Solving homelessness requires rethinking of strategy

Vijay K. Mathur

The homelessness problem throughout the country, including Utah, has existed for decades. Poverty and low income relative to affordable housing are the root causes of homelessness. The COVID-19 pandemic has worsened the problem, since many have lost their jobs without adequate financial benefits from the government to cope with the economic hardships.

 

However, individuals and families become homeless because, even if employed, they cannot afford housing prices in their areas. For example, the California Policy Lab study, February 2020, found that in Los Angeles County for all employed homeless average earnings were $9,970 per year before becoming homeless. Similarly, a study on New York City’s homelessness by the National Low Income Housing Coalition (April 2018) found that 45% of single homeless adults and 38% of homeless adults in families earned wage income at or near the poverty level.

The federal effort started with passage of the McKinney-Vento Homeless Assistance Act of 1987. It created varied grant programs to support homeless people and families. Grants to localities include prevention programs, housing subsidies and different housing and sheltering programs. However there is an overall lack of vision that recognizes the feedback loop between low income, housing prices and homelessness. Mental health, substance abuse, criminal record and domestic violence also result in the loss of employment opportunities and adequate income and are part of the same overall narrative for homelessness.

 

Low income with reduced supply of low-cost housing contributes to homelessness. When households owning and/or renting mid-income-level housing move out to higher-end housing or rental units, they leave behind units that filter down as low-cost units. Upward mobility affects housing prices at all income levels. But when the filtering process of homeowners, one of the main supply factors, slows down (as it is now) it causes housing prices to soar at all levels, including rental units.

 

Rental units’ residents have less incentive to maintain the current units, and landlords may not want to spend too much money on maintenance. Thus, landlords tend to filter the units down as low-cost housing. The study by the Joint Center for Housing Studies (JCHS) at Harvard University (September 2019) finds that affordability is dropping over the last three decades due to the decline in low-cost rental units for under $600 per month (inflation adjusted). This rent threshold is the maximum affordable rent for households earning $24,000 per year.

 

The homelessness problem is primarily a city problem. Low-cost housing threshold varies by cities both in low and high cost of living states. States such as Utah and Wyoming are low-cost states, but California and New York are high-cost states. The JCHS study found that, in Utah, rental units at the $600-per-month threshold and at earnings of $24,000 dropped by 47% from 1990 to 2017. In high-cost states, larger declines in low-rental units were at a $1,000-per-month threshold. M. Honing and R. Filer, American Economic Review, 1993, found that a 10% increase in low-quality housing rent increases homelessness by 12.5%.

 

In addition, new construction activity, usually at the high end of the market, has also dropped in many cities due to antiquated land use and housing regulations. According to the Council of Economic Advisers (CEA) (2019), varied deregulations to remove housing supply constraints in 11 metropolitan areas would decrease rental prices and reduce overall homelessness by 13% in the U.S. Construction and hence housing prices are also influenced by interest rates. For example, a 1% increase in interest rate decreases housing prices by 7.6% in San Francisco and 2.6% in Atlanta (see E. Glaeser and J. Gyourko, Berkeley Economic Press, October 2008).

 

A policy initiative that encourages more jobs skills, job assistance and mental health services to the homeless would reduce poverty, and deregulations and incentives for the construction of low-cost housing and rental units to increase supply would make a significant dent in homelessness. Utah is recognizing the problem of supply constraints and efforts are being made in Salt Lake City and Ogden to loosen zoning laws to encourage building affordable high-density housing and “mother-in-law” units.

 

Less emphasis should be given to public and private services to homeless people and families on a permanent basis (see CEA). Such activities provide disincentives to the homeless population to make an effort to seek and welcome gainful opportunities to get out of homelessness. Homelessness is a blemish on this rich and wealthy country.

 

Vijay Mathur is a former chair and professor in the economics department at Cleveland State University, Cleveland, Ohio. He resides in Ogden.  It was published in the Standard Examiner, December 3, 2020.

Is minimum wage increase good economic policy?

Vijay K. Mathur

      Most supporters believe that the federal minimum wage must be increased to close to $15 per hour. Sen. Bernie Sanders is an ardent proponent of increasing the minimum federal wage to $15 per hour by 2024 and indexing it to the median wage thereafter. According to the Bureau of Labor Statistics (April 2020), among 82.3 million (16 years and older) hourly paid workers (but not all workers), 392,000 earned the minimum federal hourly wage of $7.25 and 1.2 million earned lower than that wage in 2019. Hence, close to 1.6 million were paid the federal hourly minimum wage or less in 2019.

 

The usual argument against increasing the minimum wage, especially advocated by conservative politicians and others, is that the increase will result in unemployment of unskilled workers, teenagers and beginners in the labor market trying to gain work experience. The argument assumes a competitive labor market where workers and employers have the same bargaining power. The argument implies that given the demand and supply conditions in such a labor market, there will be excess supply of those who wish to work at the higher minimum wage than the quantity demanded. Workers most affected by the increase will be in industries such as leisure and hospitality, education and health care, and wholesale and retail that combined employed 79% of such workers in 2019.

 

However, the above argument against the increase misses some important counterpoints. The purchasing power of the minimum wage is 17% less than it was in 2009 (Economic Policy Institute, June 17, 2019). In addition, the wage has not been adjusted to the increase in productivity and/or technical change over a period of time. The resulting increase in demand for labor due to productivity gains would absorb the increase in the number of workers attracted by higher wage, hence no unemployment. In addition, labor economists have argued that when workers are paid a wage rate that they deem to be fair, they are more loyal to their employers (thus decreasing turnover cost), work hard and increase productivity. Thus, the increase in productivity, labor force participation and increases in consumption expenditures would increase economic growth.

 

Henry Ford introduced this idea of efficiency wage in January 1914 when he increased the wage of his plant’s male workers in Detroit to $5 per day for 8 hours a day of work from $2.34 for a 9-hour work day (for females in 1916). It increased productivity, loyalty and created a more stable workforce, thus decreasing turnover cost. It also made the plant workers economically better off, resulting in increased sales of Fords (www.history.com).

 

Empirical evidence also seems to support minimum wage increase. Studies by David Card and Alan Krueger in 1994 and 2000 showed that a minimum wage increase in a large sample of food establishments in New Jersey did not decrease employment, but showed some increase. The fear of large teenage employment decline is also unfounded, but benefits of wage increase are substantial. The EPI reports (February 2019) that a minimum hourly wage increase of $15 by 2024 will benefit 39.7 million workers. It will also increase consumption and address problems associated with high income inequality and the poverty rate.

 

It is apparent that a $15 minimum wage is not high enough at this time in the economy to result in an adverse effect on employment and/or inflation, but rather will result in more benefits to the economy and to those working at minimum- and lower-wage rates. President Theodore Roosevelt had the right idea when he remarked, “No man can be a good citizen unless he has a wage more than sufficient to cover the bare cost of living and hours of labor short enough so that after the day’s work is done, he will have time and energy to bear his share in the management of the community, to help in carrying the general load.”

 

Vijay Mathur is a former chairman and professor in the economics department at Cleveland State University, Cleveland, Ohio. He resides in Ogden.