Minimal Wages, Minimal Families

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst. She recently edited and contributed to “For Love and Money: Care Provision in the United States.“

Announcing his support for an increase in the federal minimum wage to $9 an hour, President Obama called attention to the needs of children: “Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong.”

Many Americans share his concerns: 71 percent of Americans polled in mid-February by the Pew Research Center for the People and the Press support the proposed increase, including 50 percent of Republicans.

Influential economists have announced their support as well, including many affiliated with the Initiative on Global Markets at the Booth School of Business at the University of Chicago. Of 38 economists in the group, 18 agreed, 4 disagreed, 12 were uncertain and 4 had no opinion or didn’t answer.

Every time increases in the minimum wage a! re proposed, a centuries-long history of concerns about the impact of the labor market on family life comes into play, setting the stage for fierce debates over regulation.

The classical political economists of the late 18th and early 19th centuries believed that the forces of supply and demand would always be constrained by the cost of subsistence, setting a floor under wages. After all, if the wages that workers received were not sufficient to keep them alive, the supply of labor would be reduced, driving wages back up again.

Because people don’t live forever, the costs of subsistence should include the costs of producing replacement workers, namely, raising children. But as many young children and unmarried women began entering wage employment in the 19th century, it became apparent that an increase in the supply of workers without family responsibilities could potentially drive average wages well below the level adequate to support children.

Marketforces, in other words, could discourage, even penalize, family commitments.

In the United States, the “family values” argument for a minimum wage gained political traction on the state level long before federal legislation was passed in 1938. As the historian Alice Kessler-Harris explains, this argument bolstered efforts to reinforce traditional gender roles by discouraging the employment of married women. At the same time, it called attention to the difficulties wage earners faced in supporting dependents.

This historical legacy shows up in calculations, like the one President Obama offered above, that seem to presume that a minimum wage for one parent working full-time should be able to support not only two children but also a spouse who stays home to take care of them. Similar assumptions are often used in state-level estimates of the hou! rly wage ! required to bring a working family over the poverty line or a higher standard such as a locally designated living wage. On the other hand, these same estimates show that the costs of child care largely wipe out the net contribution of a second earner’s wage income.

As I emphasized in a previous post, conventional measures of poverty are seriously out of date. Application of the Census Bureau’s new Supplemental Poverty Measure suggests that a $9 minimum wage would not necessarily bring working families over the threshold.

Any way you look at it, adults taking responsibility for young children need considerably higher earnings than those who don’t, even taing into account the tax relief President Obama referred to (primarily the earned income tax credit).

As Lawrence Mishel of the Economic Policy Institute points out, the median worker’s real hourly compensation (real earnings plus benefits) has stagnated over the last 10 years, and the declining real value of the minimum wage has contributed to increased income inequality.

The resulting economic stresses are bad for children, bad for working parents and bad for family formation and stability. In 2010, children represented 24 percent of the United States population, but 34 percent of all those living in poverty.

Critics of the proposed increase in the minimum wage object that it would increase unemployment. But! proponen! ts point to considerable evidence, nicely summarized by Brad Plumer at The Washington Post’s Wonkblog, that this potential effect would be small or nonexistent,

Critics like the economist David Neumark also insist that the policy is not effectively aimed at poor families, because many individuals earning the minimum are young people living with their parents. But proponents like Natalie Sabadish and Doug Hall of the Economic Policy Institute emphasize that about 80 percent of workers who will be directly affected are over age 20.

Many young people earning the minimum wage are living at home. Some can’t afford to do otherwise. And while their parents may be helping them out with living expenses, the wages they earn will dtermine their opportunity to enroll in college, pay off their debts, save money and start a family of their own.

So, the debate circles back to the dilemma acknowledged by classical political economy in the 19th century. The forces of supply and demand, left to themselves, treat labor like any other commodity. But labor itself is produced outside the market, by families and communities who must struggle to find ways to support their contributions to the future.

Different Time Zone, Same Defense for Bernanke

The Federal Reserve’s chairman, Ben S. Bernanke, picked an unusual time to offer his most recent defense of the Fed’s campaign to stimulate the economy: 7 p.m. on a Friday night in San Francisco, 10 p.m. back home on the East Coast.

