Mr. Chairman, the question is when is the Congress going to stop letting American businesses and workers down? It is time to roll up our sleeves and chart a path to economic freedom. It is time to govern. Today the Republicans again ask us…
Mr. Chairman, the question is when is the Congress going to stop letting American businesses and workers down? It is time to roll up our sleeves and chart a path to economic freedom. It is time to govern.
Today the Republicans again ask us to consider a bill with provisions that will make its mark by missing the mark. It inflates government bureaucracy and deflates workers' opportunity. American business needs the best, most qualified workers on earth, but this bill does nothing to reach that goal.
Workers, especially the working poor, need a credible realistic road to economic freedom. This bill is a dead end. Our workforce is in trouble. The ``L.A. Times,'' which I will enter into the Record an article from the ``L.A. Times,'' recently reported that the volatility of income for the working poor has doubled in recent years. Income among the working poor now fluctuates by as much as 50 percent annually. One cannot buy a home with a wild fluctuation like that. One cannot plan for their children's college education with income swings like that, and they are lucky to put food on the table.
Mr. Chairman, we need to rethink the systems we have in place to help workers and employers maximize productivity and profitability. We continue to pursue open trade to open our domestic market to foreign competition, but we are not employing the same vigor toward pursuing the means to ensure that our workforce can compete and be the best trained and equipped in the world. This issue, investing in our workforce, transcends social and economic status.
I represent the 7th District of Washington, Seattle, where the economy is driven by manufacturing as well as by innovation and the service industry. Everyone in these industries is competing for their jobs against someone overseas. Making the proper investments and systems to helping the working poor obtain access to job training and education is even more important.
The so-called Personal Reemployment Accounts compel, compel, unemployed workers to take the first job they can get and forego current job training opportunities. Instead of economic independence, this bill produces economic surrender. We can do better.
We ought to significantly invest in continuing education training programs for people in industries that are challenged by global competition. Furthermore, we ought to seriously consider wage insurance. This would enable the working poor to move into jobs that may begin by paying a little less but have greater opportunities for wage growth and economic stability down the road. This bill, even without the bad provisions such as Personal Reemployment Accounts and the provisions that allow workplace discrimination based on religion, does nothing to meet the new challenges that workers and businesses that rely on them face in the new global economy.
The question again, Mr. Chairman, is when will you tell your chairman to start taking these responsibilities seriously rather than playing politics, as we are here today, putting the same bill before us that we have put here before, we know it is not going anywhere, it is a waste of time, and it does nothing for the workers? This is not even an election year.
[From the Los Angeles Times, Dec. 12, 2004]
The Poor Have More Things Today--Including Wild Income Swings
(By Peter G. Gosselin)
``The poor are not like everyone else,'' social critic
Michael Harrington wrote in the 1962 bestseller ``The Other
America,'' which helped shape President Johnson's War on
Poverty.
``They are a different kind of people,'' he declared.
``They think and feel differently; they look upon a different
America than the middle class.''
How then to account for Elvira Rojas?
The 36-year-old Salvadoran-born dishwasher and her partner,
warehouse worker Jose Maldanado, make barely enough to stay
above the official poverty line--$18,810 last year for a
family of four. But by working two, sometimes three, jobs
between them, they are grabbing at middle-class dreams.
Rojas and Maldanado live in a two-room apartment in
Hawthorne but have china settings for 16 tucked in a wooden
hutch. Their two young daughters receive health coverage
through Medi-Cal but get many of their clothes at Robinsons-
May.
The family struggles to meet its monthly bills but has
taken on a mountain of credit card debt. They have used
plastic to buy a large-screen TV and other luxuries but have
also relied on it to cover bare necessities such as rent and
emergency-room visits.
``That's why I'm really poor even though I work so hard,''
Rojas said with a rueful laugh.
Some see circumstances like Rojas' as testament to the
economic strides that America has made over the last
generation, rather than a reflection of its failures.
``We've won the War on Poverty,'' asserted Robert Rector,
an influential analyst with the Heritage Foundation, a
conservative Washington think tank. ``We've basically
eliminated widespread material deprivation.''
