov/hhes/www/income/data/histo
1967-20134,rical/inequality
2. Household Income for States: 2008 and 2009. American Community Survey Briefs.
Retrieved from http://www.census.gov/prod/2010pubs/acsbr09-2.pdf
3. U.S. Census (n.d.). Income. Historical Income Tables: Income Inequality. Table
H-4 Gini Indexes for Households, by Race and Hispanic Origin of Householder.
Retrieved from https://www.census.gov/hhes/www/income/data/historical/inequality
4. U.S. Census Bureau, Income, Historical Tables, Inequality. Table H-2: Share of
Aggregate Income. Received by Each Fifth and Top 5 Percent of Households (All
Races) Retrieved from
http://www.census.gov/hhes/www/income/data/historical/inequality/index.html
5. Income Inequality: Household and Family Income. Changes in Real Family income
Retrieved from: http://inequality.org/income-inequality/
6. Income Inequality: Household and Family Income. Changes in Total Pre Tax income. Retrieved from: http://inequality.org/income-inequality/
7. Income Inequality: Household and Family Income. Real Hourly Wages, 19472011. Retrieved from: http://inequality.org/income-inequality
8. Bernstein, Jared (2013, Sept 9) Why Labor’s Share of Income Is Falling. Economix
Retrieved from:
http://economix.blogs.nytimes.com/2013/09/09/why-labors-share-ofincome-isfalling/
9. Samuelson, Robert 2013, Sept 8) Robert Samuelson: Capitalists Wait, While While
Labor Loses Out. The Washington Post. Retrieved from:
h t t p : / / w w w . w a s h i n g t o n p o s t . c o m / o p i n i o n s / r o b e r t - s a m u e l s o n - c a p i t a lists-wait-while-laborloses-out/2013/09/08/649dcc1a-1711-11e3-be6e-dc6ae8a5b3a8_story.html
10. Shapiro, Thomas, Meschede, Tatjana, Osora, Sam ( 2013, February).The Roots
of the Widening Racial Wealth Gap: Explaining the Black-White Economic Divide, Institute on Assets and Policy. Retrieved from: http://iasp.brandeis.edu/pdfs/Author/
shapiro-thomasm/racialwealthgapbrief.pdf
11. Insight: Center for Community Economic Development (2009, March) Laying the
Foundation for National Prosperity the Imperative of Closing the Racial Wealth Gap
Executive Summary. Retrieved from
http://www.insightcced.org/uploads/CRWG/LayingTheFoundationForNationalProsperityMeizhuLui0309.pdf
12. Wheary, Jennifer.Thomas M. Shapiro & Tamara Draut (2007) By a Thread: The
New Experience of America’s Middle Class. Demos: A Network for Ideas & Action
and The Institute on Assets and Social Policy at Brandeis University. Retrieved From:
http://www.demos.org/pubs/BaT112807.pdf
13. Insight: Center for Community Economic Development (2009, March) Laying the
Foundation for National Prosperity The Imperative of Closing the Racial Wealth Gap
Executive Summary. Retrieved from
http://www.insightcced.org/uploads/CRWG/LayingTheFoundationForNationalProsperityMeizhuLui0309.pdf
14. Perlberg, Alison (2011, April 4) Short Changed: Women and the Wealth Gap. Gender News. Retrieved from: http://gender.stanford.edu/news/2011/shortchangedwomen-andwealth-gap
15. Wilkinson, Richard & and Kate Pickett (2009) The Spirit Level Why Greater
Equality Makes Societies Stronger. New York: Bloomsbury Press.
16. UN Habitat (2008) 2008/2009 State of the Worlds Cities. Retrieved from
http://www.unhabitat.org/downloads/docs/presskitsowc2008/PR%201.pdf
17. Wilkinson, Richard & and Kate Pickett (2009) The Spirit Level Why Greater
Equality Makes Societies Stronger. New York: Bloomsbury Press.
18. Wilkinson, Richard & and Kate Pickett (2009) The Spirit Level Why Greater
Equality Makes Societies Stronger. Why More Inequality. Retrieved from:
http://www.equalitytrust.org.uk/why
19. Wilkinson, Richard & and Kate Pickett (2009) The Spirit Level Why Greater Equality Makes Societies Stronger. The Evidence: Trust in Community Life Table Retrieved
from: http://www.equalitytrust.org.uk/why/evidence/trust-and-community-life
20. Pizzattei, Sam (2010, July 5) Why Bad Things Happen to Unequal People. Working Group on Extreme Inequality. The Burdens of Inequality. Retrieved from: http://
extremeinequality.org/?p=234
21. Pizzattei, Sam (2010, July 5) Why Bad Things Happen to Unequal People. Working Group on Extreme Inequality. The Burdens of Inequality. Retrieved from
http://extremeinequality.org/?p=234d
22. McEwan, Arthur (1999, September/October) Dear Dr. Dollar. Dollars & Sense.
Retrieved from http://www.dollarsandsense.org/archives/1999/0999drdollar.html
23. Rodrigo (2008, October 17) Disappearance of Inequality. Retrieved from http://
www.toonpool.com/cartoons/Disappearance%20of%20Poverty_26546
Economic Growth
Part of the Problem or
Part of the Solution?