The basic message was the same as Mr. Bernanke delivered to Congress earlier this week: The Fed regards its current efforts as necessary and effective, and the risks, while real, are under control.

“Commentators have raised two broad concerns surroundig the outlook for long-term rates,” Mr. Bernanke told a conference at the Federal Reserve Bank of San Francisco. “To oversimplify, the first risk is that rates will remain low, and the second is that they will not.”

If rates remain low, it may drive investors to take excessive risks. If rates jump, investors could lose money - not least the Fed.

Regarding the first possibility, Mr. Bernanke said that the Fed is keeping a careful eye on financial markets. But he noted that rates are low in large part because the economy is weak, and that keeping rates low is the best way to encourage stronger growth. “Premature rate increases would carry a high risk of short-circuiting the recovery, possibly leading â€" ironically enough â€" to an even lo! nger period of low long- term rates,” he said.

At the other extreme, Mr. Bernanke said the Fed could “mitigate” any jump in rates by prolonging its efforts to hold rates down, for example by keeping some of its investments in Treasury and mortgage-backed securities.

Three more highlights from the question-and-answer session after the speech.

1. Mr. Bernanke, asked about the outlook for the Washington Nationals, responding by accurately quoting the “Las Vegas odds” of a World Series appearance: 8/1.

2. Although the decision may be made under a future chairman, Mr. Bernanke said the Fed should continue to offer “forward guidance” â€" predicting its policies â€" even after it concldes its long effort to revive the economy.

“Providing information about the future path of policy could be useful, probably would be useful, under even normal circumstances,” he said in response to a question. “I think we need to keep providing information.”

3. Not surprisingly, Mr. Bernanke often is asked to reflect on the financial crisis. He offered something a little different than his normal response on Friday night.

“In many ways, in retrospect, the crisis was a normal crisis,” he said. “It’s just that the intuitional framework in which it occurred was much more complex.”

In other words, there was a panic, and a run, and a collapse - but rather than a run on bank deposits, the run was in the money markets. Improving the stability of those markets is something regulators have yet to accomplish.

Different Time Zone, Same Defense for Bernanke

The Federal Reserve’s chairman, Ben S. Bernanke, picked an unusual time to offer his most recent defense of the Fed’s campaign to stimulate the economy: 7 p.m. on a Friday night in San Francisco, 10 p.m. back home on the East Coast.

The basic message was the same as Mr. Bernanke delivered to Congress earlier this week: The Fed regards its current efforts as necessary and effective, and the risks, while real, are under control.

“Commentators have raised two broad concerns surroundig the outlook for long-term rates,” Mr. Bernanke told a conference at the Federal Reserve Bank of San Francisco. “To oversimplify, the first risk is that rates will remain low, and the second is that they will not.”

If rates remain low, it may drive investors to take excessive risks. If rates jump, investors could lose money - not least the Fed.

Regarding the first possibility, Mr. Bernanke said that the Fed is keeping a careful eye on financial markets. But he noted that rates are low in large part because the economy is weak, and that keeping rates low is the best way to encourage stronger growth. “Premature rate increases would carry a high risk of short-circuiting the recovery, possibly leading â€" ironically enough â€" to an even lo! nger period of low long- term rates,” he said.

At the other extreme, Mr. Bernanke said the Fed could “mitigate” any jump in rates by prolonging its efforts to hold rates down, for example by keeping some of its investments in Treasury and mortgage-backed securities.

Three more highlights from the question-and-answer session after the speech.

1. Mr. Bernanke, asked about the outlook for the Washington Nationals, responding by accurately quoting the “Las Vegas odds” of a World Series appearance: 8/1.

2. Although the decision may be made under a future chairman, Mr. Bernanke said the Fed should continue to offer “forward guidance” â€" predicting its policies â€" even after it concldes its long effort to revive the economy.

“Providing information about the future path of policy could be useful, probably would be useful, under even normal circumstances,” he said in response to a question. “I think we need to keep providing information.”

