Who’s Responsible for Fast-Food Workers’ Low Wages?

October 2, 2014

Let’s see. Where was I? In the midst of dissecting responsibility for the low wages so many fast-food workers are paid.

As I’ve already suggested, it’s a mistake to focus solely on fast-food restaurant owners because most of them are franchisees. So in addition to the usual restaurant costs, e.g., food, labor, rent, we need to recall the fees, royalties and other charges the franchising companies levy.

Whether these make higher wages unaffordable is a separate issue. The report for The New Yorker that I used in my previous post indicates that some franchisees are doing very well indeed.

Less iffy are other ways that fast-food companies share accountability for wages that are far too low to live on. Hourly rates are only part of the picture.

Another, which I’ve mentioned before, though not in this context, is software the companies provide to enable just-in-time scheduling, e.g., keeping workers from clocking in when they arrive and/or sending them home early when business is slower than expected.

A lawsuit against McDonald’s seeks to hold the company jointly liable for the former, which is one of several labor law violations alleged against its franchisees. Whatever the outcome, the software represents a more general sort of accountability.

Because, for good and ill, McDonald’s exercises considerable control over how its franchised restaurants are operated. It obviously has a large interest in maximizing sales — and in enforcing common standards, e.g., cleanliness, quick service, foods served and how prepared.

But it has an even larger interest in maximizing shareholder profits — closely related to, but not the same as the interests cited above. Disgruntled franchisees claim they’re being squeezed. “[T]oo much focus on Wall Street,” one says.

This much is certain. McDonald’s has been buying back shares, i.e., taking them out of the market to boost the price of those investors still hold. It spent more than $1.8 billion on buy-backs last year alone.

And it’s paying top management handsomely. The CEO received about $7.7 million last year, according to a Demos analysis. Crain‘s Chicago Business reports $9.5 million, noting he received more in 2012.

Either figure is far from the highest amount big fast-food CEOs received. The average, skewed upward by Starbucks’ CEO, was about $23.8 million, not including certain types of income CEOs commonly receive. This makes for an overall CEO-to-worker pay ratio of more than 1,000-1.

For all but three of the CEOs Demos could report on, at least 60% of compensation related to stock awards and stock options cashed in. So you can see that they have a very good reason to prop up the value of their companies’ shares — two actually, since if share prices tank, they’re out of work.

Which brings us to another player in the wage-setting arena. Shareholders, we’re told — not thee and me, but hedge funds and other big investors — demand short-term gains, no matter what.

The long-term gains companies might achieve by paying workers more — or in the immediate case, making it easier for franchisees to pay more — don’t qualify as “maximizing shareholder value.”

Companies that don’t deliver enough fast enough face takeover threats — or the equivalent. McDonald’s, for example, felt constrained to sell off restaurants and promise $1 billion in buy-backs to appease a hedge fund manager.

In short, we need to look beyond the balance sheet of a fast-food franchisee to assess the arguments against a minimum wage increase. And a place to look is the corporate parent — what it does with its profits, how it gets them and what drives the decisions it makes.

The self-proclaimed Franchise King suggests that companies like McDonald’s will have to adjust their fee structure to help their franchisees if the minimum wage increases to $15 an hour — as it eventually will in Seattle. Perhaps this would also apply to some of the other recent and prospective minimum wage boosts.

It’s hard to predict how all this will net out. We know that the majority of fast-food workers today aren’t teenagers who want a little running-around money, but mostly adults — in many cases, parents with children.

We know we’re subsidizing low wages because our tax dollars pay for the public benefits that more than half of all “front-line” fast-food workers rely on. What they receive from just four of the major federal programs costs us nearly $7 billion a year — $1.2 billion for McDonald’s workers alone, according to the National Employment Law Project.

And we know — or ought to — that fast-food companies could tweak their business models to support higher wages in their franchised restaurants, as well as pay them directly in the restaurants they operate.

We might have to pay more for our burgers. Or perhaps, as Tim Worstall at Forbes says, not a penny more.

Whichever, shareholders would have to decide that their investments are better off if fast-food companies address the root causes of protests, bad publicity and related risks that McDonald’s has already identified — even if this means less in dividends and/or buy-backs.

Not saying it would, mind you. We’ve got a raging debate over how a substantial minimum wage increase would affect franchised fast-food restaurants. So we’ve no firm grounds for predicting outcomes at the corporate level.

