Greatra Mayana

Career & Employment Opportunities

Lecture 24: Unemployment, Re-employment & Income Security

– Today we’re gonna talk about Unemployment, Reemployment,
and Income Security, or income insecurity as the case might be. So, let’s start with some something to get our attention focused on that question. – [Narrator] We’re hauling
20,000 pounds of freight down the Florida Turnpike in a self-driving, robotic truck. It’s been retrofitted
with a self-driving kit made by Starsky Robotics. Kartik Tiwari and Stefan Seltz-Axmacher founded the company in 2016. – We think that sometime
towards the end of the year, we could be doing this run without a person behind the wheel. – This year?
– Yeah. – Self-driving trucks this year? – Yep. – [Narrator] And if it’s not
his company, it might be OTTO, whose truck made headlines last October by driving itself across Colorado to deliver a shipment of beer. OTTO is owned by Uber, which has also been
testing self-driving taxis in Pennsylvania and Arizona. But here’s the thing. Once our trucks and
taxis drive themselves, what will happen to the people
who used to do those jobs? In the US, that’s 180,000 taxi drivers, 600,000 Uber drivers, and three and a half
million truck drivers. – We really need to start to think very seriously about this. – [Narrator] Martin Ford is the author of “Rise of the Robots”. – [Martin] This is it. – [Narrator] He says
driverless cars and trucks are just the beginning
of a wave of automation that will threaten millions of jobs in every industry at once. Like America’s nearly five
million store workers. – The cashiers are totally gone. You’re gonna end up with
the equivalent of a Walmart with a handful of employees. You scale that out, and that’s just
extraordinarily disruptive. – [Narrator] You name an occupation and there’s somebody considering
a robot to take it over. – Look how delicate.
– Perfect every time. – [Narrator] At Zume
Pizza in Silicon Valley, four specialized robots
help make the pizza. Eventually, the company plans to replace the remaining humans on the line too. The common wisdom is that
robots primarily threaten repetitive, blue-collar jobs. “Not so,” says Martin Ford. – We’re seeing dramatic advances in the area of computers analyzing tumors, recognizing medical scans, mammograms, and being able to find disease. We’re seeing algorithms moving to areas like journalism, for example.
– Wait, wait wait. Certainly not journalism. – Oh yeah, absolutely journalism. By one account, every 30 seconds there’s a new story published on the web or maybe in a newspaper
that’s machine-generated. – [Narrator] Algorithms
are even threatening the masters of the universe. Earlier this year, BlackRock, the world’s largest money manager, announced that it’s laying off
dozens of human stock pickers and replacing them with robots. By 2025, across the financial industry, artificial intelligence
is expected to replace 230,000 human workers. – Bring on the disruption
that is automation. – [Narrator] Elisha Wiesel is
the chief information officer at Goldman Sachs. The company now hires nearly
as many computer engineers as financial workers. A quarter of these people aren’t traders. They’re coders, writing
software to automate the routine grunt work of
employees all across the company. According to one recent study, 47% of American jobs could
be lost to automation in the next 20 years. – I’m sure 20 years from now, almost no one will be driving a vehicle. Young people are forward
looking and they say, “Well, I guess I’m not
gonna have a driving career, “so I’m not gonna go there.” – Well, except that these
young people might think, “Well, maybe I’ll go into retail,” but that’s also going away. “Well, maybe I’m be a chef,”
but that’s also going away. “Well, maybe I’ll be a paralegal,” but that’s also going away. – So, let’s do the
following thought exercise. It’s the year 1900, and 40% of all employment
is in agriculture, right? And so some twerpy economist from MIT teleports back in time
to Farmer Pogue here and says, “A hundred years from now, “only 2% of people will
be working in agriculture. “What do you think the other
38% of people are gonna do?” – Well, I wouldn’t know. – Would you say, “Oh,
search engine optimization, “health and wellness,
software and mobile devices,”? Most of what we do barely
existed 100 years ago. – [Narrator] In other words, just because we can’t
predict what we’ll be doing doesn’t mean we’ll be doing nothing. – So, there you see the great debate that is now being fostered
among economists and others about the likely effects of automation. On the one hand, there
are people who are saying this is a fundamentally new
development, that these, that essentially all
employment is going away and there’s gonna be
nothing for people to do. On the other hand, you
see people say, “Well,” as was said at the end in
the last part of that clip, “In 1900, if people had had to speculate “where everybody who was
