Lending a Lasting Hand
Economists of many stripes
argue that poor people and the unemployed need more help from the
The Chronicle of
From the issue dated January 16, 2004
By DAVID GLENN
The walls of the Department of Employment
Services center in northeast Washington, D.C., are inevitably festooned
with glossy motivational posters. "Career vs. Job ... a Matter of
Choice or a Matter of Chance," reads one sign. Visitors might be
forgiven for thinking that they're back in the assistant principal's
Reginald McCoy, a 35-year-old telecommunications technician, was laid
off by WorldCom seven months ago. He is using one of the center's
computers to search for a new job. "If you go from this" -- he
flashes a W-2 form that reported annual earnings of more than $58,000
-- "to making nothing, you have a problem," he says. "I know guys
who were laid off before me who are at McDonald's, or working out at
the airport. They've taken a thirty- or forty-thousand-dollar pay cut."
Mr. McCoy is anxious, but he sees hope for himself. Last week he had an
interview at Verizon. Across the room, photocopying a business
proposal, is a woman whose anxiety is more severe. Khaleedah Harris, a
lifelong resident of Washington, says that she and her husband have
usually had steady jobs, but some of their eight children have not.
"When I was in the District of Columbia public schools," she says, "we
had various vocational and trade, office, and clerical classes. We had
barbering. We had all kinds of things that you could do if you were not
going to be collegebound. Well, when my kids came through school
-- all of them -- those programs were gone."
This employment center offers a mélange of the pragmatic, small-scale
programs favored in the Clinton era. If you want to learn how to
perform during a job interview, the center's counselors will teach you.
If you want to learn how to apply for the earned-income tax credit,
which benefits low-income workers with dependent children, they'll show
you. In 2004, seven years after federal welfare reform took effect,
this is the rough consensus of policy makers: Give a small helping hand
to people who want to help themselves. Anything more ambitious is only
likely to do damage -- to the economy, or to poor people
Not everyone is satisfied with that consensus. An ideologically diverse
group of scholars is putting forward sweeping proposals that, they say,
would transform the low-wage labor market for the benefit of poor
people and society at large. One plan would guarantee all citizens a
small basic income; another would revive the New Deal model of a
government-created job for anyone who wants one; still another would
provide huge public subsidies to private employers in order to raise
the wages of low-skilled workers.
The proponents of these schemes, as you can readily imagine, do not
always agree with one another. But their proposals have a few common
denominators: The plans are all designed as universal benefits and are
intended to avoid the perverse incentives (against work, against
marriage) that have afflicted the U.S. welfare system. And all of the
proposals -- yes, even the guaranteed-job scheme -- are
touted by their designers as minimizing government bureaucracy and
micromanagement of the economy. These plans are thoroughly
postsocialist, these scholars say. We can provide much more to people
at the bottom of the ladder and still allow the free market to do its
Back to Basics
The most controversial of the plans is the universal basic income,
whose best-known contemporary proponent is Philippe van Parijs, a
professor of economic and moral philosophy at the Catholic University
of Louvain, in Belgium. In his 1995 book Real Freedom for All: What
(if Anything) Can Justify Capitalism? (Oxford University Press),
Mr. van Parijs argues that the liberal value of freedom presumes that
humans have an array of realistic choices. And having such choices, he
says, depends in turn on having at least a certain level of resources.
Therefore society should guarantee everyone a basic income, which would
be financed through progressive taxation. The basic income, Mr. van
Parijs says, should be as large as the economy can efficiently sustain.
The most common objection to Mr. van Parijs's model is that it would
represent an unjust transfer of resources from people who do productive
work to people who choose not to. (Scholars like to refer to this as
the "Malibu-surfer problem.") Mr. van Parijs replies that the liberal
principle of neutrality among conceptions of the good life, as
articulated by such philosophers as Ronald Dworkin and the late John
Rawls, demands that the state not favor the industrious (the "crazy,"
as Mr. van Parijs facetiously calls them) over the lazy.
Mr. van Parijs also makes a more subtle point: He says that a universal
basic income might actually draw certain unemployed people into
the labor market. "Part of what motivated this plan," he says, "was an
awareness that the existing benefit schemes tend to create dependency
traps." In means-tested benefit programs like the U.S. welfare system,
you can often immediately lose all of your benefits if you take a job.
"But if you have this floor of income that you're entitled to no matter
what," he says, "that's a way of getting you out of that trap." (The
same insight lay behind the conservative economist Milton Friedman's
early-1970s proposal for a negative income tax, which would be
structurally similar to Mr. van Parijs's universal basic income.)
Would Mr. van Parijs's proposal wreck the economy by shrinking the pool
of workers willing to work for low pay? "I don't think the decrease in
labor supply would be as severe as some commentators believe," says
Michael A. Lewis, an assistant professor of social welfare at the State
University of New York at Stony Brook and a proponent of the basic
income. "Employers would tend to increase the wages they offer, and
that would draw people back in."
Mr. van Parijs does not believe that low-wage jobs would disappear, but
he believes that a certain kind of low-wage job would vanish.
