What Goes Up, Keeps Going Up? The Damaging Effects of Wage Stagnation and Rent Hikes on Homelessness

Daniel Gantner, AmeriCorps State & National Member

    When someone faces homelessness, there are often numerous hardships that have all contributed to the situation. Arguably chief among these hardships is lack of income due to stagnant wages or unemployment. Many Americans who live paycheck to paycheck are seeing that their wages are not keeping up with the continually rising cost of living in the United States. This problem is largely due to two concurrent damaging trends: government policies that have created stagnant wages and a general rise in rent and housing prices. In order to better understand how people can slip into homelessness, it's important to understand the myriad of causes behind stagnant wages and rising costs of living in the United States.

    While the average wages of today fail to keep pace with the cost of living, this wasn’t always the case. Additionally - despite globalization and automation being blamed as primary causes for wage stagnation - there are many other factors at play that reveal a consistent history of corporate neglect for employees, lack of governmental intervention, and worries of stability among workers. One big way large corporations have contributed to stagnant wages is stock buybacks. A stock buyback is when a public company quite literally purchases its own stock from the open market, driving up the price of their stock which helps increase value for shareholders and executives at the company. This was considered market manipulation prior to 1982, when the SEC cut the regulation during Ronald Reagan’s presidency (AFR; Curry; Forbes). Since then, however, buybacks have become more common in recent years, even during the pandemic, increasing in “conjunction with rising executive compensation through stock-based pay packages” (AFR). According to Americans for Financial Reform, these buybacks “exacerbate the racial wealth gap, worsen economic inequality, and divert resources from the real economy which harms workers.”
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    When corporations use their profits to create value for stockholders, the only people who lose are the workers themselves, as those profits could have been used to increase wages, improve benefits, and strengthen workplace safety and general infrastructure. A 2021 study by the American Compass found that “that the number of companies that extracted more value from their firms (including share buybacks) than they invested in new capital expenditures had risen from only 6 percent of companies before 1985 to 49 percent of companies in 2017” (AFR). This means that since the Reagan administration SEC cut the regulation that prohibited buybacks, multiple generations of millions of American workers have lost out on significant increases in pay, job security, and workplace safety because of corporate greed. Further, stock buybacks are inherently discriminatory because of the historic lack of equity within the stock market - while “white families hold 90 percent of the stock market value, [...] black and latinx households each own only 1 percent of the total stock market value — figures that have not budged for the past 30 years” (AFR). 

    Looking at the government's role in this, we can see less and less intervention on behalf of the workers since the 1980’s. Between 1948 and 1970, worker productivity had a direct positive relationship with wages, so the more productive the American workforce was, the more benefits workers saw from their labor (EPI). This was due to specific policy that intentionally aimed to allow workers to directly benefit from their hard work. However, the late 1970’s and subsequent decades saw the stripping of these policies, forcing workers into very difficult positions. According to the Economic Policy Institute, “net productivity rose 61.8%, while the hourly pay of typical workers grew far slower—increasing only 17.5% over four decades” since 1979 (EPI). Due to these policy choices, the federal minimum wage of $7.25 an hour has less purchasing power today than it ever has in the last 66 years, and roughly two thirds of American wages have not kept pace with inflation and rising living costs (Cerulo CBS). Further, Scott Lincicome - Director of General Economics at Cato Institute - states that “in case after case, you see that government policies were implemented to discourage labor dynamism and to discourage workers from moving to a better job or moving to a better town or city to improve their job prospects” (Lee NBC). The immense disparity between pay increases and rising costs of living is one of the main causes of homelessness, as it is both incredibly difficult and stressful to find and pay for housing when your income has not increased with the cost of living. 

    Much like wage stagnation, affordable housing availability has decreased despite worker productivity steadily increasing. Wage disparity coupled with increasingly less availability of affordable housing leaves many at extreme risk of becoming homeless (NAEH). And as the cost of affordable housing increases, a report from the National Law Center on Homelessness & Poverty states that 1 in 4 renters in the U.S. have “extremely low income” by the metrics of United States Department of Housing and Urban Development (Reddin LC). Further, 11 million households spend more than half of their income on rent, and 38 million households spend more than a third of their income on rent (NAEH 2). Since so much of their income is used to pay for housing, these households are just one medical emergency or unexpected bill from becoming homeless (NAEH 2). One important tool available to people in these situations is the Housing Choice Voucher (referred to as HVC from here on out) program, created by the Department of Housing and Urban Development. However, HVCs are critically underfunded, and “increases in federal rental assistance have lagged far behind growth in the number of renters with very low incomes” (NAEH 2). And even though the HVC program is the largest rental assistance program in the country, only a fourth of eligible households actually receive help (NAEH). 

    Unfortunately, economic policies that originated in the 1970’s and 1980’s have effectively made it very difficult for more than half of American households to live comfortably in an economy that prioritizes corporations and stockholders over workers. Despite the existence of government tools and programs to help people pay for housing, wages and other social safety nets continue to fall behind with the rising cost of living, which leaves millions of people living at severe risk of potential and/or certain homelessness every year.

​References

Affordable Housing. (n.d.). National Alliance to End Homelessness. Retrieved June 26, 2023, from https://endhomelessness.org/ending-homelessness/policy/affordable-housing/

[email protected], G. R. (2019, September 29). Wage stagnation, lack of affordable housing greatest factors in homelessness. The Lawton Constitution. https://www.swoknews.com/special_reports/wage-stagnation-lack-of-affordable-housing-greatest-factors-in-homelessness/article_74e34411-f00a-5d73-ac15-49f134bf7723.html

​Income. (n.d.). National Alliance to End Homelessness. Retrieved June 26, 2023, from https://endhomelessness.org/homelessness-in-america/what-causes-homelessness/incomeinequality/

Lee, J. (2022, July 19). Why American wages haven’t grown despite increases in productivity. CNBC. https://www.cnbc.com/2022/07/19/heres-how-labor-dynamism-affects-wage-growth-in-america.html

Most U.S. workers say their pay isn’t keeping up with inflation—CBS News. (2022, September 14). https://www.cbsnews.com/news/wages-not-keeping-up-with-inflation/

Team. (2021, November 10). Fact Sheet: Tax Corporate Stock Buybacks that Enrich Executives and Worsen Inequality. Americans for Financial Reform. https://ourfinancialsecurity.org/2021/11/fact-sheet-tax-corporate-stock-buybacks-that-enrich-executives-and-worsen-inequality/

The Productivity–Pay Gap. (n.d.). Economic Policy Institute. Retrieved June 26, 2023, from https://www.epi.org/productivity-pay-gap/

What Is A Stock Buyback? – Forbes Advisor. (n.d.). Retrieved June 26, 2023, from https://www.forbes.com/advisor/investing/stock-buyback/

Resources
National Alliance to End Homelessness | https://endhomelessness.org/
Economic Policy Institute | https://www.epi.org/
Americans for Financial Reform | https://ourfinancialsecurity.org/