Earning an honest income

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In these times with a virus ravaging the entire world one thing has become very clear. If you are working "for the man" then the majority of people do not receive sufficient money to thrive. Certainly working two jobs and if you are in any type of relationship if both sides are working you can get by. We have a viral corona economy and it is a sad state of affairs what you earn in the US of A in 2020.

I found this article on Marketwatch very disheartening. The article talks about the additional $600 per week which was added to the unemployment benefits resulted in 68% of them would bring home more money than if they would work an honest 40h/week. Now don't get me wrong, the additional $2,400.- per month is certainly a lot of money however

"The median earnings-replacement rate was 134% of lost wages, they estimated. In every state, the median earnings-replacement rate exceeded lost wages, ranging from 129% in Maryland to 177% in New Mexico. " -end-quote-

Some math involved

Lets take a look at Maryland. According to Department of Labor,

"The current weekly benefit amount provided by the Maryland Unemployment Insurance Law ranges from a minimum of $50.00 to a maximum of $430.00. The standard base period is the first four of the last five calendar quarters completed before you file your new claim for benefits." -end-quote-

That means the max benefit you would receive in Maryland is $1,720.-/month. Add to this the additional $2,400.-/month and you end up receiving $4,120.- per month unemployment benefits. If this is on average 129% of a workers income, then the average income if you work 40h/week is $3580,- per month or about $43,000.- per year.

What does that mean

According to Zillow, "The median price of homes currently listed in Maryland is $319,900 " -end-quote-

With and average fixed mortgage rate of around 3.6% this results in an average mortgage payment of $1,326.00 in Maryland that would leave the average family with $2,254.- to spend on other things such as electricity, gas, car, kids, and of course food.

These numbers are why we are talking about the working poor. If your income is at this level you will likely not be able to set aside sufficient funds for retirement. It is also the main reason why a $400,- medical bill can be devastating to the budget.

As un-paralleled as Americas wealth is, a rising stock market should cause a higher overall increase for the average working person as well. Setting the minimum wage to any kind of number is also not going to solve this issue. It would simply cause a higher inflation rate over time as companies would ensure that the overall wealth distribution percentage from the GDP would adjust down to today's levels over time.

Viral corona economy

The Marketwatch article further states, " ... but, on the other hand, high payout rates could discourage some from moving back in the workforce. " -end-quote-

It may be that a lot of small businesses are non-viable if they can only afford to pay minimum wage. That may sound harsh but if you work for 40h for $10.10- an hour end up with only $1,616.- per month. Surviving on that is certainly a challenge. So what is the reason then to work harder and harder if in the end all you may get is barely enough to get by.

The steady decline of inflation adjusted income over the past 40 years has been a race to the bottom. Looking at China or India, the inverse can be said. Income has risen in these countries, depending on the profession more or less.

In the meantime

In the meantime we are in this global mess, where unemployment spiked to 14.7% ( as of May 2020 ) and will increase some more before everything is said-and-done. The distribution of the additional $600.- unemployment benefit is certainly a major reason why things have not yet collapsed. The Senate however is not eager to extend these. Once they run out America, as well as the rest of the world, is looking into the abyss.

The clock is ticking and 39 weeks of unemployment benefits will eventually need to be extended or rolled into the state and federal welfare programs. This transition will happen for the vast majority in November / December of 2020.

For now, it actually seems makes sense that the stock market is up despite the bad unemployment numbers.

In the end

Now adding all of this up and considering that an estimated 40% of all jobs may never return, I believe that the consumer in america will gradually decline when reality sets in. People will continue their spending habits for now but by August / September most will likely start to tighten their belts. The recovery will not be V - or U shaped. In my opinion it will look more like an L shaped recovery, where we may see a short spike in June/July which then flattens drastically.

The real economical challenge will happen in the third quarter of 2020 when benefits actually run out and there is not enough work around, especially if there may be a second wave of the corona virus.

When you are on welfare programs you won't be able to buy the latest iPhone or treat yourself to a short vacation. The retail and services industry are in big trouble already but I think what we have seen is only the beginning. By the end of the year there could be a drastic decline in consumer spending and a huge increase in defaults.

Like it or not, it is in the hands of the Senate now to define how the recovery will affect not just the working poor but the economy overall. Good leadership is hard to find these days. Especially when it comes to making tough trade-offs there does not seem to be a lot of hope of a positive outcome.

Throwing Trillions of dollars at the problem can only be a temporary band-aid, the underlying structural issues can't be wiped away this way. Likewise, not acting and letting benefits run out is also not an option, unless you are looking for a hard reset.

Shimmer of hope

With the proper amount of testing which I would say is around 750k or more per day we can open up most parts of the economy and start the recovery process for this viral corona economy. Once we have a vaccine and it will be available to the majority of people in the US, the immediate threat should be over.

Looking into the second quarter of 2021 is likely the time when things are truly getting better despite all the huffing and puffing of the politicians.

Extra Money Online

If you want to be prepared for anything coming your way you may want to look into starting a side-hustle yourself to increase the number of income streams you have. reducing your own reliance on your main income source is exactly what will help you through this crisis and let you sleep at night. Better yet if you can create a full time income online.

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