The fast-food workers’ protests seem to me an altogether good thing. They’ve already helped gain an executive order that will set $10.10 as the initial minimum wage for workers employed by federal contractors.

Whether they’ll galvanize more minimum wage increases to $15 an hour is, to my mind, doubtful. But they’ve surely raised awareness of the need for a substantial minimum wage increase.

And they’ve prompted some public scrutiny of how franchising businesses make their money and what they do with it.

That, to me, is the best retort to the National Restaurant Association and the fast-food companies it fronts for, which staunchly maintain that franchisees can’t possibly absorb a minimum wage increase. And to the Heritage Foundation, whose brief got me started on all this.


Can Fast-Food Restaurants Pay Their Workers More?

September 29, 2014

William Finnegan at The New Yorker tells the story of Arisleyda Tapia as part of an in-depth report on the fast-food workers movement. She’s one of thousands who’ve banded together to demand a minimum wage increase to $15 an hour.

Arisleyda makes $8.35 an hour in the costliest city in the country. She and her daughter sleep together on a bed in a partitioned-off apartment room. She has two children back in the Dominican Republican.

The Heritage Foundation predicts dire results if these union-backed walkouts and other protests succeed.

Owners would have to raise prices by 15% to cover the additional wage costs, Heritage says. Customers would react by ordering cheaper items, eating at home more often or upscaling to restaurants with more menu choices, table service and the like.

So owners would have to raise their prices even more because they’d be making less, but still have to cover fixed non-labor costs, e.g., supplies, rent, insurance. Next thing you know, they’d be left with profits averaging only $6,100 per restaurant per year — a 77% loss.

Or they’d automate tasks now performed by workers. Some already are, but Heritage says the shift to technology would accelerate. So there go those entry-level jobs that supposedly give young, low-skilled workers a foothold on the ladder to higher-paid positions.

In short, we ultimately get the old harms-those-intended-to-help argument, plus alleged harms to all the many consumers who now favor fast food.

I dignify this brief with a post mainly because Campaign for America’s Future includes in its rebuttal a point that’s often ignored — and one that’s often occurred to me, based on what I learned during my years at McDonald’s Corporation.

Specifically, fast-food restaurant owners who are franchisees, as a great many are, have low profit margins in part because of what the parent corporation exacts in fees, charges for advertising and royalties — usually a percent of gross sales.

McDonald’s franchisees also fork over payments for rent, training, software and other items. Burger King charges for at least some of these and has some of its own.

Franchisee payments account for about a third of McDonald’s revenues, according to Vanessa Wong at Bloomberg BusinessWeek. The percent for BK is even higher, she reports.

Last year, McDonald’s U.S. franchisees contributed more than $4.3 billion to the company’s coffers. No comparable figure for BK because it reports the U.S. and Canada together.

If we can trust Heritage (a question mark), fast-food restaurant owners — including, but apparently not limited to franchisees — clear, on average, 3% in profits before taxes. But McDonald’s own profit margin, as of June, was somewhat over 19%.

What this means, CAF concludes, is that “McDonald’s and other large fast-food companies have successfully shrugged off responsibility for the welfare of its [sic] workers by making the franchisees responsible.”

This, to me, isn’t quite what the numbers say. And I’m not comfortable with the implicit attack on franchising in and of itself. But the numbers do suggest that the fast-food companies bear part of the responsibility for the low wages their franchisees pay.

They’re not solely responsible, however. We consumers can’t reasonably dump all the blame on them, since so many of us routinely patronize fast-food restaurants, knowing how little they pay. And big fast-food companies like McDonald’s are shareholder-owned.

All this — especially what fast-food companies do and could do — warrants more explanation than even my somewhat flexible length limit allows. So I’ll leave off here and return to the topic in a separate post.

UPDATE: Shortly after posting this, I discovered that the National Restaurant Association has cited 3% as the typical fast-food restaurant’s earnings, before interest, taxes and amortization. This well may be the Heritage Foundation’s source. Whether trustworthy is a different issue. In 2010, the Association and Deloitte & Touche jointly reported 6% as the average profit before taxes for “limited-service” restaurants.