"Jobs with low immediate productivity, but that offer serious training
or opportunities for advancement through social networks, would be able
to find people to fill them," he says. "On the other hand, if you have
really lousy jobs that don't offer any training, that are done under
bosses that treat workers badly, these sorts of dead-end jobs will be
more difficult to fill than before."
Mr. van Parijs would not mourn the loss of such jobs. "Just as there is
nothing particularly good about slavery, there is nothing particularly
good about a system in which lousy jobs can easily be filled," he says.
A final objection to the basic income is that it would weigh down
the economy by reducing people's incentive to learn new skills. "Basic
income grants and the earned-income tax credit have a negative impact
on human capital formation -- both theoretically and according to
empirical evidence," says Robert A. Moffitt, a professor of economics
at the Johns Hopkins University, who is generally skeptical of Mr. van
Mr. van Parijs replies that such concerns are based on "petty
accounting." The basic income, he says, might actually help people to
go to school or learn a new trade because they would have more
flexibility to reduce their hours (or leave the work force entirely).
"Basic income is part of a package that's far better adjusted to both
the economic needs and to the social needs that result from the new
technological and market complex in which we live."
Maybe so, but the basic-income scheme has no immediate political
prospects in the United States. A small band of economists and
political scientists will gather in Washington next month for the third
annual meeting of the U.S. Basic Income Guarantee Network, but they
have no illusions about the terrain. The one serious moment of
possibility, several of them say, came during the Nixon administration,
when Mr. Friedman pitched his negative income tax.
"You get this paternalistic, cumbersome welfare system, and we almost
had the opportunity to replace that with a negative income tax," says Karl Widerquist, the network's
coordinator. Mr. Widerquist is
an economist who is earning a doctorate in political science at the
University of Oxford. "It just didn't happen," he says ruefully.
Mr. van Parijs says that some European countries are slowly creeping
toward something that looks a great deal like a basic income. Belgium,
Britain, France, and the Netherlands have all recently introduced
refundable tax credits for low-wage workers. And almost all West
European countries already offer a basic income to people who do not
The basic-income idea has also generated active political movements in
two unlikely countries: Brazil and South Africa. In December, the
Brazilian Congress approved a bill that will create a basic income
beginning in 2005, though the plan will initially focus on Brazil's
poorest citizens. Meanwhile, in South Africa, there is a growing
popular movement for a universal basic income.
A very different set of reforms is offered by the economists L.
Randall Wray and Mathew Forstater, both professors at the University of
Missouri at Kansas City. They would like to bring back the New Deal
model of government-guaranteed jobs for anyone willing and able to
work. They argue for their scheme primarily on the grounds of
efficiency, not ethics. A modern capitalist economy, they maintain,
will never generate a strong, steady, sufficient demand for labor. Even
during the boom years of the late 1990s, many people unsuccessfully
sought work. In order for the economy to reach its true productive
potential, Mr. Wray and Mr. Forstater say, the government must step in
and provide jobs.
The Missouri economists' job program would look like this: The federal
government would give large grants to states and localities, which
would set up nonpartisan commissions to administer the program.
Nonprofit groups and government agencies would submit bids explaining
how they would make use of federally subsidized workers. All of the
subsidized jobs would pay only the minimum wage -- the idea is
that workers should be indifferent about whether they worked in a
federally subsidized job or in the lowest-paid job in the standard
private sector, so that workers would readily switch back into private
jobs during upswings of the business cycle. But the federal government
would be responsible for offering a minimum-wage job to each and every
able, willing person in the country. "Of course, people can be fired if
they don't perform up to standard," says Mr. Wray. "We might design the
system to give them a second or third chance, but not more than that."
Mr. Wray insists that only such a job-creation program can solve the
modern problem of structural unemployment. He says that the
training-and-education programs currently favored by policy makers are
based on a fallacy. "If you bury nine bones and send 10 dogs out to get
them," he says, "only nine of them are going to come back with bones.
Now, you can take that one dog and teach him the latest, most
up-to-date bone-finding techniques, and he might come back with a bone
the next time. But you know that some dog is always going to
come back empty."
Mr. Wray says that the scheme would have only gentle effects on the
labor market, because, again, the subsidized jobs would intentionally
be no better than the least attractive private-sector job. Many
more-orthodox economists, however, argue that a situation of full
employment would lead to an inflationary spiral. At the height of the
boom in 1999, Alan Greenspan told Congress that he worried that the
"pool of available workers" was shrinking, and that "significant
increases in wages, in excess of productivity growth, will inevitably
emerge" unless the Federal Reserve took steps to slow the economy.
But some observers believe that Mr. Greenspan's model has little to do
with the current environment. "We're so far away from any kind of wage
inflation that it seems foolish to talk about these things," says
Heather Boushey, an economist at the liberal Center for Economic and
Policy Research. "Workers have been able to capture very little of the
gains in corporate profitability." Ms. Boushey speculates that a
full-employment plan like Mr. Wray's might actually reduce
workers' bargaining power in the private sector, because employers
would find it easier to find and hire well-trained workers if their
current crop started to get restive.
