K-shaped economy is how many describe our economy since the pandemic. And most expect the recovery to be K-shaped as well. The reality is that the Michigan economy was K-shaped pre-pandemic. With those at the top doing well, but far too many households struggling in the strong 2019 Michigan economy.

As we explored in our last post, the Michigan Association of United Ways calculates that nearly four in ten Michigan households in 2019 could not pay for basic necessities. So a K-shaped economy is structural. A reality when the Michigan economy is expanding as well as when it is contracting. A reality when unemployment is low and high. A reality when the stock market is booming as well as when it is collapsing.

It is now crystal clear, far too many of our families have not been succeeding for far too many years. If they are not succeeding, our state is not succeeding.

Figuring out how you get an American capitalism that as it grows benefits all is the economic challenge of our times. We can––and should––debate how to achieve an economy that benefits all. What we should not do is celebrate an economy that is leaving so many behind.

It is far past time that we commit to turning a K-shaped economy into an economy that benefits all. We need a new economic strategy in Michigan. One that starts with rising income for all as the state’s economic mission. Income––particularly good-paying jobs and careers––needs to become the prime focus of economic policy and economic and workforce development programming.

We believed before the onset of the pandemic––and even more so now––that this is the time to make fundamental change in the state’s playbook to increase the economic well-being of all Michiganders. That now is the time for a transformative redesign of our approach to the economy. To us mid-course adjustment in what we have been doing is not the path to achieving rising income for all. So our recommendations for turning our K-shaped economy into an economy that benefits all are explicitly designed for fundamental change. To rethink what is foundational to state policy and programming to achieving rising income for all and go big in building that foundation.

To us that means a state economic policy laser-like focused on good-paying jobs and careers. We need policies designed so that all Michigan workers have wages and benefits that allow them to pay the bills, save for retirement and the kids’ education and pass on a better opportunity to the next generation.

Specifically we need policies that will:

Increase income and health coverage for today’s low-wage workers through an expanded and no red tape safety net.

Michigan cannot substantially reduce the proportion of households that cannot pay for basic necessities unless it finds ways to increase the amount of work and the pay and benefits for those who work in low-wage jobs. The past four decades have made clear that market forces alone will not turn low-skill, low-wage jobs into family-supporting work. In the strong 2019 Michigan economy 58 percent of payroll jobs were in occupations with a full-time median wage below the nation median of $39,810. We need public policy designed to raise the returns from work.

What low-wage workers need more than anything is more income and health coverage. We need cash-based benefits for those who are working. And we need cash-based benefits for those who have lost their jobs. We also need to make safety net benefits far easier to get. The struggles today that way too many Michiganders are going through to get safety net benefits make clear that we need to go to no red tape cash benefits plus health coverage.

Prepare all Michigan children for good-paying forty-year careers by making the 6Cs the foundational skills for all students from birth through college.

To thrive in the new economy, workers have to be adaptable, have a broad base of knowledge, be creative problem-solvers and be able to communicate and work well with others. In other words, workers need to be really good at all of the non-algorithmic skills computers aren’t good at yet.

The best definition we have found for this complex set of skills comes from the book Becoming Brilliant, by learning scientists Roberta Michnick Golinkoff and Kathy Hirsh-Pasek, who label these skills the six Cs: collaboration, communication, content, critical thinking, creativity and confidence.

In Michigan today the education that is provided for affluent kids is, by and large, designed and executed differently than it is for non-affluent kids. One system delivers a broad college prep/6Cs education, the other delivers an increasingly narrow education built around developing discipline and what is on the test or to narrowly preparing non-affluent children for a first job. Our goal should be to design an education system that provides for all children the experiences that affluent children take for granted. Only then can we say that we’re providing each and every Michigan child with an education that will prepare them for good-paying forty-year careers.

In addition to current education funding, an annual grant from birth through college for all children in households unable to pay for the basics.

We strongly believe Michigan under invests in its children. Particularly its non-affluent children. And even more so its Black and Latino children. There is no path to income equality and racial equality that does not include, front and center, far better education outcomes.

To us the evidence is clear: The formula for ending what is increasingly becoming an education caste system—where for the first time in American history parents’ education attainment is the best predictor of a child’s education attainment—is both far higher quality teaching and learning and substantially more funding for children growing up in non-affluent households from birth through college.

We believe that under investment starts at birth and continues through college. So we propose Michigan substantially increase its investment in the education of every child growing up in a household struggling to pay for basic necessities each year from birth through the age of 21.

Think of this as something that operates, for education related expenses, like a health savings account. An annual government deposit, above and beyond current education spending, for each child 0-21 growing up in a Michigan household struggling to pay for the basics. Where the decision on education-related programming is controlled by parents and students. Including the option of utilizing those funds for extracurriculars and out of school programming.

