The poor don't work because they are economically rational | Hacker News Reader

The poor don't work because they are economically rational

chrisstucchio.com

22 pointsHockeyPlayer56 comments

Did you filter retired people? Adjust for the disabled? It doesn't sound like you did any of these things (if you did, you should mention it).

Did you adjust for students? Doesn't it seem odd to you that in the BLS data the 'less than 5000' group is second only to the '70000 or more' group in the amount spent on education? And that more of them have college until you reach the 40000+ groups.

Then you draw conclusions from your faulty data.

Also, where are your references for this. You put footnote numbers in the article, but didn't include the actual references.

This is what I came up with in 5 minutes. What are your qualifications?

[Edit: just to emphasize how odd the BLS data is without adjustments, it says that the AVERAGE person in the 'less than 5000' income group spends almost $1500 on education... more than double any other income group except the '70k or above' group)

I did none of that. Are you asserting that a significant chunk of the poor are merely the retired, disabled and students? If so, it sounds like you are arguing that poverty is a much smaller problem than is normally believed.

The footnote referred to the previous link, fixed it now. My "qualifications" are irrelevant - my argument is not coming from authority.

No[see edit], but they -- retired, disabled, students -- are significantly more likely to be in that income group, and all of those groups fit the pattern you've observed -- they spend more than they earn.

And I asked about your qualifications because you didn't do some very basic things to the data before drawing your conclusions.

[Edit: typically in studies like yours, YOU would quantify the number of retired, disabled, etc groups that may affect the results, and justify why you did or did not exclude those groups. I don't know what portion of the under 5k income group those people represent. You should know, and should have data on why this does not affect your results.)

If you have data sources (or proper econometrics papers) that slice things more narrowly, I'd love to see them. If they are as basic as you suggest, possibly you have a link showing how to do it? If I'm so clearly wrong, I'd love to see a refutation.

(Incidentally, ultimately the right thing to do would be to simply look at the law and compute income-taxes+transfers+in kind as a function of earned income. But I don't know how to do that.)

I'm not an economist.. I imagine there are papers with better data, but I would have to spend some time trying to find them.

I did come by this article which deals with the same question: http://gregmankiw.blogspot.com/2006/09/measuring-poverty-inc... http://economistsview.typepad.com/economistsview/2007/06/fam...

If income volatility has increased, it could explain why the spending-income gap is so wide, and why they (poor) spend more on education (retraining to re-enter the workforce).

Maybe try asking EconTalk (podcast of economics topics).. Sounds like something he would find interesting, and he often takes questions and makes episodes out of them. http://www.econlib.org/library/contact.html

Those are interesting, but don't really address the same question. A quick google search also turns this up:

http://johnhcochrane.blogspot.co.uk/2012/11/taxes-and-cliffs...

The numbers are more or less in agreement with mine, albeit more accurate (since they look at actual volume of taxes/transfers) and computing slightly different numbers (disposable income vs income rather than consumption vs income). They also show quite a few income cliffs.

I hope you'll forgive me for not linking to a much better 2012 blog post from my less interesting 2011 blog post. ;)

In any argument, there is an implicit "... and I'm not leaving anything out that will substantively change this analysis" which is accepted (or not) significantly on the basis of authority by anyone without deep knowledge in the area being discussed.

You put footnote numbers in the article, but didn't include the actual references.

Weird, huh? Anyway, since I couldn't readily find substantiation for that 24% number, and the added dubiosity coming from the fact that he doesn't even mention whether it's adjusted for students, disabled, etc (as is standard practice in econometrics), I didn't even bother with the other charts or arguments he was trying to make.

I couldn't readily find substantiation for that 24% number

That's because you didn't read the first paragraph of the source I cited.

The point is, if you're going to make not only highly charged, but basically, incredibly insulting assertions about a very large group of people (that also happens to be much weaker than yourself) -- especially assertions that are readily seen to be based on flawed selection biases and other sloppy reasoning -- then you had better make at least the numerical parts of your claims instantly verifiable from the sources you cite.

It's just as in academic research -- yeah, maybe it's buried in the source somewhere, but no one has time to parse paragraphs, and divide numbers for you -- especially when you're already trying their patience by making such structurally weak arguments in the first place.

Pointing fingers (and, implicitly, accusing people of being lazy or unable to read) to distract from the fact that don't seem to have an answer for their main criticisms of your "argument" doesn't help, either. It's just grasping at straws.

10.4 million / 43.6 million ~= 24%

It's not adjusted even for children, though.

It wasn't adjusted to exclude traditional non-working categories of any kind at all. That's what made is such an obviously useless figure, right there in the first sentence.

Sure, but some of those non-working categories (in particular, students and retirees) could arguably go into the workforce if sufficiently motivated, and might be assumed to be a small portion of the population. Children seems more unequivocal - and thus deserving of calling out specially (while remembering that this is in addition to those other categories).

