Low-wage work and a better measure of economic well-being

The poverty rate is often used to measure economic well-being. When the poverty rate drops (which hasn’t happened in some time), we assume more people are better off, more economically secure.

But the income level by which someone is declared either in or out of poverty is a fairly arbitrary number, based on a “basket of goods” that doesn’t align with current consumption patterns and wasn’t all that generous in the first place.

A far better measure of how well Michiganders are doing can be found in the Michigan Association of United Ways’ ALICE report, which came out last week. ALICE stands for Asset Limited, Income Constrained, Employed. It looks at the percentage of Michigan families – including those led by a working adult – who can’t afford their most basic needs. They calculate their income threshold by looking at the actual costs of housing, child care, food, health care, and transportation, across the state and for different types of families. Their threshold for a family of four is roughly $56,000, more than double the poverty threshold.

While 15% of Michigan households were in poverty in 2015, a full 40% of Michigan households struggled to pay for basic household necessities. This is the number we should be paying attention to.

A big reason why such a high proportion of Michiganders are struggling is because they work in low-wage jobs. The ALICE report finds that 62% of all jobs in the state pay less than $20 an hour, with roughly 40% paying less than $15 an hour.

We at Michigan Future believe that increasing higher education attainment in Michigan is critical both for producing and attaining higher wage work. More education means higher wages for individuals, and high wage knowledge-economy businesses increasingly move to areas with high concentrations of talent.

But by and large, it’s also true that many of these lower-wage jobs are here to stay.

A shifting picture of the working class

In an article in the New York Times Magazine, Binyamin Appelbaum wrote about the changing nature of what we think of as the “working class,” largely shifting from blue-collar workers to a broad service-sector. As I wrote about in an earlier post, fewer and fewer people in America today work in farms and factories. In 1967, 35% of the workforce was in agriculture and manufacturing, today just 15%.

As Appelbaum explains, this is largely a result of automation. Farms and factories became more efficient, and now produce more goods with less people than ever before. This also means those goods can be produced – and purchased – far more cheaply than they used to be. This has led Americans to increase the share of their money they spend on services over goods, and led to a far larger share of Americans employed in both high and low-skill service work.

And amidst widespread fear that robots will take all our jobs, many service-sector jobs appear safe from automation. Services that require face-to-face interaction, empathy, customization, are pretty tough to automate. These are jobs that author Dan Pink calls “high-touch.”

High-touch, low-wage work – specifically jobs like home health aides and nursing assistants in the health care sector – is plentiful and only expected to grow. There are almost 50,000 nursing assistants and almost 70,000 personal care and home health aides in Michigan, and these occupations are expected to grow between roughly 20 and 40 percent by 2024. They all earn under $30,000 at the median.

And it’s not just in health care. Customer service representatives, janitors, landscapers also perform tasks that have proven hard to automate, are plentiful, and are low-wage.

While many imagine low-wage work as a temporary condition, Appelbaum writes “The reality is that these are the kinds of jobs millions of Americans hold for their entire working lives.” And relying on market forces alone, there’s nothing that will turn these low-wage jobs into living-wage work: they’re not “high-skill” and labor supply is plentiful. The economy is simply set up such that, absent government intervention, a large proportion of the labor force won’t be able to provide basic necessities for their families.

The question, as always, is what to do? Raising Michigan’s state EITC, and expanding it to cover a greater range of incomes, is one approach to help make work pay. Increasing the state minimum wage would raise wages not just for those at the minimum, but likely throughout the low-wage workforce. And public investments that make it easier to afford necessities like housing, transportation, and child care – for all families – are also important.

The bottom line is that no matter how much the economy on the whole improves, there will be plenty of low-wage work available, and hundreds of thousands of Michigan families will depend on that work to support their families. Under the right policies, we can ensure that they can have an easier time doing that.


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