 

 


Diane Earned a Big Tip, But She May Still Live on the Verge of Poverty

September 2, 2014

My husband Jesse and I spent the weekend before last in Cleveland. We were visiting his mother to help celebrate her 95th birthday. The family gathered for a long lunch at a seafood restaurant in one of the suburbs.

Diane, who waited on our table, is altogether the best server I’ve ever encountered — and a fine example of what happens to the tips we think of as a reward for good service.

She takes pride in her professional skills — so much so that she’s written an e-book on “etiquette” for restaurant servers and those of us served.

It’s called I’ve Been Doing This Since Before You Were Born because Diane, who’s approaching middle age, has worked as a restaurant server all her life and wanted to share what she’s learned.

I asked her if she was paid the tip credit wage. Indeed, she is — $3.89 an hour. This is all her employer has to pay here, so long as her tips bring her total earnings to an average of $7.95 an hour per pay period because that’s now the regular minimum wage in Ohio.

I asked her if the restaurant owner pooled tips, i.e., collected them all and then doled them out according to some formula he’d devised.

Sort of. When Diane works daytime hours, she owes a total of 15% of her tips to the bartender, the busser and the person who sets out the plates for servers to bring to the tables. During evening hours, their share doubles.

That’s not so bad, she said. Her former boss also required servers to pay a fee in order to collect tips that were put on credit cards. This further nick in take-home pay could well have been legal, as tip pooling can also be.

Now, I’ve no idea how much Diane earns, once she’s shared her tips, as required. But we do have some new information on tip credit workers generally, thanks to the Economic Policy Institute.

There are somewhat over 3.5 million of them nationwide. Well over half — 58.5% — are servers or bartenders.

About two-thirds of tipped workers, including those in the seven states that don’t permit employers to pay them a lower wage, are women. The share is even higher for servers and bartenders — 68.5%.

More than half have at least some college education, as I’m guessing Diane does. Yet for most of them, as well as for those with less education, our tips don’t provide anything close to a living wage.

The median hourly wage for all tipped workers is just $10.22 — $6.26 less than the median for all U.S. workers. The gap is 11 cents greater for servers and bartenders.

For those who are women, as most are, the gap is even higher — $6.59 an hour or 60% of the median for all workers.

Tipped workers are far more likely than others have family incomes under $40,000 a year. This is the maximum for nearly half who are servers or bartenders — a slightly more than half for those who are women.

Family incomes are considerably lower for many. The poverty rate is nearly twice as high for tipped workers as for those whose take-home pay is entirely what they get from their employers.

And again, servers and bartenders are worse off than the rest. Their poverty rate nationwide is 14.9%, as compared to 6.5% for non-tipped workers. This, however, includes those who work in states with no tip credit wage.

Their poverty rate is a still-troubling 10.2%, strongly suggesting that other factors also keep tipped workers’ incomes low, e.g., low minimum wages, even in states where the minimum exceeds the federal, part-time and irregular schedules, lack of paid sick leave.

Not surprisingly, a higher percent of tipped workers than others receive some federally-funded benefits — 46%, as compared to 35.5%. The total value of the assistance is higher too — and highest for servers and bartenders.

It’s still, on average, only $2,724 a year, including the Earned Income Tax Credit. That’s hardly enough to make up for the low hourly wages, even when augmented by tips.

Consider that the median hourly wage for servers and bartenders translates into a full-time, year round wage of only about $21,130. And those full-time, year round jobs may be more the exception than the rule.

The minimum wage bill that’s stalled in Congress would gradually raise the federal tip credit wage until it reached 70% of the regular federal minimum. EPI, however, believes it would be “prudent” to simply do away with the “two-tiered wage system.”

Restaurant Opportunities Centers United, which advocates for “restaurant workplace justice,” has also called for abolishing the tip credit wage. It cites not only the lousy take-home pay, but other problems, e.g., wage theft, sexual harassment that servers are constrained to tolerate because they depend on the harassers for tips.

In short, there are lots of reasons to eliminate the tip credit wage, though I’m not holding my breath till this happens.

We would still have added a hefty tip to our bill. But it would all have gone to Diane, rather than help her employer pay her and the colleagues she has to share it with only $3.89 an hour.


