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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§ion=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§ion=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