Assignment 3: Economic Policy Recommendation
ECO 405 – Economic Problems and Issues
According to the text in today’s American economy, poverty is essentially an income distribution problem. The U.S. economy generates enough income to go around so that no one really has to live in poverty. But enough income does not go to everyone, and some people do live in poverty. Poverty is concerned with the relationship between the minimum needs of people and their ability to satisfy those needs. The difficulty with any definition of poverty involves the meaning of minimum needs and the amount of money required to satisfy these needs (Ansel M. Sharp, 2013). Those in poverty sometimes face an additional obstacle to earning an adequate income. Discrimination as we use it means that equals are treated unequally or that the ‘unequal’s are treated equally. Discrimination exists in the labor market when people with equal productivity are paid different wages or people with differences in productivity are paid equal wages. Discrimination can also exist in the product market when consumers pay different prices for the same product (Ansel M. Sharp, Evidence of Discrimination in Our Economy, 2013).
In 2001, some six-point-eight million families, or nine-point-two percent of all families, lived in poverty. This translates into more than thirty-two-point-nine million individuals, a staggering number to many Americans who have never been personally touched by poverty. Indeed, some have characterized those who live in poverty as the hidden poor. Studies have shown that there is a significant turnover in the poverty population: Families and single individuals move into and out of poverty several times throughout the years in response to significant life events. Although no reliable estimate exists for the number of hardcore poverty cases, the incidence of poverty can be easily seen to vary dramatically across a number of demographic characteristics (Ansel M. Sharp, What is Poverty? 2013). Just imagine searching through heaping piles of refuse at landfills, looking for anything that could seem partly edible, to satisfy an unending hunger. Many people around the world face this situation every day of their lives. What could have caused a situation like this to occur? The education and skill level, health or handicap status, and discrimination play a vital role in poverty.
A major factor determining whether someone will end up living in poverty, education or skill level can make or break an income. Education plays a vital role in acquiring jobs, learning new skills, and bringing home necessities and comforts of life. A person who doesn’t receive an education has a very small chance of making much money and acquiring skills that would bring home a desirable income. Many who do not have an education bring their family into a cycle of poverty, where their posterity doesn’t necessarily have the income to go to college or even don’t have a desire to acquire a high school diploma. Poverty rates are higher among families with only one parent or head of household present. Poverty is also related to age, those very young and those very old have higher rates of poverty than those in their prime and middle-age years. The economic cause of poverty is family incomes depend on the quantities of resources that families can place in employment and the prices received for those resources. To understand poverty, then, it is important to understand what determines the prices paid for human and capital resources and what determines the quantities that can be employed. Under competitive market conditions, the basic principle of wage rate determination is that units of any kind of labor tend to be paid a price equal to any one worker’s contribution to an employer’s total receipts. In other words, workers are paid about what they are worth to employers. What a worker is worth to an employer is referred to by economists as the marginal revenue product of labor (Ansel M. Sharp, The Economic Causes of Poverty, 2013).
Market discrimination may be traced to two primary sources. These are the power to discriminate in the market and the desire to discriminate. In our complex market economy, the wages of workers vary widely. Even workers hired by the same employer to perform similar jobs are often
paid different wage rates. The meaning of wage discrimination is clear enough: unequal pay for equal contributions. But proving discrimination depends on being able to distinguish among individuals on the basis of individual efforts and productivity. Generally, humans are paid approximately what they are worth in a competitive economy. (Ansel M. Sharp, Evidence of Discrimination in Our Economy, 2013).
Employment discrimination means that some people are not hired because of non-economic characteristics such as race or gender. Two individuals with the same training, education, and experience apply for a job, however one is black and one is white. If both do not have the same chance of getting the job, discrimination has entered into the decision-making process. There is a growing belief that discriminatory differences in pay, especially gender differences in pay, occur largely because of occupational segregation. In general, men work in occupations that employ very few women, and women work in occupations that employ very few men. The economic results of occupational segregation for women are low wages. Women are often relegated to occupations where productivity and experience have little to do with their status and where opportunities for overtime and premium pay are limited. Price discrimination occurs when people of different races or genders are forced to pay different prices for the same good or service, provided the differences are not due to differences in cost of serving the consumer (Ansel M. Sharp, Evidence of Discrimination in Our Economy, 2013).
It may seem that racism and discrimination doesn’t exist anymore in the US, with the election of an African American as president, but discrimination still harbors here. To see discrimination first hand, just travel south a few hundred miles where pickup trucks still have the Confederate flag painted on their cabs and many houses have a Confederate flag flying, which a minority in the area views as racist. Discrimination has played a huge role in shaping economies and creating poverty; women, for instance, still reflect a small portion of engineering and higher income job percentages. Discrimination still affects the poverty rate and unemployment.