But if deprivation is no longer as big a problem, that
hardly means all is well. In many ways, Rojas is the new face
of the working poor, suffering not so much from a dearth of
possessions as from a cavalcade of chaos--pay cuts and
eviction notices, car troubles and medical crises--that
rattles her finances and nudges her family toward the
economic brink.
In this way, Rojas and millions like her are not--as
Harrington described them--fundamentally different from most
other Americans; they are remarkably similar.
Indeed, today's working poor are experiencing an extreme
version of the economic turbulence that is rocking families
across the income spectrum. And the cause, no matter people's
means, is the same: a quarter-
century-long shift of economic risk by business and
government onto working families.
Protections that Americans, especially poor ones, once
relied on to buffer them from economic setbacks--affordable
housing, stable jobs with good benefits, union membership and
the backstop of cash welfare--have shriveled or been
eliminated. These losses have been only partially offset by
an expansion of programs such as the earned-income tax credit
for the working poor and publicly provided healthcare.
For the most part, the poor have been left to cope on their
own, scrambling from one fragile employment arrangement to
the next, doubling up on housing and borrowing heavily.
``Families up and down the income distribution are bearing
more economic risk than they did 25 or 30 years ago,'' said
Johns Hopkins University economist Robert A. Moffitt. ``But
the increase has been especially dramatic among the working
poor.''
As a result, their earnings are jumping around like never
before.
During the early 1970s, the inflation-adjusted incomes of
most families in the bottom fifth of the economy bounced up
and down no more than 25% a year. By the beginning of this
decade, those annual fluctuations had doubled to as much as
50%, according to statistics generated by the Los Angeles
Times in conjunction with Moffitt and researchers at several
other major universities.
For a family with an income at the 20th percentile--or
roughly $23,000 a year in inflation-adjusted terms--that has
meant recent annual swings of as much as $12,000. Twenty-five
years ago, those swings tended to be no more than $4,300.
The Times' figures are based on the Panel Study of Income
Dynamics, a database funded by the National Science
Foundation and run by the University of Michigan. In contrast
to most economic indicators, which involve taking random
samples of different Americans at different times and
comparing the results, the panel study has followed the same
5,000 nationally representative families and their offshoots
for nearly 40 years.
In supplementing conventional statistics with the panel-
study data, the newspaper has sought to explain why Americans
in rising numbers report being less financially secure, even
as the nation has grown richer overall.
In a nutshell, The Times has found that behind the upward
march of most economic averages are increasingly frequent
instances of financial setback and hardship for a large swath
of the population. Even those in the top-10 percent bracket--
making well over $100,000 a year--have seen their incomes
grow more volatile and therefore prone to steep dives.
But for the country's 20 million working-poor families, the
findings are particularly sobering: They now run the risk of
seeing their incomes slashed by half in any given year.
That's almost double the volatility experienced by families
in the middle of the economic spectrum, the newspaper's
findings show.
``The only way to improve your life if you're poor is to be
very prudent and make very, very few mistakes like getting
fired or splurging and ending up with a lot of debt,'' said
Christopher Jencks, a Harvard University authority on
poverty. ``Most people aren't that prudent.''
Finding a Foothold
Elvira Rojas headed for the U.S. at age 21 in search of two
things that were in short supply in her native EI Salvador:
peace and prosperity.
Combatants in that country's bloody civil war engaged in
firefights outside her family's home in Acajutla, and
Maldanado had received death threats because of his role as a
former military man. In addition, Rojas discovered that the
only job she could get with her high school diploma from El
Instituto Nacional was at the local fish-packing plant.
The pair arrived in L.A. in May 1989. She quickly found
work cleaning houses with two of Maldanado's aunts. He landed
a job at a Hawthorne dry-cleaning plant. Between them, they
made about $200 a week.
But with the average rent on a one-bedroom apartment in the
city then running about $600, they could not afford a first
foothold in their new country--a place of their own to live.
``I felt bad in the beginning because I had nothing,'' Rojas
said. ``I wanted to go home.''
With nowhere else to turn, they moved in with one of
Maldanado's aunts, her five children and four cousins in a
two-bedroom house on Firmona Avenue in Hawthorne. They slept
on the kitchen floor.