> Did you filter retired people

Especially now that the baby boomers are hitting retirement, it seems like controlling for this is important.

I doubt most students - even if they are making little money themselves - are accounted as being below the poverty line when they are not providing for themselves. It would be tremendously misleading.

I expect the bulk of the 76% of the "43.6 million people [who] lived at or below the official poverty level" are children. Children are explicitly included in the number: "Although the poor were primarily children and adults who had not participated in the labor force during the year [...]". While this does not say that they were primarily children it certainly does say that children were included. So presenting the source's "(children + adults who did not work for any reason)/total = 24%" as "adults who chose not to work / total = 24%" is flat out wrong.

TL;DR, starting with Line 1:

It’s a fairly pervasive myth within the US that the poor work very hard at unpleasant jobs. But this is nothing but a myth - according to the BLS report A profile of the working poor, 2009, as of 2009, only 24% of people below the poverty line were in the labor force (this means working or looking for work) for at least 27 weeks/year.

Even if one knew where in the BLS report to dig for that 24 percent figure (and independent of the fact that the author doesn't even mention whether it was was adjusted for traditional non-working categories -- e.g.. students, seniors, disabled, in or recently out of detention -- or not, as is standard practice when talking about unemployment numbers) there are so many plainly illogical (and just plain weird) assertions jumping out of this rant that you kind of have to wonder why he bothered.

For starters: that

    "below the poverty line" === "poor in the U.S."

or, my favorite:

    "in the work force at the moment" === "willing to work in general."

Really now?

don't forget in the middle of the article: 'wanting a day off' = 'want to be long term unemployed'

Ah, I see.

Please re-read the article - the 75% or so of the poor the article concerns itself with are not unemployed.

From a couple of your comments, you seem to confuse "in the work force" with "employed". The "work force" is those working plus those seeking work. If you are not working and you are not seeking work, it isn't a ridiculous characterization to say you are not "willing to work" - though there can be any number of reasons for this (the one that this article ignores most absurdly is "because I'm 5 years old").

This phenomenon is well known and usually called a "Poverty Trap" or a "Welfare Trap".

http://en.wikipedia.org/wiki/Welfare_trap

One of the things that can mitigate this is the Earned Income Tax Credit (http://en.wikipedia.org/wiki/Earned_income_tax_credit)

Also, it is misleading to claim that "the poor don't work". This article only discusses people below the poverty line ($11,490 for an individual). If you work 1600 hours per year at the federal minimum wage, you earn $12,000. That's definitely poor in my book.

Alternatively, move from a means-tested welfare system to Basic Income.

Or make jobs paying Walmart-style salaries pay somewhat more... ? Although I disagree with the conclusions of the article (it doesn't take lots of complexities into account, education level, family issues, disability, etc), the logic behind choosing welfare over a dismally paying, soul-crushing menial job is totally sound.

Yes, raising the minimum wage would help, but part of the problem is that when the very poor start working, they're no longer eligible to all kinds of subsidies (food stamps, medicaid). Greg Mankiw explains it very well here: http://gregmankiw.blogspot.nl/2009/11/poverty-trap.html

Assuming your numbers are correct, a more accurate title would be "An economically rational poor person would choose not to work a minimum wage job."

If it is true, it is a problem that would need to be corrected. However, even if it were true and corrected, it would not eliminate poverty, or even necessarily change the work habits of the average poor person. Only the poor person who makes solely rational economic decisions.

If I could find a poor person who I could be guaranteed made wholly rational economic decisions, I would certainly employ them (and at a good wage), because I don't even make wholly rational economic decisions and I could benefit from it.

e: This comment doesn't really present the tone I was going for.

Poor people are in that situation for many reasons. Maybe they were born into it, maybe there's systems that keep them from improving, maybe they don't have educational opportunities, maybe where they live has no opportunities available, maybe they have a mental health issue, maybe they have a physical issue. There's a ton of social, psychological, and economic issues that can make or keep someone poor. Rarely would I ever call it the fault of the poor person, because rarely does someone choose to be poor.

If there's a situation where a healthy and clear headed person who can always make the right financial decision, and they choose to not work because it's economically smarter for them to do so, then there's a real systemic problem. However, I don't think that's the case, because anyone that perfect would be able to find some employment at a better than minimum wage position at the moment.

Therefore, I think the issue of poverty needs to be addressed from a combination of education, social, economic, psychological, and systemic angles.

This analysis is flawed because it assumes that there is work for the poor to do - that there are "good jobs" for them to go to. The idea that the poor are "consuming leisure" is also a myth, and shows that the writer has never lived that sort of life and has no knowledge of what poverty is really about.

Idle time spent in poverty is not consuming leisure, the time CONSUMES YOU. Every day that passes leaves you haggard, more lumpy, less inclined to make clear minded decisions that have a positive result in your life.

