When survival is a fulltime job When survival is a fulltime job

Boston Fed leaders probe persistence of low-quality jobs in new Fed book Boston Fed leaders probe persistence of low-quality jobs in new Fed book

December 6, 2018

For many U.S. workers, a full-time job supports only basic, subsistence-level survival. How did it get this way in our modern and efficient economy? And how can it change?

Those are questions two Federal Reserve Bank of Boston leaders who specialize in community development tackle in an article in a new book,“Investing in America’s Workforce: Improving Outcomes for Workers and Employers.” The book, released Nov. 9, was produced by an academic collaborative led by the Federal Reserve System.

The Boston Fed officers—Prabal Chakrabarti, senior vice president and the Bank’s community affairs officer, and Executive Vice President and Senior Policy Advisor Jeff Fuhrer—said statistics show that “pitifully low” income levels persist for a large segment of the U.S. population with fulltime jobs.

“Many families with one or two workers employed in such jobs can barely survive on the wages they earn,” they write. “Critically, they often survive only with support from the government.”

“And by ‘survival,’ we do not mean full achievement of the American Dream,” they continue. “We have in mind literal survival—the ability to feed, clothe, and shelter oneself and one’s dependents, so as to avoid significant illness, disability, or death.”

In their article, Fuhrer and Chakrabarti look at conditions that have led to the proliferation of low-quality jobs. And they make the case that changes in employer practices, public policy, and consumer attitudes could make a big difference without harming the economy.

“It doesn’t have to be this way,” Chakrabarti said in an interview. “There’s an assumption that this is the only economically efficient outcome. But there’s no economic reason why we must settle for conditions in which such a large percentage of our people can’t make it, in the huge and diversified economy we have, and with the tools we have.”

Still, Fuhrer noted by email, changing current conditions will be very difficult. Deeply entrenched patterns of wage norms, employer/employee expectations, worker outsourcing to third parties, exclusive focus on maximizing shareholder value, etc. would require years to alter, and it’s not easy to know how best to do it.

Many families with one or two workers employed in such jobs can barely survive on the wages they earn.

The three-volume “Investing in America’s Workforce” book looks at ways to improve workforce conditions through programs and policies. The book was written by the Fed in collaboration with the John J. Heldrich Center for Workforce Development at Rutgers University, the Ray Marshall Center of the Lyndon B. Johnson School at the University of Texas, and the W.E. Upjohn Institute for Employment Research. The article by Fuhrer and Chakrabarti introduces the series’ second volume, called “Investing in Work,” and examines why there are so many low-quality jobs in the first place.

The Boston Fed authors cite statistics from the Federal Reserve Board in 2013 that indicate that the median income for those in the lowest 20 percent of income distribution is about $15,000 before taxes. They add that, according to the USDA, nearly one in five households used food stamps in 2016, and that the head of most of these households is working.

Fuhrer and Chakrabarti focus on two reasons this segment of workers with fulltime jobs is struggling so badly. 

First, the private sector can pay unsustainably low wages to workers and escape full accountability due to various government subsidies—for rent, food, childcare, etc. One local example, which Chakrabarti noted in an interview, are reports of Massachusetts businesses advising workers to purchase the state’s publicly subsidized health insurance, MassHealth, rather than maintaining employer-provided plans for workers. The cost for such programs is “borne by all taxpayers, so in this sense, employers are imposing an external cost on the rest of the economy by paying such low wages and yet reaping the benefits of production,” Fuhrer and Chakrabarti write.

The second reason, the authors say, is actually enabled by the first: Lower-quality jobs are characterized by an imbalance of power between workers and employers that has resulted in a steady erosion in the worker share of company profits. The erosion is occurring even though corporate profits are at or near all-time postwar highs.

It doesn’t have to be this way. There’s an assumption that this is the only economically efficient outcome.

Fuhrer and Chakrabarti suggest tax policy is one way to recover some of the costs employers shift to society through inadequate worker compensation and substandard working conditions: “When producers impose costs on the economy that they do not internalize, economists often suggest that this is an appropriate area for government to work in to rectify the externality, often by imposing a tax that forces the producer to pay the full cost of producing, including the external cost.”

The pair also push for greater awareness about both the work and the worker in lower-quality jobs. For instance, consumers who enjoy low prices and institutional investors who see high returns should be aware that in some cases these benefits are made possible in part by workers who can’t afford basic necessities.

Chakrabarti said in an interview it’s simply not true that the U.S. economy is a zero-sum game, in which any gains for workers hurt employers, or vice versa. In fact, a more financially stable workforce that’s receiving higher wages would mean more financially healthy consumers and growth in productivity.

“If we are thoughtful about creating better policies and work with employers to redesign some of these jobs – often in ways that can improve overall productivity – we’ll all be better off” he said.

Download “Investing in America’s Workforce: Improving Outcomes for Workers and Employers.

Also, learn more about the Boston Fed’s own quality jobs initiative.

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