Too Many People Working Too Many Hours Without Overtime Pay

August 28, 2014

Some years ago, I worked for McDonald’s Corporation. So I recall well the last time the Department of Labor updated its overtime rules. Let’s just say, McDonald’s and its retail-business lobbying partners got pretty much what they wanted — freedom to deny overtime pay to many more workers.

This is one, though not the only reason that average compensation in private-sector jobs like food preparation, sales and a category the Bureau of Labor Statistics labels “office and administrative support” has barely increased since 2001.

Retiring Senator Tom Harkin and eight Democratic colleagues have introduced a bill to restore overtime rights to about 35% of salaried workers — the main type that employers may legally require to work overtime without overtime pay.

But DOL doesn’t need new legislation to update the rules or to close what Harkin refers to as a “loophole” — the very thing McDonald’s and collaborators wanted.

President Obama has, in fact, directed Labor Secretary Tom Perez to “modernize and streamline” the rules. And Perez clearly has an overhaul in mind, though he’s not ready to say when we’ll see it.

This is one of those rulemakings that’s going to get lots of comments — and lots of behind-the-scenes input, as well as very public efforts to shape opinion. So I thought a brief summary of the current rule and what we may expect might be helpful

Overtime Basics

The Fair Labor Standards Act has always required employers to pay some, but not all of the workers on their payrolls one-and-a-half times their regular wage when they work more than 40 hours a week.

Those who don’t qualify are mostly salaried workers, though some who get paid on a fee basis may also be exempt. All are, by definition, “white collar” workers whose primary duties fall into one of five categories — executive, administrative, professional, computer and outside sales.

Deciding who’s exempt from the requirement involves a two-part test, except for the outside sales people. The first is a compensation threshold. Anyone below it qualifies for overtime pay.

The current threshold is $455 a week — slightly under the federal poverty line for a four-person family. At its peak, in 1970, it was $1,071, in inflation-adjusted dollars, the Economic Policy Institute reports.

For a relative few, clearing the threshold is the end of it because their salaries put them into the “highly-compensated” category — currently a minimum of $100,000 a year.

For the majority, there’s a second test intended to identify employees whose primary duties involve management, supervision, other exercises of “discretion and independent judgment” and/or high-level professional expertise.

The rules specify the sorts of duties that meet the test for each of the categories. But here’s the kicker. The current rules, unlike their predecessors, don’t say how much time an employee must spend on them.

So, for example, an assistant manager at a fast food restaurant who spends virtually all her time working shoulder-to-shoulder with crew members could be exempt under the “executive” duties test so long as she created their work schedules and made recommendations — not necessarily decisions — about hiring and firing them.

What the Department of Labor May Do

Virtually everyone expects DOL to propose an increase in the salary threshold. It’s already got a range of recommendations to choose from — from $960 on the low end to $1,222 on the high end, among those I’ve seen.

The Senate Democrats’ bill would phase in an increase to $1,090 a week and then index it so it would automatically rise with consumer prices — a feature economists Ross Eisenbrey and Jared Bernstein earlier recommended to DOL.

Most speculators think DOL will reinstate the time allocation part of the duties test that its predecessor effectively eliminated in 2004 — or some variation thereof.

In fact, Perez has already said he wants to deal with the “loophole” that allows employers to exempt workers who spend virtually no time on the primary duties the current rule sketchily defines.

He may look to the Senate Democrats’ bill for a model. It would narrow the loophole by converting a former 50% “rule of thumb” to an absolute test. In other words, employees could be exempt only if they spend at least half their time on those primary duties.

One labor lawyer speculates that DOL may instead (or also) tighten up the definitions of the types of jobs that may be exempt.

Job Killer or Job Creator?

The National Retail Federation’s Senior Vice President for Government Relations says that the as-yet unseen proposal “if implemented, would have a significant job-killing effect.”

We hear somewhat similar, though subtler alarm bells from other spokespersons for affected businesses. The head of labor law policy at the U.S. Chamber of Commerce, for example, says that the prospective rule changes will “make employees more expensive.”

He draws a parallel to increasing the minimum wage, which the Chamber earlier claimed “destroys jobs.”

The opposite seems more likely. When Congress passed the Fair Labor Standards Act, during the depths of the Great Depression, it included the overtime requirement in part because employers would then find it cheaper to hire more workers than to pay those they had extra money to work extra hours.

That’s how labor economist Daniel Hamerish, among others, thinks the plan Obama sketched out will work. “I would argue it’s a job-creation program,” he told reporters at the Washington Post.