Goal: This unit examines how economic growth is measured, managed and
stimulated. Public policy debates on the role of spending, stimulus packages,
and/or tax cuts go beyond the classroom and the newsroom to help determine
the economic health of our nation as a whole.
E
conomic growth refers to the increase in the quantity of the goods and services
produced and compared to a prior period. As a nation develops new resources, goods and/or services, economic growth also increases. Growth can also occur by making existing resources (material and labor) more productive, primarily by
improvements in education and technology.1 An example is the large growth in the
U.S. economy following the introduction of the automobile in the early 20th century.
Productivity was positively impacted by the more recent technological development
of the Internet.
A. Measuring Economic Growth
The economic growth rate is measured by the changes in the Gross Domestic Product (GDP), the government’s official measure of the economy’s production. The GDP
refers to the total dollar or market value of all the goods and services produced within
a country during a given period of time, usually a year.2 The dollar figure compresses the immensity of a national economic output into a single data point of incredible
density.
The GDP, the most comprehensive overall measure of economic output, is the base
line that is regularly referred to by politicians, the media, as well as economists. It
provides insight into the general direction and magnitude of growth for the overall
economy. The long-term economic growth rate in the U.S. fluctuates from 2% to 5%;
it is approximately the same as most highly industrialized countries. Fast-growing
economies such as China and India have seen rates as high as 10% although they
typically cannot sustain this high rate of growth over the long-term.
In the U.S., the National Income and Product Accounts maintained by the Bureau
of Economic Analysis tabulates and reports the GDP. When comparing one country’s economic growth to another it is best to use the GDP or GNP (Gross National
Product) per capita as these numbers take into account differences in the size of a
nation’s population.3
B. Two Different GDP Rates
GDP can be misleading if one does not know how much of the difference from year
to year stems from changes in the prices of goods and services and how much represents actual (real) growth.
For example, if price increases (i.e. inflation) are not factored into the measure, the
GDP will appear higher than it actually is. If the GDP figure shot up 8% but inflation
had been 4%, the real GDP would have only increased 4%.
Therefore, the GDP is measured in two ways: 1) based on current dollars (does not
take inflation into account) and 2) based on constant dollars (takes inflation into account).
1. Current (or Nominal) GDP 4 refers to the GDP in today’s prices. It can increase
due to greater output or to higher prices or decrease if output falters or prices
drop. The current or nominal GDP includes all of the changes in market prices
that have occurred during the current year due to inflation or deflation. Because
inflation and deflation can dilute the usefulness of the nominal GDP as a gauge
for economic production, the real GDP often serves as the headline figure for a
country’s growth.
2. Constant (or Real) GDP 5 This measure of economic growth takes the effects of
inflation and deflation into account. That is, it controls these price changes. The
real GDP reflects the value of all goods and services produced in a given year,
expressed in relation to prices in a specified base year.
It takes nominal GDP and expresses the number as reflected on the prices of a
base year. Any differences in the dollar figure reflects the real difference in the
amount of goods that a specified amount of money/income could buy in each
year. For example, if the 2014 nominal GDP stood at $200 trillion due to increased
prices from 2000 (the base year) to 2014, the real GDP might actually amount to
$170 trillion.
The real GDP typically falls below nominal GDP. Figure 15.1 shows the growth of
the GDP between 2003 and 2008 in both nominal and real terms.
Fig. 15.1 United States GDP Growth Rate: 1947-2014
6
C. How Does The Government Manage Economic Growth?
The government promotes economic growth by creating the conditions that support
a healthy and well-functioning market. This includes protecting national defense and
private property; providing a legal framework for commerce; establishing regulatory standards for business, labor, consumers and the environment; providing credit;
building and maintaining a physical infrastructure; and, if necessary, temporarily acting
as an employer or investor of last resort.
The government uses its fiscal and monetary tools to achieve these ends. As noted earlier, when the economy is sagging, the government can stimulate economic
growth by increasing spending, lowering taxes and/or increasing the money supply.
The New Deal programs, spending for World War II, and the 2008 stimulus package
are examples of the government increasing spending to jump-start the economy. At
other times the government has cut spending, raised taxes and/or contracted the
money supply to slow down or cool off the economy.
D. Policy Debate: How Best to Stimulate Economic Growth
Many public policy debates during and after the Great Recession centered on what the
government should do to stimulate economic growth: increase government spending
or reduce taxes. The following are recent tax related debates:
After considerable argument, President Obama’s final stimulus package included less
direct spending than favored by most of the Democrats and fewer spending and tax
cuts than favored by the Republicans.
