The problem with this extreme concentration of poverty and joblessness is that children who grow up in these environments find it very difficult to acquire the norms and habits essential to flourishing in mainstream American life, and as a result they find themselves stuck in place. According to Scott Winship of the Manhattan Institute, 70 percent of children raised in low-income households never make it into the middle class as adults, and one of the reasons is that many children raised in low-income households are extremely isolated from the world of work.
The factor in all this that liberals have been emphasizing the most in recent months has been stagnation in the minimum wage. It is true that a recent Congressional Budget Office analysis found that a substantial increase in the minimum wage would lift 900,000 low-wage workers out of poverty. But a minimum-wage hike would be very poorly targeted if our goal were to help poor families. Specifically, the CBO found that only 19 percent of the income gains that would follow an increase in the federal minimum wage to $10.10 would go to households whose earnings fall below the poverty line. And the CBO also projects that the U.S. work force would become smaller by an amount equal to 500,000 workers as employers found large numbers of Americans unemployable at a higher wage floor. That is, a minimum-wage hike risks making the worklessness problem worse rather than better.
So what can we do about the worklessness crisis?
First, Republicans need to back macroeconomic policies that will bring us closer to full employment. David Beckworth and Ramesh Ponnuru have argued in these pages that if the Federal Reserve keeps the growth of nominal spending and nominal income on a steady path, we will see a far more robust labor-market recovery. Achieving full employment is a crucial first step, as periods of full employment are also periods during which inflation-adjusted incomes rise for all households, including those at the bottom of the ladder.
Tax reform, and particularly cuts in taxes on business investment, has great potential as a spur to job creation. In 2006, the economists Kevin A. Hassett and Aparna Mathur found that higher corporate taxes lead to lower wages. The higher wages that would result from lower corporate taxes would go a long way toward making work more attractive. And, on a smaller scale, Republicans should, of course, oppose anything that tends to reduce jobs or lock people out of the job market, from restrictions on carbon emissions to occupational-licensing requirements at the local level.
All of this would be to the end of achieving full employment, but that is easier said than done. Some thinkers, such as Evan Soltas, observe that we’re now looking at a segmented labor market, in which finding work is relatively easy for many people while the long-term unemployed languish on the sidelines. Essentially, workers in the economic mainstream feel more and more comfortable quitting their jobs to find something better, as they’re not at all concerned that jobless workers waiting in the wings pose much of a competitive threat.
So we will need targeted policies to address the labor-market challenges facing workers stuck at the bottom. One important step would be to reduce the minimum wage for long-term-unemployed workers. As Michael R. Strain of the American Enterprise Institute has explained, employers hiring workers who’ve been out of the labor force for a long time are taking a risk. Lowering the minimum wage for these workers reduces the cost of taking this risk, thus making it more likely that employers will do so. He also proposes a federal wage subsidy to shore up the living standards of these workers, the cost of which would be offset over time as the formerly long-term unemployed gained the experience and the skills they need to earn higher, unsubsidized wages.
This points to another thorny problem. A party of work will also need to address the ways in which means-tested government benefits can actually discourage work. Eugene Steuerle of the Urban Institute has written extensively on income cut-offs for Medicaid, food stamps, and other benefits that make it costly for many poor workers to earn more income. This is one of the reasons that Obamacare, according to the CBO, discourages work — people lose the subsidy as their income rises.
One idea, which has been championed by everyone from Harvard economist Edward Glaeser to Representative Paul Ryan, the chairman of the House Budget Committee, would involve consolidating transfer programs. This would allow for a work-friendly simplification of the way in which people are phased out of these programs.
More broadly, there are two countervailing big proposals for a new version of welfare reform. On one hand, Robert Rector wants to restore the badly eroded federal work requirement in Temporary Assistance for Needy Families and extend it to other means-tested programs, such as food stamps and public housing. On the other, Oren Cass has called for replacing today’s complex welter of low-income programs with a state-administered safety net for poor Americans who are not working and a direct federal wage subsidy for those who are — an idea that Florida senator Marco Rubio has embraced in a new legislative proposal. Either approach — one depending on federal rules for these programs, the other transferring them to the states — would encourage work.
This agenda should be wrapped in an ethic of respect for and insistence on work. Never should anyone associated with the Republican party say that there are “jobs that Americans won’t do.” Republicans should honor the dignity of every job, celebrating its economic contribution no matter how small and the effort of the laborer no matter how humble. The other side of the coin, though, should be a stern, no-nonsense demand that able-bodied adults fend for themselves.
The party could do worse than to take inspiration from this statement of Lincoln’s in 1861: “Whatever is calculated to advance the condition of the honest, struggling laboring man, so far as my judgment will enable me to judge of a correct thing, I am for that thing.” He was on the way to Washington, to take leadership of a party of work.
– This article first appeared in the March 24, 2014, issue of National Review.