3. Not surprisingly, Mr. Bernanke often is asked to reflect on the financial crisis. He offered something a little different than his normal response on Friday night.

“In many ways, in retrospect, the crisis was a normal crisis,” he said. “It’s just that the intuitional framework in which it occurred was much more complex.”

In other words, there was a panic, and a run, and a collapse - but rather than a run on bank deposits, the run was in the money markets. Improving the stability of those markets is something regulators have yet to accomplish.

Not Enough Inflation

Yes, we have low inflation: The Commerce Department reported Friday that prices rose just 1.2 percent over the 12 months ending in January.

Such slow inflation is not, in and of itself, an argument for the Federal Reserve to expand its economic stimulus campaign. That depends on whether one expects inflation over the next year or two to rise closer to the 2 percent annual pace the Fed considers most healthy. As it happens, most Fed officials do.

But the January number does underscore that the Fed failed to do its job over the last two years. It underestimated the stimulus that the economy required then to prevent inflation from sagging below 2 percent now.

Indeed, annual price inflation has been less than 2 percent in four of the last five years, according to the Fed’s preferred measure, the personal consumption expendituresindex published by the Bureau of Economic Analysis. The chart below shows 12-month inflation measure for personal consumption expenditures (known as P.C.E. inflation) month by month since 2000.

Source: Bureau of Economic Analysis Inflation rate based on personal consumption expenditures.

As Janet Yellen, the Fed’s vice chairwoman, said last April, “In effect there has been a significant shortfall in the overall amount of monetary policy stimulus since early 2009,” because the central bank can’t push short-term interest rates below zero, and its other measures, like asset purchases, ! haven’t filled the gap.

A Taste for Whole Foods (or Roman Tubs)

A couple weeks ago I wrote about the cost of living in different cities, and how one of the challenges for intercity comparisons is that the basket of goods the typical consumer buys varies from place to place. Tastes differ greatly by geography and by socioeconomic class, and often those two forces interact in ways that are not captured by cost-of-living indexes.

Trulia, a real estate Web site, illustrated that nicely in a recent semantic analysis of housing ads from the start of 2012 through late November. The company’s chief economist, Jed Kolko, looked at the phrases associated with particular markets to find features that were at least 10 times more likely to appear in listings in a particular metro area than they were nationally:

!

Hyperlocal Listing Phrases
Phrase	Metro
Lanai	Honolulu, Hawaii
Mirrored closet doors	Ventura County and Orange County, Calif.
Pole barn	Grand Rapids, Mich.
Roman tub	West Palm Beach, Fla.
Solar screen	Fort Worth, Tex.
Stone wall	Fairfield County, Conn.
Glass block windows	Buffalo, N.Y.
Hearth room	Memphis, Tenn.
Whole Foods	San Francisco, Calif.

These are not the kind of things items that are likely to show up in a traditional cost-of-living index, but they do say a lot about what residents in different areas value and are likely to spend money on.

I love, for example, that “mirrored closet doors” are so attractive to homeowners in Southern California (and am admittedly confused about the “Roman tub” preference in my birthplace of West Palm Beach). But perhaps one of the most telling items on the list is “Whole Foods” in San Francisco. As Mr. Kulko writes:

Some hyperlocal phrases appear in a particular metro not because it’s unique to that metro - San Francisco is hardly the only place in the country with a Whole Foods - but because that feature appears to be especially important to house hunters there. Souhern Californians might like to admire themselves in their mirrored closet doors, but many San Franciscans would be happier living next to - or even directly above - Whole Foods.

San Francisco is undoubtedly expensive if you’re poor. But maybe it’s not so expensive if you’re rich and have standard rich-person tastes for high-end products like organic food, given how many Whole Foods and related competitors are nearby and willing to compete for your business.

Shocked, Shocked, Over Hospital Bills

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

Capt. Louis Renault’s famous line in the movie “Casablanca” comes to mind as I behold the reaction to the journalist Steven Brill’s 36-page report “Bitter Pill: Why Medical Bills Are Killing Us,” published in a special issue of Time last week. Mr. Brill was swiftly invited to appear on “The Daily Show with Jon Stewart” and on “Charlie Rose.”