To extend the Bush tax cuts or not. The effort to answer this question for the tax cuts
that expired in December 2010 set off a heated debate. Most Republicans wanted to
extend the tax cuts to all taxpayers. Most Democrats agreed except that they preferred
to let the tax cuts for households earning more than $250,000 expire. Still others argued that tax cuts for everyone should be ended.7
A heated debate surrounded the report of President Obama’s National Commission on
Fiscal Responsibility and Reform that called for spending cuts and tax cuts for the affluent among other provisions.
1. The proponents of these and other tax cuts say that they are the best way to
stimulate the economy. They argue that reducing taxes for businesses increases
the funds available for new investment, providing both the means and incentive
for firms to expand production, which in turn creates jobs and economic growth.
Lowering taxes for households leaves more take-home pay available for consumer
spending. When consumers buy more, business expands production to meet the
increased demand, leading to the creation of more jobs.8
2. The opponents of tax cuts as an economic stimulus argue that tax reductions
may not spark growth because workers may save added dollars for a future rainy
day rather than spending the money immediately. In addition, they may use the
added income to pay down debt.
These steps would not have a large stimulus impact although tax cuts to low-income groups may have a somewhat greater impact as these households are
forced to spend income more quickly. The opponents also argue that past cuts
have failed to generate robust economic growth.
Despite major tax cuts in 2001, 2002, 2003, 2004, and 2006, the economy’s
performance during the 2001 to 2007 expansion was among the weakest since
World War II.9 In addition, the period in which Congress increased taxes (1993 and
2001) showed more growth than in the two surrounding periods when taxes were
cut (1981-1993 and 2001-2007).10
3. The opponents of extending the tax cuts to household earning more than $250,000
a year argue that these households: do not need the added dollars; will not spend
them right away, and will reap greater benefits from the tax cuts than do lower
income households.
They present data showing that from 1979 to 2007, the after-tax income of the
top 1% grew by 281% compared to 95% for the top fifth, 25% for the middle fifth,
and 16% for the lowest group.11
4. The advocates of direct government spending see this as the best way to stimulate the economy. They argue that a direct infusion of cash quickly translates
into increased spending throughout the economy and creates jobs. They point to
temporary increases in Unemployment Insurance or food stamps spurring growth
because the recipients spend these dollars immediately to meet their daily needs.
Advocates of direct government spending also support public investment in the nation’s
infrastructure (i.e. transportation, school buildings, and information networks), which can
operate as a stimulus in the short-term for spending and new jobs.12
Many economists say that government spending is a good stimulus because it yields
a greater “fiscal multiplier” than tax cuts. That is, the initial amount of spending (usually
by the government) increases consumption spending in ways that lead to increases in
national income in amounts greater than the initial amount expended.
For example, every dollar spent on unemployment benefits creates an estimated $1.60
in economic growth; every dollar spent on food stamps creates an estimate $1.74 in
economic growth but every dollar spent on the Bush tax cuts only created 35 cents in
economic growth. The increased spending, in turn, increases the demand for goods
and services and then jobs.13
The debate over the relative merits of taxes versus government spending as an economic stimulus also grounded in major ideological differences regarding the proper role
of government in the economy.
Advocates of tax cuts support the cuts because reduced revenues weaken the role of
the government. In this view, less government intervention frees competitive markets to
allocate resources in ways that are better than government-driven policies.
Free markets, in turn, allow consumers to pursue their self-interest, which according to
market theory achieves the greatest good for the greatest number. That is, the pursuit
of self-interest advances the public interest. They also charge that the 2008 economic
meltdown stems from interference by the government.14
Advocates of government spending believe that the economy is not self-regulating and
that if left to its own devices it creates problems such as cyclical recessions, structural
unemployment, inflation and inequality that it alone cannot solve.
They add that the individual pursuit of self-interest is problematic because special interests often collude with each other or with the government in ways that benefit special
interests and that harm the welfare of the wider public.
They charge that the pursuit of self-interest promotes competition rather than cooperation and that others dismiss the idea of social purposes or collective goals. In this
theory, the crisis of 2008 stemmed not from government intervention but from the failure
of the government to place checks on destructive market practices.
E. Economic Growth: The Debates
A healthy economy depends on an adequate level of economic growth. But this does
not address whether or not the outcomes are socially valuable or cause good or harm.
As a result economists, politicians and policy makers fiercely debate: 1) the advantages
and disadvantages of economic growth14 and 2) whether or not measures of economic
growth capture well-being.
Advantages. The advantages of economic growth include increased production capacity, higher business profits, improved individual living standards, more personal choice,
greater employment, less poverty, greater tax revenues, and enhanced international
power.
Disadvantages. Economic growth is not risk free. The disadvantages include: the dangers of inflation (i.e. rising prices that push some people out of the market); the negative
impact on the environment (i.e. noise, air and water pollution, road congestion, creation
of waste, overpopulation; destruction of rain forests, the over-exploitation of fish stocks
and loss of natural habitat); and its contribution to inequality.
