Low-wage workers have to choose between car and rent

Today’s New York Times carries an article “Falling Fortunes of Wage Earners” noting that “Even though the economy added 2.2 million jobs in 2004 and produced strong growth in corporate profits, wages for the average worker fell for the year, after adjusting for inflation – the first such drop in nearly a decade.”  This is a theme in Barbara Ehrenreich’s book Nickel and Dimed, which I recently finished listening to while driving back from Virginia.  Ehrenreich did her research in the boom economy of 1998 and 1999 when labor was in short supply yet wages barely rose for the unskilled.  Ehrenreich took service jobs in Key West, Portland, Maine, and Minneapolis to see if she could make ends meet after one month.

Ehrenreich notes that the official poverty line was defined in 1964 as a multiple of the cost of food (see http://www.census.gov/hhes/income/defs/poverty.html) and has barely been revised since then.  The marketplace, however, has changed.  Real estate and rents have become much more expensive and food has stayed relatively cheap.  Thus it is easy to envision a family whose income is 3X the cost of eating at McDonald’s but who can’t afford rent.  Ehrenreich finds that almost no unskilled worker would be able to afford rent plus a car at the same time.  If they can’t team up with a spouse and they need the car to get to work they are forced to live in the car.

Ehrenreich’s conclusion is that this can’t last.  The workers will rebel and demand their right to at least an efficiency apartment plus some means of transportation to a job.  She predicts a Proletarian Revolution.  Six years have elapsed since Nickel and Dimed was written and yet the Walmartians and hotel and restaurant slaves seem as docile as ever.

What did Ehrenreich overlook?  Immigration!  There are plenty of people from poor countries who think that working 60-70 hours per week for $7.50/hour is acceptable, especially if there are opportunities for their children to do better.  As long as the immigrants are streaming into the U.S. it seems unlikely that wages for the unskilled will rise.

One might ask “Why do we have such a welcoming immigration policy?”  Countries that value quality of life restrict immigration.  To get into New Zealand, for example, you need to demonstrate some combination of youth, education, and wealth.  The New Zealanders don’t see a need to clog their neighborhoods with development and their highways with traffic unless the newcomers are bringing something interesting.  The U.S., by contrast, is happy to grant visas and green cards to people who don’t speak English and who in some cases are dedicated to the destruction of the U.S. government (the September 11th terrorists, for example, most of whom had official U.S. INS blessing).  The U.S. government puts GDP growth as its #1 priority because GDP growth enables the government to collect more in taxes and the extra tax revenue enables the government to expand.  If the population growth that is required to generate the GDP growth means that young people have to work two jobs in order to rent an apartment that’s not Uncle Sam’s problem.  High housing costs and the lack of guaranteed health care are both desired spurs to keep potential taxpayers getting up and going into work every day.

The best predictions available today show the U.S. population rising from its present 295 million to 500 million within our lifetimes.  With wages for low-skill workers set according to wages in India and China the living styles of many unskilled workers in America will have to be more like those in India and China.  Ehrenreich’s idea that a worker is entitled to an efficiency apartment does not apply in India or China.  I visited Agra, home to the Taj Majal, a few years ago.  Statistics showed that 2 million people lived there, subsantially smaller than the population of Boston and its closest suburbs, yet there were essentially no buildings taller than one story.  If a family of 8 people ran a little shop by the road they would roll down the shop door at night and sleep there as well.  A friend recently returned from living in Shanghai and reported the same system there.

We could argue about the merits of globalization and U.S. immigration policy but these factors are unlikely to change.  Better to think about how best to deal with the implications.  Low-wage workers in America won’t be able to afford housing constructed with currently prevailing methods.  In Third World countries this has traditionally resulted in shantytowns springing up (cf. Mexico City).  Perhaps with innovations in prefab housing we could provide shelter in the exurbs at a cost affordable to unskilled workers.  If not and if we have to accept the idea that a low-wage worker with a car will never be able to afford an apartment maybe the solution is an inexpensive car that is comfortable for sleeping.  If the Chinese can make a cheap car they should be able to make a cheap small RV.  If the Chinese can make a sleeping van for $10,000 (new) a low-wage worker could have transportation and minimal shelter at the same time.

Karl Marx thought that the Industrial Revolution would end scarcity, i.e., that everyone in the U.S. would be living in a McMansion and driving an S.U.V.  That was one of his main reasons for concluding that Communism would be the natural end-result of economic development.  Marx did not count on a world population explosion, however, and the simultaneous stagnation in construction technology resulting in tremendous pressure on housing costs.

26 thoughts on “Low-wage workers have to choose between car and rent

  1. Or they could just get roommates (not always pleasant, but damn sure better than homelessness). Or live somewhere you don’t need a car (I’ve spent four of the last five years without one…and didn’t miss it much).

