What the shutdown teaches us about living paycheck-to-paycheck

What the shutdown teaches us about living paycheck-to-paycheck
© Stefani Reynolds

The high-stakes political drama surrounding the U.S. partial government shutdown, now the longest in history, overshadows the all-too-real financial tragedies Americans are facing because of it. The shutdown is revealing a key vulnerability in the economy: Americans living paycheck-to-paycheck. 

The partial government shutdown is now in its fourth week. About 800,000 federal workers haven’t gotten paid. Many of these workers and their families will have trouble paying their bills today, even if they get back pay when the shutdown ends. 

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Millions of families have limited or no access to credit — they can’t simply borrow against a future paycheck. Furthermore, federal contractors who are out of work because of the shutdown are not guaranteed back pay, even when the government reopens (though legislation has recently been proposed to pay some of those employees).

Along with those federal workers and contractors losing their valuable paychecks, the country suffers because of the goods and services that are no longer being sufficiently provided by government employees, everything from Department of Agriculture food inspections to National Park Service park maintenance to Census data releases. Airport security, meanwhile, is only being provided because workers are forced to work without a paycheck. Add to that all the people throughout the country who may be deprived of valuable government programs if the partial shutdown continues such as housing assistance and food stamps

Indeed, the shutdown highlights a stark American reality: Millions of workers across the country live paycheck-to-paycheck, and this isn’t isolated to those in low income families. While there’s no one established way to measure what living paycheck-to-paycheck means,  a CareerBuilder Survey showed 78 percent of U.S. workers reporting that they live paycheck-to-paycheck to make ends meet, including nearly one-in-10 workers making over $100,000.

Another way to measure how close to the red families are living is to look at whether they can pay an unexpected expense. According to a study by the Federal Reserve, four in 10 adults, if faced with an unexpected expense of $400, would either not be able to cover it or would cover it by selling something or borrowing money, such as increasing their credit card debt. In fact, many workers are barely even living paycheck-to-paycheck. According to the same survey, over one-fifth of adults are not able to pay all of their current month's bills in full.

We know it costs a lot to get by across the country, figuring in housing costs, food, medical care, child care and transportation to and from work. Every day families go without. If we just look at the cost of living in Washington, D.C., where many federal workers live, EPI’s Family Budget Calculator finds that it costs upwards of $100,000 to support a family of four with necessary costs like housing, food, child care, transportation, health care and other necessities.

It’s difficult to imagine which expense these furloughed federal workers might be able to forgo. It’s not like they can just take their kids out of child care and stop paying, because they will lose their slot when they need to send them again when the shutdown is over. Never mind the problem that some child care centers for the children of federal workers are also closed.

It’s also important to note that a disproportionate share of African Americans are in the federal workforce. This is significant when it comes to sustaining the black middle class, particularly in the D.C. region.

So, why aren’t these hundreds of thousands of workers able to weather this storm with savings? The fact is that it’s simply harder to save in the economy today because most workers haven’t seen significant increases in their pay to increase their standard of living, giving them any sort of cushion to save. 

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The CareerBuilder survey also found that more than one in four workers do not set aside any savings each month. Without additional resources to draw on, families often have to resort to sub-optimal solutions such as pay day lending, or going without recommended medical treatment, or leaving school without a degree but racking up lots of debt.

For those living paycheck-to-paycheck, one shock can lead to a very real, personal financial crisis. Whether it’s a health shock a costly car repair or the loss of one paycheck, we already know that over one-fourth of adults skip indicated medical care due to being unable to afford the cost. Furthermore, lots of families took on debt to weather the recession, student debt continues to climb, and child care costs continue to outpace what many families can afford. Workers and their families are stretched thin.

Unfortunately, workers have been living paycheck-to-paycheck for years. This reality is rooted in the fact that workers in the economy have seen their bargaining power fall precipitously in the last four decades. Consider some of the contributions: the decline in the real value of the minimum wage and the decline of unions have reduced workers leverage, their ability to bid up their wages. But, other factors are at play as well— including the inability for workers to easily leave their job in search of other ones because of non-compete agreements across the economy or non-poaching policies across franchises within firms or (illegal) collusion between firms. The instability families felt in the deep recession and its aftermath have lingered and employers continue to hold the cards in setting employment contracts for pay, benefits and working conditions. 

This was all true before the shutdown. Now, cavalier political choices in Washington are leaving millions on the brink of financial paralysis. That’s not good for anyone.

Elise Gould is a senior economist at the Economic Policy Institute where she focuses on wages, poverty, jobs, health care and economic mobility.