sociology 36 hours

Lecture Two, page 1

SOC 1020 Lecture Two

Prof. D. Fasenfest

When we look at how money is distributed, we need to look at both Income and Wealth. Income refers to money earned in wages or salary from employment. Wealth refers to the value that you have stored as assets and savings. To arrive at a measure of your economic situation, you would need to look at your total income, add your savings and assets (value of home, value of car, jewelry, etc.), and then you subtract the total money that you owe. Assume a person has the following income, assets, and debt. Income, assets Debt Salary $50,000. Mortgage $100,000. Car $15,000. Visa $500. Home $150,000. Student loan $10,000. Savings $3,000. Car loan $10,000 Checking $1,000. Retirement $50,000. Total $269,000. Total $125,000. This person’s economic situation is $144,000. But we must remember that income is a “flow” and assets minus debts are a “stock” in this narrative. Flows can go up or down, so some years we make more (lots of overtime, for example), and some years we make less (a temporary lay- off or out of work looking for a new job). Stocks tend not to change much, and unlike flows change in large jumps. That is why we sometimes call people “house poor” because they have a house worth a lot if sold but have no or little income. You can’t “eat” using the value of your house and at the same time selling your house (or car) is not an option. In the U.S., 80% of all wealth is controlled by 20% of the population. By contrast, 50% of all income is earned by 20% of the population. The lowest 20% in society measured by income owns less than 1% of the wealth. After many years of getting closer, the gap between the wealthy and the poor now gets larger every day. The budget exercise shows how much one depends on income and not assets to live comfortably (or at all). We tried to even out the disparity in wealth and income by using progressive taxation. This means that the higher your income is, the larger percentage will be taken as taxes, with the richest paying approximately 30% in federal taxes and the poorest paying about 3%. State and local taxes are not progressive. If you live in the city of Detroit, you pay 3% of your income in city taxes. So if you make $100,000 you pay $3,000 and if you make $10,000 you pay $300. Also, taxes on purchases are not progressive. Everyone in Michigan pays a 6% sales tax. We all pay the state rate on gasoline, telephone services, cigarettes (if you smoke) etc. This means that a larger percentage of total income is required by the poor to survive. Think of gas prices over

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the past year. If you make $2000 a week and you pay $50 a week for gasoline you may not like it, but it doesn’t make you struggle. If you make $250 a week, you spend the same $50 for gas, but it makes it hard to pay for the rest of your necessities. We can stratify our society using an income-based classification scheme. In this country there are the poor-poor, poor, working class, middle class, upper class or upper-upper class of society. The poor-poor are those who do not earn enough to maintain even the most basic quality life in our society. The homeless would be included in this classification. The poor are those families whose incomes fall at or slightly below the poverty line. The poverty line is a fluctuating number that refers to the smallest amount of money needed to support a family scaled by family size. In 2007, this was set at $20,650 for a family of four. Ironically, working full time at minimum wage would still put a family in the ranks of the poor…what many refer to as being among the working poor. Approximately 13% of American families live in poverty. There is the belief in our society that the poor are lazy or somehow responsible for their poverty. (See: http://www.city-journal.org/html/17_1_sndgs01.html ) The reality is that the poor work more hours than the wealthy, they earn less for those jobs and have fewer benefits, such as vacation, sick time and health insurance. The article above holds single mothers accountable for their poverty, passing a judgment on these women as if they are immoral and ignorant. Included in the ranks of single mothers are not only poor women who have given birth without benefit of marriage, but also wealthy women who have done the same. Divorced women fall into these ranks (many non-custodial parents, men and women alike, do not pay child support and many States do not enforce the court order for support—though that is changing). Widowed women fall into these ranks as well. We can see the difficulty of surviving at the bottom, rather than assuming people are lazy or prefer not to work, looking at Barbara Ehrenreich’s recent book Nickeled and Dimed. Next are the working class, many who might fall in the middle class by income standards ($40,000 - $79,999) but they typically have blue collar occupations, or manual labor occupations with low prestige. Middle and Upper-middle class workers (earning between $80,000 and $170,000) typically have white collar occupations, or jobs with higher levels of social prestige. The Upper class and the Upper Upper class are those individuals who are very wealthy. There are several theories that are used to explain poverty. Some argue there is a Culture of Poverty theory whereby the poor do not internalize the same values of hard work and success that the non-poor internalize and so poverty becomes a way of life. This theory is criticized for the fact that it “blames the victim”, holding the poor responsible for poverty rather than focusing on any structural system of inequality. Another theory to explain poverty is social disorganization, arguing that poor communities suffer from a breakdown in social order that is caused by rapid change. This is a structural functionalist theory stating that a rapid change in the institutions of society, like the industrial revolution, will create a ripple effect of social problems in the other areas of social life. Conflict theorists are more likely to argue that poverty is the outcome of social struggles in which some groups—whether because of limited access to education, whether because of their gender or skin color, whether because of the very way a capitalist system operates…and perhaps a combination of more than one factor—are unable to do more that scrape together a meager income.

