The Economic Consequences of Homelessness in The US

Labor Market Institutions
Labor markets can be egalitarian, efficient, or somewhere in the middle. According to
Brady, Fullerton, and Cross (2010), "[e]fficient labor markets typically feature flexibility,
low unemployment, and higher economic growth, and facilitate the rapid hiring and firing
of workers. Egalitarian labor markets are bolstered by strong labor market institutions,
higher wages, and greater security" (p562). The United States has an efficient labor
market, whereas most European countries have egalitarian labor markets. Each system
has its drawbacks, but the egalitarian labor market model is typically associated with
lower rates of working poverty. One tradeoff to this is that the "lowest skilled and least
employable" people are sometimes excluded from an egalitarian labor market, and must
instead rely on government aid in order to survive (p. 563). If the United States switched
from an efficient to an egalitarian labor market, it might have to increase its welfare state
generosity in order to cope with a higher unemployment rate.
Centralized wage bargaining is a key component of egalitarian labor markets. In a
country with centralized wage bargaining institutions, wages for entire industries are
negotiated at the regional or national level. This means that similar workers earn similar
wages, which reduces income inequality. Lohmann (2009) finds that countries with
centralized wage bargaining institutions have lower rates of "pre-transfer" working
poverty. The "pre-transfer" working poverty rate is the percentage of workers who fall
below the poverty threshold based on their earned wages (not counting government
transfers).
Welfare State Generosity
Cross-national studies are in agreement that the most important factor affecting working
poverty rates is welfare state generosity. A generous welfare state spends a higher
proportion of its GDP on things like unemployment insurance, social security, family
assistance, childcare subsidies, healthcare subsidies, housing subsidies, transportation
subsidies, and food subsidies. Studies on working poverty have found that these kinds
of government spending can pull a significant number of people out of poverty, even if
they earn low wages. Lohmann's 2009 study shows that welfare state generosity has a
significant impact on the "post-transfer" rate of working poverty. The "post-transfer" rate
of working poverty is the percentage of working households that fall below the poverty
threshold after government aid has been taken into account.
Different types of transfers benefit different kinds of low-wage families. Family benefits
will benefit households with children and unemployment benefits will benefit households
that include workers with significant work experience. Transfers such as old-age
benefits are unlikely to benefit low-wage households unless the elderly are living in the
same household. Sometimes, even when benefits are available, those who qualify do
not take advantage of them. Migrants in particular are less likely to take advantage of
the available benefits.
Obstacles to Uplift
Page 56 of 289