Online Extra: How to Lift the Working Poor

Says the Russell Sage Foundation's Eric Wanner: Boost tax credits and the minimum wage. And then? Education, education, education

Eric Wanner is the president of the New York City-based Russell Sage Foundation, the principal American foundation devoted exclusively to research in the social sciences. One of the foundation's current projects is a research study in conjunction with the Rockefeller Foundation that will examine the causes and consequences of the decline in demand for low-skill workers in advanced economies. Another, in partnership with the Carnegie Corp., is exploring the social dimensions of inequality and their relationship to the recent rise in economic inequality in the U.S. Wanner recently discussed these topics with BusinessWeek Associate Editor Michelle Conlin. Edited excerpts follow:

Q: Why is there so little political traction with issues concerning the working poor?


There are no institutions to mobilize the working poor politically. There's nobody like unions telling them they can do better. Plus, if you look at families in the bottom 20% of incomes, they're dropping out of the political system like flies. So when the poor drop out, it shifts the middle up through the whole national income distribution. So voters are now a richer sample.

Q: Why are they dropping out?


We don't really know. One theory is that they're alienated. They think there's nothing in it for them. Since the two parties are catering to the middle class and nonpoor, the poor don't see that either of the parties will help them. The poor will also tell you that they don't vote because they don't have time.

Q: What do you see as some of the causes of the gravitational pressures bearing down on them?


Their market power has been reduced considerably. There are lots of low-wage jobs, and they're more willing to take those jobs because they have no alternatives. Someone else will take them if they don't.

Q: How big a role does immigration play?


Certainly, the flow of 1 million odd immigrants into the country every year is also part of the story. Loss of jobs due to globalization, trade. Also technology. Automation. You don't even need to know arithmetic anymore to work at a cash register. You just have to count out the change. And pretty soon we'll automate that. 

Q: What are the solutions?


One is to increase the earned income tax credit. The other is to increase the minimum wage. If you increase the EITC, then you're getting taxpayers to agree that we don't want to live in a society that eviscerates its low-wage workforce. We understand their market power is poor due to shifts in technology, and left to its own devices the economy will push their wages down. So, we as a society decide to tax ourselves to subsidize wages at the bottom.

But in order to bring the bottom up to an acceptable level, you have to raise the minimum wage. You have to companion it with minimum-wage increases, because otherwise firms will grab it all by pushing down wages.

Q: What's your response to the conservative retort that we've already spent a lot on EITC -- and that raising the minimum wage won't do much to help the working poor because many of them already make more than the minimum wage?


The EITC cost about $30 billion. Compared to Medicare, Medicaid, Social Security, that's tiny. We're talking about less than 2% of the federal budget.

The second answer is that raising the minimum wage will have a ripple effect. The overwhelming evidence is that it pushes all wages up. We also need to increase transportation and child-care subsidies.

Q: What are some of the longer-term solutions?


Education, education, education. We have to massively increase our support for education. We need to figure out how to do it better. Underfunded programs like No Child Left Behind are just political cover, to be honest.

The college wage premium is 75% more over a lifetime than for a high school graduate, up from 35% in the 1970s. That's why Larry Summers at Harvard has said he's going to take the school's $20 billion in the bank and use it to make sure anybody who can get into Harvard with less family income than $50,000 can still afford to come.

Why can't we do that for the nation? I don't promise that's totally practical. But you have to think big because it's a big problem.

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