June 2003 - The working poor
How much do we need to earn just
to get by in today's society? In the US the figure
for a family of four, including both parents,
ranges from $27,000 a year in rural areas to $52,000
in one of the big cities, according to estimates
produced at a London-based symposium this week.
Eileen Appelbaum, the Rutgers
University professor who outlined the figures
at a Future of Work symposium organised by the
Economic and Social Research Council, said the
national median was about $33,500. Yet in 2001
some 34m Americans - about 24 per cent of the
labour force - were earning less than $8.70 an
hour ($17,400 a year), a figure she described
as close to the poverty line for a family of four.
People rarely mention the poverty
line these days. Reports of earnings tend to be
dominated by the seven-figure salaries awarded
to the bosses of big businesses. So the revelation
that so many Americans can be classified as "working
poor" is a reminder of the broadening inequalities
in the world's richest nation.
The original poverty line - the
concept of Charles Booth, the Victorian shipping
magnate and social reformer - was set at 10 to
20 shillings a week for an average family of four
or five in Victorian Britain.
Booth, who listed the classes
from A (the underclass) to H (the upper middle
class), appears to have understood the concept
of corporate and social responsibility long before
it made the "nice-to-have" lists informing
the trendiest of company agendas.
But after he suggested the establishment
of a state pension (adopted 15 years later), his
influence on government policy declined, being
overshadowed partly by the collectivist economics
of Sidney and Beatrice Webb that demonstrated
little regard for the lower orders. Beatrice Webb
once described the working class as "stupid,
and in large sections sottish with no interest
except in racing odds".
It is heartening, then, to find
a modern study of labour economics that is closely
in touch with the realities of work for so many.
Prof Appelbaum's work on low-paid Americans, soon
to be published as a book,* is an indictment of
US corporate sector short-termism and the way
that deregulation and cost-cutting, principally
of wage bills, has been tolerated and sometimes
encouraged by successive US administrations.
She is particularly critical
of the corporate obsession with shareholder value
that, she says, has neglected a greater fiduciary
responsibility to the wider community. She blames
these changes partly on the growth in mutual funds
that has strengthened the power of investors to
insist on ever-increasing profits and efficiencies.
But wage-cutting policies, she
says, have exacerbated the declining value of
the minimum wage. In 2001 this was $5.15 an hour,
some 28 per cent lower in real terms than the
figure in 1974 of $7.18 an hour, expressed in
"This decline in the real
minimum wage has allowed firms to respond to economic
pressures by cutting the real wages of their lowest-paid
workers," she says. "Had this not been
possible, at least some employers would have chosen
the alternative response of investing in workers'
skills or capital equipment to improve productivity."
Other remedies she suggests include
a national commitment to a living wage to increase
demand for goods and services. This equivalent
of the "rising tide that floats all boats"
has its roots in Keynesian economics, popular
immediately after the second world war, a period
of unprecedented economic growth in the US when
incomes were far more evenly distributed than
they are today.
Prof Appelbaum's work and other
recent economic studies suggest that it is time
for the US and the UK to re-examine their 25-year
infatuation with free market economics. At the
same time, governments must rethink their interventionist
A Financial Times survey this
week revealed that UK government regional investment
grants were failing to stimulate employment on
anything approaching the scale originally envisaged.
In the same week, a study published
by the Centre for Economic Performance highlighted
differences in the relative pay of skilled workers
in different regions of the UK.** This noted that
the relative wages for skilled workers were a
third lower in the South East, which has the highest
living costs in the UK, than in Wales or Scotland,
thereby questioning policies that steer skill-intensive
industries towards regions with high levels of
unskilled labour. The study found that companies
needed to pay more for their skilled labour in
regions where there was a scarcity of qualified
Each of these studies illustrates
the complexity of labour markets. Nevertheless
there seems to be a broad consensus among academics
on the relationship between education and skills
training, economic performance and earnings potential.
Prof Gerhard Bosch, vice-president
of the Institut Arbeit und Technik in Gelsenkirchen,
Germany, told the ESRC symposium that higher educational
and skills qualifications were reflected in higher
employment rates and higher earnings. According
to his calculations, every additional year of
schooling for individuals across the European
Union equates to an additional 6.5 per cent in
Put simply: the more you learn,
the more you earn.
His conclusions would appear
as important for the US as they are for Europe,
since Prof Appelbaum notes that most low-paid
workers in the US have no educational credentials
beyond a high-school diploma.
We may argue about modern definitions
of poverty but it is difficult to ignore Prof
Appelbaum's conclusion that "income inequality
threatens the social fabric of our society and
the stability of our democracy".
Private enterprise has proved
itself incapable of exercising the responsibilities
that promote equitable rewards across society
and government has proved almost equally inept
at social intervention. The need for greater social
partnership on training and lifelong education,
therefore, is becoming a matter of urgency.
*Low-Wage America, How Employers
Are Reshaping Opportunity in the Workplace, edited
by Eileen Appelbaum, Annette Bernhardt, and Richard
J. Murnane is published by the Russell Sage Foundation.
**All is Not Equal, a study
by Andrew Bernard, Stephen Redding, Peter Schott
and Helen Simpson was published in the summer
issue of CentrePiece, the magazine of the Centre
for Economic Performance.
as a pdf file