South-Western College Publishing - Economics  
More With Less
Subject The employed poor
Topic Fiscal Policy
Key Words Poverty Rate, Poverty Level, Inflation, Earned Income Tax Credit
News Story

The current economic expansion is the longest in post-World War II history. Unemployment rates are at record low levels and there have literally been millions of new jobs created during the expansion. All of these occurrences should augur an increase in living standards. A report just released by the Conference Board, "Does a Rising Tide Lift All Boats?" argues that a full- time employee was just as likely to fall below the poverty level in the 1990s as a similar worker was in the 1980s, and was more likely to be impoverished than a full-time worker in the 1970s. The problem is that lower skilled workers have not profited to the same extent as others from the expansion. In 1998, 2.9 percent of all full-time workers were poor whereas in 1973 the poverty rate was 2 percent. The increase in the number of low-productivity jobs and the erosion of the purchasing power of the minimum wage were cited as contributing factors.

The changing composition of jobs in the American economy over the last 25 years has had an important impact on the welfare of low-skilled workers. High-paid, unionized manufacturing jobs have significantly declined. They have been replaced by low productivity jobs in the retail and service sectors. These jobs are low paid and nonunion. Adjusting for inflation, the average wage for a full time worker with no college education has declined 8 percent since 1972.

Some economists argue that this portrayal of the incidence of poverty is misleading. They argue that poverty has fallen and wages and salaries have jumped even for the lowest-paid workers because of the expansion. For example, they cite the earned income tax credit, an important program that supplements the income of low-paid workers, that was not considered in the Conference Board's report. The official Census definition of poverty does not count the earned income tax credit, and therefore was not included in the Conference Board calculations.

(Updated August 1, 2000)

Questions
1. What is the Census definition of poverty? (Hint: you might want to go to the Health and Human Services web site for an answer. Try www.hhs.gov/.
2. Why do some workers receive very low wages?
3. What impact would an increase in the minimum wage have on the wages and incomes of low-skilled individuals? Explain your answer.
4. What are some alternate means of increasing the incomes of the low skilled?
Source Jacob M. Schlessinger, "Working Full Time Is No Longer Enough," The Wall Street Journal, June 29, 2000.

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