This myth you speak of needs to die a horrific death in some back alley, but won't as long as those better off than poverty stricken continue look at data-sets of numbers and opine about the people those numbers represent. While ignoring how we are all living creatures heavily impacted by our local environments.

There is a good reason why the working man often has a thousand yard stare and an alcohol problem.

You mean the time that the unemployed spend looking for work? It's just another "day off", like the original poster says.

The article is specifically about the poor who are not looking for work. The 24% includes the employed and unemployed, which you'd know if you read either my blog post or the source it cites.

Your article headline says otherwise: "The poor don't work because they are economically rational"

You should probably be more precise in the language that you use.

But you never really substantiate this idea that they're "not looking for work."

I mean, yeah, you made a line graph and such. And you cite mysteriously precise figures like $22731 and $23706. But to conclude that people with net expenditures in these brackets who also aren't presently working just aren't looking (let alone that they just don't want to work) requires a far deeper (multi-factor) analysis than you're making.

It's also very hard to reconcile with the sheer length of the waiting lines at some of the daily employment agencies I've seen at 6AM in my own neighborhood. Or the utterly dour, resigned expressions sewn into the faces of some of the long-term unemployed that I'm sharing seating space with at this coffeeshop, right now.

I know that observation carries no statistical weight; but it's meant to be illustrative -- if you're going to make sweeping generalizations about a class of people that contradict the day-to-day observations that most of the people reading this thread seem to have about this topic -- and which are also, BTW, rather insulting to the intelligence and character of this class of people -- you're going to have to be a lot more rigorous in arguments you're offering.

But you never really substantiate this idea that they're "not looking for work."

The claim that the poor are not looking for work is supported by the first paragraph of my first link. The "mysteriously precise" figures are taken the BLS consumer expenditure survey, also linked. But I guess that's just "academic gobbledeygook".

Now it's pretty clear that you didn't actually read the blog post. But if you had, you'd also realize that I assumed the character of the rich and poor is identical and that only their incentives differ.

In any case, a year after I wrote that, John Cochrane wrote a much better blog post on the topic. My rough calculation is more or less in line with CBO numbers. So it looks like my rough estimates were not too far off.

http://johnhcochrane.blogspot.co.uk/2012/11/taxes-and-cliffs...

Mr. Stucchio isn't the first one to present this type of argument which is explicit in that people are choosing to be poor. That probably doesn't feel right to most of us, and that's because it's ridiculous. Jamming a complex social problem into a simple economic model may be fun and even valuable at times, but only if you don't buy your own BS wholesale.

I'm admittedly struggling to understand how he's drawing this conclusion, as I think he's equating utility with expenditures? If so, this is completely wrong. Your first few thousands of dollars are used for things like food, shelter, and basic healthcare, and they generate massive utility. It isn't constant.

But I also take issue with the first assumption, that each hour of leisure time provides constant utility. Is that true? Does a poor person get more marginal value from that last hour of "leisure time" on the streets? What about poor people who go to bed hungry, are they doing that because they're rationally basking in all these extra hours of leisure time?

There are many reasons people are poor, but people choosing to be poor as an economically rational decision sounds crazy, and that's because it is. Just measure the happiness of the non-working poor vs. people making 30k, and I think you can put this one to rest.

Your first few thousands of dollars are used for things like food, shelter, and basic healthcare, and they generate massive utility. It isn't constant.

This is irrelevant. As long as utility is monotonic (more consumption => more utility), the conclusion holds.

But I also take issue with the first assumption, that each hour of leisure time provides constant utility.

The blog post only assumes utility is monotonic in leisure (i.e., more leisure => more utility).

...measure the happiness...

How do you reliably do that? The only thing I'm aware of which comes remotely close to this is revealed preferences.

Monotonic, shmonotonic.

You haven't answered any of the main counterpoints people have been raising to your rant so far. Trying to distract us with academic gobbledygook really isn't helping your case.

That is not correct. You are looking for the intersection of marginal utility of the dollars earned through work, and the marginal cost (in utility) of giving up leisure (while hungry and cold, perhaps). You are arguing that the marginal utility of those dollars earned through work are lower than the utility of that final hour of leisure.

But both of those utility functions have sharp curves, and those first dollars generate huge utility (food, shelter, etc.), while the negative utility is very modest when you've already used 167 of 168 hours that week on leisure.

But both of those utility functions have sharp curves, and those first dollars generate huge utility (food, shelter, etc.)...

The first dollars of consumption (which pay for food and shelter) have high utility. The first dollars of earned income do not increase your consumption. Work or don't work, you won't be hungry and cold either way.

Or are you trying to assert that people gain huge utility by working for no material gains?

"This means that in total, about 17% of people below the poverty line are willing to work full time"

LOL:

% people working != % people willing to work

It seems the author has never met and talk (let alone be or lived among) poor people.