Americans are shocked, just shocked. But what they should have known for years is that in most states, hospitals are free to squeeze uninsured middle- and upper-middle-class patients for every penny of savings or assets they and their families may have. That’s despite the fact that the economic turf of these hospitals - for the most part so-called nonprofit hospitals - is often protected by state Certificate of Need laws that bestow on them monopolistic power by keeping new potential competitors at bay.

As George Bernard Shaw, whose works include “The Doctor’s Dilemma,” might have put it, that any lawmaker would grant hospitals monopolistic powers plus the freedom to price as they see fit is enough to make one despair of political humanity.

Mr. Brill vividly illustrates the harsh financial mauling that the hospitals covered in his report - all nonprofits - visit on uninsured middle-class Americans stricken with serious illness.

Often these people operate small businesses or are entrepreneurs in start-ups and cannot afford anything other than skimpy health insurance with strict upper limits on coverage. When they fall ill and require hospitalization, they become easy marks for what I think of as “extreme billing.”

In fairness, let me note that we cannot be sure whether the vignettes Mr. Brill presents are representative of the entire hospital industry or the policies of the proverbial few bad apples, a line that may well be taken by represetatives of the hospital industry.

It does not take away from Mr. Brill’s brilliant journalism - especially his use of the Form 990 on which nonprofit hospitals must report their financial performance to the Internal Revenue Service - nor from Time’s brilliant marketing to note that the practices Mr. Brill reports have been well known to health-policy analysts and health-policy makers for at least a decade. And they should have been known to broad segments of the public as well - certainly to news organizations.

As early as 2003, Marilyn Werber Serafini’s “Health Care â€" Sticker Shock” was published in The National Journal, which is well known to Congressional lawmakers and their staffs.

Also in 2003, The Wall Street Journal began publishing on its front page a s! eries of ! investigative reports by a staff reporter, Lucette Lagnado. In one article she reported on patients being hounded by collection agencies and their lawyers, only to end up in jail for failing to make court appearances in connection with their hospital bills.

Yale-New Haven Hospital, prominently mentioned in Mr. Brill’s report, was featured in one of Ms. Lagnado’s sad stories. I wish Yale University, where I received my doctorate, would withdraw its hallowed name from that legally independent hospital.

In 2008, The Wall Street Journal published an article by Barbara Martinez with a vignette at the M.D. Anderson Cancer Center, based in Texas, that is eerily similar to Mr. Brill’s depiction of the center, although the articles are about different patients.

As these earlir reporters and Mr. Brill underscore, all manner of amazing behavior can hide under the pious label of “nonprofit.” A giant, inscrutable economic sector, in command of trillions of dollars in resources, nonprofits are governed by nonelected, self-perpetuating boards and virtually no effective accountability to any “owners” or the general public. By comparison, for-profit institutions are paragons of good corporate governance, transparency and accountability; I shall comment more on that in a future post. (Allow me to disclose that in the past I have served on the boards of both nonprofit and for-profit hospitals.)

The articles on extreme hospital billing practices that appeared in 2003-4, especially those so prominently displayed in The Wall Street Journal, led to a flurry of activities in Washington at that time.

There was a hearing on the issue by a House subcommittee. The American Hospital A! ssociatio! n developed a set of principles and guidelines on hospital billing and collection practices. Brandeis University established the “Access Project” to focus on this issue. The Washington-based Center for Studying Health System Change weighed in with a lengthy paper, “Balancing Margin and Mission.”

In short, there was much ado, as there often is in response to disturbing news reports or calamitous events. But in the end, after the stories and events fade into memory, not much happens. How else could Mr. Brill have come up with this stunning set of vignettes today

Part of the problem was that the issue in 2004 was framed in Washington as the charitable activities performed by nonprofit hospitals - that is, whether they rendered sufficient “community benefits” for the tx exemption they enjoyed. Instead, the focus should have been on the general pricing policy of hospitals, which has never attracted the public scrutiny it warrants.

