A Fair Deal for the Working Poor

Policy Team Contributors: Sam, JP

Author: IHaveEatenFoliage

Copy Editor: Compre

DGG Political Action’s Policy Team acts as a collaborative think tank, developing and exploring potential policy ideas on issues that matter to our community. Our working group synthesizes input from community members to spark conversation and serve as a springboard for future projects. While we aim to contribute to thoughtful dialogue, the ideas we share do not necessarily represent official positions of DGG Political Action.

How to Advocate for the Working Poor

When making an argument for public policy, you must appeal to a legitimate purpose, such as:

• Arguing that there is a crisis needing a solution. For example, homeless populations are in need of help. 
• Arguing that a policy will benefit the public as a whole. For example, everyone is at risk in a nation without a military.
• Arguing that a policy is a matter of fairness. For example, it is an injustice for your home to be vandalized and such an injustice should be addressed.

If you craft and message policy for the working poor as the solution to a crisis or to benefit the public as a whole, you will meet resistance because:

1. As long as there are richer people, there have to be poorer people. Helping improve the conditions of the poor can be a plus for a policy, but people’s intuitions will differ to what degree this is a crisis needing a solution.
2. As a class issue, the costs of policies benefiting the working poor will be disproportionately borne by other classes of society, complicating an argument that the policy benefits the public as a whole. Addressing the working poor’s problems can have broader societal benefits, but these effects are indirect. They do not lend themselves to clear arguments of which policies should be adopted.

The most potent public interest to appeal to is justice when arguing on behalf of the working poor. Policies that are promoted should be designed with this support in mind and defended primarily on that basis. 

This conclusion is supported by the framing implicit in the name of the most prominent piece of legislation to uplift the working poor. The 1938 FAIR Labor Standards Act. The FLSA established a federal minimum wage, overtime pay and a half beyond the 40 hour work week, and the ending of child labor. Fairness has been at the core of effective political messaging from FDR’s New Deal to Obama repeated themes of an America providing a fair shot to everyone.

Unfair Economic Conditions of the Working Poor

There are three areas we have identified where the working poor are not dealt with fairly by the economic systems they operate within.

1. Because low wage workers across many companies and industries can compete for the same jobs and the share of employees represented by a union has steadily declined for decades, low wage workers are deprived of the leverage more prosperous professionals have with their employers.
2. Due to the small returns of providing traditional banking services to the working poor, the working poor face expensive fees to make deposits, withdrawals and make payments. Also, when needing to borrow money, the only business models that make sense financially are predatory.
3. One of America’s enduring strengths is the great variety of economic opportunities to be found here, both between industries and across the diversity of local economies. In recent decades, the rate of relocating for work has collapsed. It is those who are already prosperous that have access to developing skills or have the ablility to travel to pursue economic opportunities, while the working poor lack the breathing space to take even excellent economic risks.

The argument in favor of addressing these 3 injustices is a matter of fairness because, in a balance of equities, it is difficult to justify why special injustices are placed by our society on those already not receiving as many of the fruits of our society.

Minimum Wage and the Right to Organize

The minimum wage and labor union protections are not about eliminating income inequality, but about allowing the working poor to arrive at a collective bargaining outcome, either through negotiation or through legislation.

A minimum wage is the legislating of a collective bargaining outcome for a class of workers that is not well suited for unionization or having individual leverage with employers. What makes very low wage workers unique is that they are generally interchangeable between companies and occupation. After a moderate period of on-site training, the only demand is that an employee be punctual and a reasonably conscientious worker. No additional special skills or talents are required, so even all the low wage workers of a company have little negotiating power against their employer. There is a large market for low wage workers that any local organized effort cannot affect.

A minimum wage should be established that arrives at a collective bargaining outcome that balances the wage of low wage workers with the number of low wage workers that can be employed.

We should also pass the Protect the Right to Organize Act (the PRO Act), which would modernize and clarify what an employee is in a modern context, allow for Unions to negotiate on behalf of and collect dues from all workers of a company, and protect the right for Unions to coordinate in striking activities (secondary strikes). It has been passed by the House of Representatives twice since it was first introduced in 2019.