gonna be put out of work “in the agricultural
economy was gonna wind up, “they wouldn’t have had any
idea as to where they would go.” And so just as all kinds
of industries have emerged over the course of the last century that nobody could have dreamed
of at the beginning of it, so the same thing will
happen in the next century, and there will be all
kinds of new employment. Life has more imagination than us. People will innovate in new ways, with techniques we can’t even consider. And that is certainly
gonna be an open question, not a debate we would
settle in this course, let alone whether anybody
else can settle it. What is clear, though, as I’ve emphasized in previous lectures is that the idea of long-term employment security has gone away. And so our agenda today, whether people are gonna
ever get new employment or they’re gonna work through a series of up to 13 of 15 or 20 jobs
over the course of a lifetime, the idea of a continuous stream of income from one job that people get upon finishing their formal K through 12 or perhaps K through college
education has gone away. And so our agenda to day
is how to think about the best responses to endemic
and permanent wage insecurity. But I wanna do it with one
eye on last Tuesday’s lecture. We wanna think not only
about the economics and the ethics of what we want to consider as desirable policies but also the political feasibility. Where is it likely that
we can build coalitions to actually implement
the sorts of policies that might be desirable and then find the resources for them, the proximate goals to make
sure they move steadily forward, the entrenchment to stop
them from being undone, and the leadership to put together and hold together the
coalitions to do that, along with a moral narrative that will be compelling to people and can head off potential
blocking coalitions. So, we wanna keep all of that in mind. And I’m gonna talk about
four different topics in connection with this. The first is an idea that
has actually been around since the 1970s. Then this is the idea of UBI. That used to stand for
unconditional basic income. Now refers to the idea of
universal basic income. But this is the idea that people should be given
some kind of financial grant unrelated to work,
unrelated to employment. Second, we’ll focus on minimum wages and the political pressure
to put up minimum wages in response to employment wage stagnation and the
relative decline of wages that we have talked about at some length. Then we will look at something called the EITC, the Earned Income Tax Credit, which is a kind of wage
subsidy that has also emerged in the 1970s and
gets a lot less press, but we, in my forthcoming
book with Michael Grant, think is much more
interesting and promising. And then finally we will
talk about the history and prospects for transitional assistance. There have been programs since the Kennedy
administration in this country to provide people with
transitional assistance in moving from one job to another that have not fared very well, and we’ll talk about why and what the prospects for them might be. So, let’s start by going first to the idea of an unconditional or universal basic income. (gentle music) – Well, there is now,
in Europe and beyond, more interest in the idea of
an unconditional basic income than there has ever been
in the history of mankind. Why? Some people say it’s because we predict more automation, robotization. There is some truth in that, but this is combined with a greater uncertainty, greater doubts
about the feasibility, the desirability of what
has always been offered as the central answer to
the problem of unemployment by both the right and
the left, namely growth. And so if we think that growth is either, continued growth is either
not possible or not desirable and that anyway it hasn’t lost
the problem of unemployment despite all the growth we’ve had, then it’s high time to
think about something else, think seriously about an
unconditional basic income. A floor instead of a safety net. Something that would be a
central element in any project for a free society and a sane economy. (gentle music) – So, that is Philippe Van Parijs. He is a Belgian political philosopher who has been championing
this idea for some time. He runs something called the
Basic Income European Network, since renamed the Basic
Income Earth Network. Was originally formed in 1986. The book in which he developed this idea was called “Real Freedom for All”, it’s the subtitle, “What (if anything) can
justify capitalism?”, which he published over two decades ago. And he’s a Rawlsian political philosopher. You might call him a
sort of left Rawlsian, and he took off from the core
insight in John Rawls’s work, in John Rawls’s work
“A Theory of Justice”. And this is a, in the first instance is a philosophical argument
for the idea that people, every human being in a society should be entitled to an
unconditional basic income. And so what Rawls did, and what was considered
