Lawrence Mishel
President, Economic Policy Institute
Washington, DC

Lawrence Mishel came to the Economic Policy Institute in 1987. As EPI's first research director, then as vice president, and now president, he has played a significant role in building EPI's research capabilities and reputation. He has researched, written, and spoken widely on the economy and economic policy as it affects middle- and low-income families. He is principal author of a major research volume, The State of Working America (published every even-numbered year since 1988) which provides a comprehensive overview of the U.S. labor market and living standards. A nationally recognized economist, Mishel is frequently called on to testify and provide economic briefings to members of Congress and appears regularly as a commentator....

Homelessness, long viewed as a condition of urban poverty, is now affecting growing numbers of families in not only urban, but suburban and rural America as well.  While homelessness has many contributing factors, the primary symptom of individuals and families who lack permanent shelter is the absence of adequate wages.

Through last summer, this recession had already seen an explosion in shelter stays by individuals—and in increasing numbers—families—in urban centers like New York City, wealthy suburbs like Montgomery County in Maryland, and rural areas like Shreveport, Louisiana.  As the recession deepened and job losses rapidly accelerated from the fourth quarter of 2008 through the first quarter of 2009, there is every expectation those trends will continue.  The effect of recession on increasing homelessness is easy to understand.  Job losses, which have increased the nation’s unemployed by 7 million since the start of the recession, wreak havoc on incomes and place great numbers of families into housing crisis.  Furthermore, the effect of high unemployment on wages of the employed has been pronounced.  In June, 2009, wage growth had collapsed to 1/3 the rate that we saw at the end of 2007.

This erosion in wages will have calculable effect on families’ standards of living in the years ahead.  We forecast that the average family income for low-income Americans will be $1,160 less in each year from 2008-2011 from 2007 levels.  It is important to note that this follows a full cycle of economic growth in the 2000’s where middle and low income families saw their earnings never recover to their prerecession (2000) levels.  All in all, as housing has become acutely more unaffordable—even with the collapse of the housing bubble—the ability of low and moderate income earners to keep up has long been compromised.

There are many who have effectively managed the conundrum of rising housing costs and declining wages and incomes by finding more affordable housing or adding more earners to the household by inviting in additional family members or taking in renters. Others have had to resort to amassing mounting debt, foregoing healthcare and /or compromising their nutrition. And still others, bereft of or maxed out on those options, have become homeless.

Just as policymakers have come to recognize that the cornerstone of effective homelessness prevention measures is the creation of permanent, supportive housing programs, this recession has so crippled state budgets that many poverty reduction programs are in jeopardy.  Effective federal policy will be to ensure that there is continued aid to the states to avoid these cuts.

Yet this recession also underscores what is a critical limitation of traditional anti-homelessness efforts.  By relying on general state and local budget funds, or as is the case in many communities, the generosity of donors, resources for homelessness prevention programs are pro-cyclical—that is available in large supply when people and families are relatively better off, and available in far reduced supply when families are most vulnerable.

Yet even during growth cycles of economic activity, America has far too large a share of individuals and families struggling with poverty and homelessness.  Many of these families have workers whose wages are inadequate in providing a self-sufficient, quality standard of living.  The problem is not a scarcity of resources, but the equitable sharing of those resources.  Despite a sharp rise in workers’ productivity, their incomes have remained largely stagnant, and over the last 25 years, the bottom 90% of earners received 16% of the national income growth, while the top one-tenth of one percent received 35%. 

This inequitable income distribution has become far more skewed in recent decades due to conscious policy decisions that favored asset accumulation among the wealthy at the expense of demand-led growth where workers’ rising living standards propel economic expansion. Because reckless decisions have gotten us into this mess, careful policy can get us out.

To that end, the Economic Policy Institute has developed policy proposals for a poverty reduction strategy.

Minimum Wage

Despite the recent phased increases to the federal minimum wage, it is still inadequate to support a household.  In the 1950’s and 60’s, the value of the minimum wage hovered around 50% of the average wage of production and non-supervisory workers (who comprise 80% of the workforce).  Today, after accounting for the federal increase to $7.25, the minimum wage is less than 40% of the average production/non-supervisor wage, and substantially less than the real value of the minimum wage in 1968, when the minimum was $9.08 (in May 2009 dollars).

This erosion of the minimum wage comes despite workers being 110% more productive per hour than in 1968.  If we were to restore the link of the minimum wage to half the average hourly wage for production and non-supervisory workers and index it to that benchmark in the future, the new minimum would be a little more than $9 per hour—lifting minimum wage workers past poverty levels.

Good Jobs

Even if the minimum wage is increased in a manner that we propose, that is still inadequate in providing wage earners the necessary income to support households.  Good jobs—defined as ones that pay at least 60% the median household income along with health insurance and retirement plan contributions—are held by only 28% of the workforce.  This standard, one widely used in international comparisons, equates to a yearly income of a little over $30,000.  Since 1979, the number of good jobs available has declined more than 6% with African Americans and Latinos holding far fewer good jobs than whites.   Adding good jobs to the economy is a matter of fairness: no full time worker ought to live on poverty-level wages, be an illness away from bankruptcy or homelessness, or be unable to supplement Social Security income in retirement.

To ensure that the uninsured receive health care coverage and that health care insurance not crowd out wage growth, health care reform is an urgent priority.  The financial sector meltdown has underscored the danger of basing retirement security increasingly on stock market performance.  EPI has developed a proposal, Guaranteed Retirement Accounts, that with no additional spending on retirement, adequately supplements social security so that workers can enjoy a secure retirement.

These changes are urgently needed to reverse what has been a decades-long shift from an economy where workers shared in the productivity they helped generate to one where you are your own to afford healthcare, save for retirement, pay higher education and housing costs—all while your incomes remain effectively stagnant.

Policy makers must ensure that funding is available to meet the urgent needs of the impoverished and homeless during this recession, but must also soon get to work building the economy of the future that provides good jobs and adequate wages.