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Some argue that inequality may be useful to society. Consider the person who collects trash in your neighborhood. Most of you are getting a college education to keep from needing to do a job like this. In reality, this individual who is likely employed by a city or state government is paid an reasonable wage and has very good benefits—though not always, and often not without some sort of organization like a union to promote and ensure decent wages. For some menial positions pay rates are better than say teacher salaries. Why is this so? According to the Davis Moore thesis, jobs that are important to society must carry sufficient reward to ensure that these jobs are undertaken. In fact, social stratification is important to society in order to properly function. If everyone went to medical school and no one collected garbage, all of the extra doctors could help cure us of the diseases that result from living in pestilence. M.D.s and Ph.D.s on the other hand get higher incomes and more social prestige because health and higher education are important for a society to grow. However, the educational commitment postpones beginning one’s career for several years past that of their peers who don’t pursue the higher education, requiring sacrifice and postponed gratification. Therefore, the reward at the end of the degree has to be sufficient to attract individuals who have many options open to them. Yet, if everyone was wealthy, who would work in the service industry? Who would pick produce or bag groceries? Davis and Moore argued that inequality is necessary to get people to do the jobs that others don’t want to do. Conflict theorists would suggest that this is why there may be thriving illegal immigration, to fill positions that are menial and do not pay well enough to induce someone to take that job. It is not only illegal immigration…the State of New York has long had a policy of allowing in effect “guest workers” who come for set periods of time to help with agricultural harvesting—usually in apply orchards—at wages that are low by our standards but good for the Caribbean migrants. In this way corporate farms can take advantage of both race and citizenship status to avoid paying more for these jobs. We might argue that we live in a class-based, racist, and patriarchal society. This means that wealthy white males are in the main recipients of good jobs and high pay (a friend pointed out that this continues to be true—otherwise we would not need laws making blatant preference for white males illegal). It is therefore a combination of race, class and sex that determines how well we will do in society. Non-whites fair worse than whites. Females fair worse than males. Black females may have the worst outcomes. When we discuss health, mortality rates and life expectancy we will see how this hierarchy imposes itself. Today we have many of the same problems that we faced in the early days of the industrial revolution. We have homelessness issues, which we’ll discuss more later in the semester. We have substandard housing and education. We have drug resistant strains of diseases like tuberculosis that have not been a problem for decades. Although we are one of the wealthiest countries in the world, we have some of the worst health outcomes when compared to our peers. The problem before us as a society is what to do about poverty and its consequences. Clearly the solutions proposed will be in large part a function of why you believe people live in poverty. Let’s reflect for a moment on the welfare system over the past several decades. Popular literature depicted life at the end of the 19th century. Think of all those Dickens novels with poor houses, orphanages, and living in squalor on the streets of the major cities of England. Or recall the stories of the depression in this country, like John Steinbeck’s Grapes of Wrath. Social reformers like Jane Adams depicted the worst aspects of urban slums and novelists like Upton

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Sinclair chronicled the dangers and realities of the worst jobs at the lowest wages. I could go on, but the point was that eventually to address many of these problems a system emerged in the period between 1930 and 1950 designed to provide a basic safety net for people. Programs like social security tried to ensure that no one went without if possible. By the 1960s, with the publication of Michael Harrington’s Other America the full scope of the poverty the still existed in the country that was considered the wealthiest country ever, not just among the slums of the urban (and usually non-white) poor but also in the fields and backwoods of rural America, generated a political will to pass even more legislation to help the poor. Without listing them all, programs providing nutritional assistance to poor women who were pregnant, programs designed to help young children get a head start in school (education was viewed from a very early moment in our history a way to end poverty), provided housing subsidies to help people find reasonable homes or induce investors to build affordable housing, and assured some minimal health care for all were generally understood to Welfare. It was driven by a sense of social responsibility, and in large measure was seen as helping people who through no fault of their own did not have the means to help themselves. Its history is a complex one, but over time some in society saw this as a basic right of the poor, and others came to see it as a reason the poor remained poor. With the growth in the ranks of the poor, especially in the fast-growing urban centers of this country, the cost of social welfare grew very large. Some of these programs—like Social Security and Medicare—remain today and we constantly discuss whether as a society we can afford to continue them, and whether we can afford not to. In the 1990s, however, many people came to view Welfare in all its forms a detriment to solving poverty and the reason taxes were so high. From a social ethos in the 1950s of how we can afford not to help the poor we became a society by the 1990s that wondered how we could afford to continue to help the poor who won’t help themselves. Welfare reform and its aftermath was based on the notion that the poor lacked the motivation to work because of the social largess of government programs. Many talked about “welfare mothers” as women who knew they would get support for their children regardless as if that was an “occupational choice” for poor women. Others countered that the programs were structured so that a poor woman with a child received benefits only if she had no husband but did not consider whether or not the husband was able to find work. In short, many people in society began to assume welfare was a program of cheaters who chose marginal poverty (with the occasional story of the “welfare Cadillac”) over honest work. Welfare Reform was passed limiting how long one can continue to get benefits and requiring many on welfare to find a job. But let’s consider the premises. Many assistance programs have eligibility requirements that are tied to multiples of the poverty line—for example does your family earn less than 150% of the poverty level for a family your size. In our example above, a family of four making less than $30,975 a year might be eligible for certain programs. Other programs had a 125% of poverty threshold, and so forth. But consider this family of four at 150% of poverty—their after tax income (yes, everyone pays taxes—at minimum there are Medicare and Social Security taxes— that will take about 25% of your take home, sometimes less when you figure on the tax refunds) is only about $22,230 a year, or less than $2000 per month to pay for rent, clothing, utilities, food, medicine, and on and on. Let’s also consider what someone can earn. If you get paid