to be revolutionary and is at the analytical core
of his “Theory of Justice”, was he said, “Well, think
about the differences “in capabilities between us.” Some people say, differences
in IQ for example. Some people say it’s all about genetics. Some people say it’s
all about environment. And there, usually, there are these big, ideologically charged fights. Is it genetics, is it not? Are there IQ differences
between different ethnic groups, provoked Charles Murray and others, got into these hugely charged, ideological fights over this question in recent decades. Rawls says, “If the differences
between us are due to nature “well, then it’s luck
in the genetic lottery. “If the differences between
us are due to nurture, “then it’s luck in where
you happened to be born.” Either way, it’s morally arbitrary. After all, you didn’t choose to have the genes that you’ve got, and you didn’t choose to
grow up in the country, never mind the family that
you found yourself in. You were either born into
or perhaps adopted into, it’s nothing to do with you. And so the debate about
nature versus nurture as to what people are entitled to is really beside the point. And this is sometimes called
luck egalitarianism because Rawls made an argument on that basis for the proposition that all
the differences between us are morally arbitrary and we should think about
principles of justice that take account of
that moral arbitrariness. And he developed his own theory, which need not concern us here, the bottom line of which was that inequalities can only be justified if they benefit the least
advantaged people in the society. And he thought that that would trickle up, a kind of Keynesian story if you like, and that would benefit everyone. So, Van Parijs had a slightly different take on this Rawlsian insight. He said, “What it means is that
everybody should be entitled “to an unconditional basic income “at the highest sustainable level.” Be up to political economists
to figure out what that is, but that’s what we should
all be entitled to. It should have nothing to do
with our capacities to work at different levels of productivity. Should be independent of work. And so this was the egalitarian case for as high as sustainable an unconditional basic income. This generated a huge
debate among philosophers. Nobody paid a great
deal of attention to it outside of the academy, and, indeed, a fatal objection
was launched, eventually, by a philosopher called Susan Hurley in a critique of Rawls in which she said, “Well, you know,”… This is, I put the
quotation up on the board, but the gist of it is the following. She said, “Well, it may be true “that the differences among
us are morally arbitrary, “whether it’s genetic luck “or luck in the lottery of
where we happen to be born “and so no one is, “in some natural sense,
entitled to what they produce, “but why should that
create any presumption “in favor of an equal distribution? “It could just as easily create
some different presumption “in some people’s minds.” And so the gist of Hurley’s point was, actually, it doesn’t justify
any distributive presumption, including, perhaps, that we’re entitled to the fruits of our individual labor. I’ll come back to that. So, it no more justifies a
presumption in favor of equality than a presumption in favor
of any other distribution. A case will have to be made, and so it doesn’t follow sort of in any pristine, analytical sense that we should be entitled
to have a distribution that works to the benefit
of the least advantaged, in Rawls’s case, or in Van Parijs’s case, it doesn’t follow in any
analytically tight sense that everybody should be entitled to the highest possible
sustainable income. And so the normative case for this strong egalitarian
presumption sort of goes away. Now, you might say,
“Well, that’s all true,” but particularly in light of what we’ve been
discussing in this course, there might still be a powerful case for a universal basic income. Not, perhaps not the highest sustainable universal basic income, but, nonetheless, it’s
something that would give everybody a cushion. It would enable people to deal with the vicissitudes
of employment markets and the vagaries of secure jobs that we
have been attending to. And, indeed, one of the
presidential candidates, who has just made it into
the debates last night, is a strong proponent of a UBI. So, let’s give him a little more air time than he got last night.
(students laughing) – And you’re running for
president based on this issue of UBI, universal basic income. What is a universal basic income? What is your plan? – Universal basic income is a policy where every member of a society,
let’s say every American adult, receives a certain amount of money to meet his or her basic needs every month. And my plan, the Freedom Dividend, is that every American
adult would receive $1,000 per month, free and clear. – [Interviewer] $1,000 per month, every American over the age of… – 18.
