BY PHILIP KOTLER – The low-income working class is one of the largest groups in America. You can spot its members working at Wal-Mart or McDonalds, in large or small factories, in clerical jobs, and toiling in agricultural areas. This group includes single individuals, unmarried co-habitors, married childless couples, and families. The common denominator is that they are all wage earners, they earn very little, and they are dependent on receiving a pay check every week so that they don’t have to borrow money to eat.
Most low income workers have only one job, a low-paying job that meets or slightly exceeds the nation’s minimum wage level. Some workers have two or three jobs – consider s cleaning woman who works for a number of different clients. These workers will do almost anything to please their employers. They don’t want to lose their job. A cynic will call them wage-slaves.
The future is not promising for the working class. Low income workers often live with the following anxieties:
- The fear of contracting a health problem or emergency that takes them off their job for a short or long period, with a loss of income.
- The fear that their current job will be destroyed by technology and robots will replace them.
- The fear that living costs will rise faster than wages (inflation worry)
- The fear that they will have no savings, or inadequate savings to retire on.
- The fear that they cannot help their children or their parents who need financial or personal care.
- The fear that Republican Party leaders will manage to kill programs such as Medicare and Social Security.
Fortunately our country is still set up with social amelioration programs to help low income persons who have lost their job or income. During the Great Depression of the 1930s, President Franklin D. Roosevelt launched “New Deal” social programs and policies to assist afflicted wage earners. Within the first One Hundred Days, Congress enacted 15 major pieces of legislation establishing New Deal agencies and programs. The government created Social Security, unemployment insurance, federal agriculture subsidies and other programs. The Works Progress Administration (WPA) provided work for nurses, librarians, artists, and craftsmen. The Tennessee Valley Authority (TVA) provided jobs and hydroelectric power to areas in the country. The Agricultural Adjustment Act (AAA) worked to ease the desperate plight of farmers.
These programs provide a large part of today’s answers on how to help low income workers who are facing adverse conditions mostly not of their own making. But there is a larger question: how can low income workers under normal circumstances find ways to increase their income and improve their lives?
What Can John Doe, a Low-Income Worker, Do to Improve His Situation?
Let us focus on John Doe, a 50 year-old employee of Wal-Mart who is paid $9 an hour. Assuming that John Doe works forty hours a week for 50 weeks, his annual income is $18,000 (= $9 x 40 x 50). John Doe will not receive all this spending money because he faces taxes for sales, property and income tax. What remains will hardly be enough to pay his rent, health insurance premium, drug costs, transportation costs, and food costs.
It is very likely that when John Doe receives his wage on payday, he will still be short of enough cash for the coming week. If he can’t borrow from friends and relatives, he may turn to getting a payday loan. Such loans are usually for a short period and involve a high interest rate and fees. On an annual basis, payday loan interest rates can exceed 300 percent. Yet payday loans remain very popular and necessary considering the volatility of worker pay, especially for “gig’ workers who can’t be sure of their earnings from week to week.
John Doe can do better if he avoids going to a payday loan agency. He would be smarter to apply for a low-cost loan from a local credit union or small local bank, that might even offer six months to repay. Here the worker will also receive free financial counseling. One small bank charges only 15 percent interest and requires the low income borrower to put 10 percent into savings. There is also a growing number of of employers ready to help meet the needs of financially afflicted families. Some companies might advance money at low or zero cost to an employee to be paid later out of future earnings. Walmart announced recently that employees could take advances on their paychecks.
Many low-income workers don’t know about the many alternatives. Many don’t have credit cards or bank deposits. They have very limited financial knowledge. Professor Margaret Sherrarden authored a helpful book – Striving to Save: Creating Policies for Financial Security of Low-Income Families.
What Alternatives are Available to John Doe to Get Out of his Financial Trap
A number of escape avenues are available to John Doe. First, John should consider asking his manager or company for a pay raise based on his years of good service. If this isn’t forthcoming, John may ask other workers who want or need more pay to consider forming a union. Of course, this can put his job at risk.
Alternatively, John may consider taking on a second or third job to earn additional money. If he owns a car, he can become a part-time Uber driver. If he has an extra bedroom, he can rent it out by joining Airbnb. Or he can sell a few hours of landscape work, cleaning, or errand work during his evening.
If John has any savings, he should keep them in a bank savings account (not a checking account) and might even save enough to buy bonds or stock. In this later case, he would become a part-time capitalist, not just a wage earner. Many people think that the ultimate solution is for workers to become part-time capitalists. Joself R. Blasi, who wrote The Citizen’s Share: Reducing Inequality in the 21stCentury, estimated “that some 47% of full-time workers have one or more forms of capital stake in the firm for which they work, whether from profit-sharing schemes (40%), stock ownership (21%) or stock options (10%). Today some 10 million people work for companies with ESOPs, (Employee Stock Ownership Plans) where the company is contributing to a retirement fund for each employee. Add to this that a surprisingly large number of companies in the U.S. are organized as a cooperative run by the firm’s own employees.
John, if he is not satisfied working at Walmart, he can always search for a higher paying job in some other company in his town. If there is no attractive other company, it may be time for John to consider moving to another city that is in a growth spurt and that offers higher paying jobs and opportunities. John might look at a new book by Enrico Moretti, The New Geography of Jobs,that shows the different level of job opportunities found in different parts of the country.
Alternatively, John may realize that he doesn’t have a skill that would get him higher pay. His best course might be to take training in a trade, computer coding, or some other hot area. He may try to learn the skill in the evening at a local community college while continuing with his day job at Walmart.
John may wish that he could join a self-run savings and lending group, often found in poor communities, especially within ethnic groups. They may be ready to help members pay for a course or meet some sudden expense.