This and much more before we’ve seen anything approaching a formal proposal. So we’ve got a lot of backing-and-forthing to look forward to.

Meanwhile, Happy Labor Day to all of you who don’t have to work, with or without overtime pay.

 

 


More Earnings May Not Mean Less Hardship

August 20, 2014

Everyone with even a passing interest knows that the Census Bureau’s poverty thresholds are far too low — in part because they’re based on a long-outdated spending pattern.

The Urban Institute’s Molly Scott has a more fundamental objection. “All our national poverty statistics,” she says, “reflect economic poverty.” In other words, they measure total household income — both earnings and payments from programs like unemployment insurance and SSI.

The Census Bureau’s Supplemental Poverty Measure also includes the value of some near-cash benefits, e.g., SNAP (food stamps), housing subsidies, home energy assistance.

But Scott has something quite different in mind than a better version of our poverty measure. “The problem,” she says, is that “the arbitrary poverty line is a bad measure of material poverty, the amount of hardship people experience meeting their basic needs.”

People both above and below the poverty line often struggle to get through the month. The only difference between them is “the mix of resources they use and the costs associated with work,” Scott says.

She gives us two hypothetical single mothers in the District of Columbia. Both have two school-age children. They live next door to each other, so the rent on their apartments is the same. They both have minimum wage jobs. The difference is that one works part time, the other 60 hours a week.

The part-time mom’s family gets a larger SNAP benefit because the household’s income is lower. She’s somehow managed to get a housing voucher — again because her income is extremely low.

At the same time, her transportation costs are lower, presumably because she doesn’t work every day. And she doesn’t have to pay for child care because she works only while her kids are in school.

The end result is that her gross income is much lower, but her family is actually somewhat better off. Probably still facing struggles, but not actually in the hole, like the family headed by the other mom, whose earnings put them nearly $10,000 above the federal poverty line.

The moral of this story is that policymakers — and others — who champion work requirements and other strategies “to get people to work more” are often actually looking for more ways to minimize spending on programs that help poor people make ends meet.

We may spend less, but achieve little or nothing to alleviate hardship, as Scott’s time-and-a-half working mom’s situation shows.

Scott’s conclusion is more cautionary than prescriptive. “[W]e need to make sure our policies and programs do more than swap out subsidies for low-income wages that won’t change people’s quality of life.”

She refers to “real ladders of opportunity and supports along the way.” Which is all very well and good, but we need to do something about those low-wage jobs as well — and about supports for people who, for various reasons, can’t climb a ladder into a genuine living wage job.

For our single mothers in the District, that would be a job paying $32.95 an hour, assuming full-time, year round work. This would give them an annual income nearly three and a half times higher than the poverty line for their families — and about $1,950 more than the median for all households in D.C.

We’ve got bills in Congress that would raise the floor the “ladders of opportunity” rest on. There’s the long-stalled minimum wage increase, of course, but also a pair of bills that would, among other things, ensure that workers don’t get shorted if they’re sent home early or required to work for awhile and then again later because their employers go in for “just-in-time” scheduling.

We’ve got bills that would guarantee most workers some time off with pay so they could stay home when they were sick or for other compelling reasons, e.g., childbirth, an ill family member who needs care.

We’ve even now got a bill that would help ensure that some of the 26 million or so workers employed by federal contractors get paid what they earn.

And, of course, President Obama has used his pen — or as some Republicans say, disregarded the Constitution — to both raise their wage floor and better protect them against wage theft, as well as some other prohibited labor practices.

But the mighty pen can’t boost federal funding for child care — the second largest item in the living wage budget for our D.C. single-mother families. It can’t do anything about the cost of housing, which, as you might expect, is the largest.

And it’s highly doubtful Congress will either — any more than it will raise the minimum wage or pass all the other bills that would somewhat improve the financial circumstances of low-wage workers.

What’s more frustrating, in a way, is that there is no silver bullet — or round of silver bullets — ready for policymakers to fire, if they choose. Material poverty seems to me even more complex than plain vanilla economic poverty.

Which isn’t an argument for doing nothing. There’s a lot that can be done, much of which we already know. It is an argument, however, as Scott implies, for rejecting out of hand solutions that rely solely on getting more people into the workforce.