As the couple began to make more money, they moved into a
succession of other apartments. Each was a little larger than
the last but still crammed with relatives.
Rojas and Maldanado had few alternatives. During their
first years, they were effectively excluded from Federal rent
subsidies or State help because they were illegal immigrants.
In 1991, the two gained legal status under a program that
allowed people fleeing war in their homelands to be counted
as refugees. But their new standing was thrown into question
in 1994, when California voters approved Proposition 187. The
initiative was designed to cut off state assistance to
undocumented immigrants, but many legal ones interpreted the
measure as a blanket ban aimed at them too.
Rojas, for one, took no chances; she never applied for
housing assistance--or almost any other kind of aid--although
it appears from her Social Security records and tax returns
that she would have qualified. ``I didn't want to be a burden
on the government,'' she explained.
It's probably just as well. By the mid-1990s, the state and
federal governments were winding down most of a six-decade-
long drive to help poor families meet their housing needs.
That effort had begun under President Franklin D. Roosevelt,
who decried the conditions gripping America. ``I see one-
third of a nation ill-housed, ill-clad, ill-nourished,'' he
said in 1937.
In the years that followed, a booming private sector
largely solved the food and clothing problems. And a
combination of financial market innovations and federal power
applied through a battery of agencies--the Veterans
Administration, the Federal Housing Administration, Fannie
Mae and Freddie Mac--greatly expanded home ownership,
especially among the middle class. But that still left what
to do for poor families, most of whom could afford only to
rent.
Washington's first answer was to have the government build
and run housing projects. Some worked. But many degenerated
into vertical ghettos, victimized by disastrous design,
racial and economic segregation, drugs and crime.
In 1974, President Nixon and Congress turned to another
solution: the Section 8 program. Instead of putting up
buildings itself, the government would subsidize private
developers to construct housing and give poor families
vouchers to rent apartments in the open market. But developer
subsidies produced cost overruns and political scandals in
the 1980s and were largely phased out.
That left only the vouchers, which recently have been cut
back. In all, the amount of money that Congress and the
president have authorized to be spent on housing assistance
has plunged by nearly two-thirds in the last 25 years, from
an inflation-adjusted $82 billion in 1978 to $29 billion last
year.
Washington's latest answer has been more laissez-faire:
offer tax breaks for the creation of low-income housing but
otherwise leave it to the marketplace to decide how much gets
built. In hot housing markets such as Southern California's,
little has.
``We've produced tens of thousands of units recently, but
the well's been dry for so long we should have been producing
hundreds of thousands,'' said Jan Breidenbach, executive
director of the Southern California Assn. of Non-Profit
Housing, which represents many of the region's developers of
low-income housing.
In the absence of substantial government help--and with
housing prices soaring beyond the reach of even the middle
class--most working-poor families have been left to fend
for themselves.
By 1997, Rojas and Maldanado thought they had succeeded in
doing that. He was making $5,800 a year at the dry-cleaning
plant. She was making more than $12,000 dashing between a
part-time job at an airline linen service on Prairie Avenue
in Hawthorne and a temporary position with Kelly Services,
packing magazines, perfume and shampoo in samplers for
direct-market mailings.
In the fall of that year, the couple, with another of
Maldanado's aunts and her children, moved into a white stucco
bungalow on Burin Avenue in Inglewood, not far from Los
Angeles International Airport.
Although the house sagged in the middle and had drainage
problems, it featured two kitchens and two living rooms,
plenty of space for each family. The place cost Rojas and
Maldanado $550 a month. That was more than 30% of their
earnings, a level the government considers the outer limit of
affordable, but it was still something they could bear.
The bungalow ``felt good because there were not so many of
us,'' Rojas said. ``It was the most room I've ever had.'' The
following year, the two families celebrated Christmas by
stringing sparkling lights along the structure's faded blue
eaves and inviting neighbors for a party.
Heading West for Work
Albert Grimes arrived in Los Angeles a few years before
Elvira Rojas did, similarly hungry to start over.
