Thursday, March 29, 2018

Work For It

So I came across an article, provocatively titled “The War on Work—and How to End It.” In case you couldn't guess, the article has a fairly conservative bent, and, as such, it rather neatly lines up with conservative orthodoxy when it comes to it's subject - how to get more people back into the labor force.

Consider the following knock on the minimum wage: "Advocates of a $15 minimum hourly wage, for example, don’t seem to mind, or believe, that such policies deter firms from hiring less skilled workers."

And this complaint against the unemployment benefits in general: "Increasing the benefits received by nonemployed persons may make their lives easier in a material sense but won’t help reattach them to the labor force. It won’t give them the sense of pride that comes from economic independence. It won’t give them the reassuring social interactions that come from workplace relationships. When societies sacrifice employment for a notion of income equality, they make the wrong choice."

But what's interesting about this is that Professor Glaeser doesn't seem to think that less skilled workers should just be cast adrift; after all, he notes: "Nominal wages actually fell over both the 1870s and the 1890s because workers had to accept low pay. With no government safety net, long-term unemployment meant deprivation—or even death." So what's the answer?

Making work pay needs one final, major policy initiative: wage support, which would replace the [Earned Income Tax Credit]. The EITC had the right overall idea, but it is cumbersome and indirect. Instead, the federal government could simply provide pay to increase the earnings of minimum-wage workers by a fixed amount—say, $3 per hour. Consequently, a worker paid $7.25 would take home $10.25 hourly, with the difference paid for by taxpayers.
This raises a question for me - Are workers not going to be told where that extra $3 an hour is coming from? Because I don't see how someone who's miserable due to lacking "the sense of pride that comes from economic independence" if they're drawing unemployment, disability insurance or just depleting their savings is suddenly going to find it in a job that only pays enough to live on because of taxpayer dollars have been reduced in amount, and given a different name. And this becomes a subsidy to employers, who can then push wages down because they know that someone else will make up the difference - which WalMart (among others) has already been accused of doing. And since "Such a program would be expensive, so it should be matched with spending reductions for other social services," if something happens to this poorly-paid job, the guy is in real trouble. (And I say guy, because the focus of Professor Glaeser's piece is "prime-age" {between 25 and 54} men. I have no idea what he has in mind for women and children.)

It's worth noting that Professor Gleaser believes that while long-term unemployment in a welfare state doesn't man deprivation to the degree that it used do, it still means death - he links high rates of unhappiness and suicide to unemployment. But he feels that you can't realistically do away with both, so he'd rather have deprivation. Which is logical. But the insistence that inequality not be considered a factor in the current dismal state of affairs strikes me as ideological.

I detect (correctly or not, I am uncertain) that old conservative trope of "Makers and Takers" at work. There is a clear presumption that with the right incentives, that entrepreneurs can come up with enough work that requires physical presence in (or near enough to) the place where the good or service must be delivered to take up all of the current slack in the labor market, including small businesses in low-income areas. But even if you take that at face value, and a lot of smart people are dubious about that, this only works if this entire enterprise lifts, if not all boats, the boats at the lower end of the spectrum. A small business in a low-income area, in order to succeed, has to be in an environment where the low incomes of the residents are not so low that they're unwilling or unable to buy whatever's on offer.

For an individual low wage worker, the point of a $12 an hour wage with $3 pitched in by taxpayers or a $15 an hour minimum is to raise that worker's income to the point, where, hopefully, they can contribute to the overall economic health of their area without risking destitution if something goes a bit sideways on them. As production of goods and services becomes more efficient, the number of people needed to produce the necessities decreases. Therefore, more and more people rely on the ability to produce discretionary items, whether you call them simply non-essentials or label them as luxuries. Either way, people have a choice as to whether or not they're going to buy them. Poverty creates a problem in that it restricts the ability of people to make discretionary purchases, because, generally speaking, very wealthy people don't spend as much of their available wealth on these things. As Nick Hanuer pointed out, he might have 1,000 times more money than the average person, but he doesn't spend 1,000 times more on cars.

You can make the point that the wealthy assist everyone with their investments, but they often want returns on those investments that are rather much higher than, say, the rate of inflation. And to the degree that the rate of inflation measures the growth of the money supply when compared against the availability of goods and services, one can legitimately question whether or not those returns are simply extracting wealth from the society as a whole.

A high minimum wage is designed to be a form of wealth transfer from the capital to labor. The fact that it tends to increase unemployment is indicative of the fact that wealthy people can choose to forgo investing when the payoff is not to their liking, because they face little consequence for doing so. In the late 1800's the lack of a social safety net meant that if an employer decided that the return on investment wasn't to their liking, it was the workers who faced hardship. And that lead them to compete with each other to raise the employers returns. Minimum wages are designed to do away with that.

Now, I understand that a lot of people will tell me that I'm incorrect about this, but it seems to me that at some point, there will have to be a better return on labor, as opposed to capital, for the system to thrive in the long term. And that means there have to be more situations were capital can't simply walk away from a deal, or insist that labor share their pieces of the pie more evenly. I'm not one of those "eat the rich" types, because I have no problem with people being wealthy. But I do understand that an unchecked imbalance leads to problems like unemployment.

Professor Glaeser notes: "While droughts and pestilence often threatened disaster, joblessness was no part of then-rural America. If you didn’t work, you starved, and there was always another patch of land to hoe and seed. Unemployment arrived only when workers moved to cities." Note that for this to be true, it has to be due to cities being more efficient than rural areas, as the assumption is that urban areas could support non-workers that rural areas could not. The reason, however, why there was always another patch of land to hoe and seed was that you could always move somewhere that other White settlers had yet to set up shop, drive any natives from the land, and take it for your own. Had settlement been more confined, however, it's entirely possible that there wouldn't have been another convenient patch of land to take over. And in that situation, you have what we have now, rural employment due to the unavailability of "free" land for subsistence agriculture. Which, one may point out, was typically the primary driver of movement to cities. Unemployment didn't arrive when workers went to cities - many workers simply moved it with them and it accumulated in cities when some number of them were unable to leave it behind, because going back to a rural area where there was no means of supporting oneself made little sense.

Unemployment is a result of their being more people than are needed to do the work of supplying the available demand for goods and services, whether that's due to low aggregate demand on the consumption side, misinvestment on the labor side or some mixture of the two (which are the same thing, really). The way one combats unemployment is to redress that imbalance. And there are a lot of ways of doing it. Personally, I think that the returns on labor and capital have to be more equal than they are now, but that's just me. And while I don't know that we can effectively legislate that balancing (I think we can't), I'm pretty sure that pushing in the other direction won't be helpful, either.

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