Stephen Monrad

To fight poverty effectively, we need to understand why people choose not to work despite the consequences. There are 4 main reasons I can think of why people choose not to work.

1. Unable to do useful work.

Some people are so sick or have disabilities that make it impossible for them to be productive. If you can’t get out of bed, you are going to have trouble doing anything that someone else will be willing to pay for.

People who are very sick or incapacitated shouldn’t have to work. A compassionate society would happily tend to the needs of these people.

2. Available jobs pay too little.

While living in poverty is unpleasant, it is possible to scrounge up enough to get by. There are charities that provide food and shelter to poor people. You can try your hand at begging. For working to make sense, the pay needs to be high enough to significantly raise your income.

I don’t think it is realistic to expect people to work full time jobs that do not pay enough to keep them above the poverty line.

3. Work requirements are too onerous.

Some people are fragile for one reason or another. They could have a chronic illness that limits how much they can work. They may have a mental illness that makes working in some structured environments difficult. These people can do useful work if the conditions are right.

What these people need is flexibility. Every effort should be made to create opportunities for fragile people to work. Working helps connect people to their community and give them a sense of purpose.

4. Can’t find a job.

Finally, if finding work is difficult, people who would be happy to work might choose not to because they can’t deal with the job search process. In tough economic times, finding a job can be much harder than working.

Somehow the process of matching people to jobs needs to be made more humane. It’s hard not to take rejection by an employer personally. It’s hard to cope with the reality that it can take months or even years to find a job. I think one of the main jobs for economists is to find a better way to match people to jobs.

My belief is that laziness is NOT a reason why people choose not to work. I think we label people who don’t work as lazy when the reasons they don’t work fall into one of the categories discussed above.

The idea of a guaranteed minimum income would be to pay everyone a base yearly amount from the tax base. For the guaranteed income to be effective, it would have to keep people above the poverty rate. If it didn’t, it wouldn’t protect people from the misery poverty brings.

Unfortunately, if people could live comfortably without working, many people would probably choose not to work. Since even a poverty level existence requires significant resources, the burden of supporting those who choose not to work would quickly overwhelm the tax system.

Until the day that robots can do all the work that is needed to keep the economy running, people need to work. Only a small fraction of the population can be carried by those who work.

Instead of guaranteeing people an income without requiring them to work, I think the answer is to guarantee people jobs. If jobs can be provided to everyone who is able to work, the society would only be obligated to support those who are truly unable to work, the sick and infirm. The solution to poverty is to find a way to make jobs plentiful.

It’s hard to create jobs in a market economy, for sure. However, I think it is the only sustainable solution to the problem of poverty.

Most full time jobs are about 2,000 hours a year. Yesterday’s post showed that a single person living in a large city in Canada needed $20,778 a year. That’s over $10 per hour ($10/hour * 2,000 hours/year = $20,000 per year). Next year Ontario plans to increase it’s minimum wage to $10.25 per hour (from $9.50). That’s just enough to keep a single person above the poverty line so long as they work full time hours.

A family of 4 needs $38,610 per year. Nearly two full time incomes at the new minimum wage are needed to stay out of poverty. With the new minimum wage rates in Ontario, families have a chance to stay out of poverty. Both parents have to find steady full time jobs.

Welfare benefits are well below the poverty line. The Ontario Government website doesn’t give a figure because they claim the calculations are complicated. From what I could glean, a single person would end up with significantly less than $10,000 per year, less than half of the poverty line in big cities.

I don’t know if the Low Income Cut-off is the right measure of poverty. What is clear, though, is that poor people need more money.

Statistics Canada has a Low Income Cut Off (LICO) where people spend 20 per cent more of their income on food, shelter and clothing than average families do. There are technical details about tax and data sources, but the idea is simply that if too high of a proportion of your income is being spent on necessities, it becomes difficult to cope with adversity or to participate in community activities.

The numbers for 2005 are:

Source: Statistics Canada. Income Research Paper Series, Low Income Cut-offs for 2006 and Low Income Measures for 2005. Statistics Canada Catalogue no. 75F0002MIE, no. 004.

For reference, the average income for families with 2 or more people in Canada in 2005 was $67,500.

Is being above the LICO cut-off enough for people to live on? You would have to be pretty careful with your money, but you could get by. If all families could be kept above the LICO cut-off, though, I would be satisfied that people’s basic needs were being met.

I could accept an economic system where everyone lives above the economic poverty line defined by the United Nations.

“Fundamentally, poverty is a denial of choices and opportunities, a
violation of human dignity. It means lack of basic capacity to participate
effectively in society. It means not having enough to feed and cloth a
family, not having a school or clinic to go to, not having the land on which
to grow one’s food or a job to earn one’s living, not having access to
credit. It means insecurity, powerlessness and exclusion of individuals,
households and communities. It means susceptibility to violence, and it
often implies living on marginal or fragile environments, without access to
clean water or sanitation”

While this definition doesn’t give dollar figures for poverty, I like the concepts it uses. The idea is that people need not only to be able to meet their basic needs. They need to be able to participate meaningfully in their communities. Poverty isn’t so much about how much you have in absolute terms. It is more about how you can function in your society.