The unfairly weak bargaining position the working poor have with their employers can be materially addressed through raising the minimum wage and reestablishing a robust right to organize.

Make Banking Work for the Working Poor

The working poor are significantly more likely to struggle to operate within the traditional banking system. The most common reason that the working poor would not use traditional banks for their money services is that banks have minimum balance requirements that are difficult to maintain on a small income. 

New alternative financial services are being developed like Venmo, Cash App or Chime that can expand the payment services available to those outside the traditional banking system. However, there is no getting around the basic economics that the working poor do not generate enough revenue to sustain quality banking services. In selecting a payment service provider, the working poor must choose between accessing money transfer services that are expensive like a cash checking business or with inadequate customer support like businesses like Chime when account issues arise. 

Banks are also not interested in the working poor because they are unlikely to qualify for a loan on a large purchase or have sufficient discretionary income to qualify for borrowing without collateral based on their available income.

These issues are not a symptom of financial companies choosing to take advantage of the working poor. There is no way to offer financial services to the working poor that make sense any other way. Still, high cost and predatory financial services are a significant strain on the working poor.

When traditional banks do not have an interest in providing financial services, the only remaining business models providing financial services to the working poor are predatory. Payday loan companies and pawn shops are two examples.

Below are 2 reforms that would address the predatory relationship of financial services for the working poor:

1. Universal banking money services, where the government will require standard FDIC bank accounts to be offered. If more feasible, these bank accounts could be associated with the postal service and administered by the federal reserve, granting access to standard deposit, withdrawal and payment services.
2. While the working poor have little to no discretionary income or collateral, they also will have unexpected expenses that need credit to smooth the financial impact over time. Scrounging for collateral like pawning their children’s Christmas gifts or short term collateral like your next paycheck or an upcoming benefits check by predatory businesses is a injustice reserved for the working poor. Access to a limited line of credit of perhaps $1000 and more for hardship withdrawals, under similar terms 401k plan recipients have access to, could provide non predatory credit tools for the working poor, utilizing social security benefits as collateral. These federally backed loans would allow the working poor to borrow within the traditional banking system at reasonable interest rates and would be a restricted carve out of the general prohibition against using social security benefits as collateral for loans.

Social security benefits are an asset worth a significant sum as a liability of the federal government for every citizen. It reveals an absurdity that the working poor are the only class in society forced to turn to predatory money services providers and lenders when their lifetime earnings are multiple orders of magnitudes larger than the small sums at stake. The working poor have the right to manage their financial lives and weather financial crisis without exploitation or requiring charity. 

The Right to Take Reasonable Economic Risks

All Americans want a fair shot at improving their economic opportunities. An individual has certain things partially within their control, like taking the initiative to find and seize opportunities and working to excel in their job in order to advance. However, there are two areas where the working poor do not have the same access to economic opportunities.

First, while it needs studying how best to implement a right to migrate, the working poor should have the traditional American right to seek out better economic opportunities in labor markets that they are in more need, can attract higher wages, and may have greater opportunities of upward mobility.

Second, we should significantly expand loan forgiveness, grant, and job placement programs to pursue specialized market skills. Whether it be a trade or a nursing program, the working poor are often not in a position to pursue opportunities to increase their value in the labor market.

As a supporting note, these policies would not be very expensive since they would be utilized infrequently. Also, it would certainly have tremendous secondary economic advantages by moving working poor workers from lower productivity labor markets to higher productivity labor markets or from lower productivity occupations to higher productivity occupations. However, the primary basis of justification is the same as the other 2 policy areas, that the working poor face a specific unfairness from our current economy of having to take a big, scary risk to migrate or invest in upskilling for economic opportunity.

The Result

By producing wages that balance employment and the wages of the working poor similarly to other classes of society, by giving the working poor tools to navigate their financial lives on fair terms, and by alleviating the barriers the working poor have to pursuing economic opportunities, we can make a profound difference in the lives of the working poor in America.

While numerous policy motivations are tempting when advocating for the working poor, our energy and messaging must be oriented towards ways our current economic environment unfairly disadvantages them. Being working poor is hard enough without additional burdens that we as a society can alleviate.