#128 Mar/Apr 2003

Work, Wages and Income Still Matter

Most of us would agree that we live in a society where the deck is stacked against those at the bottom of the income scale. The poor are often excluded […]

Most of us would agree that we live in a society where the deck is stacked against those at the bottom of the income scale. The poor are often excluded from playing a meaningful role in either the politics or policies that shape their lives. They often toil in low-end jobs without union representation and without a fair, much less a “living,” wage. A Congress that fails to represent their interests often dictates their economic opportunities. Many Congress members from both parties receive funds from those whose interests are opposed to that of the low-end working class – witness recent minimum wage or welfare debates.

Until the balance of political/economic power is more fairly shared, we must maintain a role for programs that redistribute income and provide a safety net for those whose lack of power leaves them vulnerable to a market system in which they have little control. Advocates of asset-based approaches need to explicitly fend off the notion that we can privatize or save or “incentivize” our way out of poverty. We still need a better income-based safety net, higher minimum wages, lower unemployment, fairer tax policies, more refundable tax credits, more unions, better protections against discrimination and so on.

Lessons from the Boom

When the economy was booming, welfare reform and a tight labor market provided a unique opportunity to advocate for policies that improve the quality of jobs in the low-wage labor market, raise after-tax earnings and subsidize work-related supports. Although the end of the economic expansion is taking a toll on low-wage workers, there are still important lessons to be culled from that era.

The passage of welfare reform in 1996 underscored that employment is the solution to poverty for most able-bodied poor persons. In President Clinton’s original formulation, those who made good faith efforts to find jobs but failed to do so under the time limits were guaranteed some type of employment, usually “workfare,” where they could work off their welfare grant through community service. While plans like this exist in some localities, the thrust has clearly been towards private sector employment.

As is now well known, the poor responded to both the policy and the tight labor market by working more than ever before. In fact, the employment rates of low-income single mothers reached historical highs. Those leaving the welfare rolls saw their earnings increase along with others in the low-wage sector, but not by much. Studies typically find former welfare recipients in fairly rocky low-wage careers, with intermittent periods of work, hourly wages in the $7 per hour range and little wage mobility.

This is where I think the current policy battle is, and should be, drawn. The goal of welfare reform was not to transform the welfare poor into the working poor, but to significantly lift the living standards of former recipients. That hasn’t happened.

Making Work Pay

If Congress wants the poor to move from welfare to work, it has a responsibility to ensure that those who are responding to the call can at least leave poverty and earn enough to meet their basic consumption needs. The family budget literature suggests that working families need incomes that are closer to twice the poverty level. A more generous Earned Income Tax Credit and a higher minimum wage are two work-related policies that can help achieve that end. Most importantly, given the pervasive weakness in the current labor market, immediate actions need to be taken, probably in the form of a fiscal stimulus, to generate faster economic growth and lower unemployment.

This is, admittedly, a narrow and time-sensitive view of the current debate. Those promoting asset development take the longer view, which is consonant with the whole theme of saving for the future. But it is still important to seek the significant political opening to push for policies which smooth the path from welfare to work by subsidizing work supports such as child care and transportation, and by raising workers’ pretax wages and post-tax income.

Welfare reform also allows states to establish IDA programs with TANF funds and discount IDA assets when determining TANF eligibility. There are pilot programs in more than 30 states, most of which target the working poor. (See Shelterforce #127.) But these programs are smaller and reach many fewer people than work-based programs such as the EITC, the minimum wage, subsidized work supports, not to mention full employment – which surpasses all the above in its ability to generate rising living standards for low-income working families.

Altering Power Dynamics

Asset building cannot quickly put out the flame of poverty and economic despair. That task lies with income and consumption related policies.

Once the flame is extinguished, assets can help ensure it doesn’t reignite. A low-skilled person with savings can become more highly skilled. An impoverished family with unstable housing can move to a better home in a better neighborhood, something that appears to be associated with better outcomes in the longer term.

These laudable uses of assets raise the magnitude problem: given their income constraints, even with generous matches, how likely is it that the poor can save enough for these large investments? Many IDA advocates are quite candid about these limitations and stress that the income constraints facing the poor and the cap on most IDAs make it unlikely that a poor family will get very far towards meeting the costs of college education, home ownership, or starting a business. IDA policies will have to become much more generous if they are going to be truly “transformative.” Yet, even if they reach such magnitudes, there are some important political/economic connections that asset-based policies fail to make.

First, wage-based policies unify the working class in a way that asset-based policies do not. In fact, it is worth noting that many right-wing advocates support IDAs because they think such policies will connect low-income persons with more of an “ownership” consciousness and less working class solidarity.

On the other hand, one of the potential outcomes of welfare reform is the unification of the poor and the broader working class in a way that previously did not exist. To the extent that poor people with sporadic experience in the labor market move towards full-time, full-year work, their political consciousness may converge with people higher up the wage scale (but still below the median). They will potentially become more familiar with and concerned about the variety of economic trends that have negatively affected the working class, from wage inequality to macro-policy. They are also becoming targets for unions focusing on organizing the low-wage labor market, such as the Service Employees International Union.

Asset-based policies for the poor obviously deserve our attention, focus and support. We should continue to evaluate them and expand the ones that seem most effective. For IDAs to realize their stated goals, they will need to be more generous. We need also to alter the power dynamics of the current economy so that the fruits of economic growth – when it returns – are more fairly divided.


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