– 18. This, to a lot of people,
is gonna sound like a completely nutso idea. So, just to be clear, has the US ever, has any government body in
the US, existing or past, ever done anything like this? – Well, a law essentially
identical to this passed the House of Representatives in 1971 under Richard Nixon. Martin Luther King was for it,
Milton Friedman was for it, and a thousand economists signed a letter saying this would be great
for the economy and society. And then a number of years later, Alaska passed something identical to this in the form of the Petroleum Dividend, where everyone in Alaska today receives between one and two
thousand dollars a year, no questions asked,
from the petroleum fund. And if you think about this for a moment, Alaska’s a deep red, conservative state, and the Republican governor made this case to the Alaskan people. He said, “Who would you
rather get the oil money, “the government, who’s
just gonna screw it up, “or you, the Alaskan people?” And the Alaskans said, “Us.” And then now the Petroleum
Dividend is wildly popular. It has increased children’s, it’s improved children’s
health and nutrition, it has created thousands of jobs, and no one can touch it. And that’s been in effect for 36 years. So, if you think about it, what is the oil of the 21st century? The oil of the 21st century is data, AI, autonomous vehicles,
and advanced technologies, and that’s how we’re gonna pay for our Freedom Dividend
for all Americans. I want everyone here to reflect. Why is Donald Trump our president today? And the reason why Donald Trump is our president today is this. We automated away four
million manufacturing jobs in Michigan, Ohio, Pennsylvania,
Wisconsin, Missouri, Iowa. All of the swing states
that he needed to win. And now we’re about to do the same thing to millions of retail
jobs, call center jobs, truck driving jobs, fast food jobs, which are unfortunately the four most common jobs in the economy. I have many friends in Silicon Valley who are working on this, who know full well that this
trend is about to accelerate. So, if we don’t wake up and start implementing
meaningful solutions to the fact that we are going
through the greatest economic and technological transition
in the history of the world, then we are doomed to much,
much worse than Donald Trump. (students murmuring nervously) – So, that is Andrew Yang’s platform. And he makes some very,
very convincing points. And if you think about it, if you have a universal basic income, it can also have a desirable effect on relations within firms. And this goes back to our
old friend Albert Hirschman. If you think about… If you think about a world, so, where there’s a continuum from what we might call
a Dickensian nightmare, where there’s no social
support of any kind for people who lose their jobs, and at at the other hand
a surfer’s paradise. I use the term surfer’s paradise because one of Van Parijs’s famous lines was that even surfer’s should be paid. So, surfer’s paradise,
it’s Van Parijs’s utopia. So, you should, you
could then think that the power relations within the workplace are greatly affected by where
you are on this continuum. Because if you are living
near a Dickensian nightmare, where the costs of losing
your job are extremely high, and your employer says to you, “I wouldn’t mind a cup of coffee,” you’re gonna scurry off
and get that cup of coffee and come scurrying back quickly, whereas if you are closer
to the surfer’s paradise and you could walk away from your job, you might say, “Well, go
get your own coffee,” right? And so there was a thought, there was big literature
in the ’80s and ’90s which basically said that if you, rather than trying
to have the government produce more democracy within firms to protect workers from
exploitative practices, it would be better to just
decrease the exit costs and then they’ll have to treat you better. Just as, for example, at Yale, in 1992, the Supreme Court ruled that compulsory retirement was
illegal, age discrimination. And so the interaction of tenure and the abolition of compulsory retirement created a huge problem for universities. And until that time, universities had treated
emeritus faculty with contempt. They had pretty much ignored them. Once you were out of here, you were out of sight, out of mind. In order to get them to leave, the superannuated people like me, they had to start coming up with much better retirement packages to reduce the exit costs from employment. They had to start treating
emeritus faculty better. They built a building where
they can have offices, they gave them email accounts,
and so on and so forth. So, if your exit costs are very high, you’re much more vulnerable within a firm than if your exit costs are low. And so some people even
argued, and I was one of them, that you might be able
to get business support for a much more robust social wage, giving people benefits that
are not tied to their work, if you, on the other hand, also promise business less regulation. So, you’d say, “Well, if,”… There were debates
about this, for example, in the European Union that in countries that didn’t supply a lot
of worker protection, maybe the social chapter
should provide stronger, stronger appeals processes when workers are abused and so on. And the idea was that
since what business wants is flexibility at the plant level, you could try and get business support for a coalition to increase social wages, the quid for the quo being that they would get less
regulation in the workplace. It would be easier for
them to lay-off people because it would be less
catastrophic for the people and so on. And so I and others pushed
these kinds of arguments. The difficulty with them was
political, for the most part. That because of the declining
power of labor anyway, the notion that business had any incentive to get behind these