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$7.50 per hour (until recently more than the minimum wage) your annual income is only $15,000 per year. For a family of four both adults would have to work full-time at $7.50 per hour and they would still qualify for most welfare programs if the threshold was $30,975 for the year! Now, if we pass a law, as we did, requiring you to work full time and limits your eligibility for welfare what is this family to do? Furthermore, in many well publicized examples families who received the full array of social support under welfare—including Medicaid and Food Stamps— found that once they found jobs the loss of benefits required that they do without things like health care because their jobs—while paying more than welfare—did not provide benefits of any kind. Ironically, the plight of these households worsened even as they “pulled” themselves out of the welfare status. But all this is based on the assumption that people who are poor have done this to themselves, or on a softer version that the programs designed to help poor people have made it impossible for them to help themselves. The solution proposed is to argue we can no longer afford to pay for these programs, or we can no longer keep people dependent on public support and we must provide “incentives” for them to find jobs and support themselves. But if we consider that people prefer to be self-sufficient if only the jobs paid a living wage (that is, above poverty by more than a fraction), that the support levels of welfare are not sufficient to allow most families to live above the poorest conditions, and that welfare is a very socially stigmatizing system then we would propose programs that do not punish the poor for being poor. Rather, we would look to ways that build workforce experience, provide human dignity and ensure that the jobs pay a living wage. I will end this with two examples of social actions and programs that illustrate what a different orientation to poverty might look like. The first is a situation in Germany, when a major employer of a central industry of that city was going to close and lay off thousands of workers. In this country they would have become unemployed and eventually become a cost to the social and political structure of society. The solution in Germany was for the local government to keep the operation functioning at a subsidy per worker (under municipal ownership). When I asked the Lord Mayor (that is what they are called) why his response was pure logic and yet reflected the different ethos of our societies. In short, he said, the social cost of various welfare programs—for retraining the worker, providing food and other forms of financial support, of the consequence of increase delinquency of children—was more than the per worker subsidy. The added benefit is that the worker and his/her family retain self-respect, and once the industry rebounds or some other industry can take its place the city can recoup its investment in its citizens. The second example is a model of welfare support once more common in Sweden. When you lost your job and could not find another—that is when you became eligible for social welfare— the government would place you in a job that reflected your skills, most likely asking you to go to a community or employer that needed your skills but could not afford to hire you, and paid some or all of your salary. The result was that you continued to work, no one knew you were on welfare so there was no social stigma, as soon as you could you found a job more to your liking,

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and all the while the government continued to collect back in the form of tax revenues this worker paid a portion of the cost of this form of welfare. In the two examples above, the assumption is that the worker or citizen is now poor for reasons usually not under the control of the individual, and the solution is some program designed not to be punitive but to provide social security. Consider what happens here if a plant closes and people lose their jobs—in a shrinking economy that person eventually runs out of meager benefits and loses self-respect as they are forced into a demeaning system. Eventually they are treated as if their poverty is one of personal failing—the reasons for their poverty long forgotten. And as many have noted (an older study worth visiting still today is Eliot Lebow’s Street Corner Society) once the chance of finding work diminish, and the chance for the next generation is even worse, by the third generation work no longer is seen as a life course option and a whole spate of social problems emerge as a result. There is an old saying that Money is the Root of All Evil. We might consider an alternative: Poverty is the Basis of All Ills! YOUR EXERCISE ITEM Proposed Budget Rent Phone Other Utilities INS-Car INS-Home INS-Medical Food Car Financing Car Maintenance Car operating costs Entertainment Cable TV Clothes Dependent Care Personal Needs--Misc Vices (cigarettes, alchohol) Medical expenses Retirement Vacation Education Debt payment (loans other than car) TOTAL MONTHLY NET

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I want you all to consider what you think a family of four needs to allocate each month on these items—I leave some lines blank in case I missed something you want to add—and add it up. In your first response this week tell me what you think an average family of four needs for an annual household income by 1) adding this list, 2) dividing by 0.70 to get an monthly gross income before taxes to generate this disposable income, and 3) multiply the number in 2 by 12. For example, if I get a $5,000 per month net expenditures, that means I have to earn $7,143 per month before taxes or $85,716 a year in income. This calculation becomes the basis of your extra credit (optional) exercise.