Does the GDP Capture Well-Being? The conventional feeling about the GDP is that
the more an economy grows, the better a country and its citizens are doing. However, a variety of world leaders and a number of international groups have challenged
this assumption in recent years, including the Organization of Economic Cooperation
and Development (OECD). They suggest that the GDP tells us a good deal about
the economy but it leaves out many important economic activities that are related to
well-being such as negative environmental impact of production and the value of
non-wage work often done in the home.16
The median income kept pace with the GDP from 1947 to the mid-1970s, the period
with an expanding welfare state. However, Figure 15.2 reveals that since the mid1970s (when public policy moved to less government intervention), the GDP rose
much faster than the median family income. Nobel Laureate and economist Joseph
Stiglitz recently observed that “one reason that most people may perceive themselves
as being worse-off even though average GDP is increasing, is because they are indeed worse-off.”17
Figure 15.2 GDP per Capita & Median Family Income
18
Stiglitz added that we would have had a much clearer picture of our progress over
the past decade if we had focused on median income rather than GDP per capita.
The latter, he says, is distorted by top earners and corporate profits. Real median
household income has actually dipped since 2000. But GDP per capita has gone up.
Since 1975, the growth of the economy has not trickled down to average households
The disconnect between increased GDP per capita and increased median income
since 1975 suggests that the benefits of the economy’s growth did not trickle down to
the average household. A measure known as the Human Development Index (H.D.I.)
has challenged the direct connection of GDP to well-being. Seeking to capture
well-being as well as growth, The H.D.I. adopted by the UN incorporates a nation’s
GDP, educational attainment based on adult literacy and school-enrollment data, and
health status based on life-expectancy statistics.20
For Discussion:
Whether tax cuts or government spending are used to stimulate the economy,
Congress has to make choices about how to spend. One of the major big trade-off
questions is how much should be spent on war and how much should be spent
on domestic concerns. Some ask, “Where does one get their biggest bang for the
buck?”
How do you think the government should allocate its money? What would be your
funding priorities? What trade-offs do you think the government should make?
What spending choices are best for human services clients and programs?
What National Priorities Project is a helpful resource. Go the web site of the National
Priorities Project (see below) to explore the trade-offs between different spending
choices.
https://www.nationalpriorities.org/interactive-data/database/
https://www.nationalpriorities.org/interactive-data/database/
Follow the steps of this interactive program to see how much money the federal
government has spent in New York State on a program of interest to you. Be sure to
adjust the number for inflation at the end.
Try it for New York State and then one other state. For example, the state in which you
were born if it was not New York or another state that you are interested in learning
more about.
NOTES
UNIT FIFTEEN
1. Economic Glossary (n.d.) Definition of Source of Economic Growth. Retrieved
from http://glossary.econguru.com/economic-term/economic+growth,+sources
2. Economic Glossary (n.d.) Economic Definition of Gross Domestic Product. Defined. Retrieved from http://glossary.econguru.com/economic-term/gross+domestic+product
3. Economic Glossary(n.d.) Economic Definition of Gross Domestic Product. Defined.
Retrieved from http://glossary.econguru.com/economic-term/gross+domestic+product
4. Moffatt, Mike. (n.d.) What’s the Difference Between Nominal and Real? Retrieved
from: http://economics.about.com/cs/macrohelp/a/nominal_vs_real.htm
5. Moffatt, Mike. (n.d.) What’s the Difference Between Nominal and Real? Retrieved
from http://economics.about.com/cs/macrohelp/a/nominal_vs_real.htm
6. Trading Economics (n.d.) US DP Growth Rate 1947-2014. Chart
Retrieved from: http://www.tradingeconomics.com/united-states/gdp-growth
7. Carreira, Robert, (2010, Sept. 22) Tax cuts versus government spending. Center
for Economic Research at Cochise College. Douglas Dispatch, Arizona. Retrieved
from http://www.douglasdispatch.com/articles/2010/10/09/news/business/doc4c99300d29119763286409.txt
8. Carreira, Robert, (2010, Sept. 22) Tax cuts versus government spending. Center
for Economic Research at Cochise College. Douglas Dispatch, Arizona. Retrieved
from http://www.douglasdispatch.com/articles/2010/10/09/news/business/doc4c99300d29119763286409.txt
9. Aron-Dine, Aviva, Richard Kogan, & Chad Stone (2008) How Robust Was the
2001- 2007 Economic Expansion? Center on Budget and Policy Priorities. Retrieved from http://www.cbpp.org/cms/?fa=view&id=575
10. Ettlinger, Michael, & John Irons (2008). Take a walk on the supply side: Tax
cuts onprofits, savings, and the wealth fail to spur economic growth. Center of
American Progress and the Economic Policy Institute. Retrieved from http://www.
americanprogress.org/issues/2008/09/pdf/supply_side.pdf
11. Sherman, Arloc & Chad Stone (2010, June 25) Income Gaps Between Very
Rich and Everyone Else More Than Tripled In Last Three Decades, New Data Show.