Slim Political Chances
Like the universal basic income, the Missouri economists'
employer-of-last-resort scheme has no particular political traction in
the United States. Among other barriers, there is widespread skepticism
that it is feasible. The public-jobs programs of the Carter
administration are widely regarded as a failure. "I would say that the
overwhelming view of most labor economists is that it just didn't
work," says Mr. Moffitt. "State and local governments were not capable
of the kind of flexibility in hiring and creating jobs that were
necessary to make them work. All indications are that productivity was
But this plan, too, has found adherents in unlikely places. Mr. Wray
recently flew to Turkey to discuss a jobs-creation plan with government
officials. And after its 2002 economic crisis, Argentina enacted a
program guaranteeing jobs to low-income households with children. The
World Bank estimates that 1.7 million people are participating.
What does Mr. Wray think of Mr. van Parijs's model? "I'm not opposed to
a basic-income guarantee at all," he says. "We should provide a basic
standard of living to all human beings. But a basic income does nothing
to resolve the unemployment problem. Handouts will never be viewed the
same way as jobs. I don't believe that handouts lead to the same sense
of responsibility and control over one's life that a job can offer."
Subsidizing the Unskilled
A third call for radical reform comes from someone well-respected
within the realm of orthodox economics. Edmund S. Phelps, a professor
emeritus at Columbia, has for more than a decade campaigned for a
system of public subsidies to increase the wages of low-skilled
workers. The fullest elaboration of his model appears in his 1997 book Rewarding
Work: How to Restore Participation and Self-Support to Free Enterprise
(Harvard University Press). If Wal-Mart is willing to pay a cashier the
minimum $5.15 an hour, for example, the government would provide a $3
subsidy to raise the wage to $8.15. The subsidy would phase out
gradually at higher levels. A worker earning $11.50 an hour would get a
small subsidy; a worker earning $12 or more would receive no subsidy at
Mr. Phelps argues that his plan -- which, in his view, should
entirely replace the welfare and food-stamp programs -- would draw
hundreds of thousands of discouraged workers into the labor market. In
turn, he says, that would reduce the cycle of self-destruction that
afflicts many poor neighborhoods. He predicts that violent crime and
prison costs would substantially decline.
William P. Quigley, a professor of law at Loyola University New Orleans
and the author of the recent Ending Poverty As We Know It:
Guaranteeing a Right to a Job at a Living Wage (Temple University
Press), believes that Mr. Phelps's plan is worth trying. "Every one of
us in this country is already subsidizing Wal-Mart for its employees,"
he says. "Family members, churches, and nonprofits provide housing and
medical assistance to help low-wage workers get by. It would be a lot
better to do it formally."
Private wage subsidies are vastly preferable to government-created
jobs, Mr. Phelps says, because an employer-of-last-resort system would
reduce workers' attachment to jobs in the private sector. He writes in
his book that employment policies' goal should always be "to permit the
broadest possible integration of disadvantaged workers into the
business of society, which is the activity of the private sector."
The most common objection to Mr. Phelps's plan is that employers would
somehow play the system and reduce the wages they would otherwise offer
to their employees. Jared Bernstein, a senior economist at the Economic
Policy Institute, a liberal think tank, says that it is a mistake to
assume, as Mr. Phelps does, that wages always clearly reflect a
worker's value to the firm. "That's certainly right some of the time,"
he says. "But it's not right all of the time. It also depends on things
like workers' bargaining power. So there is a real danger that this
system would wind up subsidizing low-wage employers. That's very
Mr. Phelps replies, "It makes no sense to imagine that employers can
just hang on to whatever they want to hang on to," he says.
"Competition will pull up wage rates to the level dictated by the
This proposal, too, is not likely to be enacted by Congress any time
soon. France and the Netherlands have, however, recently enacted
policies that echo features of Mr. Phelps's plan.
Show Me the Money
In the view of many economists, all three proposals are deeply
misguided. "If we go through the history of the United States," says
Walter E. Williams, a professor of economics at George Mason
University, "it is a history of poor people coming to the United States
without a pot to piss in or a window to throw it out of, and still
they've made it into the mainstream of American society. In the 1840s,
when Irish people fleeing the potato famine landed in New York or
Boston, there was no welfare program.
"The other question," Mr. Williams continues, "is where in the world is
the subsidy going to come from? It's not the Tooth Fairy or Santa Claus
that's going to provide the subsidy. Taxes are going to have to
increase, or there will have to be spending cuts somewhere else."
But the plans' proponents insist not only that their proposals would
reap savings in prison and other social costs, but that structural
reform is overdue. "Say that we have this problem of chronic
unemployment," says Mr. Wray. "It would be one thing if that burden
were equally shared across society. But it's just beyond dispute that
the burden is not being equally shared. People of color suffer more,
the less educated suffer more. And if you're out of the labor force
over the long term, you just basically have no chance."
Section: Research & Publishing
Volume 50, Issue 19, Page A14
© 2004 by The Chronicle of Higher Education