When I live in the US, I live primarily in poorer neighborhoods. It's cheaper and I'm not particularly worried about getting jacked - I'm 6'5", somewhat muscular, and don't look like I'm carrying more than $12.

There is something very wrong with the logic of this article.

The author claims that people rational people only value money because it allows them to consume.

But that graph shows income vs consumption in a given time period. But whatever is left over, will be consumed in the future, which people also value (and if they didn't, it would be irrational to save any money in the first place!)

They key error is in the phrase

>I propose that utility is a monotonic function of spending - this means that people prefer to increase the amount of goods and services they consume. A green piece of paper doesn’t make me very happy, but the burrito I trade it for does.

This is in itself true, but again, money allows you to consume in the future, if you don't spend it.

A more relevant graph would be income vs post tax/welfare income. But that is a different matter.

This also doesn't get into the fact that transportation is a huge part of this. If you can't get to your job then you can't work it. Many minimum wage jobs are in strip malls with no public transportation. You can't afford to own a car on a minimum wage salary, so if you can't live close enough to a minimum wage employment center to walk, you may not even have the option to work.

And since most businesses and neighborhoods see apartments as undesirable in their vicinity, they're frequently not within an appropriate range of employment centers.

75% of people below the poverty line have a car. 25% have two or more cars.

http://www.census.gov/prod/2008pubs/h150-07.pdf

Most poor people earn more than the minimum wage - only 3.6 million workers earn the minimum wage and there are 10 million working poor.

http://www.bls.gov/cps/minwage2012.htm

http://www.bls.gov/cps/cpswp2011.pdf

In fact, only 11% of min wage workers are below the poverty line.

http://www.ncpa.org/pub/ba792

From the article: "all else held equal, the poor would rather not work than work"

I just don't buy that for a fraction of a second. So much of self-worth is tied to employment, and that's besides the creative urge that most people feel. Even if they can't use that in the workplace, I know plenty of very creative people that work lousy jobs and get their creative fulfillment else where. According to the OP, they'd stay unemployed.

The assumption that people work simply so they can consume seems a bit flawed. The premise that they don't work because they are economically rational has more basis.

Maybe a better explanation is that the underemployed impoverished are less motivated to work since by doing so they are not in any better position to improve their outcome. If you make minimum wage and can only find part time work, the rent isn't being paid either way.

Very disappointed by this. I thought there would be a much more clearly developed theory addressing some kind of systemic issue that made not working economically rational (my first thought: if state assistance given to someone not working is close to the same amount someone would get working a minimum wage job, then it would be economically rational to not work, simply in terms of dollars generated by energy exertion).

or the cost of day care after taxes roughly equals a minimum wage job.

Most people don't want to work because everyone enjoys a day off? Right...

I don't know very many people who would not want to work and a lot of those (including me) don't have to work, ever, but still they work 10+ hours/day, most days of the year.

The poor that don't work don't work because their labor isn't necessary. Due to their ability and overhead, to pay them enough to eat is not profitable.

That's why we feed, clothe, and house them as a society - or at least we should.

couple things you don't seem to address. child care cost about as much as working a minimum wage job. people not being able to find a job. also money "under the table"

typical classy yummyfajitas rant. nothing much to see here

What absolute horse shit.

Giggle, this article is hogwash.

Lets take some numbers and opine about poor people. I'm sure a few paragraphs can cover the social complexities and giant boulder on-top of soul feeling that is poverty.

Edit: No I am not going to do an extensive write-up myself.

Try out this experiment, be born into a poor county where you produce actual goods like automobiles. Then watch as your family has their pensions attacked by blood thirty wealthy fucks that have think-tanks put out articles in Fox News and WSJ how your family doesn't deserve the monies contracted to them. How the unions they belong to, made to counter the ultra-monied's inherent power, are "Killing America™."

All this while putting 10 hours shifts to cover you and most likely your elder's bills. This is what the author is writing about, yet twists it into some dry cut about why the poor don't work because they lack incentive or are 'economically rational.'

...

What's that? You can't be reborn into poverty to experience from childhood on up? OK don't bloody write about it then.

> I'm sure a few paragraphs can cover the social complexities and giant boulder on-top of soul feeling that is poverty.

By that logic we might as well throw out all social commentary.

Yes. Most social commentary like the parent article here is essentially worthless. A point to start discussion, but on it's own almost completely void of meaning.

Correct, throw it out.

No, he mean all social commentary. Almost all of the journalists and professors who preach the point of view you advocate (big bad corporations and fox news stealing from the poor) did not themselves experience poverty. And some right-wingers experienced it too. So "throw out stuff I don't like" does not follow from your claim that only people who have experienced poverty can speak about it.

Only the breathtakingly ignorant social commentary embodied by TFA.

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