Create more high-paid jobs by creating places where people want to live and work.

Every Michigan region needs more high-wage jobs. This is an economy where talent attracts capital. Creating a place where people want to live, work and play is what matters most to retaining, attracting and creating more high-wage jobs. Those regions without the quality of place that mobile talent is looking for will be at a substantial disadvantage.

It is also clear that the desirable mix of infrastructure, basic services and amenities differ from region to region. What makes small towns and rural communities attractive places to live and work are different than what makes big metros and their big central cities attractive places to live and work. So Michigan’s diverse regions need the resources and flexibility to develop and implement their own strategies to retain and attract talent. It’s an essential ingredient to their future economic success.

Responsibility and funding should be moved from the state to regions for all modes of transportation (except state highways); water; parks and outdoor recreation (except state parks); housing; and all other local/regional infrastructure, basic services and amenities. Responsibility and funding should be returned with little or no state mandates on how funds can be raised and used. The goal is to empower regions to develop and fund their own strategies for creating places where people want to live, work and play.

The post Turning a K-shaped economy into an economy that benefits all appeared first on Michigan Future Inc..

The pandemic is hardening our two-tier economy. One where those at the top are doing well, but way too many Michiganders are struggling.

Low-wage workers have suffered the most since the onset of the pandemic and the forecast is that reality will last for years. This repeats the experience during and after the Great Recession.

The University of Michigan’s Research Seminar in Quantitative Economics in their The Michigan Economic Outlook For 2021–2022 detail that employment in low-wage industries initially fell to 70 percent of their pre-pandemic level and project that employment at the end of 2022 in those low-wage industries will only be 92 percent of their pre-pandemic levels.

That compares to employment in middle-wage industries initially falling to 85 percent of pre-pandemic levels and recovering to 98 percent by the end of 2022. Employment in high-wage industries initially falling to 89 percent of pre-pandemic levels and recovering to 101 percent by the end of 2022.

Prior to the pandemic 43 percent of Michigan households were unable to pay for basic necessities. That despite an economy that many described as one of the best ever. Characterized by low unemployment, decent economic growth and record profits and stock market valuations.

The 2019 Michigan economy wasn’t one of our best ever. It was a two-tier economy. There is no such thing as a good economy when four and ten households (1.6 million Michigan households––many with working adults) cannot pay for basic necessities. As is now clear, far too many of our families pre-pamdemic had not been succeeding for far too many years. If they are not succeeding, our state is not succeeding.

The preeminent reason for our two-tier economy is that the economy is producing way too many low-wage jobs. 60 percent of Michigan jobs pay less than $20 and hour.

This is structural. We are not growing our way out of too many low-wage jobs. Lots of businesses that employ lots of people have business models based on low-wage workers.

The pandemic has made crystal clear that there simply are lots of tasks that need to get done that are structurally low-wage work. Everyday, in every community in Michigan, we are confronted with the vast number of low-wage workers in the leisure, hospitality and personal services industries who have lost their jobs and no longer can make ends meet. As well as those who get us food and prescription drugs and who care for us who are not only putting their lives on the line to serve us but also are struggling to pay for the necessities.

They live paycheck to paycheck not because they are irresponsibly buying “unnecessary” luxuries, but because they are in low-wage jobs that leaves them struggling to pay for the necessities. The reality is that a vast majority of those struggling economically and without an adequate safety net to deal with emergencies are hard working Michiganders. Who like us get up every day and work hard to earn a living.

That the prime reason for so many struggling is not irresponsible adults coddled by a too-generous public safety net, but rather an economy, even when it is booming, has too few jobs that pay family-sustaining wages and provides health coverage and paid leave.

The prime economic challenge of our times is having an economy that provides family-sustaining jobs––not just any job––so that all working Michigan households can raise a family and pass on a better opportunity to their children.

We can––and should––debate how to achieve an economy that benefits all. What we should not and cannot ignore is that our economy structurally is leaving too many behind. The first step in solving this problem is to recognize that this a problem that will not be fixed when the economy starts to grow again. The second step is to change our definition of economic success from a low unemployment rate to a rising household income for all. And then get to work on developing a bipartisan agenda to achieve that mission.

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Terrific Bridge article on how hard it is for way to many out-of-work Michiganders to get unemployment insurance. The article’s title says it all: Michigan unemployment system designed to slow payments working all too well.

Bridge writes:

A big source of the problem, according to experts: The $52 million Michigan Integrated Data Automated System, known as MiDAS, a computer system designed to save money by flagging fraud, taking human review out of the unemployment claims process and using algorithms to identify “non-monetary issues” that end up delaying or invalidating claims.