He came from Cleveland, where his family was a pillar of
the African American community. His father, ``Big Joe''
Grimes, had returned home from World War II and used the GI
Bill to buy a house. He opened a barbershop, founded a youth
marching band called B.J.'s Raiders and became a kingmaker of
sorts in Cleveland politics.
Albert's uncle, Walter Dicks, ran the municipal workers
union and helped the younger Grimes find a job right out of
high school on a city sanitation truck. It paid about
$15,000, equal to about $30,000 in today's dollars.
But Albert was laid off during one of Cleveland's periodic
fiscal crises. In 1985, at the age of 29, he left home and
headed West. He had no trouble finding work with one of Los
Angeles' big employers.
For most of the postwar era, working Americans could count
on big business even more than big government to provide
safeguards against economic risk. In a reverse of the current
passion for temps, outsourcing and lean workforces, corporate
America felt it had a civic duty to offer full-time jobs with
good wages and solid benefits, even to those like Grimes with
no college education.
``Steady, year-round employment is so right from the
standpoint of the employer, so right from the standpoint of
the workers and so right for the country as a whole . . .
that it is hard to see why we manufacturers have not made
more progress in its application,'' Procter & Gamble Co.
President Richard Deupree told a 1948 audience.
As the decades passed, Los Angeles became the hub of the
nation's aerospace industry; a second home to U.S.
automakers, after Detroit; and a major financial center.
Among the region's largest employers: Lockheed Corp.,
McDonnell Douglas Corp., General Motors Corp., Goodyear Tire
& Rubber Co., First Interstate Bank and Security Pacific
Bank.
By the late 1970s, the typical L.A. County workplace had
nearly 30% more employees than the U.S. average, according to
government statistics--a situation that translated into a
high level of economic security.
``There is a close correlation between firm size,
employment stability and generous compensation,'' said UCLA
economist Sanford Jacoby, who has written extensively about
the new risks that working people face. ``Big firms
underwrote the creation of America's--and Southern
California's--blue-collar middle class.''
As for Grimes, he found his way to Sears, Roebuck & Co.'s
massive warehouse at Olympic Boulevard and Soto Street, where
he was hired as a merchandise handler represented by the
Teamsters. He did well for himself there. His Social Security
records show that his income rose steadily--from $12,000 in
1987 to $20,000 in 1990 (or nearly $28,000 in today's terms).
On top of that, his health care was covered.
But in 1992, Sears stumbled, the result of a failed
strategy to sell everything from socks to stocks. Grimes,
then on leave with a bad back, soon found himself out of a
job.
It was a particularly bad time to be without work. The
combination of recession and steep cuts in defense spending,
brought on by the end of the Cold War, walloped Southern
California. Unremitting pressure from low-cost foreign
producers and wage competition from new immigrants such as
Rojas took a severe toll on unskilled workers like Grimes.
Any chance that he would be rehired by Sears soon
evaporated when the company's warehouse and adjacent store
were damaged in the L.A. riots. The warehouse was eventually
shuttered.
By the time the region bounced back, the nature of
employment had changed. Gone were many of the corporate
giants that had delivered a generation of blue-collar
security. In their place were tens of thousands of relatively
small employers whose job-generating capacity is now
regularly praised by the nation's leaders but whose
instability, often-low wages and meager benefits are less
remarked upon.
Government figures show that the average size of a
workplace shrank by 18% nationally between its late-1970s
peak and last year. The slide was even steeper in L.A.
County, with the average size of a workplace plunging 50% to
10 workers. This trend, according to Jacoby, ``is one of the
most important and least appreciated reasons why so many
people are having a tough time making a go of it today.''
For several years, Grimes all but vanished from the regular
economy. He, his chronically ill girlfriend and the couple's
young son lived off a mix of workers' compensation,
disability payments and her welfare checks.
In 1995, he resurfaced, this time as a security guard and--
befitting the U.S. economy's free-market transformation--a
self-employed entrepreneur. ``I set myself up as a
corporation,'' he said proudly.
With the help of a friend, Grimes persuaded a string of
businesses in a run-down neighborhood along Bixel Street near
downtown to hire him.