According to text, there are two approaches and only the government can really solve this problem to easing poverty. First, the productivity of the employable poor can be increased. This can be accomplished through subsidized education of the children of the poor, adult training and education programs, counseling and guidance, job placement programs, and the elimination of discrimination. Second, a minimum annual income can be guaranteed. Income-support programs are required to aid those who are unproductive and those who have low productivity (Ansel M. Sharp, Government Attempts To Alleviate Poverty, 2013). Dr. Martin Luther King said it best, his exact words are; “two conditions are indispensable if we are to ensure that the guaranteed income operates as a consistently progressive measure. First, it must be pegged to the median income of society, not the lowest levels of income. To guarantee an income at the floor would simply perpetuate welfare standards and freeze into the society poverty conditions. Second, the guaranteed income must be dynamic; it must automatically increase as the total social income grows. Were it permitted to remain static under growth conditions, the recipients would suffer a relative decline. If periodic reviews disclose that the whole national income has risen, then the guaranteed income would have to be adjusted upward by the same percentage. Without these safeguards a creeping retrogression would occur, nullifying the gains of security and stability. This proposal is not a “civil rights” program, in the sense that that term is currently used. The program would benefit all the poor, no matter what race you are. He hoped that both race would act in coalition to effect this change, because their combined strength will be necessary to overcome the fierce opposition we must realistically anticipate. Our nation’s adjustment to a new mode of thinking will be facilitated if we realize that for nearly forty years two groups in our society have already been enjoying a guaranteed income. Indeed, it is a symptom of our confused social values that these two groups turn out to be the richest and the poorest. The wealthy who own securities have always had an assured income; and their polar opposite, the relief client, has been guaranteed an income, however miniscule, through welfare benefits.” (Jr., 1967).
Having said that; economists, social workers, and the general public alike widely criticized the old welfare system. This criticism was grounded in the frustration of growing budget requirements for programs that did not appear to reduce the rate of poverty. The Personal Responsibility and Work Opportunity Reconciliation Act were signed during the fall of 1996. Based on the criticisms of the old welfare system, two important themes are reflected throughout the 1996 welfare reform legislation: One. The act places time limits on how long a person or family may receive benefits. And two. The act requires those who receive public assistance to work. In 1997 the old AFDC program was phased out and replaced by state-designed and state-operated Temporary Assistance for Needy Families programs. To qualify for the federal money, each state program must adhere to specific guidelines concerning time limits for assistance and work requirements for able-bodied adults (Ansel M. Sharp, Government Attempts To Alleviate Poverty, 2013). The welfare reform measures retain the basic structure of the Food Stamp program. However, new work requirements have been established for those receiving benefits under the program. Furthermore, the welfare reforms established new disability standards for those receiving and applying for SSI benefits. Changes in the criteria used to establish disability make it more difficult to qualify for income support. For example, under the new system, children with developmental maladaptive behavior problems are no longer considered handicapped and are not eligible for assistance (Ansel M. Sharp, Government Attempts To Alleviate Poverty, 2013). Investments in human capital, which is, spending on education, training, and health, provides a high rate of return in the form of increased productivity and income. Any form of race groups generally do not and cannot invest enough in human capital, and public investment in human capital is unequally distributed. The elimination of human capital discrimination would tend to make most forms of market discrimination, such as wage and employment discrimination, loess effective. The reason is that if human resources are productive and have access to other jobs, treating them unequally would be difficult (Ansel M. Sharp, What Can Be Done About Discrimination, 2013).
The government has undertaken a wide variety of efforts to reduce poverty, including direct assistance for the needy and tax policies to increase disposable income. Many of the federal programs developed piecemeal, and some were not originally designed strictly of the poor. Critics of the old welfare system claimed that the government programs created negative work incentives for the poor and created a culture of poverty. Welfare reform measures in the mid-1900 established a new system of assistance that ties benefits to work and training and places time limits on eligibility. Whether the economy can successfully create enough jobs for welfare workers is yet to be seen. The existence of discriminatory practices, particularly in labor markets, compounds the problems of poverty. The groups with the highest rates of poverty, black families and those headed by a female, are also groups that are susceptible to being victims of discrimination to being victims of discrimination. Furthermore, antipoverty programs and policies must be supplemented by actions to reduce discrimination if they are to be effective in the long run.
The major difference between the old welfare system and the reform welfare system, these programs are financed by block grants from the federal government and state revenues. To qualify for the federal money, each state program must adhere to specific guidelines concerning time limits for assistance and work requirements for able-bodied adults. With these two exceptions states have a nearly free hand in setting their own eligibility requirements and level of support. Under the TANF programs, adults who are not working must participate in community service within two months of receiving benefits. All adults in families receiving income support must work or be engaged in training after 24 months or lose their eligibility for assistance. Also, TANF recipients are subject to a lifetime limit of 60 months of benefits. These minimums increase over time, and states that fail to meet the mark are penalized through reductions in their block grants. States that meet or exceed the goals are eligible for performance bonuses in the form of additional financial support (Ansel M. Sharp, Government Attempts To Allievate Poverty, 2013). Under the old system, all recipients of AFDC automatically qualified for Medicaid benefits. The welfare reform legislation of 1996 severs this automatic link and allows states to set their own eligibility requirements within a set of guidelines. States also have the option of denying Medicaid to person who is not citizens of the United States and those denied income support because of refusal to work. States are required to provide coverage to needy pregnant women and minor children (Ansel M. Sharp, Government Attempts To Allievate Poverty, 2013).