    Ehrenreich overlooked a _lot_ of things. Like the odds of continuing to earn minimum wage if you work full-time and stay at the same job longer than a month. Like the general unwillingness of a lot of employers to reward annoying whiners with a chip on their shoulder, a sense of entitlement, and a belief that actually working for a living is beneath them.

    Offshore manufacturing is a large part of the reason that prices for most of life’s nonfood necessities have been going _down_ instead of up over recent years. Immigrant labor is a large part of the reason food is cheap. Just imagine how much worse life would be for poor people if the price of groceries were to skyrocket because a reduced flow of immigrants drove up the price of agricultural labor. If they couldn’t buy Chinese-made clothes at Wal-Mart, how many meals would they have to skip to keep themselves clothed?

  2. Maybe Phil, you could volunteer some flight time for the MinuteMan Project which is monitoring the border in AZ for illegals (they call the US Border Patrol if they see any). You could be doing the working poor a big favor.

  3. Every time I fly over the middle of the country, it looks like there’s a whole lot of empty space. Why don’t we just set up some more cities in Wyoming or North Dakota?

  4. So instead of just importing the low-wage workers that can do only burger flipping, cleaning or assembly work, also import the low-wage workers that build houses, roads and utilities in their countries.

    Then set aside big areas of currently uninhabitted land for them to work and live on in their own little economy.

    That way the rich can pay other rich folks big bucks for their rich food, houses, SUVs and TVs, while the poor can pay low amounts for the same things because those providing them with it will be low paid as well.

    And at the same time, they can feel good about saying they now live in the land of opportunities and freedom.

  5. All this brought about buy the arbitrary and man-made concept of countries with borders. Why does a guy in New York feel closer to a guy hes never met in LA, as opposed to a guy he’s never met in New Zealand???

    How less screwed would the world be if we just got rid of countries. We are allready heading towards mega-countries with concepts like the EU
    and the rationalisation of world currencies.

  6. Philip,

    Immigration is a “damned if you do, damned if you don’t” type of situation.

    True, Europe is a lot more restrictive than the U.S. about immigration, but the population is also aging more rapidly because of the smaller influx of young people.

    The result of the rapidly aging population is, of course, the expected breakdown of most pension and benefits systems.


  7. Most of us love the “good” side of free trade and market-based economies. It is nice to live in a society that offers universal health care (not to be confused with health insurance), plenty of jobs and economic and social opportunity. However, the market forces also expose people in affluent countries to competition from “cheaper” places. It is sad that people who work full time cannot make what we consider to be a good living. There are no obvious solutions. I’m an immigrant myself (Western Europe), as probably were many of the grandparents of the people reading this blog. No matter what your position is on immigration matters there is one big truth: people will always move in search of a better life.

    I don’t know about the immigration policies of New Zeeland. New Zeeland, not a particularly prosperous country by European or North American standards, is probably a fine place to live, but not because its restrictive immigration policies. If people will desire to go to New Zeeland, rest assured that they will do so. No free country can restrict immigration, “good” or “bad.”

    If you want freedom and prosperity live by the free market and accept the consequences (they are better than the alternative).

  8. “Why do we have such a welcoming immigration policy?”

    We don’t.

    Instead, we have a policy of not guarding our borders.

  9. “Why does a guy in New York feel closer to a guy hes never met in LA, as opposed to a guy he’s never met in New Zealand???”

    I wouldn’t mind having New Zealand as a 51st state. I suspect New Zealanders would mind being ruled by a distant Washington clique. I suspect they also would prefer keeping their countryside relatively undeveloped instead of being sold off to snake oil salesmen, I mean, real estate developers.

    “How less screwed would the world be if we just got rid of countries.”

    Countries exist because there are real differences between peoples.

  10. Countries exist because they exist. Do you really think there are larger differences between French speaking Belgians and French than between French speaking Belgians and Flemish speaking Belgians.

    If the Roman Empire would have been better at “patrolling its borders” things would have been different right? Maybe the Indians should have done a better job defending their shores…

  11. WB: there are differences between people inside any given country too. The division is quite arbitrary.

  12. We are seeing some good examples of sophistry:

    “Do you really think there are larger differences between French speaking Belgians and French than between French speaking Belgians and Flemish speaking Belgians.”

    Yeah, in this case we have a border that doesn’t make sense. Just because one of them doesn’t make sense, doesn’t mean all don’t. Speaking of Belgium, the Flemish nationalists would probably agree with you about the differences. They think current borders don’t make sense and instead of abolishing them, they would like to draw them differently.

    “there are differences between people inside any given country too”

    So? Just because we disregard some differences, we should disregard all differences?