For three years, he watched over a dental office, a parking
garage, a liquor store and a methadone clinic. His earnings
climbed from $5,600 when he launched his venture to more than
$27,000 two years later. He bought himself a used Pontiac
Grand Am, a washer and dryer and a Rent-A-Center living room
set.
Then in 1998, he found out how risky the life of an
entrepreneur can be: The city bought up the properties along
Bixel Street to make way for the Staples Center.
The businesses that employed Grimes closed. Demolition
crews flattened the buildings and, along with them, Grimes'
income. His earnings that year went clear to zero.
High Hopes
As Grimes' world caved in on him once more, Rojas'
prospects were looking up.
She was still shuttling between her jobs at the airline
laundry service and as a packer of sundries when one of
Maldanado's cousins told her that the dishwashing department
at the Wyndham Hotel on Century Boulevard near LAX was hiring
for the 4-to-midnight shift.
The full-time position paid more than $7 an hour and,
because the workers were represented by Hotel Employees and
Restaurant Employees Local 814, it came with holidays and
family health insurance. The latter would prove particularly
important when Rojas suffered a miscarriage in 2001, and her
health plan picked up the tab for more than $5,000.
Rojas saw the job as a turning point. Until then, virtually
everything she had in her life had belonged to her in-laws.
``If we used dishes,'' she remembered, ``they were theirs. If
we watched TV, it was theirs.''
But all that would change when she went to the Wyndham. ``I
knew at that point I would have my own things,'' she said.
By 1998, as Rojas and Maldanado's income more than doubled
to $26,000 ($30,500 in today's dollars), the couple began
assembling the pieces of a middle-class life.
Rojas bought china by Royal Prestige. She purchased a hutch
from Levitz Furniture in which to display the dishes. She and
Maldanado acquired a couch, a bed and a dining table. They
shelled out for two large-screen TVs and signed up for
satellite-dish service.
They bought a 1987 Plymouth Sundance to go with their aging
blue Toyota Camry. And they traveled.
``We would go to Las Vegas and Disneyland,'' Maldanado
recalled. ``We had more money to spend.''
When the first of the couple's two daughters was born the
following year, Rojas was so eager for her to be part of the
fabric of America that she resisted entreaties to name her
Maria after five of Maldanado's aunts, and instead gave her
the name Katherine. She would make a similar choice when
their second child was born last May, rejecting Maldanado's
suggestion of Elvira in favor of Melane.
The new job let Rojas dream about owning a house where, she
said, ``my daughters can have their own rooms'' and ``maybe
one day I can take care of my grandchildren if I have some.''
Meanwhile, any thought of returning to Central America
faded away. ``Here,'' said Rojas, ``my family will go a lot
farther than in El Salvador.''
In the summer of 2000, the Wyndham's owners announced that
they were closing the hotel for renovations. Rojas remembers
hearing ominous rumblings that more would change than the
color of the lobby--something about the parking attendants'
jobs being contracted out.
But she was not worried. To tide her over during the
shutdown, Local 814 had steered her to a job at a unionized
Burger King at LAX. The fast-food outlet offered a wage-and-
benefit package almost as good as what she was making at the
Wyndham.
About a year after it had closed, the hotel on Century
Boulevard reopened. Only now, the sign outside read
``Radisson.'' The Wyndham name wasn't the only thing that was
gone either. So too was the union--part of a broader trend
sweeping corporate America for more than two decades. Unions,
which represented 17 percent of the nation's private-sector
workforce in the early 1980s, counted only 8 percent as
members by last year.
Rojas could have her dishwashing job back. But instead of
$8.89 an hour, her top wage at the Wyndham, she said, she'd
be pulling down only $7.50 at the Radisson, with no employer-
paid family health insurance. She signed on anyway and, to
make ends meet, kept her job at Burger King as well.
It was hard running between two jobs again, but the
family's income finally seemed to be stabilizing. As it
turned out, their financial roller-coaster ride had only just
begun.
Shrinking Welfare
For the poor, the most dramatic of all the safety-net cuts
that the government has engineered in the last 25 years came
in 1996.
That's when a Republican-controlled Congress passed and
President Clinton signed the Personal Responsibility and Work
Opportunity Reconciliation Act, overhauling the nation's
cash welfare system.
