When was the last time you got a raise at work? How much has the minimum wage increased since 1970?
According to Matthew Desmond, the author of Evicted, a big contributor to the housing and eviction crisis is stagnant wages. Over the years, the cost of housing has risen, however, wages have not increased to meet it.
Keep reading to understand why eviction rates are rising.
Wages Don’t Match the Cost of Living
Desmond says one major reason evictions are so common now is that income hasn’t kept pace with the cost of living: As rent, utilities, and other necessities have become more expensive, wages have remained stagnant for the US’s poorest people. As a result, low-income earners often struggle to pay their rent.
(Shortform note: We can illustrate Desmond’s point about stagnant wages by looking at the federal minimum wage over time, adjusted for inflation. The US minimum wage in 2023 was $7.25 per hour, the same rate it had been since 2009. One group of researchers estimates that if minimum wage had kept pace with inflation since 2009, by 2023 it would have been a little over $10 per hour. However, the highest nominal value (value adjusted for inflation) that the minimum wage ever had was in 1970: Although then it was only $1.60 per hour, that would be worth about $12.60 per hour today.)
To highlight this problem, Desmond explains that a standard benchmark for living comfortably is that rent should cost less than a third of a family’s income. By contrast, low-income families might spend anywhere from 50% to 70% of what they earn on housing, leaving very little for food and other essentials.
Furthermore, saving money isn’t possible with such a tight budget. This means that any unexpected or unusual expense—such as an emergency room visit or a car repair—can cause low-income families to fall behind on rent, leading to eviction.
(Shortform note: Limiting rent payments to 30% of income is fairly common budgeting advice. However, according to some researchers, only about half of renters in the US are currently able to meet that goal. In fact, a 2022 report from the National Low Income Housing Coalition found that there’s nowhere in the US where a minimum wage earner, working full time, could reasonably afford housing; on average, someone earning minimum wage would have to work nearly 80 hours per week to meet that 30% benchmark.)
Welfare Benefits Aren’t Enough
Desmond adds that government benefits for low-income families, collectively called welfare, have stagnated just like wages have. As a result, these programs—which are designed to help people live comfortably while unemployed or underemployed—now provide barely enough for people to survive.
(Shortform note: It’s a common misconception that welfare programs allow people to enjoy luxurious lives without working, with all of their expenses covered by taxpayer money. This myth of the “welfare queen” dates back to former president Ronald Reagan, whose 1976 presidential campaign focused heavily on the idea that honest, hard-working Americans were being cheated by lazy welfare recipients who just didn’t want to work. In reality, most welfare recipients in the US are either working, looking for work, or unable to work due to a disability.)
The author adds that because welfare benefits are means-tested (only available to people with less than a certain amount of money and assets), those benefits discourage people from saving money even if they’re able to. In other words, someone with low-income work and welfare benefits might actually be able to start saving; however, if at any point they have too much in their bank account, they won’t be able to collect benefits anymore. As a result, they’d soon end up in an even worse financial situation than before.
| Pros and Cons of Means-Testing Means-testing welfare benefits is a somewhat controversial practice with numerous pros and cons. Pros of means-testing: Effective use of resources: The main benefit of means-testing is that it ensures resources go to those most in need, which reduces waste and misuse of public funds. Fairness: Means-testing provides the most help to the people who are the most disadvantaged, raising them up to the economic level of their neighbors. Cons of means-testing:Self-defeating: In theory, welfare benefits help keep people financially stable while they build or rebuild their personal finances. However, as Desmond points out, means-testing may discourage people from saving money, since even a small increase in income or assets could lead to a loss of benefits. Inefficient: Although means-testing is meant to ensure that resources get spent effectively, the process itself is costly and inefficient. Therefore, some economists argue that universal benefits (such as Medicare) are cheaper than means-tested benefits (such as Medicaid). In other words, means-testing may actually cost more money than it saves. |
