Lost in “”No-Man’s Land””

May 31, 2004

The Brookings Institution’s Ron Haskins says without better education, many Americans are doomed to a life of working poverty.

Ron Haskins is a senior fellow in economic studies at the Brookings Institution. A former Republican policy analyst, he helped lead the 1996 welfare-reform overhauls. He recently spoke with BusinessWeek Associate Editor Michelle Conlin. Edited excerpts from their conversation follow:

Q: Why has there been such political deadlock over issues concerning the working poor?

A: Over the past 20 years, I certainly don’t believe we’ve been deadlocked. We’ve done a tremendous amount for this group. The earned income tax credit. Expanding Medicaid. Cutting the old links between Medicaid and welfare. The Children’s Health Insurance Program.

Q: But what about the 28 million people who are making less than $9.04 an hour and are simply not making it?

A: There is a no-man’s land between $7- and $10-an-hour. They’re losing welfare. Food stamps are phasing out, they could be losing day care money. A single parent starts seeing the earned income tax credit phase out at $13,730 a year. For this group, it’s easy to get crushed.

Q: Why aren’t they making more?

A: They reason they can’t make more in this market is that, in economic terms, they aren’t worth more than $7 an hour. High school dropouts or those with only a high school degree, they work at McDonald’s, Wal-Mart, in the service industry. They work in sales, and they just don’t make much money.

About two thirds of the jobs in the U.S. don’t require any skills to speak of. You can learn them on the job. That’s why welfare reform is all about the soft skills: have a good attitude, show up on time, be a good worker, be nice to supervisors. But without education, it’s hard to make more than $22,000 to $26,000 a year. So for the foreseeable future and maybe beyond, that’s why we’re going to continue having this issue.

Q: Do you think the government should be increasing subsidies to this group?

A: My point is we’re already subsidizing them, especially when they have children, to the tune of billions and billions of dollars. And it’s going to be very difficult to think we’re going to have government programs of that size.

Q: Yet Congress just passed a mammoth prescription-drug bill for the elderly.

A: Congress, in my opinion, just made a huge mistake spending $500 billion on health care and drugs for old people. That was nuts. We’ve got all these millions of families without health-care coverage. If we’re going to help somebody, that’s who we should help—as long as we do it without reducing the work incentive.

Heath care is a mess. To spend money on drugs for old people, that was just crazy. God, it just drives me nuts. It’s politics, pure and simple.

Q: So what’s the answer?

A: The message is, people don’t want to be in this situation. They better get some education and some skills. The government is committed to getting people out of poverty, to make it to $17,000 to $19,000 a year. That’s not a grand living, but it’s better than welfare.

Beyond that, the government is not going to be playing a major role. To get people up there to $25,000 to $30,000 a year, that will depend primarily on their ability to acquire the skills to increase what they contribute to companies.

Q: Yet these are the very people most priced out of the ability to obtain an education.

A: I do agree they are getting priced out of education. Our education and training programs are a series of major failures and minor successes.

Q: So increase educational aid?

A: The deficits are huge and growing. And especially if the tax cuts are made permanent, we’ve got a built-in $700 billion deficit deficit over the next decade that will only get even bigger after that. And the drug benefit for the elderly makes that even worse.

The only way we get out of this is if we have the greatest economic performance ever, year after year of 4% growth for the next 10, 15 years. But we have 3% growth on average. These huge deficits, it colors our whole discussion about the amount of money the government will have to spend. I’m confident over the next two or three years that there won’t be any big new spending programs, unless it’s for Homeland Security or the Department of Defense.