The law sought to push people off the dole and into work.
In doing so, it essentially reversed the poverty-fighting
strategy that Washington had pursued since the 1960s in which
poor Americans were promised a certain minimal standard of
living. By last year, the law had reduced the nation's
welfare rolls by 3 million families, or one-half, and had
sliced inflation--adjusted welfare spending by about $10
billion, or one-third.
These numbers, though, are about all the experts can agree
on. Advocates have hailed the measure as a spectacular
success, saying it has increased the incomes of many poor
people while triggering a steep drop in poverty among black
children. Critics have denounced it as a failure, saying that
many people are poorer today than they were before the law
was changed.
For its part, Grimes' household has remained largely
unaffected by the law's ``work first'' requirements. That's
because California has maintained relatively generous
benefits and because Grimes' domestic partner, Jacqueline
Harvey, has a chronic intestinal disease and is exempt from
work requirements. She has thus continued to collect benefits
off and on from the state's cash welfare program, CalWORKs.
She now receives $583 a month.
But Grimes, in the meantime, has been staggered by another,
lesser-known element of the 1996 act--a significant
toughening of child-support enforcement rules. This part of
the law built on other efforts undertaken since the 1970s to
go after absentee parents and compel them to help finance
their kids' upbringings.
Grimes and Harvey's son, Albert Jr., was born in 1988. Nine
years later, when the elder Grimes applied for custody of a
nephew, the Los Angeles County district attorney's office
sued him for child support for Albert Jr. The D.A. took
action even though Grimes, Harvey and their son had always
lived together and, they and several relatives say, Grimes
always helped raise the boy.
Nonetheless, Grimes declined to challenge the county, which
won a court judgment
against him. Grimes said he thought that he had to go along
with the support order to obtain custody of his nephew and to
ensure that Harvey would continue receiving publicly funded
healthcare. It's also unclear whether counting Grimes as a
parent in the house would have jeopardized the size of
Harvey's welfare checks.
Whether a mix-up or not, the effect on Grimes' finances has
been devastating. California courts not only have imposed
high monthly support payments--often unrelated to a parent's
ability to comply--but also have added interest at a 10
percent annual clip to past-due amounts.
A recent study commissioned by the state found that past-
due child-support payments in California have soared to
almost $17 billion from $2.5 billion in the last decade. Most
of that money, moreover, is earmarked for state coffers--not
for the children who need support.
``The system was largely about welfare-cost recovery, not
helping families,'' said Curtis L. Child, who stepped down
recently as head of the state Department of Child
Support Services, which was created in 2000 to remove
enforcement power from county district attorneys and
restructure the system. ``In imposing these huge judgments
on fathers, we're confronting these men with an awful
choice: Go underground, which is just what child-support
enforcement was intended to stop, or let themselves be
financially ruined.''
In August 1997, Grimes was ordered to start sending the
county $173 a month in current payments, plus an additional
amount for past-due support totaling $4,900. When he fell
behind after his Bixel Street business collapsed in 1998, the
past-due total began to swell. It now tops $8,000.
Plastic Safety Net
In one great clap, the 9/11 terrorists brought down the
twin towers in New York, shattered Americans' sense of
security and shoved Elvira Rojas down the economic ladder.
It took her five days to reach Burger King after the police
and military sealed off the airport in the wake of the
September 2001 attacks. When she finally was allowed in,
Rojas found that her manager had cut her shift to just four
hours. Within a couple of weeks, she was laid off.
Things were little better at the nearly deserted Radisson.
Rojas' hours there were reduced to practically nothing.
Over the next 15 months, Rojas grabbed whatever hours she
could get at the hotel and worked a second job ironing
clothes at Hermosa Cleaners in Hermosa Beach. It was a tough
schedule even before she got pregnant in 2002. And still it
was not enough to keep her family's income from sliding
almost 20% from its 1998 high to less than $22,000.
So she and Maldanado turned to what has become one of the
few reliable safety nets left for many poor Americans: their
credit cards.
In May 2002, Rojas was rushed to the emergency room at
Robert F. Kennedy Medical Center in Hawthorne, where she
suffered a second miscarriage. This time, with only minimal
health insurance from the hotel, she said she had to put
$2,000 of her $4,000 medical bill onto her MasterCard.