Center on Budget and Policy Priorities. Retrieved from: http://www.cbpp.org/cms/
index.cfm?fa=view&id=3220
12. Irons, John (2008, April 29) Investing in U.S. infrastructure, Promoting economic
stimulus and growth. EPI Briefing Paper, #217. Retrieved from
http://www.sharedprosperity.org/bp217.html
13. Shaw, Hannah & Chad Stone (2010, December 22) Zandi Analyses Show
“Democratic” Measures in Tax Cut-UI Deal Boost Economy, “Republican” Measures Add to Deficit Risks. Retrieved from http://www.cbpp.org/cms/index.cfm?fa=view&id=3349; Rosenbaum, Dottie (2010, July 23) The Food Stamp Program Is
Effective and Efficient. Center on Budget and Policy Priorities, Retrieved from: http://
www.cbpp.org/cms/index.cfm?fa=view&id=3239
14. LeRoy, Stephen, (2010, May 3) Is the “Invisible Hand” Still Relevant? Federal
Reserve Bank of California (FRBSF) Economic Letter. Retrieved from: http://www.
frbsf.org/publications/economics/letter/2010/el2010-14.html
15. Nørgård, Jørgen Stig; John Peet; Kristin Vala Ragnarsdóttir (2010, February 26)
The History of The Limits to Growth. Retrieved from http://www.thesolutionsjournal.
com/node/569
16. Gertner, Jon (2010, May 13) The Rise and Fall of the G.D.P. The New York
Times. Retrieved from http://www.nytimes.com/2010/05/16/magazine/16GDP-t.
html
17. Calabrese, Anthony (2010, July 6) Measuring Economic Well-being: GDP vs.
Median Income. The State of the USA. Retrieved from: http://www.stateoftheusa.
org/content/measuring-economic-well-being.php
18. Econproph (n.d.) The Mean and the Median Tell Two Different Stories Retrieved
from: http://econproph.com/2011/09/08/the-mean-and-the-median-tell-twodifferent-stories/
19. Gertner, Jon (2010, May 13) The Rise and Fall of the G.D.P. The New York
Times Magazine, May 13. Retrieved from: http://www.nytimes.com/2010/05/16/
magazine/16GDP-t.html
20. Gertner, Jon (2010, May 13) The Rise and Fall of the G.D.P. The New York
Times Magazine, May 13. Retrieved from http://www.nytimes.com/2010/05/16/
magazine/16GDP-t.html
Public Benefits
Goal: This unit provides an overview of public benefits. The Community Service
Society Benefits Plus Manual is included as a resource tool. Benefits Plus is a
comprehensive guide to federal, NYS and NYC government safety net programs
and services.
T
he federal government funds numerous programs to benefit the American people in the areas of public safety, health, education, public welfare and public works. Programs include those administered through the U.S. Department of Housing and Urban
Development (HUD), U.S. Department of Health and Human Services, (HHS), the Department of Labor (DOL), and the Social Security Administration (SSA). Allocations from
the federal government are often provided to State and City governments or non-profit
institutions to directly administer programs for eligible recipients.
A. Government Assistance. One source of financial assets for individuals and families is
the set of benefits enacted into law, beginning in 1935, to help people in need. One
form of benefits are cash assistance including Social Security, Social Security Disability
(SSD), and Unemployment Insurance, as well as those provided to the poor, Temporary Aid to Needy Families (TANF) and Supplemental Security Income (SSI). SSI is also
provided to disabled persons who don’t qualify for SSD.
Another form of assistance is in-kind benefits. These take the form of subsidies or
benefits that can only be used for specific goods/services thought to fulfill basic needs.
These benefits include Medicare, Medicaid, Food Stamps--recently renamed Supplemental Nutrition Assistance Program (SNAP), Section 8 Housing Subsidies, Women,
Infants and Children (WIC), etc.
https://a858-ihss.nyc.gov/ihss1/en_US/IHSS_homePage.do
www.nationalassembly.org/fspc/BridgingTheGap/EarnedBenefits.aspx
http://www.nationalassembly.org/fspc/documents/
bridgingthegap/ny/ny_benefitstatesheet.pdf
In economics and finance, an asset is defined as property for personal use or as an
investment which has monetary value. Examples are stocks, bonds, homes, and cash
(Gorman and Forge, 2010). Public benefits may contribute to asset building by providing people with resources to meet basic needs over the long-term (Social Security Retirement Pension) or for shorter periods of time (TANF). The benefit is provided
directly to the individual who applies and qualifies.
These resources are intended to provide funds that enable people to make ends meet.
Many of these programs are means-tested and income restrictions may be imposed
on earnings or accumulating savings. Such restrictions can make it difficult for program beneficiaries to further accumulate assets. Public benefits available to the very
poor tend to be rather restrictive, and may be accompanied by time limits or work requirements. For some families, public benefits serve as a bridge that provides enough
baseline security to plan for greater financial or educational mobility.
