Trickle Up

The Benefit of Investing in America’s Poor

By: Sergio Robles Jr.

President Ronald Reagan was a vocal advocate for free market policies that included financial deregulation, which would cut taxes on America’s wealthiest citizens. The logic is simple and integral to job creation according to laissez-faire supporters. If the rich are allowed to further invest their capital in the market, the market will respond to the increase by creating jobs and the process trickles-down from there.

The one problem with this practice is that it assumes that the market and corporations have the ability to grow. In the situation where a company has saturated the market, money saved from tax cuts cannot go into reinvestment because there is no room to grow. Excess capital is therefore put into savings, where they can presumably earn more capital from the market interest rate. Under this model, companies such as AT&T, Lockheed Martin, and Dell would be considered to be at capacity (Zajac).

The opposing side to this argument is ‘trickle-up economics,’ which is most often associated with microfinance. Microfinance is the disbursement of small loans for an individual to start a business, and is most common in the developing world. A more domestic example of trickle up economics would be investing in skills and training programs for America’s lower quartile population (The Economist).

Investing in America’s poor and uneducated is an investment on the country as a whole. This population is often surviving on a minimum wage, subsidized by government assistance programs. In figure 1.1 we see the difference in salary between various levels of occupations in the same field, the field in particular being nursing. I used a standard minimum wage occupation as a baseline because most of these jobs are interchangeable and require the least amount of specialized skills.

From there I added the three most common types of nursing credentials according the Bureau of Labor Statistics. The facts and figures presented are based on median salaries nationwide, it is important to note that there will be discrepancies regionally and when an individual starts out in the industry.  The first type of training available is a certification as a Certified Nurse’s Assistant (CNA) which is available as a onetime class and offers a modest increase in hourly wages The second type of training is as a Licensed Practitioner Nurse (LPN), which is available as a year-long diploma program at most city colleges. Lastly, we have a Registered Nurse (RN/ADN), who has earned their Associate’s Degree in Nursing, and earns the highest salary of the group, as a result of the largest investment (U.S. Bureau of Labor Statistics).

Figure 1.1: Nursing Occupations (Based on 2012 BLS Facts and Figures)

Occupation	Amount by hour ($)	Amount Annually ($)	Cost Associated with Degree	Time Cost
Minimum Wage Occupation	$8.00	$16,640	N/A	N/A
CNA (Certified Nurse’s Assistant)	$11.73	$24,400	$1,500	5 Weeks
LPN  (Licensed Practitioner Nurse)	$19.97	$41,540	$2,000	1 Year
RN/ADN (Registered Nurse/Associate’s Degree in Nursing)	$31.48	$65,470	$4,500	2/3+Years

NPR recently published that on average, it costs $11.20 an hour or $23,300 annually to live in the state of California. Using the occupations and salaries listed in Figure 1.1, I constructed a graph that shows their earning potential over a period of 5 years, using both the costs associated with that option as well as the salary/benefits (Green).

The graph displays all four occupations as having negative returns in the first year, with the most costly options of LPN and RN causing the individual to incur serious debts. This is known as barriers to entry due to opportunity costs. The price of the training programs themselves are relatively low, but when an individual has to forgo earning a wage in favor of education they find themselves in deeper debt than they would have been otherwise. Under this criteria, the most costly option is the one that also has the greatest earning potential at the end of the five year period.

It is no surprise that individuals with limited resources find themselves with very little options as giving up a steady wage in favor an opportunity a year from now is an unfavorable decision when rent and utilities are due every month. In this situation, it becomes imperative that government agencies and other public works programs help individuals in this predicament. If and when governments create incentives for individuals to further pursue education and training programs to earn a higher salary, the return on investment is higher as they can tax a higher salary more. This type of investment is not singular or exclusive to the individual, but all-encompassing. When multiple individuals in the community earn more, property values increase, there is job creation and the community at large is lifted into economic self-sufficiency.

In closing, I leave you with these words by Hubert Humphrey: “a country is only as rich as its poorest citizens”.

Works Cited:

Green, Matthew. "How Much Does It Really Cost to Live in California?" The Lowdown RSS. NPR, 23 July 2013. Web. 29 July 2014.

"Trickle-up Economics." The Economist. The Economist Newspaper, 16 Feb. 2013. Web. 28 July 2014.

"U.S. Bureau of Labor Statistics." U.S. Bureau of Labor Statistics. U.S. Bureau of Labor Statistics, 01 Jan. 2012.Web. 27 July 2014.

Zajac, Brian. "Nine Famous Companies That Can’t Get Bigger." 247wallst.com. 247wallst, 05 Apr. 2013. Web. 

29 July 2014.