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Private sector can lift up workers

Woman shopping

Originally Published in the Quad-City Times on May 3, 2018

By the end of August, The Bon-Ton’s liquidation bankruptcy will mean the closing of 15 Younkers stores in Iowa, as well as one Herbergers location. Around the United States, these will be among 12,000 retail store closings expected in 2018 — up 33 percent from last year.

These developments are troubling for Iowans, who are already balancing on a financial precipice. Last year, GoBankingRates found that 30 percent of Iowa residents have no savings at all, and nearly half (48 percent) have less than $1,000 saved.

While it’s possible to frame this as a matter of personal fiscal responsibility (or lack thereof), that focus ignores the larger forces at play. Right now, minimum wage in Iowa is $7.25 per hour, but a person would have to earn nearly three times that — $21.21 per hour — to afford rent on a typical two-bedroom home. It’s no wonder, then, that an estimated 40 million Americans live in housing they can’t afford or that more of us than ever are renting rather than buying homes.

So, when 8 in 10 of us are living paycheck to paycheck, do we really have a problem of personal responsibility, or is it a community-wide financial stability problem?

I would argue it’s the latter.

Consider the scenario of a fully employed Younkers employee who rents her home. She works 40-hour weeks, but makes little more than minimum wage. She’s able to cover her expenses but not set money aside to build an emergency fund. Still, things are fine until her store closes as part of the larger liquidation of The Bon-Ton.

She files for unemployment benefits, but they don’t cover the full amount of her lost wages (Iowa’s unemployment benefits can be as low as $62 per week). If she’s unable to find new work in time, she may start to fall behind on her bills, including her rent.

This scenario is upsetting, but it goes beyond the renter: her landlord, too, is affected. He relies on her rent as revenue just as she relied on her wages. He’s forced to start the eviction process so he can replace that income, which means she’s forced to find somewhere else to stay. If she’s lucky, she’ll have a family member she can crash with, but that means a tightening of belts all around — for the family member whose income now has to support someone new, for the worker who’s out of a job, and for the landlord who’s out a tenant. This “belt tightening” may mean less eating at local restaurants or shopping at local stores.

The “personal finance” problem of limited savings has now turned into a problem for the entire community.

And while this illustration is simplified, it’s also very real: in a 12-month period, 60 percent of Americans will experience at least one income shock — such as job loss, wage reduction, major car repairs, an unexpected injury or illness. The median household will spend half its monthly income to cover this shock. In a world where savings rates are at and approaching zero, these “shocks” can feel more like thunderbolts, and they can drag down economic prosperity in entire communities for years, especially when eviction is involved.

There are many problems in our current system: existing public support structures in the state have proven insufficient. We’re living in an era of decreasing employer-sponsored benefits as more and more jobs are available only on a contract basis. And the average American worker, despite their best efforts to put money aside, continues to struggle to build up an emergency fund.

Clearly, we need to innovate. Those best positioned to do so are mission-driven, private sector companies who consider solving social problems as important as generating profits. It is up to us to replace the gaps in the ever-shrinking public safety net available to hard working Americans.

If we commit to solving these problems — and I’d argue that we must, that the prosperity of the state depends on it — we can do so in a way that not only strengthens vulnerable communities, but also offers a financially sturdy proof of concept that other enterprises can emulate.

Sesko is director of innovation and product development at Renter SafetyNet, a startup offering insurance coverage for landlords that provides a lump-sum payment to cover tenants’ rent after an unexpected income loss due to a layoff, illness or injury.