One well-known example of a safety net program is the food stamp program, now
known as Supplemental Nutrition Assistance Program (SNAP). As of August 2011,
nearly 45 million low-income people--1 in 7 Americans are eligible for SNAP. More
than half of food stamp recipients are children and nearly 10% are over 60 years of
age.
According to the U.S. Department of Agriculture, which is responsible for administering
the Food Stamp Program, the nationwide average monthly benefit in 2010 was $133.79,
approximately $4.50 a day or $1.50 a meal.
abcnews.go.com/US/hunger_at_home/hunger-homerecession-14-million-americans-food-stamps/sto ry?id=14373319
Case Example One: Asset Building and Temporary Aid to Needy Families
Ms. K. is a 60-year-old African American, who is raising her three school-age grandchildren. Her adult daughter, the biological mother, is in the military. The father is not
involved in supporting the children. As an older adult living on Social Security, Ms. K. is
on a very tight income. She recently applied for cash assistance under the Temporary
Aid to Needy Families Program (TANF) but was not approved. The family is having
trouble making ends meet. As the worker assigned to the children’s elementary school,
you have been approached by Ms. K., who relays that she is having difficulty.
For Discussion:
1. Identify the public benefits available to this family. What strategies would you use
to help Ms. K. access these benefits? To what extent do you think that access to
public assistance will stabilize this family financially?
2. Are there any other asset-building strategies that would be useful for the K.
family?
3. Consider what obstacles that you may encounter in assisting this family to obtain
benefits.
Case Example Two: Asset Building and Social Security
Jessica N. is a 60-year-old Jewish American woman who has been a restaurant
manager since she was in her early twenties. Jessica has worked hard all her life but
has still found time to devote to her passion--jewelry design. She achieved some
success this summer selling her pieces at street fairs. Jessica would like to retire from
the restaurant so that she could focus on jewelry-making and selling her work. Jessica
believes it’s now or never, but she is hesitant to walk away from the only employer she
has ever known, particularly at her age and in the current economy. In 2007, Jessica
earned $53,000. Jessica can retire early (at age 62) but her Social Security check will
be smaller than if she waits to retire until she is age 65. Jessica participates in events at
a local Jewish community center where she shared her concerns with the social worker
on staff.
For Discussion:
1. Utilize the web-based calculator on the Social Security site to estimate Jessica’s
Social Security benefit if she retires at age 62. Estimate her benefit if she retires at
age 65.
2. What other assets can you identify that might benefit Jessica?
3. Consider the relative strengths and weaknesses of these options.
Case Example Three: Public Benefits and Asset Restrictions
John L. is a 45-year-old Asian American man who was widowed two years ago and is
raising his two young boys on his own. The L. family rents a three-bedroom apartment
for $1,400 a month. They receive Section 8, a federally-funded means-tested housing
subsidy. Section 8 currently pays for the remainder of the rent after the L’s pay 30% of
their income. John works part-time in a local auto parts store and earns $15 per hour.
He was informed by his employer that he could increase his hours at work. While an
increase in hours worked will raise John’s income, this will impact the formula used to
calculate the value of his housing voucher and consequently, his share of the rent will
rise proportionally.
For Discussion:
1. What asset clashes are illustrated in this case example?
2. What asset restriction rules affect this family?
3. Do you think that the Section 8 guidelines discourage the development of other
assets?
www.fpanet.org/ToolsResources/ArticlesBooksChecklists/
Checklists/Education/HowtoPayforCollege/
The cost of a college education has sky-rocketed. Many college students finance a
college education through student loans but costs add up very quickly. Most programs
require that the loan repayments begin six months post-graduation making it difficult
for new graduates to pay off loan debt. The entry-level job market for new college
graduates doesn’t pay well in many professions and finding employment in the current
economy is competitive and difficult. With this in mind, eligible students can explore
programs that fund educational grants. These needs-based grants provided through
the federal government differ from other types of loans in that they do not need to be
repaid.
The first step to determine eligibility is to fill out a FAFSA (Free Application for Federal
Student Aid) form. The most common needs-based grants are Pell Grants and Federal
Supplemental Educational Opportunity Grants (FSEOG).
Pell and FSEOG Grants. The Federal Pell Grant Program is a needs-based program
that promotes access to post-secondary education for low-income individuals. Pell
grants can be used at approximately 5,400 participating postsecondary institutions.
Grant amounts vary and depend on a number of factors: the cost of tuition; the student’s enrollment status (full-time or part-time); whether the student attends for a full
academic year or less; and the amount of the family’s Expected Family Contribution
(EFC). Students who quality for Pell grants who have the lowest EFC will be considered
for FSEOG grants as well. These grants are needs based and generally range from
$100-$4000.
Students without a college degree who attend proprietary (profit-making) schools are
also eligible to apply for Pell grants. However, policy makers and others have expressed concern about the enrollment practices, training, and placement practices in
many proprietary schools. Often students in enroll in for-profit programs, not understanding that grants used for this purpose may be not available for undergraduate education. Commercial schools market aggressively to low-income students and should
be carefully researched.
