The low wage economy

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Reader UserFriendly highlighted an important St. Louis Fed study, The Unequal Recovery: Measuring Financial Distress by ZIP Code by Ryan Mather and Juan M. Sánchez. It sheds light on a topic that that readers regularly debate: why are there so many signs of distress in a supposedly robust economy? Some of the disconnect is due to rentier choke points, like rising housing costs, particularly in big cities, leading to more and more “affordable” housing being converted by gentrification or other means into upscale abodes, and ever-escalating medical costs, which creates medical bankruptcies, worry about seeking care, and too many people not getting treatments early.

Another factor is misleading headline unemployment reports. Even though the press regularly brays about the strength of the job market, the high level of involuntary unemployment belies that. The St. Louis Fed teases out another way in which rosy aggregate data masks shaky foundations. Since 2015, the lowest income households have become more vulnerable to shocks, taking on more debt as wealth (to the extent they have it) is even more concentrated in housing. The level of distress in lower-income households has also increase, defying the official story of increasing prosperity.

St. Louis Fed Study Shows Rising Level of Financial Desperation Among the Poor, Hidden by Aggregates | naked capitalism

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A significant number of college students are going hungry or homeless, reported Pacific Standard, citing a new study by the non-profit Hope Center. Of the four-year college student respondents, 30% said they didn’t eat when they were hungry because they couldn’t afford it. Another 14% said they don’t have a stable place to live. It’s a product of the growing expense of college, which has propelled student loan debt to record levels.

An astounding number of American college students are going hungry or homeless

I have $235,000 of student debt. The first $120,000 came with a bachelor’s degree from my state school. Another $70,000 or so came with my master’s degree. The remainder is accrued interest. The suggested minimum monthly payment on my private debt alone is approximately $1,200. For reference: that’s nearly rent for the 600-square-foot apartment where I live with my partner in New Jersey. Without income driven repayment, the minimum payment amount for my federal student debt would be around $1,000. I would have to begin devoting half of my income to debt payment if I cared to pay it off by 2042. I can’t do that because I make just under $4,000 per month. And that income is a fairly new development in my life. Why would I choose to pay down my debt if it meant I wouldn’t be able to afford basic living expenses? Short of winning the lottery, there’s no way I could ever afford to pay off my debt. And though I have a higher debt burden than most, I’m certainly not alone.

I’m a 29-Year-Old With $235k in Student Debt. I’ll Never Pay It Back.

I have $235,000 of student debt. The first $120,000 came with a bachelor’s degree from my state school. Another $70,000 or so came with my master’s degree. The remainder is accrued interest. The suggested minimum monthly payment on my private debt alone is approximately $1,200. For reference: that’s nearly rent for the 600-square-foot apartment where I live with my partner in New Jersey. Without income driven repayment, the minimum payment amount for my federal student debt would be around $1,000. I would have to begin devoting half of my income to debt payment if I cared to pay it off by 2042. I can’t do that because I make just under $4,000 per month. And that income is a fairly new development in my life. Why would I choose to pay down my debt if it meant I wouldn’t be able to afford basic living expenses? Short of winning the lottery, there’s no way I could ever afford to pay off my debt. And though I have a higher debt burden than most, I’m certainly not alone. One in four American adults has student debt. And that amount will grow over the coming years. Seven in 10 college graduates are now graduating with student debt, with the greatest burden falling on people of color, low-income borrowers, and women. Meanwhile more and more people can’t make their minimum payments. The price of a college education has quadrupled since the 1980s while wages haven’t budged and rents went up by 50 percent. No wonder nearly 5 million American are in default on their student loans. At this rate, 40 percent of borrowers are expected to be in default by 2023.

I’m a 29-Year-Old With $235k in Student Debt. I’ll Never Pay It Back.

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Many people are living with wildly fluctuating income, a recent report from the Board of Governors of the Federal Reserve System said. “Volatile income and low savings can turn common experiences — such as waiting a few days for a bank deposit to be available — into a problem.” “A major trade war between the U.S. and China represents our greatest economic risk,” according to Lynn Reaser, chief economist of the Controller’s Council of Economic Advisors.

Despite unemployment hitting a 49-year low, people are feeling skittish. All of these worries are taking their toll. 78% of adults are losing sleep over work, relationships, retirement and other worries, according to a study released Thursday by personal-finance site Bankrate.com. Over half (56%) of Americans are lying awake at night worrying about money. People are tossing and turning over retirement (24%), health care and/or insurance bills (22%), the ability to pay credit-card debt (18%), mortgage/rent payments (18%), educational expenses (11% versus 26%) and stock-market volatility (5%). The site polled over 2,500 people.

Fearful of another recession, Americans are losing sleep over their finances - MarketWatch

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Critics would have you believe that upping the minimum wage in restaurants will lead to massive layoffs and closures. But since raising the minimum wage to $15 per hour nearly a year ago, the restaurant industry in New York City has thrived. I’m a professor with a focus on labor and employment law. My research on the minimum wage suggests a few reasons why this might be true.

The $15 minimum wage was supposed to hurt New York City restaurants — but both revenue and employment are up - MarketWatch

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“Close to two-thirds of the U.S. population — about 157 million adults — currently live paycheck to paycheck, making it the main financial lifestyle in the United States.” That’s from a June report by the lending marketplace LendingClub in cooperation with PYMNTS.com, a payments data company. One-third of people earning $250,000 a year or more are living paycheck to paycheck, says the study, which was based on a survey and government data...

MagnifyMoney, a unit of LendingTree, conducted a survey this year that found “50 percent of working Americans say they live paycheck to paycheck, meaning they have no money left after all expenses are paid.”

What Does It Really Mean to Live ‘Paycheck to Paycheck’?

• These figures are likely to be an overestimation, but the trend seems to be up, which isn't surprising as the cost of medical insurance, education and housing have been rising much faster than wages or inflation the past decades. 
  

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Some stylized facts:

• The pandemic caused 1M+ deaths, probably 15% more if looked at excess deaths
  
• 3M+ workers retired early as a result of the pandemic
  
• Long covid could be responsible for up to a third of the decline in labor supply
  
• 140K+ Children lost their primary care giver so others had to stay home
  
• Labor supply is still a full percentage point below pre-pandemic levels
  
• Title 42 has kept out about 2.5M immigrants
  
• There are 10M+ unfulfilled job vacancies, at least 2M more than the pre-pandemic level
  
• Wage increases were not a prime cause of inflation
  
• Profit margins are at their highest level since the 1950s
  

Yet despite all of these indications of extraordinary tightness of the US labor market, real wages have actually fallen 3% since March 2021: