The unsolved mystery of the gilded economy

New evidence shows the number of full-time workers in poverty is actually growing.

Donna Chambers works at a job that sounds decent enough: assistant manager at the Broadway 99 Cent store in Harlem, N.Y. She puts in long hours - often six days a week.

Yet the mother of two doesn't earn enough that she can always put food on the table: She frequently gets free groceries from food pantries. She has no health insurance. She's struggling to pay an outstanding medical bill.

Her story highlights a troubling anomaly of an economic expansion now stretching into its 10th year: The number of full-time workers in America that remain poor by official measures has risen - not fallen.

In fact, while working poverty fell significantly in the late 1960s and early '70s, almost 3 percent of full-time employees were poor in 1998 - a share not seen since the severe slump at the start of Reagan years in the early 1980s.

The numbers are contained in the first-ever study of poverty among Americans working more than 35 hours a week. The

report, released yesterday by the Conference Board, a business-funded research group in New York, suggests that even as record numbers of Americans enjoy six-figure salaries, the trickle-down effect of economic prosperity isn't reaching many at the bottom of the pay scale.

Experts cite several reasons. Perhaps chief is that, despite a focus on the New Economy's high-paying technology jobs, the current expansion has actually produced more low-skill, low-productivity jobs than existed two decades ago.

The retail and service sectors - encompassing workers such as Ms. Chambers who staff check-out lines or clean offices at the end of the day - account for a growing share of nonmanagerial jobs: 48 percent today versus 30 percent in 1965. Those industries are the lowest-paying in the economy. Meanwhile, the minimum wage over that period has fallen, relative to inflation.

The decline of trade unions has also decreased workers' bargaining power across the board. And manufacturers have gone global with their production, increasingly putting US factory workers in competition with those in lower-wage nations.

"The integration into the US economy of billions of unskilled people abroad has driven down the wages of low-skilled Americans," says Joel Slemrod, an economist at the University of Michigan Business School in Ann Arbor.

Another factor is the demographics of the workforce. Linda Barrington, a labor economist who helped conduct the Conference Board study, notes that the percentage of Americans working full time has risen dramatically.

In the late 1960s, 38 percent of people were working full time; now it is just over 46 percent. Thus, she suggests more people with lower skills are able to find full-time positions and, because of wage trends, not climb above poverty.

Information technology, meanwhile, has boosted living standards more for the talented and educated in the US than for those at the bottom of the pay scale. A lawyer, for example, may use computers to do his legal research 10 times faster than he could by combing through bound volumes of earlier cases. But computers do little to add to the productivity of the ditch digger.

Another obstacle is the cost of living. Housing alone consumes most of Chambers's income, which averages $1,000 a month. "The rent is horrendous," she says. Her boss, David Sadat, says he, too, has barely enough to live on after paying rent. "It doesn't matter if you work full time. It's still not enough."

The number of full-time workers that don't make enough to rise above poverty has risen from 1.5 million in the 1970s to almost 3 million in 1998. (The official poverty line for a family of three is $13,290 a year.)

Add in children and other dependents, and the number of working poor could "easily" add up to 4 million to 5 million Americans, says Ms. Barrington. Many mothers leaving welfare for full-time jobs remain poor.

There are some signs of progress.

Hourly wages for those at the bottom of the income ladder have risen since 1996. Jared Bernstein, an economist at the Economic Policy Institute, notes that controlled for inflation, hourly pay was $5.49 on average in 1996 and $6.05 in 1999 for those in the bottom 10 percent of incomes. Many of these people work part time.

Overall poverty, at 12.7 percent of US households in 1998, stands at the lowest level since 1979, according to the Census Bureau. Yet even as overall poverty has been falling, the proportion of full-time workers that are poor rose from 2.5 percent in 1997 to almost 3 percent in 1998.

The problem of growing income inequality is being persistently raised by Green Party presidential candidate Ralph Nader. Democratic candidate Al Gore is dealing with the issue less directly through his retirement savings plan and his support of a boost in the minimum wage. Both measures would reduce poverty.

Mr. Bernstein says one key factor lies outside the realm of presidential politics: Federal Reserve policy. If the Fed allows unemployment to remain low, through low interest rates, it helps the working poor bargain for better wages. The Fed Wednesday left interest rates unchanged, after a succession of increases aimed at preventing inflation.

The working poor would also be helped if Congress undertook a minimum-wage hike, improvements in the Earned Income Tax Credit, and child-care subsidies, Bernstein says.

For her part, Chambers agrees that raising the minimum wage would be a nice start. But she'd also like to see a politician try raising two girls in a one-bedroom apartment while working 50 hours a week. To know what's really going on, she says, policymakers "have to go into the belly of the beast."

*Kim Masibay contributed to this report from New York.

(c) Copyright 2000. The Christian Science Publishing Society

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