Posts tagged with: Socioeconomics

Why do some countries grow richer faster than others? How can we explain wealth disparities between countries? The answer: Growth rates.

Economist Alex Tabarrok explains how even small changes to growth rates can have a big effect on the economy of a country—and on the flourishing of its citizens.

government_is_the_problem_poster-r60410fd507e74984b86adfb78cccb9fd_a3l0_8byvr_324What is the worst problem facing America? According to a recent Gallup poll, most Americans agree with former President Reagan, who said government is not a the solution, government is the problem.

An average of 16 percent of Americans in 2015 mentioned some aspect of government—including President Obama, Congress, or political conflict—as the country’s chief problem. The economy came in second with 13 percent mentioning it, while unemployment and immigration tied for third at 8 percent.

While government takes the top slot, that’s still an answer given by fewer than one in five citizens. We can’t even seem to come to a consensus about our biggest problems. Indeed, 2015 is only the second time since 2001 (2014 was the other year) that no single issue averaged 20 percent or more for the year. Rather than being focused on a single issue, there is a broad range of concerns troubling us; more than a dozen issues received 2-6 percent of the vote for worst problem.
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10200456-largeIf you ask most people why they support raising the minimum wage they’ll says it’s because it helps the poor. But as David Neumark, a scholar at the Federal Reserve Bank of San Francisco notes, numerous studies have shown that there is no statistically significant relationship between raising the minimum wage and reducing poverty.

That finding may appear to be counterintuitive. After all, if poor people have low wages then increasing their wages should help reduce their poverty. To some extent, this is true. However, what is overlooked is that minimum wages target individual workers with low wages, rather than families with low incomes. The reason that distinction is important is because most workers who earn the minimum wage are in higher-income families.

That becomes more obvious when you think about the composition of the American workforce. If you are from a middle-class family, your first job is likely to have paid minimum wage. The same goes for all your friends who are from families higher on the economic ladder. And it’s the same for young workers today. Go down to the mall and you’ll find that the young men and women working in Forever 21 and Abercrombie & Fitch are not from families that are in poverty. Increasing the minimum wage merely ensures that these young people who are (mostly) from wealthier families get a pay raise.

The relationship between being a low-wage worker and being in a low-income family is fairly weak, as Neumark explains, for three reasons:
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the-new-york-times-website-is-back-after-two-hour-outageWhile it may be difficult to imagine, there was once an era when the New York Times was concerned about the poor.

Consider, for example, a 1987 editorial they ran with the headline, “The Right Minimum Wage: $0.00.” As the editors noted at the time,

[Raising the minimum wage] would increase unemployment: Raise the legal minimum price of labor above the productivity of the least skilled workers and fewer will be hired.

If a higher minimum means fewer jobs, why does it remain on the agenda of some liberals? A higher minimum would undoubtedly raise the living standard of the majority of low-wage workers who could keep their jobs. That gain, it is argued, would justify the sacrifice of the minority who became unemployable. The argument isn’t convincing. Those at greatest risk from a higher minimum would be young, poor workers, who already face formidable barriers to getting and keeping jobs. Indeed, President Reagan has proposed a lower minimum wage just to improve their chances of finding work.

Back then the federal minimum wage was $3.35 ($7 in 2015 dollars) and the editors of the Times had a basic understanding of economics. Today, their editorial board is apparently comprised solely of those completely ignorant about economics, for they published an editorial last week calling for wage to be raised to $15 a hour.

Their reasoning? No real justification is given other than that the government must do something. In their conclusion they write:
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cellphones-povertyFrom mass shootings to terrorist attacks, political incompetence to racial unrest, there has been no shortage of bad news stories in 2015. Death, destruction, and divisiveness tend to dominate the news cycle, leading us to despair over the direction our world is headed.

But our incessant focus on the negative can lead us to overlook or downplay the positive changes that are happening across the globe. That is especially true of the most important good news story of 2015, one few people have heard and fewer have grasped the significance.

The good news: For the first time in world history, less than 10 percent of the global population will be living in extreme poverty.
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consumptionWhat if told you that between 90-100 percent of Americans are living in “healthcare poverty.” You would probably object and say that while the country certainly has a healthcare crisis, my numbers are surely inflated. After all, most people in the U.S. have access to healthcare.

In reply, I explain that while it’s true most people are able to consume healthcare services, they are still in poverty since those services are paid for at least partially by the government or private insurance. You would probably respond that I seem very confused on this issue. And you’d be right.

Yet when we hear reports that between 14 and 16 percent of  Americans are living in poverty, few people bother to ask, “Are they talking about consumption or income?”

The reason it matters is the same reason that most Americans are not in “healthcare poverty”: they are able to consume more goods and services than they are able to pay for with their income. As James X. Sullivan, an economics professor at Notre Dame, has explained:
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Sales-taxImagine you’re at the checkout line at the supermarket and the clerk asks how much income your family earns each year. Offended, you ask why that is any of her business.

“We need to know to determine how much sales tax you need to pay,” the checker politely explains. “If you’re classified as the ‘working poor’ you need to pay more sales tax.”

“I think you have that backwards,” you helpfully add. “You mean the working poor need to pay less sales tax, right?”

“Oh, no sir,” she say, still blissfully cheerful. “It’s a new anti-poverty program initiated by the federal government that helps the poor by making them pay an addition sales tax on their groceries.”

Although it isn’t stated so clearly or applied so directly, the federal government has in fact implemented an “anti-poverty” initiative that does just that. As economist Thomas Macurdy says, “Most Americans wouldn’t cheer this program, nor would most political leaders champion it. Yet that is what happens when Congress raises the minimum wage.”

Earlier this year Macurdy published a study in the Journal of Political Economy that examined the effect of the minimum wage on the poor. As he explains in the Wall Street Journal, his findings show that the minimum wage serves as a tax on the poor:
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