  13. Where to start? Well, for one thing, the average worker doesn’t exist. Around .8 % of the US population dies every year, and about 1.7 % of the existing population gets added (1/5 of which is from immigration). So as older, more-skilled workers leave the workforce, and less-skilled (whether because they’re young or because they’re immigrants) workers enter, the average of what all workers earn in 2004 can be less than what it was in 2003 even if everyone still in the workforce has been getting (real) raises all along (especially the immigrants upon crossing the border). A helpful mental picture is an escalator: each individual is obviously always going up, but if more people get on per second at the bottom, the average height of everyone will fall.

    High housing costs, it seems to me, have a lot to do with high housing expectations. My brother lived for years alone in a small house in Porter Square; his landlord had grown up there with his parents and two or three siblings. We also expect (and legally enforce) much higher quality of construction (through fire and electrical codes) and provision of services (been a landlord lately?) than we did even forty years ago. Making do with less space is a sensible way to go about it: in contrast to my brother, I always had a roommate or two because I couldn’t see paying $10 or $15 more a day to do without one (not counting all the things 20-somethings can share, like A/V equipment and furniture).

    Low-wage workers in America who aren’t famous writers know enough to double up, triple up, or fit twelve people in a ranch house. The local governments in Northern Virginia are trying to fight this by, among other things, limiting driveway size.

    You note that “With wages for low-skill workers set according to wages in India and China the living styles of many unskilled workers in America will have to be more like those in India and China.” You seem to forget that it works the other way, too: living standards will rise in India and China, and people will end up with similar amounts of disposable income for similar location-independent skills. They may even spend some of that income on goods and services from the US, as opposed to, say, burying it under the live-in shop.

    Even the Times reporter realized that wages and benefits are part of a package, and that as health care becomes more expensive, that leaves employers (uniformly) with less money for wages. A better number to look at would be the total real value of wages and benefits.

    As far as living in your car goes, it turns out there are some long-term RV parks within an hour’s drive of DC where (mostly single) people who’ve moved to the area live. Given that even in a bad location, they’re paying $500 a month in rent on the land alone, I don’t think it’s construction costs that dominate housing costs in places like Boston and DC.

    Go make friends with some economists. Paul Krugman is a stone’s throw away from you, and he seems like a nice enough guy (provided you keep the conversation away from politics).

  14. Philip mentions that the technological progress of housing construction has prevented housing prices from falling like consumer goods prices. The unstated question is: What keeps a developer or real estate investor from making really high density housing, like the cold war era east bloc housing complexes, and making profits on people who can’t afford $500/month, but would prefer a tiny (maybe 100sq.feet/9sqm) crappy appartment for $200/month rather than becoming homeless or joining the army?

    There are many possibilities, collusion and fear of killing the profits of the current bottom end properties, competition from subsidized housing, fear of epidemics and lawsuits, regulation.

    However, very high density, very cheap housing is something that should be available in a capitalist market economy, but I am not sure how to classify the US economy of 2005.

    I personally think a substantial part of the american homelessness problem could be solved with such housing for less than the amount saved by firing half of all social workers, and cancelling all subsidized housing in high priced markets like the East Coast and the West Coast.

  15. Come on, you can do better.

    The high cost of housing here has little to do with the actual cost of building a house and alot to do with the cost of conveniently located real estate.

    Likewise, if people live in their cars, where are they all going to park them?

  16. Isn’t it interesting that for millions of years humans all lived on this planet in harmony with it, never risking its destruction by our own agency until less than half a century ago.

    Is there something essential in our past that may have led up to this situation? How can we undo / mitigate that one thing? Is it impossible, hopeless?

    We have some real problems facing us as a species. I believe this century will determine whether we will deal with reality or reality will deal with us.

  17. Your observation about the “stagnation in construction technology” might apply to most industries in the West. A lot of automation is waiting in the wings for the time when human labor is too expensive, or too scarce. Robots don’t need cheap housing, food, or cars.

  18. Live like immigrants.

    In an a appartment building in downtown Toronto my friend told me he saw an appartment where 6 Indian immegrants live in a 1 bedroom appartment by using 3 bunkbeds.

    None of them have cars and all work in low paying jobs (typically low skilled construction jobs or other services). He figures they can live this way on $2-300 per month.

  19. As someone else has noted, high housing prices are not due to a stagnation in construction technology but to new regulations.

    Even with all the new technology developed in the last 50 years, it costs more in inflation-adjusted dollars to build the same house. The government seems to believe that all those older houses are so dangerous they can no longer be legally built. You may not be able to afford a house, but at least you won’t live in one of those deathtraps which will collapse any minute now, just wait.

    It’s for your own good, you see.

