How Much Is Enough?

Adam Smith, in The Wealth of Nations, posed the question of how to define an adequate standard of living. “By necessaries,” he wrote, “I understand not only the commodities which are indispensably necessary for support of life, but what ever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without.” We've been debating what's indispensable, what's indecent, and what it means to be a “creditable” person within the sphere of our common moral concern ever since.

So what does it take to live at a minimal level of decency in America today? And what is the government doing to make it happen? The answers to those questions are not heartening: It takes much more income than millions of Americans have today, and the government is not doing enough to change that. The patchwork of programs that do exist are inadequate for nearly everyone in the bottom third or bottom half of the nation's wage earners. Public subsidies offered are not enough for families below the poverty line or earning near the minimum wage, and are of little or no help to workers whose earnings get them close to a reasonable level. And for those in the middle, the benefits from these programs phase out quickly as income rises, so that additional earnings don't have much impact on disposable income. In other words, the architecture of programs that has evolved since Franklin Delano Roosevelt's famous articulation of a “freedom from want” is radically out of whack with what it costs to make it in America today.

There is broad agreement that the current federal poverty level of $18,850 for a family of four -- which is less than one-third of current median income for a four-person family -- is inadequate to meet basic needs or allow for a decent lifestyle. In fact, taking into account the true costs of goods and services, studies sponsored by Wider Opportunities for Women in states and localities around the country estimate self-sufficiency in the range of $35,000 to $50,000 per year for a family of four, about 60 percent to 75 percent of the local median income, and at least twice the current poverty threshold. Even these higher standards assume a bare-bones lifestyle: no school supplies, birthday presents, or college savings for the kids, and no savings for retirement. While 12 percent of Americans are poor under the U.S. Census Bureau's official definition of poverty, between 30 percent and 40 percent of Americans have incomes below these more realistic standards.

In other words, it's apparent that our current policies and programs are inadequate and out of date. On the labor-market side, minimum-wage standards and unemployment insurance are two of the core policies designed to help ensure the living standards of workers prior to retirement. During the past 30 years, business opposition to adequate standards has caused a substantial erosion in the adequacy of both programs. Currently, full-time, full-year work at the federal minimum wage of $5.15 an hour yields an annual income of $10,300. If the minimum wage had kept pace with inflation since the late 1960s, as it had done during the previous two decades, its current level would be more than $7.50 an hour, or $15,000 a year. What's worse, the bottom end of the labor market has returned to the Wild West conditions prevalent before the New Deal, such that enforcement of the existing wage and hour rules is disappearing. So even the paltry minimum wage we have in place is often ignored.

Meanwhile, unemployment insurance is typically limited to six months of benefits, with many eligible workers qualifying for even less. When they do receive the money, average benefits are only about 35 percent of prior wages. And because eligibility requires significant prior work history and has narrow qualifying rules based on the reason for loss of employment, only about 40 percent of all unemployed workers qualify for benefits.

Business has dramatically shifted responsibility and risk to workers in other ways as well. For instance, companies have sharply curtailed or eliminated workers' employer-based health coverage and defined-benefit pension plans in which the plan guarantees a specific monthly pension benefit.

Unfortunately, that leaves the poor dependent on government programs that are deeply flawed. There are a number of publicly funded programs designed to fill the gap between what people earn in the market and what they need. These programs reflect a crazy quilt of eligibility standards. For example, while children in most states are eligible for Medicaid up to about 200 percent of the federal poverty level, the income cutoff for their parents is typically much lower. Food stamps are limited to those below 130 percent, and eligibility for the Earned Income Tax Credit for two-parent families with two or more children is limited to those with incomes below 185 percent of the poverty level. Federally subsidized child-care assistance is legally available up to 85 percent of state median income, and some federal housing subsidies are available up to 80 percent of area median income, but -- thanks to limited funding and red tape blocking the way of many who seek help -- only a small fraction of eligible families actually get child care or housing help. If you find all of that confusing, well, that's exactly the point. This haphazard set of eligibility rules has grown up over the last 30 years, representing political compromises that don't rationally meet the needs of the low-income families they're supposed to help.

What needs to be done? On the public side, we need a combination of macroeconomic and public job-creation policies to ensure that everyone who wants to work can work. We need universal health insurance and, as a step toward that, an expansion and stabilization of public programs to cover more low-income wage earners and their families. The public system of supports for workers whose incomes are below the threshold -- child care, housing, refundable tax credits -- needs to provide more adequate benefits to all who are eligible, and in a simpler, more accessible fashion. In some cases, we need to raise eligibility standards for programs to reach struggling families not now eligible.

On the private side, we need to establish a higher set of standards for employers, who in turn need to offer a minimum wage that will provide at least a poverty-level income to a full-time, full-year worker, automatically adjusted to keep up with increased costs and productivity. The unemployment-insurance system needs to be updated so that low-wage and part-time workers become eligible, benefits are available to workers who are in school (or training programs are offered to update their skills), and benefit levels are improved. Labor-law reform (and enforcement of existing labor and discrimination laws) would restore some balance of power in the workplace and would allow workers to go beyond federal or state minimums to secure a fair share of the profits their work creates. Through a combination of employer-provided sick leave and longer-term paid family leave, the need for both the time and income to meet family needs must also be addressed. Focusing on the private sector's responsibility is important, both because budget deficits will constrain the public sector and because we don't want businesses to shift the cost of bad jobs on to the rest of us.

These changes would address the financial shortfall of so many Americans today. But money alone won't satisfy the social contract. More is needed. First, everyone who wants to work must have the opportunity to do so. Second, the right combination of work and income must be available for those who, from time to time, must interrupt their work for health reasons or family caregiving responsibilities. Third, the terms and conditions of work must be consistent with minimum standards for dignity and self-respect and bring an end to the exploitation of vulnerable immigrant workers, discrimination against people of color, and unsafe and unhealthy conditions that still mar many workplaces.

The discussion about what constitutes a decent standard of living is really a proxy for a much bigger debate between two competing sets of values. The market economy rests on a foundation of self-interest and individual risk, limited theoretically by certain rules and norms regarding transparency and fair dealing (Enron and Wal-Mart notwithstanding). A parallel set of values, arising from both secular and faith traditions, holds that we're all equal stakeholders in society, deserving of respect, dignity, and some fair share of the country's bounty. The latter tradition has been losing out badly over the past few decades.

What we need, then, are much higher standards, both in terms of income and quality of life. Broadening these standards is necessary for building a new generation of policies that is moral and just. It would also help build a coalition to achieve them: A constituency much larger than the 12 percent of Americans officially classified as poor would support such a broader definition. And a more expansive definition of what it takes to make it in America would logically force us to ask an even more provocative question: How much income (and wealth) is too much?

Deepak Bhargava is the executive director of the Center for Community Change in Washington, D.C.