Similarly, by focusing as much as Mr. Brill does on the compensation paid the executives of the hospitals, he may inadvertently seduce readers to the view that this the crux of the problem. It is not.

It should be possible to compensate hospital executives well without treating middle-class uninsured people like lemons to be squeezed fiscally. After all, as Mr. Brill shows, these so-called nonprofit hospitals typically have ample profits that would permit humane comportment in billing the uninsured while paying executives enough to retain them.

Finally, in the “Changing Choices” section on his policy recommendations, Mr. Brill once again illustrates why dubious policies such as he describes can persist. He offers a bewildering potpourri of little tweaks here and there, including huge taxes on the salaries of hospital! executiv! es and hospital profits, capping profits on lab services, changes in patent laws and, of course, the eternal stalwart, malpractice reforms.

That is a scattershot response to the central problem he lays bare: the pricing of hospital services in general and to uninsured middle-class people in particular.

Here is a simpler approach. Why not make it illegal for hospitals to charge uninsured people more than X percent of what Medicare pays for a procedure That maximum price would certainly cover the true incremental cost of serving uninsured middle-class people, with handsome contribution margins to overhead and, most probably, to profits as well.

Could this be done Yes. It was done in 2008 by former Gov. Jon Corzine of New Jersey and the state Legislature, when they enacted Assembly Bill No. 2609. (Disclosure: I was chairman of Governor Corzine’s Commission on Rationalizing Health Care Resources, which produced a href=â€http://www.state.nj.us/health/rhc/finalreport/documents/entire_finalreport.pdf”>a report in 2008.) The bill limits what New Jersey hospitals can charge uninsured New Jersey residents with gross incomes up to 500 percent of the federal poverty level: no more than 115 percent of the applicable payment under the federal Medicare program.

To be sure, a family of four with a gross income above $117,750 could still be fleeced royally by New Jersey hospitals; I can only hope they would resist the temptation.

In my next post, I shall describe how this law came about.

Shocked, Shocked, Over Hospital Bills

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

Capt. Louis Renault’s famous line in the movie “Casablanca” comes to mind as I behold the reaction to the journalist Steven Brill’s 36-page report “Bitter Pill: Why Medical Bills Are Killing Us,” published in a special issue of Time last week. Mr. Brill was swiftly invited to appear on “The Daily Show with Jon Stewart” and on “Charlie Rose.”

Americans are shocked, just shocked. But what they should have known for years is that in most states, hospitals are free to squeeze uninsured middle- and upper-middle-class patients for every penny of savings or assets they and their families may have. That’s despite the fact that the economic turf of these hospitals - for the most part so-called nonprofit hospitals - is often protected by state Certificate of Need laws that bestow on them monopolistic power by keeping new potential competitors at bay.

As George Bernard Shaw, whose works include “The Doctor’s Dilemma,” might have put it, that any lawmaker would grant hospitals monopolistic powers plus the freedom to price as they see fit is enough to make one despair of political humanity.

Mr. Brill vividly illustrates the harsh financial mauling that the hospitals covered in his report - all nonprofits - visit on uninsured middle-class Americans stricken with serious illness.

Often these people operate small businesses or are entrepreneurs in start-ups and cannot afford anything other than skimpy health insurance with strict upper limits on coverage. When they fall ill and require hospitalization, they become easy marks for what I think of as “extreme billing.”

In fairness, let me note that we cannot be sure whether the vignettes Mr. Brill presents are representative of the entire hospital industry or the policies of the proverbial few bad apples, a line that may well be taken by represetatives of the hospital industry.

It does not take away from Mr. Brill’s brilliant journalism - especially his use of the Form 990 on which nonprofit hospitals must report their financial performance to the Internal Revenue Service - nor from Time’s brilliant marketing to note that the practices Mr. Brill reports have been well known to health-policy analysts and health-policy makers for at least a decade. And they should have been known to broad segments of the public as well - certainly to news organizations.

As early as 2003, Marilyn Werber Serafini’s “Health Care â€" Sticker Shock” was published in The National Journal, which is well known to Congressional lawmakers and their staffs.

