Paul Ryan and the War on Worklessness

by Reihan Salam

Rep. Paul Ryan has been drawing attention to rising poverty levels in the United States, per a new report from Tom Curry of NBC News:

“Next year marks the fiftieth anniversary of the War on Poverty. We’ve spent approximately $15 trillion and the question we ought to be asking ourselves is, ‘where are we?’ With a 15 percent poverty rate today — the highest in a generation — and with 46 million people in poverty, I would argue it’s not working very well.”

He said, “We shouldn’t be measuring our success in the war on poverty by inputs, by how much money we throw at programs, by how many people we enroll in programs; we ought to be measuring success in the War on Poverty by measuring how many people we get out of poverty…..”

This is exactly the right issue for Ryan to be working on. So far, Ryan has been reluctant to lay out a full-fledged anti-poverty agenda. Rather, he has been on an informal listening tour that, one hopes, will culminate in something more fleshed out. One thing that seems clear is that worklessness will have to be the focus of this agenda. Consider a new report from Isabel Sawhill and Quentin Karpilow that explores a variety of different anti-poverty strategies:

[W]e find that low-income households are disproportionately female, minority, and young. Most of these households have minor children at home, and many are headed by single parents. Their low incomes are partly due to their low wages, but even more to a lack of employment. Sixty percent of bottom-third household heads don’t work at all or work less than full time, while only 40 percent work full time (40 hours a week for 50 weeks a year or 2000 hours in total). In the upper two-thirds, 86 percent of household heads work full time. Another reason for the greater success of the upper two-thirds is that they are more likely to have two earners in the family. In short, and not surprisingly, a scarcity of second earners combined with a shortage of work hours and low pay rates keep the bottom third out of the middle class. However, the most important reason by far for the low incomes of these households is a lack of work. They are less likely to be employed and work fewer hours when they do hold a job. We refer to this as the “work gap.”

We then do a series of simulations to determine what might help the bottom third improve their prospects and find that some of the work gap is related to the high unemployment rates that existed in 2011. Were the economy to return to full employment, the earnings of these low-income households would increase by 15 percent and the relative earnings gap between them and the upper two-thirds would narrow considerably. This 15 percent increase reflects the impact of a stronger economy on both the availability of work, including full-time work, and higher pay. While a full-employment economy will help this group of low-income households substantially, it will not move them very far up the ladder. Larger improvements in their economic status will require that they work more (even when jobs are available), obtain more education, and/or live in families with more working-age adults and/or fewer dependent children. [Emphasis added]

Getting macroeconomic policy right is clearly essential to an effective anti-poverty agenda. (This is an area where it’s not clear that Ryan is in the right place.) Sawhill and Karpilow also emphasize the importance of improving work incentives:

Even when the economy is at full employment, a work gap remains. Some individuals have trouble finding work even when jobs are plentiful because of factors such as a lack of education or skills, health problems, or a prison record. In addition, some of the work gap appears to be voluntary. Based on their own reports, many of these low-income individuals have retired early (before age 55), have returned to school as adults, or are keeping house, even though, according to the data, these activities clearly leave them and their households with a low income (less than $26,000). They may be supplementing their low incomes by drawing down their savings or by getting help from friends or relatives. They are also much more dependent than more affluent households on government assistance. Overall, one quarter of their income comes from non-earned sources, especially government programs such as unemployment insurance, welfare, veteran’s benefits, disability payments to children in the household, and educational assistance. It is possible that the availability of such non-earned income has encouraged or permitted them to work less than they otherwise would. However, we believe based on other research that such effects are relatively modest. [Emphasis added]

That some number of poor people will choose not to work isn’t intrinsically problematic — unless, that is, this decision burdens those who do choose to work, as they are taxed in part to finance anti-poverty spending.

We also find that a higher minimum wage would have very small effects on this group. When we ask what would happen to the annual earnings of low-income households if all of the workers in these families earned at least $9 an hour, as recently proposed by President Obama, we find that the higher minimum wage would increase their annual earnings from $11,047 to $11,828, or by 7 percent, although by more than this if a higher minimum wage encouraged employers to adjust their pay practices for employees earning more than the new minimum and not just for those currently earning less than $9 an hour. It is worth noting that 36 percent of low-income households contained at least one person earning less than the minimum wage. Other policies, such as a generous EITC and child care assistance may be even more helpful because they more strongly encourage (or facilitate) work in addition to supplementing income (or reducing household expenses). [Emphasis added]

Broadly speaking, the landscape described by Sawhill and Karpilow seems to point in the direction of increasing wage subsidies and work supports rather than unconditional cash transfers. It will be interesting to see how coverage expansion shapes the future low-end labor market. 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.