The New Yorker Mar 23 2020 pp59-63THE CRITICS|BOOKS|”The Blight” “How our economy has created an epidemic of despair” “Death rates among less educated, working-class whites have caused life expectancy in the U.S. as a whole to fall” by Atul Gawande (A review of “Deaths of Despair and the Future of Capitalism” by Angus Deaton and Anne Case (Princeton University Press 2020)
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Dr. Gawande nicely reviews this well researched volume.
The authors Deaton and Case are well established economists.
The root cause of “Deaths of Despair” are the reasons underlying joblessness and wage stagnation for non-college-educated whites (NCEW). While, similarly situated non-whites suffer as well they are doing better than prior generations Deaton and Case argue-their expectations are being met or exceeded.
So what are the reasons behind NCEW failings, the deep-seated feeling they are not living up to their own and other's expectations?
Long economic stagnation-U.S. economic growth has fallen from post WWII of 2-3%, to <2% in the 1980s, and <1% in the 2000s but ebbing up slightly to 1.5% since 2010. During this time, earnings for the college-educated have soared while median wages for NCEW have steadily declined since 1979. Low-wage-work has become less “stable: hours are more uncertain, and job duration is shorter. Employment is more likely to take the form of gig work, temporary contracting, or day labor, and is less likely to come with benefits like health insurance”. For the NCEW, this has led or coincides with lower rates of marriage, church-going and union membership. “Emile Durkheim pointed out more than a century ago that despair and suicide result when people’s material and social circumstances fall below their expectations”. “The connection appears to be just as powerful for other forms of self-harm, such as drug and alcohol abuse”. Meanwhile Americans having economic power have been tacitly dismissive-work hard, go to college, stay away from substance abuse and succeed. Those failing therefore are lazy and unwilling to delay gratification.
Why is "Death of Despair" an American phenomenon?
Factors cited are: “unusually casual access to means of death”-Opioids and Guns, America’s willingness to adopt globalization and automation in a largely unrestricted way and most importantly the impact employer-based healthcare-which accounts for 60% of a low-wage-earner’s compensation but only 10% of high wager earners holding highly skilled roles.
From a business perspective, the economics of hiring with benefits for low-skilled work are highly unfavorable. Healthcare for a family can cost up to $20,000 with the company typically paying 70% and the employee paying 30%.
With the Federal Minimum Wage of $7.25/hr this equates to the company paying out annually $15,080 in wages, $934 in Social Security and $14,000 in healthcare.
For the wage-earner that is $15,080 in wages minus $6,000 in healthcare minus $934 in Social Security minus federal tax withholding of $1290 for take home pay of $6856 or $571/month. No wonder NCEW and other low wage workers need multiple jobs to survive.
At $15/hr the picture is better for the employee with $30,000 in wages minus $6,000 in healthcare minus $1,860 for Social Security minus Federal Income Tax Withholding $5,000 for takehome pay of $17,140 or $1428/month. Better for the employee but more onerous for the employer with $30,000 in wage, $1860 in Social Security and $14,000 in healthcare or $45,860 versus $30,014 at the Federal Minimum Wage.
What’s the solution?
Deaton and Case conclude “…we need to make health-care payment proportional to wages-as with tax-based systems like Medicare”.
Such a system reduces the employer healthcare cost per low wage worker removing disincentive not to hire workers with benefits.
For the worker, regardless of pay rate, there is more takehome pay. At $7.25, if healthcare expense is capped at 10% then takehome pay is increased from $571/month to $946/month. At $15, if the healthcare expense is capped at a higher percentage say 12% of $30,000, then takehome pay is increased from $1428/month to $1628/month.