 

 


Live the Wage Challenge Offers Bare Glimpse of Minimum Wage Workers’ Struggles

July 29, 2014

Not long after I started this blog, I raised questions about the value of the Food Stamp Challenge. This exercise, as you may know, calls on participants to feed themselves — and if they choose, their families — on the cash equivalent of the average SNAP (food stamp) benefit.

This week, we’re in the midst of a different sort of challenge. Elected officials, community leaders, congregations and the likes of thee and me are urged to live, for a week, on what a full-time minimum wage worker has to spend, less housing costs and taxes. (But see below.)

The minimum wage here is $7.25 per hour — the federal minimum that fully phased in five years ago. It remains the minimum in 28 states and the U.S. territories.

The challenge sponsors obviously want Congress to raise the wage, which it surely won’t unless and until Democrats gain a majority in the House and a larger majority in the Senate. Either that or a very different sort of Republican leadership to work with.

But this in itself doesn’t argue against the challenge. The aim, I take it, is to call attention in a new, social-media-oriented way to how far the minimum wage falls short of daily living costs.

We’re encouraged to tweet our experience and/or share it in other ways. Some of the handful of Democrats in Congress who said they’d participate have done just that. None of them, as I’m sure you’ve guessed, needs the experience to support the minimum wage increase that’s still stuck in the Senate.

Congressman Tim Ryan of Ohio says, “[I]t’s important for those of us in leadership positions … to make sure … we really understand the deep challenges people face.”

But Live the Wage, as the week-long challenge is called, will do no such thing — something the guidance generally acknowledges, but understates.

The minimum wage budget for the week is $77. The organizers arrive at this by deducting average taxes that are roughly double the worker’s share of payroll taxes and $176.48, which is said to be the average for housing.

The average housing cost then is about $706 a month. I’m told this figure comes from the Economic Policy Institute and represents the average rent for a one-bedroom apartment.

It still seems to me very low — and way too low in many parts of the country. And of course, the apartment would be awfully crowded for a minimum wage worker with children.

More importantly, the $77 doesn’t exclude only housing and taxes. Challenge-takers don’t have to deal with any other “long-term and inflexible costs,” as the Center for American Progress Action Fund’s alert to the challenge reassuringly notes.

So loan payments, healthcare and childcare costs are all explicitly off-budget. So, for obvious reasons, are fees many low-income workers incur because they don’t have bank accounts — or in some cases do, but get paid with debit cards.

Bottom line, according to the guidance, is that the $77 must cover only meals, groceries, recreation and transportation. But recall that transportation doesn’t include car payments or insurance.

As with the Food Stamp Challenge, however, the most important limit is that it’s very brief — and can end whenever the going gets too tough.

Congressman Ryan has stocked up on diapers, but if the baby needs more, he’ll surely buy them — just as he snagged a pork chop after airport security officers took his jars of peanut butter and jelly during his Food Stamp Challenge.

That’s okay, the challenge guidance says. The point is “to give a glimpse of how little the minimum wage provides a working family in this country.”

But, it adds, no one is “expected or encouraged to default on any legal, financial, work or family obligations.” And surely no participant will.

So no one’s going to glimpse the decisions about which bills to pay and not, the acute pressures when the car breaks down or the kid gets sick — or the breadwinner, for that matter. No one’s going to feel despair when there’s not enough money for diapers.

If the Live the Wage challenge actually raises awareness among the friends, relatives, Twitter followers and the like that participants are to share their glimpses with, then perhaps it’s all to the good.

But I’ve got a hard time believing that anyone who’d support a minimum wage increase doesn’t already know that $7.25 an hour isn’t enough to live on, since a large majority of voters do.

And the glimpses aren’t going to make a whit of difference to Republican leaders in Congress.

If they had the slightest interest in what life below the poverty line is like, they’d be better off listening to what the real experts like Witnesses for Hunger Tianna Gaines Turner and Barbie Izquierdo have to say.


Less Known, But More Urgent Social Security Shortfall

July 17, 2014

I supposed you’ve read that the Social Security Trust Fund will run out of money long about 2035. This date applies to the Old-Age and Survivors Insurance Trust Fund — that one that helps pay for workers’ retirement benefits and the benefits their dependent family members may ultimately receive.