proposals was pie in the sky. And so they were stillborn, and it’s very difficult
to make the case today. It might, nonetheless, be
true that we should think that UBIs now is an
idea has time has come. But why does it get so little support? Now, you can get polls. You can run polls where you can get 48% of the American public to
say they’re in favor of it, but they’re standalone polls
that don’t say anything about the costs or how it would be funded. And if you look at efforts
to actually produce it, you find that people are very resistant to this idea of writing checks to anyone that are completely unrelated to work. Why might that be? Why might that be? – [Student] American work ethic. – Work, there’s a work ethic. So, what is a work ethic? (multiple students responding) We must bootstrap ourselves up. This idea that people
get something for nothing or that they haven’t done, they haven’t made the requisite
effort is extremely strong. It’s something that political theorists sometimes call the workmanship ideal, this idea that when you… Working for something creates, it creates an entitlement over it, and because you know that, it gives you the incentive to work hard. And, indeed, if you go back
to the John Rawls’s argument that I mentioned at the
outset, he realized, not surprisingly, he was
a very intelligent guy, he realized that his moral
arbitrariness argument was sort of at war with
the work ethic, right? Because if you say nature,
nurture doesn’t matter, however you got your
skills and capacities, it’s all morally arbitrary. You don’t deserve, none
of you Yale students deserve to be here, right? There’s no reason. You just got lucky. And you wanna say, “No, I
worked hard to get to Yale.” And so Rawls had a kind of cop out, that he said, “Well,
yeah, the distribution “of our capacities and
skills is morally arbitrary, “but the, what we choose
to do with them is not.” So, if one person decides
to work hard every day and has got lots of Protestant work ethic, and the other one sits on the
couch watching ESPN all day, then the one who worked choose, even if they have the same capacities, the one that chooses to work harder is deserving of their
differential benefit. But, of course, that and
two dollars and 75 cents might get you a seat on
the New York City subway. Because the capacity
to use your capacities is also morally arbitrary,
arbitrarily distributed. If one person has parents who pump the work
ethic into them a mile a minute and gets, teaches them, sits
and does homework with them every night for 15 years and so on, that’s very different from a parent who’s maybe in an alcoholic
daze, ignoring their children. And so the one child grows up with the capacity to use their capacities much better than the next person. And, indeed, maybe the
capacity to stick at things even has a genetic component. Some people may be genetically
more able to focus, all the research on
attention deficit disorder and all of that. So, Rawls’s answer is just a way of avoiding the
problem that he’s identified. And so here’s the funny thing about Rawls, and when I teach this in
political philosophy classes we spend a lot more time on it, but what you find is almost nobody can see anything wrong with Rawls’s moral arbitrariness argument except for his cop out, which any smart student can
shred in a matter of minutes. But nobody really wants
to go all the way with it because it threatens the very idea of individual responsibility, right? Because how can you hold
anyone responsible for anything if even our capacity to behave responsibly is distributed in morally arbitrary ways. And so even though it is true that our capacities to do things are distributed in morally arbitrary ways, people don’t like to live
with that implication. Even if it’s true that some
people got a lot of help from whoever it is,
Sunday School teachers, that other people didn’t get and more diligent parents and so on, people do not want to live
with the implications of that. And if you want a political
illustration of that, think back to the firestorm
in the 2012 election when President Obama took the Rawlsian position
without the Rawlsian cop out. – If you were successful,
somebody along the line gave you some help. There was a great teacher
somewhere in your life. (crowd cheering) Somebody helped to create this unbelievable American
system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you got a business, that, you didn’t build that. Somebody else made that happen. – So, all hell broke
loose, as you might recall. Here’s just one of a million ads you could’ve found in response. – To say that Steve
Jobs didn’t build Apple, that Henry Ford didn’t build Ford Motor, to say something like that
is not just foolishness, it’s insulting to every entrepreneur, every innovator in
America, and it’s wrong. – My father’s hands
didn’t build this company? My hands didn’t build this company? My son’s hands aren’t
building this company? Did somebody else take out
the loan on my father’s house to finance the equipment? Does somebody else make payroll every week and figure out where it’s coming from? President Obama, you’re
killing us out here. Through hard work and
a little bit of luck, we built this business. Why are you demonizing us for it? (energetic music) We are the solution, not the problem. It’s time we had somebody
who believes in us. Someone who believes that achievement should be rewarded, not punished. We need somebody who believes in America. – So, it didn’t turn out
to be Mitt Romney, this, but it is a portent of
things to come because this ad was used to reinforce the perception of sort of
“Let them eat cake” elites, that he was sitting there in
the comfort of the Oval Office, saying, “You didn’t build that,” and denying the efficacy
of the work effic, of the work ethic. And so you might say it’s a difficult case to make. Nonetheless, you might have thought, “I missed something here,”