“MiDAS was programmed to assume people were guilty, and because of that programming, when it’s needed, people aren’t getting their benefits,” said Tony Paris, an attorney for the Sugar Law Center in Detroit that has sued Michigan over its unemployment system.

… When Michigan set out to overhaul its unemployment insurance system a decade ago, its top priority wasn’t ensuring timely benefits for residents  or building capacity to handle huge claims in the event of a recession — let alone a pandemic. 

It was to “reduce the costs of operations” by weeding out fraud and streamlining the claims process, according to a 2010 request for bids issued in the waning days of former Gov. Jennifer Granholm’s administration. 

The Michigan unemployment insurance application process is designed, first and foremost, to catch those who don’t “deserve” public benefits. So we end up with an application process that takes way too long to help people who need benefits to pay the bills now. Not to mention has long and confusing applications that are difficult for many to complete so that it, almost certainly, keeps benefits from far more who are eligible than screens out those who aren’t.

And its not just unemployment insurance that is designed to make it hard to get safety net benefits. This is a structural problem that requires a complete redesign of all of Michigan’s safety net programs.

This catch the so-called undeserving and/or the fraudsters first approach to safety net design of course has real life consequences. It means far too many Michiganders out of work through no fault of their own or who need safety net benefits to supplement their low-wage work can’t afford the basics: food, housing, health care, child care, transportation and so much more.

Today’s economic reality––not to mention the lesson we should have learned from the Great Recession––should make clear to all of us that a vast majority of those struggling economically and without any safety net to deal with emergencies are hard working Michiganders. Who, like us, get up everyday and work hard to earn a living. That the prime reason for so many struggling is not irresponsible adults coddled by a too-generous public safety net, but rather an economy, even when it was booming, has too few jobs that pay family-sustaining wages and provides health coverage and paid leave.

Neel Kashkari, president and chief executive of the Federal Reserve Bank of Minneapolis, summed up best what our approach should be to the current economic crisis when he wrote:

Err on the side of helping as many workers and businesses as possible rather than on prudence. This is not the time to worry about moral hazard or whether people are incentivized not to work. When the covid-19 crisis is behind us, if our biggest complaint is that some workers and small businesses got help when they didn’t really need it, that would be a wonderful outcome for our country.

The Bridge article is more evidence, as we have explored previously that Michigan need to go to a no red tape cash-based safety net. It is far past time that Michigan both expand safety net benefits––we have been going in the opposite direction for more than a decade––and make it far easier to apply and receive those benefits. As Kashkari concludes: that would be a wonderful outcome for our state.

The post Needed: no red tape unemployment insurance appeared first on Michigan Future Inc..

As Michigan, almost certainly, faces its most serious economic challenge since the Great Depression, it is worth recalling how Michigan has dealt with previous economic downturns.

What follows is a rerun of a post I did in 2012 entitled Jim Blanchard, Jobs and Taxes. It has been lightly edited and the data brought up to date.

As many of you know I worked for Governor Blanchard, I thought then – and even more so now – he was real good for the people of Michigan. His administration was about one thing: jobs. His record is exemplary.

What follows are the facts on the economic results during his eight years in office and the fiscal policies he put in place to grow the Michigan economy.

First, Governor Blanchard inherited a Michigan economy in worse shape – one can make a strong case far worse shape – than Governor Snyder. We have short memories. The story we have told ourselves over and over again that Governor Snyder inherited the worse economy in Michigan since the Great Depression is not true.

Jim Blanchard took office in January 1983. The month before (December, 1982) the state’s unemployment rate was 16.8%. And going up. That month was the peak unemployment rate during the serve downturn of the early Eighties. For all of 1982 the unemployment rate was 15.6%.

Rick Snyder took office in January 2011. The month before (December, 2010) the state’s unemployment rate was 11.2%. And going down. The peak Michigan unemployment rate during the Great Recession was 14.2% in August, 2009. When Governor Snyder took office the Michigan unemployment rate had been falling for 16 consecutive months. For all of 2010 the unemployment rate was 12.7%.

Lets turn our attention to what Governor Blanchard did to grow the Michigan economy and what the results were. First and foremost Jim Blanchard raised taxes. He cut spending as well to deal with a huge budget deficit he inherited along with a horrible economy. Governor Blanchard defied the conventional wisdom of his day – and far more so today – that believed low tax states had the best economies and, even more so, you never raise taxes in an economic downturn.

The income tax went from 4.6% to 6.35%. You read that right: 6.35%. Only one Republican in the state House and Senate – Senator Harry DeMaso – voted for the tax increase. The rest predicted economic ruin. The income tax rate was 6.35% for calendar year 1983 and through August, 1984. When it was reduced to 5.35% through March 1986. When it went back to 4.6% for the remainder of the Blanchard Administration. (The income tax history comes from the Citizens Research Council.)

