Hardship: The Welfare Consequences of Labor Market Problems: A Policy Discussion Paper

Abstract

The detailed hardship data for 1974 through 1980 which are analyzed in the text are available upon request.These include alternative tabulations for 1979 which use the popula tion estimates from the 1970 Census and the population estimates from the 1980 Census, respectively, to weight the Current Population Survey data.The latter estimates are used in most circumstances.When the 1970 Census-based estimates are utilized because of greater convenience or appropriateness, an asterisk notes this use in the text.The hardship data for 1981, which were only available after this volume was completed, are analyzed in separate publications and can also be provided upon request. IV PREFACEHow many really suffer as a result of labor market problems?This is one of the most critical yet contentious social policy questions.In many ways, our social statistics exaggerate the degree ofJKardship.Unemployment does not have the same dire consequences today as it did in the 1930s when most of the unemployed were primary breadwinners, when income and earnings were usually much closer to the margin of subsistence, and when there was no safety net for those failing in the labor market.Increasing affluence, the rise of multiple earner families, the growing predominance of secondary earners among the unemployed, and im proved social welfare protections, have unquestionably mitigated the welfare consequences of joblessness.Earnings and income data also overstate the dimensions of hardship.Among the millions with hourly earnings at or below the minimum wage level, the overwhelming majori ty are from multiple-earner, relatively affluent families.Most of those counted by the poverty statistics are elderly, handicapped or have family responsibilities which keep them out of the labor force, so the poverty statistics are by no means an accurate indicator of labor market pathologies.Yet there are also many ways our social statistics underestimate the degree of labor marketrelated hardship.The unemployment counts exclude the millions of fully employed workers whose wages are so low that their families remain in poverty.Low wages and repeated or pro longed unemployment frequently interact to undermine the capacity for self-support.Since the number experiencing joblessness at some point during the year is several times the number unemployed in any month, those who suffer as a result of forced idleness can equal or exceed average annual unemployment, even though only a minority of the jobless in any month really suffer.For every person counted in the monthly unemployment tallies, there is another working part-time because of the inability to find full-time work, or else outside the labor force but wanting a job.Finally, income transfers in our country have always focused on the elderly, disabled and dependent, neglecting the needs of the working poor, so that the dramatic expansion of cash and in-kind transfers does not necessarily mean that those failing in the labor market are adequately protected.Mountains of facts, figures and learned treatises have been marshalled to prove that the truly needy are few and far between.An equally imposing volume of contradicting evidence documents uncounted and unmet basic needs.The result is confusion.It is uncertain and bit terly disputed whether those suffering seriously as a result of labor market problems number in the hundreds of thousands or the tens of millions, and, hence, whether high levels of joblessness can be easily tolerated or must be countered by job creation and economic stimulus, whether the safety net needs dismantling or strengthening, and whether the longterm hardship trends justify a "laissez faire" response or demand fundamental restructuring of labor markets and the income distribution system.There is only one area of agreement in this debate-that the existing poverty, employment and earnings statistics are inadequate for one of their primary applications, measuring the welfare consequences of labor market prob lems.This book presents a set of new measures developed to determine who really suffers as a result of joblessness, low earnings and involuntary part-time employment.Available employ ment, earnings and poverty data are structured into an array of core indicators which incor porate alternative need and workforce attachment standards, which assess the severity of problems, as well as the numbers affected, which consider earnings from both an individual and family perspective, as well as considering earnings supplements including in-kind aid.The aggregate measures, in turn, are disaggregated to identify the relative hardship burdens for different population segments and geographic areas.These measures are, then, used to reassess long-term and cyclical labor market developmentsTTKe changing status of minorifres, tHe^ interrelationships between"family pat terns^ and employjmLent_problems, the effectiveness of income transfers^or the working poor, alternative macroeconomic_£olicies and ahost of other issues.The dual aim ofThese apptTcations is to demonstrate the utility~and reliability of the new measures, while providing needed perspective on employment problems and policies.The aim was not just to develop and gain acceptance for a new statistical indicator, but to design a comprehensive system for measuring and analyzing the y elf are consequences of labor market problems.The hardship measures were intended as a "third leg" in our social statistics system, supplementing poverty and unemployment data and providing alternative perspectives on the major issues which have been analyzed using poverty and unemployment as proxies for labor market-related hardship.This ambitious undertaking was based on the assumption that in order to fully address earlier critiques of hardship measures, to cope with the inherently complex issues, to validate the internal consistency of the data and to demonstrate their varied uses, it was necessary to provide detailed information and com prehensive analysis.Tradeoffs were anticipated, though underestimated.The chances for er ror and its discovery, the difficulties of definitional refinement, tabulation and analysis, as well as the problems of comprehensible presentation, multiplied with each disaggregation and application.In retrospect, the ambitiousness of the effort was naive, somewhat Faustian and probably misplaced.I can only hope that in struggling through the mind-numbing statistics and terminology, or in weighing the inevitable shortcomings and mistakes, the reader will give some credit for my having "dared to fail greatly," as well as for my intellectual persistence, if not perspicacity.This work is a reflectior^ofjilteer^ with Sar Levitan.Dr. Levitan was one of the first to recognize the need to integrate income and employment statistics.He was among the initial developers and advocates of hardship measures.As Chairman of the Na tional Commission on Employment and Unemployment Statistics, he worked long and hard to gain consensus for the adoption of hardship indicators.Sar supervised and supported the work on this volume, encouraging greater simplicity and succinctness.He should not be blamed because I ignored this sage advice.The Bureau of the Census tabulated the hardship measures under contract from Dr. Levitan's Center for Social Policy Studies at The George Washington University and MDC Incorporated.The Census Bureau is not responsible for any definitional errors, and it does not necessarily endorse nor approve the measurement concepts.However, without the hard work, expertise and good will of its technicians, this book would not have been possible.In particular, I would like to recognize the contributions of Gregory Russell who helped refine and validate the measures, as well as supervising their tabulation.This study was made possible by grants from the Charles Stewart Mott, Edna McConnell Clark and Ford Foundations.It was only completed because Nancy Kiefer and Cathy Glasgow kept working to the last minute before entering the counts of the unemployed and discouraged, and because Theron remembered what the blind men of Hindustan never learned. VIAt the beginning of the 1960s, two-thirds of poor family heads worked, and a third worked full-time, full-year.Two decades later, less than half worked at all, and only 16 percent full-time, full-year.In other words, a declining portion of economic hardship (as measured by the poverty counts) is labor market-related.Policies designed to alleviate labor market-related hardship may be misdirected to the extent they are based on poverty, unemployment, or wage data alone.--------t Where unemployment rates are used to distribute employment and training resources, large metropolitan areas and particularly their suburbs receive a far larger share than if hardship measures were used.The volatility of unemployment rates also leads to significant year-to-year fluctuations in local funding, with adverse programmatic consequences, even though the underlying structural problems to which interventions are addressed remain relatively stable.On the other hand, the use of poverty rates for allocation tends to divert resources to areas whose problems may not be labor market-related or amenable to such interventions.tLocal or national employment and training policies which target resources to population subgroups based on their relative unemployment rather than hardship rates divert scare resources to solving temporary problems with less serious consequences; conversely, targeting on the basis of poverty diverts resources to individuals and areas whose problems cannot necessary be solved by employment-oriented interventions.Across-the-board increases in the minimum wage have a modest impact on alleviating poverty, and a substantial portion of the benefits are realized by workers in affluent families.Wage data alone suggest only the gains which are realized by minimum wage increases, while hardship measures capture the

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