because, as Andrew Yang says, not only is he pushing this idea now but he noted that people like Charles Murray are supporting it and, indeed, Milton Friedman has supported a universal basic income since the 1970s. But they have a slightly
different thing in mind. So, here’s Murray’s take on it. – The basics are this. At the age of 21, every American starts to
receive a monthly deposit electronically to a known
bank account of 13,000 divided by 12. 13,000 is the total basic income, of which 3,000 must be
devoted to healthcare. So, you have 10,000 of disposable. I think if we simply add that on to the current benefit
system, it’s not affordable, but what if it replaces everything else? There’s no more Medicare, no
more health, Social Security, there’s no more welfare, there’s
no more corporate welfare, there’s no more agricultural subsidies. I can go through the
whole list of transfers. There’s none of that stuff and there’s also none of the bureaucracies that administer it. You have $10,000. And you say, “Well, you
can’t live on $10,000.” Well, if you really wanna
live all by yourself, no. You’ll probably, you’ll live a pretty crubby existence on $10,000. You get a minimum wage job, just a minimum wage job, and you work 2,000 hours a
year at, let’s say, 7.50, that’s $15,000 plus 10, that’s $25,000. Yeah, that’s well above,
way above the poverty line. Well, suppose for some
reason you can’t work or let’s suppose you don’t wanna work. You can still have a decent
existence if you’re cooperative. If you’re cooperative
enough to convince a friend, a girlfriend or boyfriend, a relative, or something else to pool your resources, if you just do it with
two people, you got 20 with no working whatsoever. You got 30 if you got three people. You add a little bit of income and you’re in the middle class. That $10,000 given to everyone has a huge effect on their ability
to live a decent existence by doing reasonable things. Right now, we claw back
benefits at a very low rate, so that if you’re on
food stamps and Medicare and you take a job, you very soon face a very
punitive loss of benefits. I say, look, you keep your entire 10,000. We don’t claw back a cent of it until you have 30,000 of earned income. – So, there you have it. The conservative case for
universal basic income is something that would replace
the entire welfare state. And if you look at the way
this has been costed out, the Center on Budget and Policy Priorities in Washington, DC, which is a think tank, estimates that giving everybody a 12,000, he says 13, taking three
out for medical care, but at the 12,000 minimum wage that somebody like Andrew Yang is pushing would cost three trillion
dollars to fund per year. And even if you got rid of
Social Security and Medicare, that would not be enough to fund it. And so if you start to think about what would the political
coalition for this actually be, it dissolves before your eyes because the AARP would quickly become a leader in the opposition to this. You could think about universe, hospitals, hospital interest
groups and administrators. All kinds of people, public interest groups
protecting welfare benefits, would rapidly start to oppose it. And it’s also worth saying
that if you look at where there have been efforts
to institute universal unconditional basic incomes elsewhere, they haven’t fared much better. So, setting aside
something like the Alaska sort of windfall benefit or the Norwegian, the Norwegian Sovereign Wealth Fund that’s been funded by their oil, which is a different idea. It’s a sort of… It’s a sudden… A sudden benefit occurs and
there’s a notion to take, to spend it on the whole community. But if you think in general, in Switzerland they had
a referendum on a UBI and it went down massively and, by the way, was strongly
opposed by labor unions, as you might suspect if
you start to think about it because it would erode labor
unions’ bargaining power. In Finland they had a modest experiment, a selected experiment with UBIs to see what impact it would have and abandoned it after a few years. So, the notion that even
though it might appear that you could get a great deal of support for a universal basic income and it seems like it might
not be such a bad idea from a variety of perspectives, I think that it’s a tall order
to think your way through a political coalition that
could effectively achieve the kind of universal basic income that most people would want and be, certainly would
be willing to accept. Between its sort of frontal
assault on the work ethic that many people regard as necessary to get people to be productive and the fact that it would replace some of the policies that Americans are so
strongly attached to, I think, Andrew Yang,
there’s a good reason why even though he made it
just into the debates, he’s not really getting much
attention for this view. So, I wouldn’t buy a lot
of stock in it right now. Let’s talk about minimum wages. Of course, this doesn’t
help with unemployment, but it certainly would help
people who have been victims of long-term wage stagnation. – The fight for a $15 an hour minimum wage just netted its biggest
victories yet this week. Yesterday, lawmakers in
California voted for a bill that will raise the state’s
minimum wage to $15 by 2022. On Monday, Governor Jerry Brown is expected to sign it into law. Last night, New York
governor Andrew Cuomo said he reached a budget deal, hiking the minimum to $15 in New York City by the end of 2018. Suburbs and other parts of the state would reach that level in 2021. The combined moves could affect as many as 10 million workers. – You know by today, many of the CEOs of the companies that we’re fighting to get
the minimum wage increased on, they have earned as much in the first couple of weeks in January as they will pay these
employees for the whole year. That is not justice.