Student Loan Forgiveness. Some graduates can qualify for loan forgiveness, which
means that the federal government will cancel all or part of an educational loan. Loan
forgiveness programs have very specific guidelines and target certain helping professions such as nursing and social work, among others. Qualifying for loan forgiveness
usually requires a commitment to work in an underserved community or do volunteer
work. There are also needs-based loan forgiveness programs.
“Student Loan Forgiveness Programs” from Your Money New York.
Benefits Plus (formerly the Public Benefits Resource Center Manual) is a comprehensive tool for social workers, social service professionals and advocates who want
to assist clients in accessing federal, New York State and New York City government
benefit programs and services. We are deeply grateful that Community Service Society of New York (CSS) has generously agreed to share this invaluable resource with
us. It is often called the “bible” of public benefit programs.
Benefits Plus describes more than 70 benefit programs and services available to the
low-income population. Chapters provide practical information on Advocacy, Cash
Benefits, Children’s Programs, Employment & Training, Food Programs, Health Programs, Housing Programs & Services, Immigrants’ Rights & Services, and Tax Credits. Included is the history of the benefit or program, a program description, and eligibility requirements.
NOTES
UNIT SIXTEEN
1. Federal Pell Grant Program of the U.S. Department of Education. Retrieved from:
http://www2.ed.gov/programs/fpg/index.html
Tax Credits
Goal: This unit defines tax credits exploring their value and offering examples of
some of the most commonly used tax credits. Tax credits are an important part
of the asset-building tool kit.
www.fpanet.org/toolsresources/articlesbookschecklists/
checklists/taxes/yearendtaxplanningchecklist/
T
ax deductions and tax credits are two kinds of benefits paid to workers/taxpay
ers through the tax system. A tax deduction is an amount of money that reduces
the amount of your income that’s subject to taxation. A tax credit is an amount of
money that reduces your tax bill. Here’s an example that illustrates a tax deduction
and a tax credit:
Maria makes $50,000 per year and her income is subject to a tax rate of 20%. The
quantity 20% in decimal form is .20. So to figure out what she’d owe in taxes, we’d
multiply .20 x $50,000 and end up with Maria owing $10,000 in taxes. Now let’s
assume that Maria qualifies for a $1000 deduction. This would mean that her income
is reduced by $1000 leaving her with an income subject to taxation of $49,000.
Twenty percent (.20) of $49.000 is $9800 and $49,000 - $9800 = $39,200. So
the deduction has reduced Maria’s tax bill by $200.00 and left her with an after tax
income of a little over $39,000.
Now assume that Maria doesn’t qualify for a deduction of $1000 but is eligible for a
tax credit of $1000. As we saw before, her tax bill would be $10,000. But because
she has a tax credit of $1000, this amount should be subtracted from the amount
she owes in taxes. So instead of owing the federal government $10,000, she’d owe
it only $9000. That is because under the tax credit, Maria’s tax bill would be $800
less than it would be under the deduction, Maria’s after tax income would increase
by $800 from $39,200 to $40,000. So Maria would get more out of the tax credit
than she would out of the tax deduction.
Financially, a tax credit is generally more valuable than an equivalent tax deduction.
As demonstrated in the case example, a tax credit will always result in a higher net
income than a tax deduction will.
While most tax credits have traditionally been available to, and benefited, middle
class or wealthy families, the government has created tax credits targeting low-income households. Asset building as a strategy to help low-income people save
money has grown in popularity over the past couple of decades.
Tax credit programs are available to supplement low-income wage earners but
some are also available to public benefit recipients. Tax credits reflect family size and
are phased out above a specified amount of income. Tax credits are paid in a lump
sum similar to the ordinary tax rebate following tax season. The annual nature of
the refund means these funds are not available for immediate daily living expenses.
However, the lump sum payment can be used for savings, educational costs, to pay
off debt, or for costly purchases such a refrigerator, television, computer, or car.
Historically, most asset-building policies were based upon regressive taxes. A regressive tax is one where the average tax rate decreases as taxable income increases. A progressive tax is one where the average tax rate increases as taxable
income increases. For example, the tax on clothing or other goods means low-income people pay a greater proportion of their income for the same items as people
with greater economic resources. Income taxes are an example of a progressive tax,
whereby people with higher incomes pay more.
The Assets & Opportunity Scorecard reviews asset building policies and strategies
state by state. See how your state compares to other states regarding policies to
assist low-income people access greater opportunities and increase their assets.
scorecard.cfed.org/
www.nyc.gov/html/ofe/html/poverty/taxcredit.shtml
Practitioners can refer clients to the Volunteer Income Tax Assistance Program
(VITA). VITA is coordinated by state Departments of Revenue in partnership with
community organizations and offers free tax advice and assistance to low-income
individuals who might otherwise pay for commercial tax assistance. VITA volunteers
are located in convenient community sites such as public libraries, schools, neighborhood centers, and shopping malls. The New York City Office of Consumer Affairs
“Tax Credit Campaign” has information about tax credit campaigns and VITA tax
preparation sites.