Also in 2003, The Wall Street Journal began publishing on its front page a s! eries of ! investigative reports by a staff reporter, Lucette Lagnado. In one article she reported on patients being hounded by collection agencies and their lawyers, only to end up in jail for failing to make court appearances in connection with their hospital bills.

Yale-New Haven Hospital, prominently mentioned in Mr. Brill’s report, was featured in one of Ms. Lagnado’s sad stories. I wish Yale University, where I received my doctorate, would withdraw its hallowed name from that legally independent hospital.

In 2008, The Wall Street Journal published an article by Barbara Martinez with a vignette at the M.D. Anderson Cancer Center, based in Texas, that is eerily similar to Mr. Brill’s depiction of the center, although the articles are about different patients.

As these earlir reporters and Mr. Brill underscore, all manner of amazing behavior can hide under the pious label of “nonprofit.” A giant, inscrutable economic sector, in command of trillions of dollars in resources, nonprofits are governed by nonelected, self-perpetuating boards and virtually no effective accountability to any “owners” or the general public. By comparison, for-profit institutions are paragons of good corporate governance, transparency and accountability; I shall comment more on that in a future post. (Allow me to disclose that in the past I have served on the boards of both nonprofit and for-profit hospitals.)

The articles on extreme hospital billing practices that appeared in 2003-4, especially those so prominently displayed in The Wall Street Journal, led to a flurry of activities in Washington at that time.

There was a hearing on the issue by a House subcommittee. The American Hospital A! ssociatio! n developed a set of principles and guidelines on hospital billing and collection practices. Brandeis University established the “Access Project” to focus on this issue. The Washington-based Center for Studying Health System Change weighed in with a lengthy paper, “Balancing Margin and Mission.”

In short, there was much ado, as there often is in response to disturbing news reports or calamitous events. But in the end, after the stories and events fade into memory, not much happens. How else could Mr. Brill have come up with this stunning set of vignettes today

Part of the problem was that the issue in 2004 was framed in Washington as the charitable activities performed by nonprofit hospitals - that is, whether they rendered sufficient “community benefits” for the tx exemption they enjoyed. Instead, the focus should have been on the general pricing policy of hospitals, which has never attracted the public scrutiny it warrants.

Similarly, by focusing as much as Mr. Brill does on the compensation paid the executives of the hospitals, he may inadvertently seduce readers to the view that this the crux of the problem. It is not.

It should be possible to compensate hospital executives well without treating middle-class uninsured people like lemons to be squeezed fiscally. After all, as Mr. Brill shows, these so-called nonprofit hospitals typically have ample profits that would permit humane comportment in billing the uninsured while paying executives enough to retain them.

Finally, in the “Changing Choices” section on his policy recommendations, Mr. Brill once again illustrates why dubious policies such as he describes can persist. He offers a bewildering potpourri of little tweaks here and there, including huge taxes on the salaries of hospital! executiv! es and hospital profits, capping profits on lab services, changes in patent laws and, of course, the eternal stalwart, malpractice reforms.

That is a scattershot response to the central problem he lays bare: the pricing of hospital services in general and to uninsured middle-class people in particular.

Here is a simpler approach. Why not make it illegal for hospitals to charge uninsured people more than X percent of what Medicare pays for a procedure That maximum price would certainly cover the true incremental cost of serving uninsured middle-class people, with handsome contribution margins to overhead and, most probably, to profits as well.

Could this be done Yes. It was done in 2008 by former Gov. Jon Corzine of New Jersey and the state Legislature, when they enacted Assembly Bill No. 2609. (Disclosure: I was chairman of Governor Corzine’s Commission on Rationalizing Health Care Resources, which produced a href=â€http://www.state.nj.us/health/rhc/finalreport/documents/entire_finalreport.pdf”>a report in 2008.) The bill limits what New Jersey hospitals can charge uninsured New Jersey residents with gross incomes up to 500 percent of the federal poverty level: no more than 115 percent of the applicable payment under the federal Medicare program.

To be sure, a family of four with a gross income above $117,750 could still be fleeced royally by New Jersey hospitals; I can only hope they would resist the temptation.

In my next post, I shall describe how this law came about.