– That ain’t right. – That ain’t fair, that isn’t right. And we don’t begrudge anyone
their success and their income, but we do begrudge
exploitation of the workers to that extent. – 90% of Americans have not
had a raise for 40 years. – Pay your workers a living wage, 15 bucks an hour. – It is a fight for fair wages. – And so we could find clips of every one of the Democratic candidates now running calling for increases in
the minimum wage, at least, at least $15 an hour being phased in or not. So, and this has been a constant
theme of American politics that the Democratic party tends to fight for increased minimum wages, and there are efforts, constant efforts to increase
minimum wages in urban, within city and state
legislatures as well. But there are a lot of difficulties with minimum wages as
policy, when we think. It’s very easy politics, as
you can see, to make that case, at least from the perspective of the base of the Democratic party. One question is, well, who actually pays for increases in the minimum wage? It might well be the case that the cost of the increased wages is simply passed on in
increased prices with the, by the companies that have to pay higher wages. And, indeed, there was a interesting effort to raise minimum wages in Los Angeles a couple of years ago, and we did some interviewing of employers because the local Employers
Association was supporting it, and they reasoned two things. One was the money would be spent
in their stores in the city so that it would come back, but also that it would be
possible to increase prices. So, it’s not clear who
benefits in that sense. But more indirectly, if
you’re thinking about what are the effects
gonna be on employment? And here we have to think about whether you’ll get higher
minimum wages for some at the expense of lower
employment in the economy overall. And in some counties, this
takes on very extreme forms. In contemporary South Africa, as I think I have mentioned to you, where they have very strong protection of wages in the formal sector, they have extremely high levels of unemployment in the informal and very different, much lower
wages in the informal sector. And, furthermore, they have hemorrhaged jobs to places like Lesotho and textile jobs even to China. And so there’s a real cost, if you like, of increasing minimum wages from the standpoint of employment. And particularly now, when we’re thinking about the temptations to go to automation, raising minimum wages might have even more deleterious effects on employment. I think I described to
you the Nike factory I visited outside Ho Chi Min City, and one of the notable
features of that Nike factory was it was extremely labor intensive. They were using technology that was maybe 30 or 40 years old. But the reason was that wages were low. If you start to ramp up wages, the incentive to send more jobs to robots will become stronger. So, the impulse to improve minimum wages is completely understandable, but it has these costs. Moreover, in a federal
system like we have here, if you increase minimum
wages in one state, it creates an incentive for employers just to go to other states. Just as if you have strong
union contracts in one state, such as the auto workers
unions in Michigan, the employers can simply
move to Tennessee. So, that’s, there’s a kind of internal race to the bottom problem. And if you have a federal
minimum wage, you can avoid that, but only at the price of
contributing to outsourcing, the flying geese problem and so on. In an era when capital is very mobile and can produce things
in anywhere in the world, propping up minimum wages in one place is water flows around a rock and it’s just gonna flow somewhere else. So, it feels like a stop-gap solution. It’s also worth pointing
out, on the politics front, how difficult increasing
the minimum wage is. For example, we talked earlier about the estate tax in the US. When the estate tax was made permanent in the 2013 legislation, the threshold at which you pay
it was indexed for inflation, so now it keeps going up. Nobody has ever managed
to index the minimum wage, and it has, that’s why it
hasn’t been put up for years. There’s very powerful resistance, and I think that reflects
the relative weakness of organized labor in getting those kinds of
things entrenched, if you like. So, even if we get, we
have a five year campaign to get the minimum wage to $15 an hour, it probably will have been
eroded by inflation by then and a new campaign will have to be, have to be instituted
to get it raised again. The idea of in 1988, Bill Bradley, when running for the
Democratic nomination, ran on the platform of
indexing the minimum wage to the median income,
got nowhere politically. A very difficult sell. Now, you could say, “Well, okay, “so if there’s a race to the bottom, “what we need to do is
raise the bottom,” right? And so can we think about
global minimum wage? And there have been people
