New center studies business and poverty

A new center, aimed at helping businesses improve the economic well-being of their low-income workers, has opened its doors.

“We believe that within two years of beginning work with a company, we can increase the disposable income of 5 percent of the low-income employees of most companies by 20 percent, with essentially no cost to the employer,” says John Hoffmire, director of the Center on Business and Poverty.

Many business people believe that it is in their companies’ best interests to enhance the economic standing of their low-income workers, and the center will conduct research and disseminate information that helps improve the net worth of those workers, he says.

Hoffmire, whose center is an initiative of the Institute for Research on Poverty, says federal, state and local budget constraints make it even more important to address the challenges faced by low-income workers.

As the economic health of workers improves, so does the general economic climate, he notes.

“Strong markets for the goods and services produced by businesses depend importantly on direct and indirect product demand by low- and middle-class households,” he says. “Strong income and employment growth leads to greater product demand which, in turn, fuels a virtuous cycle of continued growth.”

Hoffmire says employers can help their workers by encouraging their wise use of bank accounts and direct deposit of paychecks and helping them resist high-cost financial institutions such as check-cashing shops and payday lenders.

For example, he says direct deposit of paychecks can provide an alternative to using check-cashing shops and could boost disposable income by more than 2 percent, and avoidance of payday lenders could save another 15 percent per pay period.

In addition, Hoffmire says companies can help employees manage and invest lump-sum payments for retirement funds and profit-sharing plans so those employees can improve their net worth.

Employers also can use a number of strategies to urge workers to take matches on retirement plans, become owners of company stock and develop home equity, he says.

And low-income workers — aided by volunteer accountants and financial advisers — also can take advantage of tax strategies to help improve their economic standing, Hoffmire adds.

For example, he says using the federal Earned Income Tax Credit has the potential to increase disposable income for a low-income worker with a non-working spouse and two children by up to 36 percent.

“In many communities, 20 percent of those eligible for the Earned Income Tax Credit don’t take it,” Hoffmire says. “The money left on the table amounts to more than $1 billion nationwide.”

One of the center’s goals is to identify the strategies that have worked in the private sector and to create training, support and mentoring programs that are the most effective. Companies such as Marriott and Staples have had good success using different approaches, Hoffmire says.

“No one wants to be seen as patronizing about how people save or spend resources, but if people learn to save and develop equity in their homes, then families, employers and the economy benefit,” Hoffmire says.

Before coming to UW–Madison, Hoffmire was founder and chief executive officer of his own investment banking firm that helped employees buy and manage about $1.6 billion of employee-owned stock in various firms.