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MN2020 - Minnesota 2020 Journal: Lifting Boats, Not Drowning People
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Minnesota 2020 Journal: Lifting Boats, Not Drowning People

September 13, 2013 By John R. Van Hecke, Executive Director & Fellow

Earning less money means having fewer spending choices. Less consumer spending ripples through the economy as reduced business activity but it tears through family life. Not only did the 2007-2009 Great Recession increase family poverty but the post-2009 recovery is reinforcing it. The richer really are getting richer, the poor are growing poorer and the middle class ranks are bleeding into the poor’s.

Job loss is the largest factor affecting family income for nearly every Minnesota family. Most two-parent households are two income households. Women’s employment, even at lower compensation rates than their male job counterparts, has had a profound, positive impact on family financial stability. However, losing one of those two incomes immediately undermines hard-won family security.

Faced with less household cash, families take logical steps to lower spending and stretch remaining income. Discretionary spending is the first to go, translating into canceled media subscriptions, gym memberships, mid-week dinners out, downshifting from Macy’s to Target, and skipping the winter trip to Mexico. That’s the middleclass class version of economic belt-tightening. It’s accompanied by an expectation that the economy will straighten out and good, family-sustaining jobs will return.

What happens when, as Bruce Springsteen wrote nearly a generation ago, “these jobs are going, boys, and they ain’t coming back”? Springsteen specifically addressed late 1970s/early 1980s steel production and heavy manufacturing contraction but 30 years later high wage/modest education requirement job loss continues. As the recent jobs report revealed, Minnesota’s job growth is almost entirely in low wage, service sector jobs.

Walmart received unwelcome attention when media reports revealed that Walmart was effectively shifting health care benefits from a company responsibility to publicly-funded services. Using their low wage, part-time worker model, Walmart keeps labor costs down and profitability up. The tax-paying public, subsidizing healthcare costs for low wage, part-time workers, becomes an unknowing investor, enabler and accomplice.

Walmart is not alone. Shifting low-wage, part-time worker health costs while simultaneously maintaining low labor costs, is an increasingly popular employer strategy, particularly in retail and hospitality sectors. Structural workforce changes means that the supply of under-educated but experienced low-income workers is growing. Laying off modestly skilled people earning $15-20 dollars an hour with 10 or 20 years of work experience creates a growing pool of modestly skilled $10 an hour service workers.

And, there’s the rub.

Family and community stability suffers a body blow when family income permanently falls. Specifically, children suffer. Minnesota’s child poverty rates are growing even as employment rates recover. We see it in the growing number of kids eligible for free and reduced price lunch.

Tracy Area Schools’ Tracy Elementary School, in southwestern Minnesota’s Lyon County, reflects that change. In the 2007-2008 school year, 38.9% of students were eligible for free school lunch with 12.3% eligible for reduced price lunch. That’s a combined 51.2%, over half of the students at Tracy Elementary. Five years later, the combined figure climbed to 57.3.

Tracy is a rural, farming community with a decidedly undiversified employment base so unique factors complicate applying Tracy’s experience across Minnesota. However, Tracy is harbinger of things to come. Minnesota’s state free/reduced price eligible lunch population accounts for 38% of all K12 students. That’s up almost four percent from the previous school year. Household income decline, wage stagnation and growing service sector employment trends strongly suggest that Minnesota’s kids living in poverty rate will increase, not fall.

Studying free and reduced price lunch eligible population growth, it’s tempting to conclude that something is wrong with Minnesota’s character. That’s a false observation. Our character has never been better but when hard-working people continue working hard at lower wages, household income falls. That translates into contracting economic activity. It becomes, in effect, the economic equivalent of rising ocean levels due to global change and increased climate volatility. Nobody is responsible, it seems, and yet the water levels continue climbing, regularly flooding coastal areas. The same holds with wage-driven income decline.

A disturbing pattern is emerging. Last spring, the Pew Research organization published research examining recent American wealth concentration patterns. The top 7%’s share of total wealth grew from 56% in 2009 to 63% in 2011. The University of California economist Emmanuel Saez’s research using IRS data, further found that, from 2009-2012, the top 1% of income earners collected 95% of household income growth. A simpler way of stating this observation is that the rich really did get richer.

Declining household income has a slow destabilizing effect on families and their communities. Minnesota has a clear public policy interest in reversing the wealth concentration trend. Increasing Minnesota’s minimum wage to $9.50 an hour is a good first step. Progressive income tax reform must continue. Real growth is felt broadly, not just by the wealthy few. Working harder and longer used to be a prescription for success, not deepening poverty.

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