This was a period not only of higher income tax rates, but the dreaded Single Business Tax – the so-called job killer – was in full force with a rate of 2.35% for the entire Blanchard Administration.

Economic ruin? Hardly!

During the eight years of the Blanchard Administration employment in Michigan went from 3,193,000 in 1982 (the year before he took office) to 3,946,000 in 1990 (the year he left office). An increase of 753,000 jobs. The biggest annual job gains occurred in the three years when the higher income tax rates were in full effect: 1983-5. Job growth in those three years was from 3,193,000 to 3,561,000. An increase of 368,000, an average of almost 123,00 per year. Over the eight years the state’s annual average unemployment rate went from 15.6% in 1982 to 7.7% in 1990.

As the table below makes clear the Blanchard years saw greater growth in payroll jobs than either the Engler years or the Snyder years. Michigan governors who cut taxes as the center piece of their economic growth strategies.

The first Blanchard Administration––when the highest income tax in Michigan history was in effect––had the largest gain in payroll jobs. The annual average payroll job growth in the Blanchard years was 94,000; in the Engler years 45,000, and in the Snyder years 69,000.

So much for you can’t raise taxes and get job and economic growth!

Having said that I don’t believe that the Blanchard tax increases were a major reason for Michigan’s growth in the Eighties. Anymore than I believe the Engler tax cuts were a major reason for Michigan’s economic growth in the Nineties. Or the Snyder business tax cuts had much of anything to do with the growth we experienced in the 2010s.

The evidence is overwhelming that what drives Michigan’s economy is the national economy and, most importantly, the domestic auto industry. State policy is at best a weak lever in driving the economy.

But what the Blanchard years demonstrate is that you can raise taxes and have strong growth. When you both raise taxes and control spending during a severe downturn you can both grow the economy and improve the standard of living and quality of life of all Michiganders by having adequate funds for a decent safety net and public investments in education, quality of place and infrastructure.

The post The Blanchard recipe for economic revival appeared first on Michigan Future Inc..

We are all told that we need to have savings of 3-6 months to deal with emergencies. One of the lessons we are learning from our pandemic-driven economy is that a lot of workers don’t earn enough to have savings.

Everyday, in every community in Michigan, we are confronted with the vast number of low-wage workers in the leisure, hospitality, retail and personal services industries who have lost their jobs and no longer can make ends meet. As well as those who get us food and prescription drugs and who care for us who are not only putting their lives on the line to serve us but also are struggling to pay for the necessities.

They live paycheck to paycheck not because they are irresponsibly buying “unnecessary” luxuries, but because they are in low-wage jobs that leaves them struggling to pay for the necessities. As we wrote in a previous post:

That reality should now make clear to all of us that a vast majority of those struggling economically and without any safety net to deal with emergencies are hard working Michiganders. Who like us get up every day and work hard to earn a living. That the prime reason for so many struggling is not irresponsible adults coddled by a too-generous public safety net, but rather an economy, even when it is booming, has too few jobs that pay family-sustaining wages and provides health coverage and paid leave.

The Federal Reserve Board of Governors recently released a new quarterly data series that estimates the assets, liabilities, and net worth of American households in total and distributed among four percentile groups. This wealth is not equally distributed.

In 2018 the average net worth of the richest 1 percent of households was $24,561,596; the average net worth of the next richest 9 percent of households (90 to 99th percentile) was $3,371,803; while the average net worth of the 50th to 90th percentile group was $559,601. The poorest 50 percent of American households, however, had an average net worth of only $18,647.

You read the right. Half of American households––in a boom economy––had virtually no, particularly liquid, savings. This, of course, is consistent with the Feds’ finding that 40 percent of households couldn’t pay an unexpected $400 bill.

The Michigan Association of United Way’s basic necessities budget does not include savings. For a single adult the basic necessity threshold is $21,036, for a family of two adults with one infant and one preschooler it is $61,272. As the pandemic is teaching us there just aren’t enough jobs that pay enough to earn beyond those thresholds to be able to save.

Savings, of course, provides far more than the ability to get through an emergency. Everything from buying a house, to paying for education for ourselves and our kids and having a decent retirement depend on savings.

If we are serious about an economy that benefits all, being able to pay the bills during emergencies needs to be included. That means higher wages and better benefits for low-wage workers and/or an expanded safety net.

To their credit––on a bi-partisan basis––in both Lansing and Washington policy have temporarily expanded unemployment insurance and paid leave. Let’s hope that this pandemic-driven economy has taught policymakers that this is not a temporary problem, it is structural. That the need for higher wages and better benefits for low-wage workers and/or an expanded safety net is vital no matter how strong the economy.

