Saturday, March 25, 2006

New jobs don't pay well. What to do? Tax low incomes less

Thanks to an anonymous poster for the link to this New York Times story about the new lower-wage economy (the basis of a new book, "The Disposable American: Layoffs and Their Consequences" by Louis Uchitelle).

Here's the end of the article:

So the demand for jobs is considerably greater than the supply, and the supply is not what the reigning theory says it is. Most of the unfilled jobs pay low wages and require relatively little skill, often less than the jobholder has. From the spring of 2003 to the spring of 2004, for example, more than 55 percent of the hiring was at wages of $13.25 an hour or less: hotel and restaurant workers, health care employees, temporary replacements and the like.

That trend is likely to continue. Seven of the 10 occupations expected to grow the fastest from 2002 through 2012, according to the Labor Department, pay less than $13.25 an hour, on average: retail salesclerks, customer service representatives, food service workers, cashiers, janitors, nurse's aides and hospital orderlies.

The $13.25 threshold is important. More than 45 percent of the nation's workers, whatever their skills, earned less than $13.25 an hour in 2004, or $27,600 a year for a full-time worker. That is roughly the income that a family of four must have in many parts of the country to maintain a standard of living minimally above the poverty level. Surely lack of skill and education does not hold down the wages of nearly half the work force.

Something quite different seems to be true: the oversupply of skilled workers is driving people into jobs beneath their skills and driving down the pay of jobs equal to their skills. Both happened to the aircraft mechanics laid off by United.

The article also mentions that more than 30% of the country has a college degree now (up from 10% 50 years ago), but less than 30% of all the jobs require a college degree. That's why a lot of twenty-something graduates are working retail. There aren't that many jobs that require a degree. And with a lot of student debt, that's not good at all.

What to do?

One thing is to tax incomes below $30,000 less than we do now, and therefore tax incomes above $100,000 or so more than we do now.

The structure of the economy is moving to more low-wage work, so it makes sense that we lessen the low-income tax burden.

The payroll tax hits jobs, not wealth. The federal income tax is somewhat progressive (higher rates for higher incomes), but the federal GOP is hell-bent on cutting high-income taxes, and has been successful at doing so for the last six years.

The state sales tax hits lower incomes more than higher incomes, and the state's 3% flat income tax rate with a very low $2100 personal exemption also hits lower incomes far more than it should.

There's a good focus on creating more high paying jobs, but we also should ensure our tax system reflects the new economy. Cut taxes on low incomes!


Anonymous said...

Dan: Given Illinois' miserably regressive, flat income tax, one way to help low-income folks in Illinois is to boost our state's Earned Income Tax Credit.

Right now, the Illinois EITC represents only 5 percent of the benefit that the federal EITC provides to low-income, working families. We should hike the state credit to a level that's 20 pct of the federal.

There are about 17 states with EITCs that buttress the federal credit's beneficial effects for the working poor. Illinois' credit is among the smallest, if not THE smallest .. right now, the top credit that a family can claim is a little over $200 (family of four, earning up to perhaps $35K), compared with a federal EITC of perhaps $4K for that same family.

The EITC has long been a bipartisan effort both federally and at the state level. It was launched under the Ford administration and expanded by Reagan as well as Clinton. Thoughtful policymakers from both parties like it because it rewards work (you've got to have "earned income" to claim it), keeping more money in the pockets of the folks who earn it in the first place.

Unfortunately, legislation to expand upon the Illinois EITC hasn't gotten very far in the past couple of years .. probably because it's a complicated subject, as well as one with a price tag. But here's hoping there'll be more attention to EITC and related tax-policy issues in the months to come .. say, January-May 2007 ??

Bill Baar said...

The reality for the future is a shortage of labor. It's already happening in Healthcare and they plan for it. We're at the start of the baby boom retirement.

It's not lack of jobs that's are growing problem, but lack of edcuated labor....

...focus on schools and the jobs will take care of themselves.

Anonymous said...

Some sort of credit for constructive behavior might be interesting. So, possibly the EITC. Or perhaps some sort of a credit to offset transportation expense (autos) for people below certain income thresholds.

Nathan Kaufman said...

See discussion at blog above-

Lazerlou said...

How about guranteeing living wages, and let the economy re-equilibrate. I'm all for taxing the rich and feeding the poor, but nothing will change unless we decide as a society that businesses that can't be run profitably without paying exploitation wages should not be run in the first place. And businesses that would shrink dramatically due to increased costs (and a subsequent increased price for the commodity produced) will just have to deal with it. If certain businesses that are essentially subsidized by the government one way or the other (think gov. paying health care for the unisured working class, or through laxed illegal worker/imigrationation enforcement) can only be run by exploiting labor, we should remove thatbusienss from teh economy or allow it to shrink to its more appropriate size based on ethical wage laws.

Of course the governmentw ould also nee dto spend some time on education and re-training for different industries should certain idustries lose jobs and size due to imposing actually ethical labor law.

Amy Allen said...

However well-intended,your living wage plan is going to hurt low-skilled workers by making them compete with more highly skilled people, who will end up getting the jobs. So, that will only increase unemployment among workers with few skills.

Lazerlou said...

Uh, how so? It may hurt unskilled workers becasue there will be fewer jobs in an absoulte sense, but why do you assume that skilled workers would start competing for the awful jobs of unskilled workers? Even if unskilled workers started being paid what skilled workers make, they still won't want the jobs because of the type of work involved.

In fact, I think the likely situation would be that if the lowest jobs out there started competeing with some skilled labor jobs in terms of wages, the skilled labor market would probably see a rise in wages as well to keep the more talented skilled labor in place.

So Amy Allen, do let me know how you arrived at your conclusion. I don't think you are correct.

Anonymous said...

United "lost" $21 billion in year 2005

20 billion dollars divided by 20 million people equals around $1,000 per person in Chicago - "lost".

Meanwhile, the elites give things away, or make life very easy, to Trump and Boeing. Chicago is doing great!

This is oppression in our midst.