``I didn't have the money otherwise,'' she said.
As the credit card industry emerged in the late 1950s and
'60s, some expressed concern that even well-provisioned
middle-class families would be unable to resist the lure of
instant credit. Betty Furness, President Johnson's consumer
affairs advisor, warned that credit cards were ``modern
traps'' that would turn Americans into ``hopeless addicts.''
But over the last 25 years, card issuers have not let up in
pushing their products. Instead, they have reached out for
ever more low-income households.
Federal Reserve figures show that among families in the
bottom fifth of the economy, the percentage of households
with credit cards has soared from 11% in the late 1970s
to almost 40%. Their average balance on those cards has
climbed, in inflation-adjusted terms, from about $825 to
more than $2,000.
Some analysts applaud the greater availability of credit.
Gregory Elliehausen, of the Credit Research Center at
Georgetown University, said the spread of cards and other
kinds of lending was part of a sweeping ``democratization of
finance'' that has allowed poor families to operate more
efficiently by, for example, buying decent cars to get to
work.
Economists Dirk Krueger of the University of Pennsylvania
and Fabrizio Perri, a New York University professor now on
sabbatical at the Federal Reserve Bank of Minneapolis, say
families of all incomes increasingly rely on loans, rather
than on business and government safety nets, in times of
trouble. They borrow their way through the bad patches and
pay off their debts in flush periods.
The problem comes when there are no flush periods.
Some of the items purchased on Rojas' and Maldanado's
credit cards can seem frivolous or extravagant--the TVs, for
example, or a $150 set of sepia-toned studio photographs of
Katherine and her mom dressed in feather boas and gowns. But
most of the charges appear to fit the definition of safety-
net spending.
Beyond the emergency room charge, there was $130 for a new
fuel pump for Rojas' Toyota and $170 to repair the power
steering. There was $300 at the start of September to cover
rent and a $1,000 cash advance that Rojas said went to help a
brother bring his wife to the U.S. from El Salvador.
Chipping away at what's due on their cards is virtually
impossible. That's in large part because the interest the two
are charged is about double what a typical middle-class
borrower faces. By the time they cover that, there is little
left to reduce the balance.
Although the stated interest on the couple's most heavily
used cards, a pair of Direct Merchants Bank MasterCards,
ranges from 20.49% to 31.99%, a review of recent bills
indicates that they are consistently charged close to the
higher amount. (The Minnetonka, Minn., bank recently was
ordered by federal regulators to pay $3.2 million in
penalties for ``downselling''--offering low pre-approved
rates and then moving customers to higher-rate accounts
without fully disclosing the switch. It is not clear that
this happened to Rojas and Maldanado.)
Rojas and Maldanado now owe $14,592 on their four credit
cards--a burden that financial experts say is appropriate for
a household making about $100,000, but not one like theirs.
Falling Behind
In the spring of 2000, two years after Grimes' Bixel Street
business failed, he found a job as a security guard five
blocks away at Ernst & Young Plaza.
For a while after the September 2001 terrorist attacks, the
building's owners and tenants treated Grimes and his co-
workers with newfound respect. Managers listened to his
suggestions about how to improve safety at the 41-story
structure.
He was promoted to ``lobby ambassador,'' a sort of informal
emissary to the building, and then to lobby supervisor. His
annual earnings climbed back above $20,000, and he began to
imagine himself becoming a director of security.
``My goal was to have a facility of my own,'' Grimes said.
``I thought I should have a situation where I'm in control.''
But for most of the last year, Grimes has been anything but
in control.
In February, after a dispute with their landlord, he and
his family were evicted from their apartment on Fedora
Street, where they had lived for several years. All that he
was able to save from the place were three mattresses, two
chairs and a Sony PlayStation.
By April, he had run through several thousand dollars
paying for a $90-a-night motel room while he looked for a new
apartment. He and Harvey eventually rented a two-room
Hollywood walk-up for $875 a month, or more than 40% of their
combined income. Before long, he fell behind again on his
court-ordered child-support payments.