The post Pandemic lessons: savings are vital appeared first on Michigan Future Inc..

The call to action we co-authored with economic and community development leaders from across the state was released just prior to the pandemic slamming Michigan. It calls on our state, regional and community leaders to make rising household income for all a preeminent priority of state and local economic policies and programs.

To make the case for a rising income for all as a state economic priority the call for action cites data that, despite a strong economy and historically low unemployment rate, around four in ten Michigan households were struggling economically.

To us the data make clear that the preeminent reason so many Michigan households struggle to pay for basic necessities is that the economy is producing too many low-wage jobs. This is structural. We are not growing our way out of too many low-wage jobs. Lots of businesses that employ lots of people have business models based on low-wage workers.

Michigan’s wages and employer paid benefits per capita are 14 percent below the national average. As recently as 2000, Michigan’s wages and employer paid benefits per capita were one percent above the national average.

Sixty percent of Michigan jobs pay less than $20 an hour. A full 40 percent pay less than $15 an hour. A $15 or $20 an hour job may well be fine for young persons working their way through school. However, a majority of Michigan jobs are in occupations with a median wage of less than $40,000 a year for a 40-hour week.

To put $40,000 in context, the Michigan Association of United Ways calculates the cost of paying for basic necessities in Michigan is $61,272 for a family of two adults with one infant and one preschooler.

Then the pandemic and social distancing came to Michigan. You no longer need data to make the case that structurally the Michigan economy has too many of us working in low-wage jobs. Many without health coverage and almost none with paid leave. And because these low-wage workers are struggling to just pay the bills for necessities, most have little or no savings.

Everyday, in every community in Michigan, we are confronted with the reality of the multitude of low-wage workers who have lost their jobs and cannot pay for the basics. And we are all more aware now than ever about how much we depend on low-wage workers to get our food and prescription drugs and other daily necessities. Not to mention all the low-wage workers who are so vital in health care, child care and other caring enterprises.

That reality should now make clear to all of us that a vast majority of those struggling economically and without any safety net to deal with emergencies are hard working Michiganders. Who like us get up every day and work hard to earn a living. That the prime reason for so many struggling is not irresponsible adults coddled by a too-generous public safety net, but rather an economy, even when it is booming, has too few jobs that pay family-sustaining wages and provides health coverage and paid leave.

To their credit policymakers––on a bi-partisan basis––in both Washington and Lansing have responded to our collapsing economy by temporarily expanding unemployment and paid-leave benefits and are providing households with cash and expanded food assistance to help households pay their bills.

All of a sudden off the table are calls to continue to shrink the safety net; impose work requirements to access public benefits; and unemployment benefits that do not cover part-time and gig-economy workers.

We need that bi-partisan consensus to continue once the pandemic has passed. This is the prime economic challenge of our times: having an economy that provides family-sustaining jobs––not just any job––so that all working Michigan households can raise a family and pass on a better opportunity to their children.

We can––and should––debate how to achieve an economy that benefits all. And who should pay for the needed policies and programs. What we should not and cannot ignore is that our economy structurally is leaving too many behind.

The first step in solving this problem is to recognize that there is a structural problem that will not be fixed when the economy starts to grow again. The second step is to expand the metric of our economy’s success beyond the unemployment rate. It must also include a focus on a rising household income for all.

In order for Michigan to succeed, Michigan’s families need to succeed. As is now crystal clear, far too many of our families have not been succeeding for far too many years. If they are not succeeding, our state is not succeeding.

The post Economic lessons from the pandemic appeared first on Michigan Future Inc..

Using data covering the expansion following the Great Recession (2011-17) and focusing on short-term labor market transitions, we find that around 70 percent of low-wage workers stayed in the same job, 11 percent exited the labor force, 7 percent became unemployed, and 6 percent switched to a different low-wage job. Troublingly, just slightly more than 5 percent of low-wage workers found a better job within a 12-month period.

So if you are in a low-wage job you are far more likely (18 percent) next year to not be working than you are to move from a bottom quartile job to one in the second through fourth quartiles (5 percent). Not exactly the story we like to tell ourselves about low-wage work as the first rung on a job ladder that will take many to better-paying jobs as their career progresses.

The report uses the term low-wage worker for bottom-quartile occupations,  but they calculate occupation status based on more than wages. They also measure employer paid health care benefits, whether the job is full time or not and the occupation’s prestige. Bottom-quartile occupations: ” … pay an average wage of $13 per hour. They deviate by an average of seven hours from a 40-hour work week and provide benefits for less than half of those who hold them.”

