December 8, 2013

Raising living standards a worthy goal

Corporate profits are approaching record highs. Some Fortune 500 executive salaries are almost astronomical. The 1 percent is getting richer, and the real income for a household at the 50th percentile is actually dropping. The minimum wage in this country would be the lowest among industrialized nations if it weren’t for Mexico. Certainly the minimum wage is embarrassingly low. Even the Pope believes so.

Surely we have to raise the minimum wage substantially. Perhaps not. If our goal is to provide a living wage to working households, there are better policies to accomplish that goal.

Our first problem is to determine the income necessary to ensure households and children don’t live in poverty. The poverty level is not the best guide. The U.S. determined a measure of poverty in the 1960s that corresponded to a sufficient income so that no more than one-third of income could support an adequate diet. This threshold was correspondingly larger for large families. And, it is adjusted annually for the cost of food.

An alternate measure is based on a family’s income relative to other incomes in the country.

Both measures are imperfect. If rent, energy costs, insurance, sales and property taxes, and other essential components of spending rise faster than food costs, a low-income household is pinched more than the dietary threshold would suggest. And, if a rising tide indeed lifts all boats, a measure tied to relative incomes may keep a family in relative poverty even once they can meet nutrition needs.

In fact, a family considered poverty-stricken in the U.S. may be considered to be affluent in the eyes of families in other countries. Or, a family at the poverty threshold and living in one region of the country may live much more comfortably than a family at the threshold in another region of the country. More work needs to be done to determine how much a family needs to survive.

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