Lately, every time a writer in the business section or the business press mentions the low unemployment rate, she also mentions with relief that wages aren't rising, as if rising wages is the bane of our existence. For one thing, our much-heralded "New Economy" is experiencing growth without inflation primarily because wages aren’t rising too much. For another, it’s in the interest of most businesses for labor costs to remain low, because then their profits are higher. This is especially true in the debt-driven economy we have now, where consumption is seemingly untied to wages (thanks in large part to credit cards.)

Low wages are, in a very real sense, necessary for business profits, and capitalism itself. Unemployment is also useful to capitalism, since it tends to keep wages down; with higher unemployment, more people are competing for less jobs which leads to job insecurity and an inability to demand higher wages. This wouldn't be such a problem if the lowest wages were at least high enough to bring those who get them out of poverty.

This is the utopian myth that drives capitalism: if you work hard enough, you will be provided for. It implies that the cheap and easy way to alleviate poverty is through growing the economy, creating new jobs, and lowering unemployment. This is, of course, the preferred method of conservatives, since it requires no new taxes and no redistribution of wealth; no giving "our" money to "them." But the dirty little secret is that, in fact, capitalism does not provide for those at the bottom. Even in times of prosperity, and low unemployment, the wage gains of those at the bottom often do not bring them out of poverty. People making $6 an hour still live in poverty. The rising tide does not lift all boats.

If it is beneficial for most businesses, and the capitalist economy as a whole, that wages stay low, then it makes sense that simply creating jobs won’t alleviate poverty. But people continually advocate privatization and private job creation in order to provide jobs and economic growth, and most even try to export these policies to the developing world. For example, immediately following the South African election, a New York Times editorial advised Thabo Mbeki, the new President of South Africa, that "more progress will come if [Mbeki] can privatize state industries and remove obstacles to local job creation. . . . His responsibility is to South Africa’s poor, who have waited for decades and are waiting still." The implication is that job creation will solve the plight of the poor while simple redistribution won't. While it is clear that job creation is necessary in South Africa, where overall joblessness hovers around 40%, the fact that in the same country white joblessness is only 4% makes it clear that there needs to be some government intervention and redistribution.

As far as the US goes, it’s clear that job creation and economic growth alone do not eliminate poverty. Several economists have made a living by pointing out the inefficacy of economic growth in poverty reduction. In a recent article, Rebecca Blank shows that in the last 15 years, wages at the low end of the income ladder have actually fallen or remained stagnant, rather than risen. The economic expansion of the eighties only brought poverty rates to what they had been a decade earlier, while the economic expansion of the early nineties actually increased the poverty rates.

So we get economic growth with no reduction in poverty, since neither working nor welfare brings people out of poverty. Even though recent studies show small wage gains for those earning the least amount of money, they are just not enough to bring people out of poverty. This means that job creation and economic growth on their own are not going to reduce poverty. The real solution is nothing new: government intervention, redistribution of wealth, and unionization.

Without government intervention (such as a higher minimum wage, a living wage, health care, or redistributive programs) low-skill jobs will continue to pay poorly, and the people at the bottom of our wage hierarchy will continue to live in poverty. Though the Right argues that minimum wage increases lead to unemployment, several studies have shown that there is no such correlation. Unionization can, of course, also increase wages at all levels of the wage scale, including the bottom. Organized labor's new efforts to unionize low-skill workers will do much, in fact, to bring up the lowest wages. Without these major changes, the fundamental contradiction of the "New Economy" will never be resolved; economic growth does not reduce poverty or raise the standard of living for working citizens.

Michael Rabinowitz