Other key takeaways from the research:

• The more education and the younger you are the more likely you are to move up to a higher-quartile occupation
• The occupations bottom-quartile workers most move up to are truck driver, office assistance and sales.
• Very few move up to a better-paying job in manufacturing
• People with low-wage jobs in the health care and social assistance industry are likely to keep the same occupation or transition into a different low-wage job—healthcare (and social assistance) workers are less likely to move into better jobs.
• The job types with better long-term prospects to move up are those that involve people skills, including communication, presentation, and organization.

Richard Florida, one of the report’s authors, concludes that:

Even with the unemployment rate at less than 4 percent, more than 65 million Americans—almost half of the entire workforce—toil in low-paying jobs in fields such as food service, retail, and personal and health services. The only real solution to America’s jobs problem is to make these currently low-paying and precarious service jobs into better, higher-paying jobs.

The combination of too many low-quality jobs and the reality that very few low-quality job holders move up even in a strong economy makes the case that we need to explicitly make shared prosperity an economic priority. We detail the need for a shared prosperity policy agenda and lay out what that agenda should include in our Sharing prosperity with those not participating in the high-wage knowledge-based economy report. In it we write:

How do we help those not capturing the benefits of globalization and technological change –– in Michigan’s case, the majority of workers –– earn enough to pay the bills, save for retirement and their kids’ education, and pass on a better opportunity to the next generation? The answers largely need to come through public policy. Market forces alone, almost certainly, will not turn low-skill, low-wage jobs into family-supporting work. The only way we can do that is through a commitment to shared prosperity.

Along with access to education, opportunity also means supporting all Michiganders in navigating the barriers that stand between them and a full-time, family-supporting job. A range of roadblocks ranging from limited knowledge of job openings; to lack of housing, transportation and childcare; to lack of work-ready or job-specific skills; to physical or mental health issues; to a history of addiction or incarceration, often block the path of those seeking work. Further, people facing barriers almost always struggle with more than one. What’s needed is a comprehensive approach to mitigating these obstacles, such that we can get more Michiganders into full-time work.

Finally, opportunity means that available jobs need to offer sufficient hours and wages to, at minimum, keep workers out of poverty, and ideally offer a spot in a broad middle-class. Many jobs available to Michigan workers fail to provide income security. Over 40 percent of jobs in Michigan pay less than $15 per hour. In addition to getting individuals into work, we need to ensure that work offers financial security. Augmenting wages and benefits through some combination of employer mandates and/or a strengthened safety net.

The most impactful employer mandates levers we identified include boosting the minimum wage; improving collective bargaining rights; paid family and medical leave; and insuring stability for hourly workers. The most impactful strengthened safety net levers we identified include an expanded Earned Income Tax Credit and protecting and expanding Medicaid and CHIP.

The post Not much of a job ladder for low-wage workers appeared first on Michigan Future Inc..

Around the country, and especially in central Iowa, the low unemployment rate has slowly but surely tipped the balance of power away from employers and towards workers, who here in the Hawkeye State have been able to demand higher wages, better working conditions, more generous benefits, training programs, and myriad other perks.

Wage growth is picking up but still anemic. The employment to population rate is going up to as the strong economy draws more off the sidelines. The biggest change seems to be in who gets hired, including employer’s offering training rather than only hiring those deemed employment ready. The Atlantic writes:

Iowa’s tight labor market has forced employers to offer training, reach out to new populations of workers, and accept applications from workers they might not have before — expanding and up-skilling the labor pool as a whole as a result. “Their attitude really seems to be changing,” said Soneeta Mangra-Dutcher of Central Iowa Works, a workforce development nonprofit. “They are looking at populations differently, who they should be looking at when they have jobs to fill, or people being screened out for things that really don’t have an effect on the job.”

Good news indeed! But what full employment in Des Moines has not fixed and is highly unlikely to do so no matter how much demand for workers exceeds the supply of workers is the high number of jobs that don’t pay enough to allow workers to pay for basic necessities. The Atlantic reports:

Low wages continue to be an extraordinary problem preventing workers from connecting with a good job and keeping potential employees on the sidelines — in Iowa and across the country. “Even though we’re such a low unemployment state, we are also low-wage state,” Buck of the United Way (Elisabeth Buck, the president of the United Way of Central Iowa) said. “People think that when you have a state or a community that has low unemployment, that everyone’s doing great. That is not the case. We still have about 34 percent of central Iowans who are not making enough to be financially self-sufficient.”

