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Letter: Safety net keeps people 'poor'

A Costco shopping floor on Oct. 6, 2009.

A Costco shopping floor on Oct. 6, 2009. Credit: AP

Cathy Young's column "Inequality is not the real problem" [Opinion, Jan. 7] omits a main reason for the existence of a permanent underclass in America: Individuals and families who earn less than the poverty level of about $22,000 receive in-kind transfers worth $15,000 to $20,000, tax free. These transfers include food stamps, Section 8 or other forms of subsidized housing, free school lunches, Medicaid, college aid scholarships, Supplemental Security Income and more.

In recent contract negotiations with a large service workers union, to which I was a party, the management granted a 3 percent wage increase to workers each year for three years. I thought it was a fair contract in today's economic condition.

Most of the employees in the bargaining unit were happy with the settlement, but the lower-paid workers complained that the raise of about $600 would push them above the poverty line and force them to lose more than $15,000 of in-kind benefits. Many quit!

It makes perfect economic sense. Why give up $15,000 in tax-free dollars for a mere $600? The employer would have to offer these workers an increase in excess of $15,000, an unlikely event, to make it worthwhile to continue in a low-paid job.

The safety net, filled with good intentions, also subsidizes the existence of this underclass. The poor revert to the underground economy, working "off the books" and taking other measures, to come out ahead of the game.

Let us not blame them; they are doing what is expected of people in a capitalist society, attempting to maximize their economic outcomes. It is an example of perfectly rational economic thinking.

Alan H. Newman, Island Park

Editor's note: The writer is a lawyer and an adjunct professor of economics at Farmingdale State College.