A. Earned Income Tax Credit (EITC)1 is perhaps the most well-known tax credit. The
EITC provides tax-refunds for individuals and families with low-incomes. There is a
complicated qualification process. A tax specialist should be consulted. EITC refunds
can be directly deposited into checking accounts.
www.irs.gov/newsroom/article/0,,id=106189,00.html
B. Child Care Tax Credit. The Child Care Tax Credit is a federal, state, and New York
City tax credit that assists families with the cost of child care. Eligibility requirements
for the New York City Child Care Tax Credit (CCTC) include children living in the
household who are up to (but not including) age four. Parents must earn less than
$30,000 to claim the NYC CCTC. In 2011, families could receive a maximum of
$1,733. Federal and State Child Care refunds are also available for income eligible
families.
C. Energy Tax Credit. Fuel-efficient vehicles and energy-efficient appliances and
products provide many benefits such as better gas mileage, resulting in lower gasoline costs, fewer emissions, and lower energy bills, increased indoor comfort, and
reduced air pollution. The government provides this incentive to encourage people
to conserve energy.
www.energysavers.gov/financial/70010.html
D. Home Energy Efficiency Improvement Tax Credit. Consumers who purchase and
install specific products, such as energy-efficient windows, insulation, doors, roofs,
and heating and cooling equipment in existing homes can receive a tax credit for
30% of the cost, up to $1,500, for improvements “placed in service” from 2009.
There is no dollar limit on the credit for most types of property. If your credit is more
than the tax you owe, you can carry forward the unused portion of this credit to next
year’s tax return. The credit will be available through 2016.
E. Residential Renewable Energy Tax Credit. Consumers who install solar energy
systems (including solar water heating and solar electric systems), small wind systems, geothermal heat pumps, and residential fuel cell and micro-turbine systems
can receive a 30 percent tax credit for systems placed in service before December
31, 2016; the previous tax credit cap no longer applies.
F. Alternative Motor Vehicle Credit. Individuals and businesses who buy a new qualifying vehicle that was purchased or placed in service on before January 1, 2006
may qualify for this credit. Hybrid vehicles have drive trains powered by both an
internal combustion engine and a rechargeable battery. Many currently available hybrid vehicles may qualify for the tax credit.
G. Education Tax Credits. Education tax credits help to offset the costs of education.
The American Opportunity (Hope Credit extended) and the Lifetime Learning Credit
are education credits that a person can subtract in full from the federal income tax,
not just deduct from taxable income.
1. The American Opportunity Credit. This credit helps parents and students to pay
part of the cost of the first four years of college. Eligible taxpayers may qualify for the
maximum annual credit of $2,500 per student. Generally, 40 percent of the credit is
refundable, which means that families might receive up to $1,000, even if they do
not owe taxes.
2. The Hope Credit. This credit helps students and parents to pay part of the cost of
the first two years of college.
3. The Lifetime Learning Credit. This credit helps to pay for undergraduate, graduate
and professional degree courses – including courses to improve job skills – regardless of the number of years in the program.
4. Tuition and Fees Deduction. Students and their parents may be able to deduct
qualified college tuition and related expenses of up to $4,000. This deduction is an
adjustment to income, which means the deduction will reduce the amount of income
subject to tax. The Tuition and Fees Deduction may be beneficial to families that do
not qualify for the American Opportunity, Hope or Lifetime Learning credits.
One cannot claim the American Opportunity and the Hope and Lifetime Learning
Credits for the same student in the same year. Nor can individuals claim any of the
tax credits if they also claim tuition and fees deduction for the same student in the
same year. To qualify for an education credit, a person must pay post-secondary
tuition and certain related expenses for themselves, their spouse or their dependent.
The credit may be claimed by the parent or the student, but not by both. Students
who are claimed as a dependent cannot claim the credit.
Case Example One: Earned Income Tax Credit
Mr. and Ms. W. a young Arab-American couple, have two small children. They both
work part-time and are completing college in the evenings. Their combined annual
income is $47,000, and they have trouble making ends meet for their family. Their
budget is very tight and they have no wiggle room for “extras.” In a weekly session
with their social worker, they shared their financial concerns.
For Discussion:
1. Find out if this family would be eligible for the Earned Income Tax Credit.
2. What role (see Part A, Unit Two) is the worker using in focusing on Earned
Income Tax Credit in her work with the W. family?
3. Do you think the social worker is “crossing the line” and becoming a financial
counselor by informing the W. family about the EITC?
NOTES
UNIT SEVENTEEN
1. Tax Credit Campaign: Earned Income Tax Credit. The NYC Department of Consumer Affairs Office of Financial Empowerment. Retrieved from http://www.nyc.gov/html/
ofe/html/poverty/eitc.shtml