Now that I am focused on what is happening to the bottom end of the income spectrum, a lower bound for what is acceptable needs to be found.

I don’t think there is much to be learned from by looking at the current minimum wages in different places. Minimum wages are set partly with an eye on how they affect unemployment and the competitiveness of different economies. My hope is to address the problem of unemployment directly so that issues of income distribution can be addressed separately.

I don’t think there is any purely objective measure of what an adequate minimum wage should be. I couldn’t think of any moral grounds for arguing that everyone should earn equal wages. I can’t think of any moral grounds for establishing a minimum wage either.

I don’t think a pragmatic approach helps either. I think it would be too difficult to translate an objective like reducing crime into a minimum wage level. There would be the analytical problem of establishing the connection between crime and the minimum wage level and the problem of determining what an acceptable level of crime is.

I think the best approach is to think in terms of long-term sustainability. How much do people need to earn so that they can live without relying on charity and have a decent chance of raising happy healthy children?

I have been thinking more about my crusade fighting for equal pay for all. Here’s where I stand now.

While I think the world would be a better place if all workers were paid the same hourly wage, other people can justifiably disagree. There is no purely moral reason that I can think of to argue against allowing some people to be richer than others, even much richer.

Instead, I am going to take a stand on the bottom end. I am going to try to argue that everyone needs to have access to a job that pays enough to raise them out of poverty. There needs to be a decent minimum wage. Jobs need to be available for everyone. I’d be satisfied if everyone could achieve at least a decent minimum standard of living where they could find enough food, clothing, and shelter to stay healthy and hopefully be happy.

What happens at the top end of the income distribution doesn’t matter as much as what happens at the bottom end. I’m going to focus on what is most important.

I’m starting to wonder if equality and fairness are actually quite different concepts.

My last post on parachuting money from the sky started me thinking. Many people like lotteries and gambling. If money were perfectly evenly distributed in the ideal world of my imagination, people would probably create lotteries and other gambling opportunities.

Many people seem to be happy parting with a few dollars here and there if it gives them a chance to become rich. Even a remote chance seems to be worth the cost of a lottery ticket.

My guess is that what people are really buying is an escapist fantasy. People with more ordinary incomes believe that some of their problems would be solved if only they had more money. Even if their chances of winning are slim, the lottery ticket lets them dream of a world where their financial troubles disappear. Even when people lose, they get a benefit from buying the ticket.

If escapist fantasies make people feel better, maybe having a small chance to get rich helps everyone.

So long as everyone has some chance of becoming rich, it is hard to argue that inequality is unfair. It is even hard to argue that it is even harmful.

I’m going to have to think some more about this.

To remove the role of incentives when thinking about fairness, suppose a crazy dictator wanted to distribute $1 million at random. His plan is to drop it from an airplane and whoever’s property it lands on gets to keep it.

He’s thinking of two options: 1) Throw one big bag with all the money in it so one person gets it all and becomes rich. 2) Scatter one dollar bills to the wind so lots of people get a little.

Which option is fairer?

Assuming that the money toss is random, everyone has an equal chance at getting money however it is thrown. There isn’t anything inherently unfair about either option. There are no favorites.

The results, however, are very different. In the million dollar case, one person is made very wealthy. The result is inequality without any justification. In my opinion this is not good. Inequitable distributions of money are unfair even if the mechanism is unbiased.

A few hundred years ago, people did almost all production by hand. Animals helped a little, but the value of what an individual could produce was limited. Production was a local process mainly aimed at meeting local needs. It made sense to pay people based on the value of what they produced because there wasn’t all that much variation in the value of what people did.

Today the situation is different. Technology amplifies our production immensely. Machinery makes it easier to mass produce physical things. Ideas and knowledge can be transmitted at almost no cost. Markets are no longer primarily local. Items are routinely traded around the world.

Today, successful people can deliver value to thousands or even millions of people. The path to wealth today is to produce something that can be scaled up and delivered to the masses. Even if you earn only a few dollars per sale, if you sell to millions of people, you become very wealthy.

In one way of looking at things, successful people deserve their rewards because they have made the lives of millions of people better.

What I find troubling is that the difference in reward for winning and losing far outstrips the difference in the inherent value of what people do. Bill Gates earned billions of dollars developing software. If we wound back the clock and removed Gates from the field, someone else would have developed the winning operating system and launched a different software empire. In fact, there were plenty of people developing operating systems at the time. Someone else could have stepped in to fill the gap without doing any extra work.

Today, financial rewards are much more loosely connected to effort. Does it make sense to pay people for their success when the difference between runaway success and also ran is so small?