The Trust Fund for SSDI (Social Security Disability Insurance) is in far worse shape. The latest report from the trustees projects insolvency in 2016. Unless Congress does something PDQ, the so-called DI Trust Fund will be able to pay only about 80% of benefits.

They’re already far from generous — currently, on average, about $1,146 a month for disabled workers themselves or less than $1,000 if eligible spouses and children are included. Yet they’re a major source of income for most recipients and their families.

In 2010, for example, they accounted for more than half of total family income for 78.5% of beneficiaries. For nearly one in three, they were the only income source.

Benefits notwithstanding, nearly one in five lived in poverty. And well over a third (37.4%) were poor or near-poor, i.e., living below 150% of the federal poverty line.

These are hardly families who can afford a 20% cut.

Congress could avert it, at least temporarily, by shifting funds from the OASI Trust Fund to the DI Trust Fund, as it did in 1994. But this Congress isn’t that Congress.

Hence a panel discussion hosted by the Center for American Progress Action Fund, whose parent organization concurrently released a fact-packed brief on SSDI.

The lead speaker, Senator Sherrod Brown, argued that Democrats should push for an expansion of Social Security, along the lines that he, among others, has proposed. The best defense is a good offense, as they say.

Unfortunately, as things stand now, SSDI needs a good defense too. Because it’s been subject to a barrage of negative media coverage.

Brown says that the attacks on SSDI are actually “backdoor attempts” to dismantle the whole social insurance system, which Republicans still want to privatize, i.e., convert into something like a compulsory IRA.

I’m not so sure. But some surely are casting aspersions on SSDI — and its beneficiaries. Though SSDI is basically an insurance policy that they and their employers have paid for, much of what we hear recalls attacks on safety net programs.

It’s rife with fraud. People perfectly able to work are gaming the system — in this case, with help from rapacious lawyers. Look at all those “squishy” diagnoses, e.g. some musculoskeletal disorder that’s allegedly excruciatingly painful.

The fuel for this fire, I think, is essentially the same as the source of the impending — but easily avertable — crisis.

Many more workers are now receiving SSDI than in the program’s earlier days — about 8.9 million, as compared to 1.4 million in 1970.

And we saw an uptick when the recession set in, though not nearly so large as the uptick in claims. (Notwithstanding alleged laxities, fewer than 40% of claims are ultimately approved.)

Social Security’s Chief Actuary, Stephen Goss, told the CAP Fund audience that the increase over time was predicted, even before the recession, because the largest drivers are demographic.

First, we’ve had a 43% increase in the working age population, i.e., adults between the ages of 20 and 64, since 1980.

Baby boomers are partly responsible for that, of course, And they’re now old enough to be at much higher risk for disabling conditions. A 50-year-old is twice as likely to be disabled as a 40-year-old and a 60-year-old twice as likely as a 50-year-old, according to another CAP brief.

At the same time, far more women are working — and for quite a long time, as they must to qualify for SSDI. So the pool of workers who’ve become eligible when disabilities make it impossible for them to continue doing the same kind of work — or any other kind they might qualify for — has increased for this reason as well.

Expansions in the potential pool tell only part of the story. Roughly half of the disabled workers receiving SSDI benefits have, at most, a high school education. They’re likely to have had jobs that required a lot of standing, walking, lifting and the like.

They’re not likely to have in-demand skills that would enable them to shift into more sedentary occupations — something the Social Security authorities would consider before approving their claims.

Policy changes also help explain why the SSDI rolls have grown. These include the phased-up increase in the age workers can qualify for full retirement benefits — at which point SSDI recipients are automatically shifted over to the OASI program.

Basically, we’ve still got baby boomers — and some younger disabled workers as well — who wouldn’t be receiving SSDI if Congress hadn’t raised their full retirement age to 67.

What this means is that the pressure on the SSDI program will eventually diminish because the boomers will all reach full retirement age.

This is why some recommend that a slightly larger percent of payroll taxes be allocated to SSDI. An initial shift from 1.8% to 2.8% of the total 12.4% collected, with smaller shifts thereafter would keep both trust funds wholly solvent until 2033, according to the Social Security actuaries.

Another option Goss has mentioned would be a small increase in the payroll tax. Or, he adds, Congress could just let the benefits cuts happen.

As if we don’t already have enough poor people in this country.

 


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