… Plus, though central Iowa’s low jobless rate has helped workers of color, less-educated workers, younger workers, and others who face discrimination in the labor market, it remains true that it is the best-off that have done the best. Growth and low unemployment are not a cure for inequality, and it would take years and years and years of full employment to restore financial security to the middle class and to boost the fortunes of the poor. “There are many people who are working multiple jobs and are still living in poverty here,” Fugenschuh (Julie Fugenschuh, the executive director of Project IOWA, a training initiative for local workers) told me. “The unemployment rate is really not a number that says we’re doing super great.”

Lots of low wage/no or low benefits work is a structural feature of the American economy. It is a reality no matter how strong the economy is. Yes a strong economy is better for American households. But it is not enough to produce an economy that is working for everyone. So we need economic policy that makes a rising household income the goal. Rather than assuming that a low unemployment rate will benefit all. Shared prosperity needs to become a priority.

What a shared prosperity agenda for Michigan should look like is the subject of our A Path to Good-paying Careers for all Michiganders: Sharing prosperity with those not participating in the high-wage knowledge-based economy report . The recommendations include raising employment earnings (wages and benefits) for those in lower-paid work by some combination of employer mandates and/or an expanded safety net (including an expansion of the Earned Income Tax Credit, health insurance and child care benefits).

No, Michigan does not have a too generous safety net that discourages people from working. As we documented in our State Policies Matters report Minnesota has a far more generous safety net than Michigan. And it is second nationally in the proportion of those 16 and older working, Michigan is tied for 37th. If the same proportion of Michiganders age 16 and above worked as Minnesotans there would be 725,000 more Michiganders working today.

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The problem is that the unemployment rate isn’t a great measure of how many people are working (not to mention how much they’re working or how much they’re earning). This is because the rate fails to take into account all of the people who are “sitting on the sidelines,” who don’t have a job and also aren’t looking for one – people who’ve left the labor force.

When we take these people into account, the picture – both nationally and here in Michigan – is a lot less pretty. In the booming economy of the late 90s – the last time the economy was thought to be at full employment – roughly 64% of those in the U.S. over the age of 16 were working, versus roughly 60% today, and the employment to population ratio for prime-age workers (25 to 54) was three percentage points higher in the late 90s than it is today. In other words, the unemployment rate doesn’t come close to telling the whole story.

Things look worse in Michigan. One data point we frequently cite is that if the proportion of Michigan adults working today was the same as it is in Minnesota, an additional roughly 800,000 Michiganders would be working. While nearly 67% of Minnesota’s 16 and over population is working today, the same figure is just 58% for Michigan.

This suggests that Michigan’s low unemployment rate represents not a healthy economy, but the thousands of Michiganders who have completely dropped out of the labor force.

How to get people back to work

People drop out of the labor force for a variety of reasons. Some may give up looking for a job because of child care and transportation obstacles; some may qualify only for low-wage, part-time work that doesn’t enable them to afford basic necessities; and some may simply have gotten discouraged, unable to find demand for their set of skills.

While the reasons for dropping out of the labor force are complex, the solution proposed by many policymakers is simple: provide greater “incentives” for individuals to work, which often translates to draconian cuts to safety-net benefits. The theory here is that a strong safety-net provides a disincentive to work, and cuts to the safety-net incentivizes work by giving people no other recourse to get food or healthcare or cash assistance.

It just turns out that the theory is wrong.

The chart below comes from a paper by Flavia Dantas and L. Randall Wray at the Levy Economics Institute of Bard College, titled Full Employment: Are We There Yet? The graph charts the labor force participation rates – the percentage of working age people either working or actively looking for a job – in OECD nations. While the U.S. is down around 80%, dozens of countries known for their generous social safety-nets have rates over 85%, with two of the most generous (Iceland and Sweden), up over 90%.

And as for our Minnesota comparison, our Midwestern neighbor hits an employment rate almost 10 percentage points higher than Michigan’s while providing a far more generous set of safety-net supports.

What’s going on here? First, there’s significant empirical evidence that generous benefits don’t, in fact, meaningfully lower work rates. In fact, recent evidence suggests that a more generous safety-net may in fact encourage work participation, not to mention provide a more solid foundation for the next generation. For example, increased child-care subsidies may enable a parent to pursue employment while providing the child with a stimulating and nurturing environment.

All of this suggests two things. The first is that a low unemployment rate doesn’t mean that everyone’s doing well, that everyone who wants a job has a job. This is far from the case here in Michigan. But we also shouldn’t assume that the way to get more people off the sidelines and back into the labor market is to cut more of our already withered social safety net. Instead, it may in fact be necessary to expand the safety-net, and design it in a way that supports individuals back into the workforce.

