Every once and a while, something happens that creates a natural economic experiment. Because they have the potential to generate much more reliable findings than most economic research, such moments are as elucidating as they are rare. Probably the most popular such experiments have occurred when one place raises their minimum wage while the place next-door does not. Research on these outcomes has played a key role in laying the groundwork for much better, more progressive minimum-wage policies across the land.
The latest such experiment is, however, far less encouraging. It is the harsh economic experience of those who have been furloughed or working without pay due to the government shutdown, now almost a record-breaking month long. This tweet from political comedian Bill Maher (warning: he curses), summarizes the “result.” By what rational measure can we say the economy’s “great,” when so many people are living paycheck-to-paycheck?
At this stage, any take on the shutdown is impressionistic, not statistical. But both anecdotal reports and data on the extent of household savings strongly support the hypothesis that in today’s America, what many call a great economy has a lot more to do with aggregate indicators than actual people’s living standards.
More than 800,000 federal employees and about 4 million contractors have now missed their second paycheck since the government shutdown began and will continue to miss more if the shutdown continues. Most of these affected workers cannot afford to miss even one paycheck, let alone several. Research on the 2013 shutdown found that nearly two-thirds of government workers do not have enough savings to cover expenses for even two weeks. That study also found that “about 20 percent just made it paycheck to paycheck; they had less than a typical day’s worth of spending in their accounts on the day before payday.”
Take the case of Donna Kelly, a 63-year old security guard at the Smithsonian’s National Museum of African art. She normally earns $15.72 an hour, but her missed paycheck has already prevented her from paying her car insurance bill, cell phone bill, power bill, and life insurance bill. In her own words, “everything is due,” but she does not have enough money to get her through the month.
Kelly’s travails are suggestive of a much bigger problem. Though they cover a wide pay range (with jobs like Kelly’s at the lower end), federal government jobs tend to provide decent, steady work, often with benefits and union coverage. For example, according to BLS data, the typical (median) wage for a food prep worker in 2017 was $11.36. But for a food prep worker employed by the federal government, the median was $20.50. Union membership is also more than four times higher in the federal than the private sector (26 vs. 6 percent).
So if people in government jobs can’t afford to miss a paycheck, the problem must be worse in the rest of the labor market.
In fact, research by the Federal Reserve on American’s economic well being complements the anecdotes we’re hearing. The Fed’s 2017 survey found that 4 in 10 adults would be unable to meet an unexpected expense of $400 without “selling something or borrowing money.” That’s an improvement over the level from a few years back of 50 percent, implying that the expansion lifted incomes and savings. But the Fed also found that more than one-fifth of adults couldn’t pay all their monthly bills in full, and more than one-fourth “skipped necessary medical care in 2017 due to being unable to afford the cost.”
Putting all this together reminds us that the fundamental determinant of most people’s living standards is their paychecks. Every five minutes, there’s an update on the stock market, but most stock market wealth is held by a small concentration of wealthy households. What matters most to working-age, low- and middle-income families is labor market income. Compensation accounts for 70 percent of middle-class income, but just half that for households in the top 1 percent.
Of course, income and compensation are just half of the story. The other half is the expenses faced by working families. Here, we turn to analysis of how much money families of various shapes and sizes need to get by in different parts of the country. In Los Angeles County, a parent with two kids needs $80,000 a year to cover such fundamentals as decent housing and childcare (which costs over $14,000). In Baltimore County (Maryland is home to many federal workers), the family budget comes in only slightly lower than LA’s ($78,000). Even with the federal wage premium noted above, it’s no wonder these families, and others who toil in the low-wage labor market, are living paycheck-to-paycheck, at best.
At some point, the shutdown will end, but the struggles faced by these families to make ends meet will not. Like other econo-watchers, we understand and frequently tout impressive macro indicators, like the low unemployment rate, or a big jobs number. But these numbers in themselves are never sufficient to declare the economy “great.”
That may describe some people’s economy, like that of JP Morgan CEO Jamie Dimon, who just got a nice $1.5 million raise. But as the “natural experiment” of an especially dumb government shutdown reveals, it doesn’t describe the economy faced by most people every day.