  20. JF, you were asking why developers cannot make high density housing and I can tell you from experience it is due primarily to local regulations. Consider just the economics of schools; with the present school infrastructure at or exceeding legal capacity in many areas the marginal cost of each additional student can be huge. High density housing brings many more pupils per school tax dollar than expensive housing. Other economics also favor larger homes, such as increased site preparation costs, environmental impact statements and management and other fixed costs per home.

    My father (an architect) was part of a project with the American Institute of Architects to design high density housing and while they received many very interesting submissions nothing ever came of it due to butting up against zoning restrictions and public opposition (NIMBY).

  21. “Countries that value quality of life restrict immigration.”

    Come on, Philip, you can do better than that. Here’s one back at you: “Countries that are racist and xenophobic restrict immigration.” Just as valid.

    I’m also surprised you liked the Ehrenreich book so much. All it showed was that if you move to a place with a high cost of living, refuse to get a roommate, refuse to shop at thrift stores, and insist on eating from restaraunts once or twice a day, it’s tough to get by as an unskilled laborer. Well, duh. I got by just fine on minimum wage for a year after college. Even saved money. Of course, I was actually trying to get by, instead of trying to prove that it was impossible to do.

  22. Just a few days ago, New Zealand made it much tougher to immigrate here.

    When I immigrated to NZ from America a few years ago, it was a very straight-forward “points” system where, as Philip mentioned, I gained “points” for having a job offer and a university diploma, but I lost points for being just over 30 years old… The application also allowed me to “buy” up to 2 points if I had a $100,000 or $200,000 New Zealand dollars to bring with me (I didn’t).

    The new system is much more difficult for people to immigrate, and with the new legislation, it is even tougher:


    No longer is the waiting period three years, it has been increased to five, and they have even started to require that any baby born here can only become a citizen (or permanent resident) if one of the parents are a New Zealander (unless the baby willl become stateless).

    And they reduced the number of years a passport is valid for from 10 down to 5.

  23. “What did Ehrenreich overlook? Immigration! ”
    Immigrants help compensate for fewer people of working age (old people break). but becuase of increases in mechanical productivity and importation of goods, owners of wealth need less labor. Also, B. Ehrenreich[††] “overlooked” the power of booze, (TV[†], and other drug) addictions combined with death. dead people may smell revolting (for a short while), but dead people don’t revolt.
    † ____ Bread and circuses.
    †† ___ But *did* Ehrenreich predict an uprising of the workers?

  24. comment, this page.
    “also import the low-wage workers that build houses, roads and utilities in their countries.”
    It’s been that way for a while now in CA. Many carpenters and foremen have Mexican accents for the obvious reason. (Union jobs are more often worked by ‘white’ guys.) Mexico has a feudalistic culture, so Mexican immigrants fit in well to the conservative business culture in the USA.

  25. “Low-wage workers in America who aren’t famous writers know enough to double up, triple up, or fit twelve people in a ranch house.”
    yeah. And, not many green-carders posting here, are there? They live in garages, warehouses and in large gullies next to avocado orchards. I’ve never seen the filed housing (but seen photos) but have seen the sleeping arrangements in half-converted patios, etc. this in one of the slummier towns in one of the richest † areas (county) in the world.
    † __ as BS-measured however

  26. Great Post. I like the comment on Marx at the end. Marx was right–the industrial revolution can end scarcity as he knew it. The problem is that humans always want more and more–scarcity is relative. And whoever have the scarce commodites are entitled with honor (this is what Veblen talked about)

    Think about food–in Marx’s day, food was scarce. Being plump conferred status. In the industrialized world today, however, food is not scarce. In fact, in the US people get too much of it. What people want now is the perfect body, and the closer you get to this, the higher status you have.

    I think when we think about what ever human needs, we need to think Rawls and his definition of the absolute necessities. Shelter is one of them. The problem is that unskilled labor is paid according to supply and demand, and their is too much supply relative to demand. This pay is often not enough to buy the Rawlsian definition of absolute necessities.

    And there will always be unskilled workers. The solution to lifting these workers out of poverty and afford the absolute necessities cannot therefore be solved by simply stating “education.” There will always exist hard working dumb people who deserve to live a decent life.

    Hence, unskilled workers need to obtain income from sources other than their labor. Im thinking capital income. The problem with this is that capital is, of course, not widely distributed.

    And this was the point Marx was making. Hightly concentrated capital is the source of poverty. Unskilled labor can only earn so much. Minimum wages only cause unemployment.

    It is ownership of the productive assets besides labor that afford a fine lifestyle, a lifestyle that enables people to focus on art, religion, science, leisure, and war. And when these productive assets are not widely distributed, the world will see highly unequal standards of living.

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