Money Culture

February 21, 2023

As the bad first two years of the pandemic recede in the rear-view mirror, a new report reminds us how tough things got for renters.

In 2021, a record 21.6 million U.S. families were paying more than 30 percent of their income on rent, which is the real estate industry’s benchmark for people whose housing costs have become a financial burden. That amounts to just under half of all renter households who were struggling during COVID – very close to the high reached during the Great Recession.

And the vast majority of the 1.2 million increase from 2020’s level was in the group that struggles the most: families who pay more than 50 percent of their income to rent a house or apartment.

Two things were going on that have increased the burden on renters, according to a rent report by Harvard’s Joint Center for Housing Studies. First, rents rose unabated throughout the pandemic and are 25 percent higher than they were at the end of 2019.

But the housing center points to a second factor that added to the burden: renters, who tend to have lower earnings, lost income during the pandemic. The downward shift in their earnings illustrates that. The number of renter households earning less than $30,000 increased by 223,000 in 2021, while the number earning more than $75,000 dropped by 280,000.

The change in the renter population marked “a shift towards households that are much more likely to experience cost burdens,” the report said. …Learn More

December 15, 2022

During the long and tranquil period for inflation that ended with COVID, 18 states passed legislation requiring employers to pay a minimum wage that automatically increases every year to protect their lowest-income workers from inflation.

With inflation surging to 7 percent in 2021 and running even higher this year, the cost-of-living increases are paying up.

Many state minimum wages are now 1 1/2 to 2 times the federal minimum wage, with another round of increases coming in January 2023. Congress, on the other hand, hasn’t increased the $7.25 hourly federal wage since 2009, widening the disparities between the states that tie their minimum wages to the federal level and the states that routinely raise theirs to keep up with inflation.

The federal minimum wage of $7.25 is in effect in Indiana, Idaho, Iowa, Georgia, Kansas, Kentucky, New Hampshire, North Dakota, Oklahoma, Pennsylvania, Texas, Utah, Wisconsin, and Wyoming. For a full-time worker, that adds up to about $15,000 per year or barely above the federal poverty line, though many employers are paying more to compete for workers in the midst of a labor shortage.

The Economic Policy Institute (EPI) estimates that the value of the federal minimum has fallen 12 percent just in the past two years of unusually high price increases. That’s on top of a decade in which the federal wage was sharply eroded by modest inflation year after year.

“These inflation-driven cuts can snowball quickly,” the EPI said in a recent report. “Faster inflation makes it more important, not less, to raise the federal minimum wage.”

Most of the states with legislation on the books to automatically increase their minimum wages had done so well before COVID supply constraints caused inflation to kick up.

Washington, which began indexing its wage in 2020, has the highest state minimum wage, and it will increase by 8.6 percent increase to $15.74 on Jan. 1. In California, the minimum wage will rise to $15.50 an hour for employers with 25 or fewer workers – a 19 percent increase over a two-year period that will bring them into parity with the wage requirement for larger employers. Many other states have scheduled increases to $15 in the next few years. …Learn More

August 25, 2022

Left to their own devices, Americans who lack a retirement savings plan at work do not usually take the initiative to set up an IRA and save on their own.

Oregon lawmakers decided to do something about that, and a new study finds that their approach of requiring employers without a plan to automatically enroll their workers in a state-sponsored IRA is reaching the right people.

Nationwide, lower-income workers are much less likely to have a retirement plan, and the typical employee enrolled in the program, OregonSaves, earns only $22,600. They also tend to work in high-turnover industries like food service and healthcare where constant job changes make it difficult to save consistently. When an Oregon worker finds another job in the state, he can take his IRA with him to the next employer.

Private-sector 401(k)s with auto-enrollment match some of the workers’ contributions and have nearly universal participation. In OregonSaves, the share of people with positive account balances in their IRAs, which don’t have a match, is lower.

But these are the types of workers who don’t usually save, and the vast majority told their employers they had not been saving prior to being enrolled in OregonSaves. The program “has meaningfully increased employee savings,” concluded a new study funded by the U.S. Social Security Administration.

At the end of May, the average balance in about 114,000 IRA accounts was $1,324. The employees have saved a total of $151 million.

Auto-enrollment gets these low-paid workers into the IRA. But an important reason they choose not to opt out – as they are permitted to do at any time – is that they’ve probably known they should be saving for retirement and OregonSaves made it easier. …
Learn More

Money Culture

July 14, 2022

The headline on a January blog asked, “How Long Can Wages Outrun Inflation?” Now we have our answer.

Inflation is increasing two times faster than private-sector wages, according to the Federal Reserve Bank of St. Louis’s handy website. As of June 1, the Consumer Price Index had surged by 9.1 percent compared with the index at the same time last year. Average wages have risen 4.2 percent over the year.

To slow the economy and bring down inflation, the Federal Reserve is raising interest rates. The silver lining is that Americans are still fully employed – the 3.6 percent jobless rate is back to pre-COVID levels – and have used this leverage to secure the hefty wage hikes.

But workers’ standard of living is eroding because their paychecks can’t keep up with a one-year increase in apartment rents exceeding 10 percent and gas prices that have dropped recently but are still well above last year’s prices. The grocery tab is shocking too. The Bureau of Labor Statistics reports that potato prices are up 16 percent, ground beef up as much as 12 percent, and flour is 40 percent more expensive due to the war in Ukraine, the world’s breadbasket.

Inflation is changing the economy in fundamental ways, and it looks like Americans already exhausted by two-plus years of COVID are in for more tough times. …Learn More

July 29, 2021

The Affordable Care Act gives a carrot to states that expand Medicaid from a health insurance program mainly for poor people to one that also includes low-income workers.

Under the 2010 law, the federal government initially paid the full cost of adding more people to the Medicaid rolls, and a large majority of states have signed up. The federal funding for new expansions dropped a bit in 2020 to 90 percent and will remain there.

Yet 11 states are holdouts and haven’t expanded their programs, leaving nearly 2.2 million workers and family caregivers in what the Center for Budget and Policy Priorities calls the Medicaid coverage gap.

The workers falling in the gap, who would qualify for coverage if their states expanded Medicaid, do not have health insurance at their places of employment and can’t afford to buy subsidized insurance through the Affordable Care Act.

The bulk of the uncovered workers are in the South, with half in Texas and Florida. Missouri had been a holdout. But last week, the Missouri Supreme Court ordered the legislature to comply with a voter ballot initiative and fund expansion of the state’s Medicaid. Expansion was also controversial in Oklahoma, but it went into effect on July 1 after voters there approved the measure.

An analysis by the Center sketched a picture of who is in the gap, based on 2019 Medicaid data, the most recent available. People of color comprised about 40 percent of the working-age population but made up 60 percent of the people in the gap in the non-expansion states, the Center estimates.

Nationwide, one in four who lack access to Medicaid are lower-paid essential workers on the front lines during the pandemic. …Learn More