Social Democratic America (9 page)

But this leaves out working-age households in which no one is employed. What to do about such households has long been the thorniest question in American social policy.
¹⁴
There is no optimal solution. If we are generous, some will cheat the system. If we are stingy, we cause avoidable suffering. Given this tradeoff, the best approach is a policy that vigorously promotes employment for those who are able to work, provides a decent minimum for those who aren't, and deals on a case-by-case basis with those who can work but don't.
¹⁵

Such a policy would require four modifications to what we have now. First, we should alter our approach to caseworkers and the assistance they provide. In theory, caseworkers help TANF recipients find jobs, but in reality many caseworkers are undertrained, overworked, and have limited means to provide real help.
¹⁶
We need a unified active labor market policy. Let me explain what I mean. For some Americans at the low end of the labor market, adulthood is a series of transitions, in which they move in and out of part-time or full-time employment, off-the-books work, receipt
of government benefits, romantic relationships, child rearing, drug or alcohol addiction, and time in jail.
¹⁷
The best thing we can do is to provide help, support, cajoling, pushing, and the occasional threat. People who struggle to find a job after leaving school (whether at age 22, 18, or earlier) should immediately get individualized help.
¹⁸
This may include temporary cash support, a push into a training program, and/or a push into counseling. Strugglers should be monitored as they move along in life. For this to be effective, we need caseworkers who are well trained, connected to local labor market needs, committed to their job, and not swamped with clients. They must be able to make realistic judgments about when clients can make it in the workforce and when the best solution is simply to help them survive.

Second, government should act as an employer of last resort. Make-work has a mixed history in the United States. It played a prominent role in the 1930s, and subsequent smaller-scale programs have boosted the employment rates of low-end workers.
¹⁹
Although these programs don't tend to provide a ladder to a permanent, high-paying job, that shouldn't discourage us. The point is to ensure that there is a job for anyone able and willing to work.

Third, restrictions on receipt of TANF should be eased. In bad economic times, such as the 2008–9 recession and its aftermath, the five-year lifetime limit instituted in the mid-1990s has proved too strict, causing needless hardship and suffering.
²⁰
We should allow more exemptions to this limit during economic downturns.

Fourth, the benefit amounts should be increased and eligibility criteria eased for our key social assistance programs—TANF, general assistance, food stamps, housing assistance, and energy assistance. Given the time limit on receipt of TANF benefits, a generous benefit level is unlikely to be a deterrent to employment.

Of course, there are a variety of circumstances in which we don't expect working-age adults to be in a job: unemployment (actively seeking work but unable to find it), disability, sickness, and childbirth. Financial assistance for these people comes from other programs discussed earlier in this section.

What about the elderly? Social Security is a very good program, and one that's in solid shape. With a few tweaks, it will be solvent and effective for generations to come.
²¹
But we need to shore up retirement income security's second tier: private pensions. There is no going back to the defined-benefit past; for most Americans, a private pension in the future will be a defined-contribution one. Rather than allow Americans who are employed full-time to contribute to defined-contribution plans if their employer offers one, if they are aware of it, and if they feel they can afford to put some of their earnings in it, we should make contributing the default option and make it available to everyone.
²²
Employers with an existing plan could continue it, but they would have to automatically enroll all employees and deduct a portion of their earnings unless the employee elects to opt out. Employers without an existing plan could participate in a new universal retirement fund, which would automatically enroll every employee. Workers whose employer does not match their individual contributions would be eligible for matching contributions from the government.

The final piece of the economic security puzzle is public goods, services, spaces, and mandated free time—including childcare, roads and bridges, healthcare, holidays and vacations, and paid parental leave. These increase the sphere of consumption for which the cost to households is zero or minimal. They lift the living standards of households directly and free up income for purchasing other goods and services.
²³

Figure 3.2
displays two measures of material well-being for households at the low end. The horizontal axis shows income for households at the tenth percentile as of the mid-2000s. On the vertical axis is a measure of material deprivation, a more direct indicator of living standards. Two OECD researchers, Romina Boarini and Marco Mira d'Ercole, have compiled material deprivation data from surveys in various nations.
²⁴
Each survey asked identical or very similar questions about seven indicators of material hardship: inability to adequately heat one's home, constrained food choices, overcrowding, poor environmental conditions (noise, pollution), arrears in payment of utility bills, arrears in mortgage or rent payments, and difficulty making ends meet. Boarini and Mira d'Ercole create a summary measure of deprivation by averaging, for each country, the shares of the population reporting deprivation in each of these seven areas.