In July, things took another turn for the worse. After a
series of clashes with his boss, Grimes was ordered out of
the Ernst & Young tower and told he would be reassigned.
Instead, he quit. For the time being, he is working for the
Service Employees International Union on a campaign to
organize security guards in the city's high-rise offices.
Grimes is determined to recover from the latest round of
reverses. He dreams about what his father had--a house, a
secure job--and is convinced he'll fare as well someday.
``I'm trying,'' Grimes said, ``to get back to what he had.''
Another Eviction
A month after Grimes was forced out of the Ernst & Young
tower, Rojas and her family were evicted from the Burin
Avenue bungalow where they had lived for seven years. A
developer is preparing to raze the place and put in half-
million-dollar townhouses.
It's not clear how long they could have afforded to stay
there anyway. A week before they moved, Maldanado was laid
off from the dry-cleaning plant to make way, he said, for new
immigrants who were willing to work for less. He has since
gotten a new job, packing items at a warehouse, for minimum
wage.
The family's new apartment is so small that the bedroom is
a single mass of mattresses and cribs. The hutch and couches
fill the living room to overflowing. And the cabinets in the
kitchenette are so stuffed that Rojas must store her supply
of infant formula in her car trunk.
But the couple has plans--to turn around the slide in their
income, to look for a house, to make sure that the girls
continue all the way through school. ``I don't want them
to be struggling like us,'' Maldanado said.
Rojas is making other plans as well. Soon after arriving in
the U.S., she took out a loan to finance her future at the
Inglewood Park Cemetery. She now owns two plots at the
cemetery's Mausoleum of the Golden West, and recently signed
papers to pay $82.79 a month for the next five years to buy
two more. By the time Rojas is finished, she will have spent
more than $12,000 in total. But she's convinced it's worth
it.
``Now if I die, I won't have to worry about my funeral,''
she said. ``I won't leave my family with a financial
burden.''
The Source of the Statistics and How They Were Analyzed
The Times used the Panel Study of Income Dynamics for its
analysis of family income volatility.
The panel study has followed a nationally representative
sample of about 5,000 families and their offshoots for nearly
40 years and is the most comprehensive publicly available
income and earnings database in the world. It is run by the
University of Michigan and principally underwritten by the
National
Science Foundation. The families' identities are kept
confidential.
The Times employed techniques for gauging income volatility
that were developed by economists Robert A. Moffitt of Johns
Hopkins University and Peter Gottschalk of Boston College.
The Times also consulted with Yale University political
scientist Jacob S. Hacker, who has conducted his own analysis
of income volatility among households in the panel study and
has published results linking it to economic risk.
The Times employed two Johns Hopkins graduate students,
Xiaoguo Hu and Anubha Dhasmana, to help generate the data.
Moffitt guided them and advised the newspaper.
The Times' analysis looked at five-year increments from
1970 to 2000 and examined the annual fluctuations in each
family's income.
For example, for a family whose income rose by $5,000 over
a five-year span, the paper examined the journey from the
lower number to the higher: Did the change occur in steady
$1,000 annual increases? Or did the family's income take a
big jump in one year and plunge in another?
The Times' basic finding is that the fluctuations in annual
income that individual families have experienced have grown
larger over the last three decades.
Based on the panel-study sample, The Times estimated the
annual income swings, up or down, for 68% of all U.S.
families--those who did not have the most extreme
fluctuations. As a result, the newspaper's conclusions don't
rest on cases outside the mainstream: the movie star whose
career dries up overnight, say, or the hourly worker who
wins the lottery.
To zero in on working families, The Times focused on men
and women 25 to 64 years old whose households had some
income. To analyze the working poor, the paper ranked
families by their average income during each five-year
period. It then concentrated on those in the bottom one-fifth
of income earners and especially those right at the 20th
percentile.
The average annual income of panel-study families at the
20th percentile is close to the government's official poverty
line for a family of four most years.
The analysis looked at pretax income of all family members
from all sources, including workplace earnings; investments;
public transfers such as jobless benefits, food stamps and
cash welfare; and private transfers such as inheritances.
All amounts were adjusted for inflation, expressed in 2003
dollars.