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The second understanding is that this situation won’t be solved by market forces alone. The market is simply not creating enough jobs that pay a family supporting wage, or efficiently matching workers with opportunities. The clearest illustration of this fact comes from the recently updated ALICE report put out by the Michigan Association of United Ways, which shows that 40% of Michigan households are unable to afford basic necessities. Over 60% of these households are led by a working adult, but the majority of available jobs – both today and for the foreseeable future – are low-wage.

It’s within this context that we make recommendations in our report for how we can get more individuals into family-supporting work.

There are two prongs to our approach. One is to increase the number of good-paying jobs available to all Michiganders, through public policy levers. This will be the subject of my next post.

But this first post is dedicated to how we get individuals into the jobs that are available, by helping them overcome the range of barriers that often stand between them and stable employment.

Why don’t people work?

The barriers individuals face in finding and keeping a job can range from the minor to the seemingly insurmountable. Potential barriers include everything from being unable to find job openings; lack of adequate housing, transportation and childcare; lack of general or job-specific readiness skills; physical or mental health issues; a history of addiction or incarceration, or anything in between. And evidence suggests that few unemployed workers face just one single barrier, but rather are dealing with a range of interrelated issues.

It’s also important to understand that the popular narrative of individuals not working and simply living off of safety-net benefits is, essentially, wrong. In the first place, relatively few poor families in America receive any cash benefits anymore – just 16% of all Michigan families in poverty. But even when a far larger portion of the low-income population did receive benefits, the vast majority did in fact use it as temporary assistance while they found employment, while those that ran up against time-limits were those that faced the largest obstacles to employment.

In fact, a generous safety net may even encourage a higher work rate. Minnesota’s safety net is far more generous than Michigan’s. Yet 67% of Minnesotans over 16 work, versus just 58% in Michigan. If Michigan had the same work-rate as Minnesota, 800,000 more Michiganders would be employed today. If a stronger safety net encourages some sense of stability – the ability to afford rent, transportation, or child care – that enables individuals to find and keep a job, a strong safety net could indeed encourage increased employment.

How to help people find work

Our social safety net is built around work. If you lose your job through no fault of your own, you can claim unemployment insurance while you get back on your feet. If you’re poor, you’re eligible for cash assistance through the TANF program, with the understanding that you’ll be engaged in activities designed to get you on the path to work.

The premise of these programs is that while no one has an entitlement to cash assistance, everyone is entitled to the opportunity to attain well-paying work.

The welfare reforms of the mid 90s were built on this central idea: cash supports would now be temporary, but the government would put more resources into ensuring people had the supports needed to put them on a path towards a family supporting wage.

Michigan’s safety net has failed on both of these fronts. Through policy changes and underinvestment in the state’s TANF system and unemployment insurance system, a large chunk of out of work Michiganders receive little to no cash assistance, nor do they receive the supports needed to obtain family-supporting work.

Our solution, as detailed in our report, is built around two pillars. The first pillar is to make it easy for those out of work to receive some form cash assistance. Cutting cash benefits both removes some semblance of stability for poor families, and removes the individual from the system of supports that can help put them on a path to family-supporting work. We should want Michiganders to be able to access benefits, both to provide desperately needed stability, but also to connect parents to valuable work-supports.

This means removing arbitrary lifetime limits on the receipt of cash assistance, increasing the generosity of cash benefits in both our welfare and unemployment insurance system, and using TANF dollars for core TANF purposes (cash assistance, work-related supports, and childcare assistance), rather than using the funds to plug holes elsewhere in the state budget.

Paired with a more generous safety net, the second pillar of our plan is to dramatically increase the supports individuals receive to get on the path towards family-supporting work. Our proposed approach is based on a 2014 House Budget Committee report by Paul Ryan titled Expanding Opportunity in America. In the report Ryan describes a system in which all supports would revolve around a central caseworker who would refer clients to a range of service providers, help them navigate a thicket of services and benefits, and recommend potential educational and job-placement pathways.

This approach offers the flexibility to offer comprehensive and customizable supports to a range of individuals – from those facing multiple barriers to employment to those that are just temporarily out of a job – and has the potential to support individuals not just into a first job, but through multiple steps on the path to family supporting work. In a hypothetical case Ryan presents, a case manager guides a client from an entry-level retail job all the way through to college graduation and a full-time teaching position. Safety net benefits continue until the recipient is in stable good-paying employment.

This is a far different approach from traditional workforce development services, which have traditionally focused on job-seeking skills (e.g. interview and resume prep), and measured success by first-jobs and benefit reductions.

Such a plan would not be easy, nor inexpensive, to implement. It would require highly-qualified, well-paid caseworkers; shifting our definition of success from short-term employment to long-term financial well-being; and offering comprehensive services not only to those in poverty, but to workers across the economic spectrum in need of support. But without those supports, the story that’s played out over the past two decades won’t change.

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