The welfare reform measures retain the basic structure of the Food Stamp program. However, new work requirements have been established for those receiving benefits under the program. Able-bodied adults between 18 and 50 years of age may receive food stamps for only three months during
every 36-month period unless they are engaged in work of are training for work. Special exemptions can be made only on a limited basis for hardship cases. Recipients who work at least 20 hours per week can continue to receive benefits for an uncapped period of time. The welfare reform has established new disability standards for those receiving and applying for SSI benefits. Changes in the criteria used to establish disability make it more difficult to qualify for income support (Ansel M. Sharp, Government Attempts To Allievate Poverty, 2013).
The Personal Responsibility and Work Opportunity Reconciliation Act also address the issue of citizenship. Most of the old system did not give consideration to citizenship or even legal residents status. Under the new system may take these factors into consideration. New immigrants must live in the United States for five years before benefits become available form most programs. The residency requirements are even stricter for food stamps: 10 years of paying taxes or some service in the U.S. military. A number of other requirements are included as part of the welfare reform. For example, those convicted on felony drug charges are prohibited from receiving benefits from most programs. In addition to these changes, a variety of training programs are in place for nutrition programs, health care counseling, and other social service programs were affected by the welfare reform legislation (Ansel M. Sharp, Government Attempts To Allievate Poverty, 2013).
The problems of poverty are compounded by the existence of discrimination in our economy. Antipoverty programs and policies will be less effective if those in poverty are also victims of discriminatory practices in the marketplace. Action to reduce poverty must also be accompanied by actions to reduce discrimination. Reducing the taste for discrimination are to be reduced, people must be persuaded that they should alter their views and behavior. These tastes and desires may be reduced by education, by legislation, and by the use of government subsidies to discourage discrimination (Ansel M. Sharp, What Can Be Done About Discrimination, 2013).
Reducing market defects such as scarce labor market information, imperfect competition, and immobility of labor constitute a major source of market discrimination. Some people receive low wages, this is, wages below what they could earn in alternative employment, because they are unaware of other job openings. Better access to job information would make it less likely for a person to receive income below what he or she would be paid on a similar job. The government has an important role to play in the elimination of discrimination when it is due to the use of monopoly power. It is the responsibility of the government to reduce monopoly power and restore competition in markets where competition is lacking through the vigorous use of antimonopoly laws. Occupational segregation results in overrepresentation of blacks, other minorities, and women in the low-wage sector of the economy (Ansel M. Sharp, What Can Be Done About Discrimination, 2013). The effects of segregation by occupations are twofold. First, the supply of labor is increased in those occupations restricted to minority groups, depressing wages in those occupations. Second, the supply of labor is decreased in those occupations closed off to minority groups, thus increasing wages in those occupations. The result of these effects is to create a wider gap between low- and high-wage occupations (Ansel M. Sharp, What Can Be Done About Discrimination, 2013).
Furthermore, if a member of the minority group crosses over into segregated occupations usually closed to member of the group, he or she has typically not received equal pay for equal work. However, these types of situation have been reversed by the Equal Opportunities Act. Employers are required to bid for minority group personnel. The small supplies available of these workers who are qualified ensure that they will receive salaries above those of white employees (Ansel M. Sharp, What Can Be Done About Discrimination, 2013).
Ansel M. Sharp, C. A. (2013). Evidence of Discrimination in Our Economy. In C. A.
Ansel M. Sharp, ECO 405: Economics of Social Issues: 2013 Custom Edition (20th ed.) (pp. 188-190). Boston, MA.: McGraw Hill.
Ansel M. Sharp, C. A. (2013). Government Attempts To Allievate Poverty. In C. A. Ansel M. Sharp, ECO 405: Economics of Social Issues: 2013 Custom ED. (20 ed.) (pp. 191-197). Boston, MA: McGraw Hill.
Ansel M. Sharp, C. A. (2013). The Economic Causes of Poverty. In C. A. Ansel M. Sharp, ECO 405: Economics Of Social Issues: 2013 custom edition (20 ed.) (pp. 184-187). Boston, MA.: McGraw-Hill.
Ansel M. Sharp, C. A. (2013). What Can Be Done About Discrimination. In C. A. Ansel M. Sharp, ECO 405: Economics of Social Issues: 2013 Custom ED. (20 ed.) (pp. 202-204). Boston, MA: McGraw Hill.
Ansel M. Sharp, C. A. (2013). What is Poverty? In C. A. Ansel M. Sharp, ECO 405: Economics Of Social Issues: 2013 Custom Edition (20 ed.) (pp. 179). Boston, MA: McGraw-Hill Learning Solutions.
Jr., D. M. (1967). Where We Are Going. Retrieved from Lovearth Network: http://www.drmartinlutherkingjr.com/wherewearegoing.htm