The main point is that John has some alternatives to simply keep working at Walmart for the same low pay.
What More Can Government Do to Help Improve the Lives of the Working Poor?
Ever since the New Deal, federal, state and local governments have created programs to help the working poor. Still much more can be done to help low income workers improve their lives.
First, the government could legislate a higher national minimum wage that for years stayed at $7.45/hour. Proposals have ranged from $10/hr to $15/hr and some companies and cities have endorsed this. The real problem is that income levels differ greatly in different states. It may be necessary to set (say) three different minimum wage levels depending on the area.
Second, the government should make more use of the Earned Income Tax Credit program (EITC) that was set up to help low income families. The amount that a family would receive varies with the family size, savings, and other factors. The major problem now is that the Republican Party wants beneficiaries to find a job and not just receive these payments. There has also been talk about another program, the Universal Basic Income program that would give every citizen an annual amount of money. More money would go to lower income families. The real question is why should any money go to well-off people when more of this money should go poorer families.
Third, the government should pass new legislation making it easier for workers to form unions. The working class has no voice at the table of the company management. Management loses the opportunity to sample the workers’ ideas on how to improve the company and sales,and management doesn’t do’t get a sense of worker morale or needs. Other countries such as Germany and Japan have strong unions who sit with management and share ideas.
Fourth, the government should set up more occupational training programs, hopefully on a no-cost of low-cost basis. This will build human capital and result in more workers having better abilities and therefore earning more.
Fifth, the government should take concrete steps to stop income inequality from getting more extreme. Left unattended, I have no doubt that the rich will keep getting richer and the poor and working class staying where they are. We must prevent this. The best way to start is to raise the tax rates on the wealthy using a system of brackets with rising tax rates on rising income. We must remember that it used to be normal for a CEO to earn 20 times that of the average worker. Then it rose to 100x, then 200x, and now 300x the wages of the average worker. This is obscene and causes the very high earnings of all top management and middle management. All these years, the Republicans have been lowering the maximum income tax rate. Now it is time to start raising the maximum income tax rate on the rich.
Can the working class look forward to a substantial improvement in their earnings and life possibilities?
I believe that the leaders in this country are smart enough to know that low-wage workers pose a double problem. First these workers are the real job creators. If they have more money, they will spend it. Their needs are very great. More spending would call for more production and more jobs. Worker spending is the key to our job and income growth.
Second, low-income workers can get very frustrated with their economic suffering. They can start organizing protests. Remember the “Occupy Wall Street” movement that began on September 17, 2011 in New York City’s Wall Street financial district and created a movement against economic inequality worldwide. This can easily happen again with more force and lastingness.
We should not let the working class continue to suffer while others build mansions and gated communities and private swimming pools and buy million dollar cars and private airplanes, partly because they have nothing else to spend their money on. We need to build a new view of community and collaboration. We only need to turn to the Nordic countries where most people live a good work life and play life and the rich are a little richer but everyone is satisfied and happy.
The Need for a More Fundamental Change
American Capitalism is the bundling of two systems, neoliberalism and the welfare state. The first system, neoliberalism, represents a 20thcentury revival of a 19thcentury set of ideas: free trade, deregulation, privatization, fiscal austerity, and smaller government. Neoliberalism gives the private sector the major role in the economy and society. Neoliberalism assumes that economic growth is greatest when business is granted maximum incentives to pursue unrestrained economic advantage. Neoliberalism’s metric is economic growth, not equitable distribution of the income resulting from that growth. The two modern political leaders who pushed this ideology Ronald Reagan and Margaret Thrasher. The two main theorists of neoliberalism are Professors Friedrich von Hayek and Milton Friedman. The main advocate of neoliberalism today is the Republican Party.
The second system is the welfare state. Its purpose is to band aid all the harm that might come to workers, job seekers, and seniors from the dynamic economy that is based on creative destruction. Companies gain by pushing productivity and innovation and this destroys old jobs and creates new ones. Workers who suffer get unemployment insurance, job retraining, food stamps and soup kitchens to repair the damage. Seniors receive pensions, social security, and expensive health insurance to help them meet their needs.
The right argues that this system of free enterprise plus the welfare state amounts to a good society. But does this system actually make up for:
- Persistence of 13% poverty (43 million go hungry and need food stamps in our wealthy economy)
- Wages remain low while most economic gain goes to highly paid executives and the wealthy.
- There is uncurbed growth of monopoly, oligopoly and financial capitalism.
- The economy neglects horrendous climate and environmental threats.
- The country has a decaying infrastructure, high imprisonment and no real immigration strategy.
One of the roots of the problem of the suffering working class is that workers are largely without capital and without a voice in the running of the economy. The workers had a voice in 1955 when 33 percent of American workers belonged to unions. The unions could insist on higher pay and better benefits and working conditions. They could complain about the high salaries of executives running at 320 times the wage of the average worker. They could object to planned expansions and mergers. But today private sector union membership is down to 7 percent. Workers are without voice. They are totally dependent on what management wants to pay labor. Workers have no alternatives but to accept the job or quit. Workers are literally wage slaves because they have no capital. Meanwhile Sweden has 68 percent workers unionized and Norway has 55 percent of its workers unionized..
The fundamental solution is to give workers both voice and capital. Removing anti-union legislation will give workers voice. Getting more corporations to be organized as cooperatives or ESOPs (employee stock ownership plans) will give workers capital. Workers who get part ownership in companies will be hardworking and loyal. These companies can be just an innovative and creative as today’s shareholder owned companies. They would be run much more democratically, something entirely lacking in modern corporations. Until the economy moves toward capitalizing workers, the workers will continue to subsist as a suffering class.