FIGURE
3.2 Low-end household incomes and material deprivation

P10 household income: posttransfer-posttax income of households at the tenth percentile of the income distribution. Measured in 2005 or as close to that year as possible. Incomes are adjusted for household size (the numbers shown here are for a household with three persons) and converted into US dollars using purchasing power parities (PPPs).
Data sources
: Luxembourg Income Study,
www.lisdatacenter.org
, series
DPI
; OECD, stats. oecd.org. Material deprivation rate: share of households experiencing one or more of the following: inability to adequately heat home, constrained food choices, overcrowding, poor environmental conditions (e.g., noise, pollution), arrears in payment of utility bills, arrears in mortgage or rent payment, difficulty in making ends meet. Measured in 2005.
Data sources
: OECD,
Growing Unequal?
, 2008,
pp. 186
–
188
, using data from the Survey on Income and Living Conditions (EU-SILC) for European countries, the Household Income and Labour Dynamics in Australia survey (HILDA) for Australia, and the Survey of Income and Program Participation (SIPP) for the United States. “Asl” is Australia; “Aus” is Austria.

The income of a typical low-end household in the United States is similar to that in many rich countries, albeit lower than in Norway, Sweden, Denmark, and Finland. Our rate of material deprivation, by contrast, is higher than in all but one of the other nations, and by a relatively large margin. This difference is most likely due to our limited public provision of services. Services enhance access to medical care, childcare, and housing, and allow poor households to spend their limited income on other necessities.

To reduce economic insecurity, we need to make a number of policy changes. But none are radical, and most build on programs we already have in place. This is quite doable.

Inequality of opportunity is increasing. But all hope is not lost. We know this because many other rich nations do better. The best indicator when comparing countries is relative intergenerational mobility, and data exist for ten of our peer nations. As
figure 3.3
shows, the United States has less equality of opportunity than eight of them, and the same amount as the other two.

What can we do to address this problem? Genetics, families, friends, and neighborhoods influence capability development, but we don't want government intervening directly in family life or telling us where we should live. We therefore rely heavily on schools. School is especially valuable for children from less advantaged circumstances. We know this in two ways. First, children from poor homes tend to have significantly lower cognitive and noncognitive skills than children from affluent homes when they enter kindergarten, and the size of that gap is about the same when they finish high school.
²⁵
Given the huge differences in home and neighborhood circumstances, this suggests that schools have an equalizing effect. Second, during summer vacations, when children are out of school, the gap in cognitive ability increases.
²⁶

FIGURE
3.3 Inequality of opportunity

Correlation between the earnings of parents and those of their children. A higher score indicates less relative intergenerational mobility and hence more inequality of opportunity.
Data source
: John Ermisch, Markus Jäntti, and Timothy Smeeding, eds.,
From Parents to Children: The Intergenerational Transmission of Advantage
, Russell Sage Foundation, 2012,
figure 1.1
.

Let's begin with college.
Figure 3.4
shows rates of college entry and completion by family income for Americans growing up in the 1980s and 1990s. On average, about two-thirds of a typical cohort enter college and about one-third end up with a four-year degree. But both entry and completion vary starkly by family income. For those whose parents' income is in the bottom quarter, only 30 percent begin college and only 10 percent get a four-year degree. Moreover, the increase over the past generation has been minimal (see
figure 2.4
).

FIGURE
3.4 College entry and completion by parents' income

Persons born 1979–82. College entry: includes all two-year and four-year postsecondary institutions. College completion: four or more years of college.
Data source
: Martha Bailey and Susan Dynarski, “Gains and Gaps: A Historical Perspective on Inequality in College Entry and Completion,” in
Whither Opportunity? Rising Inequality, Schools, and Children's Life Chances
, edited by Greg J. Duncan and Richard J. Murnane, Russell Sage Foundation, 2011, figures 6.2 and 6.3, using National Longitudinal Survey of Youth data.

How can we help more Americans from low-income families start and finish college?
²⁷
One suggestion is to improve prior schooling. Better preparation in elementary and secondary school, in this view, will encourage more low-income kids to go to college and enable them to succeed once there. A second approach stresses improving performance and retention among less advantaged youth who enter college through better instruction, advising, support, and close monitoring. A third emphasizes cost. Now, the actual cost of college sometimes is overstated. If we take into account grants and financial aid, instead of looking simply at the “sticker price” of tuition and room and board, the average cost per year for a public four-year university was $11,500 in 2011–12, and for low-income families the cost often is less than this. But the average income among families in the bottom fifth of incomes is just $18,000 (see
chapter 2
), and at that income, even $5,000 a year for college may be too much.