who have, and even movements, that have committed themselves to this. A man called Sullivan, who was famous for the Sullivan Principles applied to American, he was a pastor and the Sullivan Principles were applied to American corporations doing business in apartheid South Africa. And the Sullivan Principles were, they tried to force all the multinationals operating in South Africa to say they wouldn’t do business in South Africa except on these terms, which defied some of the
worst features of apartheid. They were quite successful. He subsequently got behind
various other campaigns to drive up wages in very poor countries. And, of course, there’s
some precedent for this. If you look at the ILO, the International Labor Organization, they have created
international labor standards, and, for example, in the 1984 Trade Act, the federal government said they will not trade with countries that don’t meet certain labor standards. In the… When the Bush admin, the
Bush Senior administration negotiated the NAFTA agreement and then Clinton came in, it’s true that he signed the legislation, but not before so-called
labor side agreements had been added to the, to NAFTA which said that countries had to meet certain minimum wage and labor standards if they were going to trade, sell their products in the US. And so there are these efforts, and they often involve sort
of publicity campaigns. There was huge publicity attacks on Nike for their labor practices in sweatshops in Malaysia and elsewhere that actually had a pretty good effect on Nike jacking up their wages, and Nike became an advocate
of pushing for increases in global minimum wages. And I, in an earlier book, spent some time exploring
the prospects for this, but they’re very, very difficult
to achieve politically. And even in poor countries, they can have deleterious
employment effects if the country’s sufficiently poor. So, it’s not that it’s a, it’s not that it’s a terrible idea, but if you start to think about building and sustaining coalitions
that gonna be able to do this in an era of highly mobile capital, again, it’s not an idea that is likely to have much effect. And certainly, if you look
at the amount by which minimum wages have been increased as a result of these
campaigns in countries in East Asia and Southeast
Asia, they’re minuscule from a perspective of having
any effect on American wages. It’s very unlikely that
they’ll be able to do that. So, this is the difficulty
with minimum wages. It’s an idea that is obviously appealing. It’s very, it’s an easy soundbite. You see all these Democratic
candidates running on it. But in terms of having an actual impact, it seems like it’s not gonna do very much, and it’s certainly not gonna affect the stability of employment. So, let’s talk about the
Earned Income Tax Credit. This is a much less well
known about phenomenon and although ideas of this kind have been around for a long time. Indeed, in Britain in the 19th century, there was a poor law system
called the Speenhamland system, which was essentially a
subsidy of very low wages to keep people out of poverty. So, it’s a subsidy to business, but it’s paid to the worker, okay? That’s how the Earned
Income Tax Credit works. And, interestingly, it was signed into law by President Ford in 1975, although it had begun its life
in the Nixon administration and he had been overtaken
by events, but… (students laughing) The program survived, nonetheless, and it started out very small. So, the first Earned Income
Tax Credit worked like this. You got a 10% credit for the first $4,000
of your earned income, and it then was phased out after $8,000. So, the idea was that if your credit exceeded the amount of tax you owed, the government would write you a check for the difference, right? So, this is the idea of the
Earned Income Tax Credit. That’s, economists say it is refundable. That’s what a refundable credit means, that if it falls below zero,
you don’t stop getting it. The government actually writes you a check for the difference. And so it took a lot of people
off the tax rolls entirely, and then people would
start to get a check. Now, you might say, “Well,
the numbers were so small.” Furthermore, originally it was for single mothers with children only, but here we should call back the language approximate goals that I talked about last time. A very important book called
“The Hidden Welfare State” by a man called Christopher
Howard was published in 1985, in which he talked about the
world of tax expenditures. This is a classic expenditure. It’s not seen as a transfer
payment in the budget. It’s called a tax expenditure. It’s an expenditure
through the tax system. Even though the great majority of it is the government actually
writing checks to people, it’s not tax refunds because of the refundable character of it. So, “The Hidden Welfare State” is the world of tax expenditures, and his book gives chapter and verse
of the little-known truth that the hidden welfare state is actually as big as the welfare state, as the visible welfare state. Because what tends to
happen with tax expenditures is that they start out small
and then they grow over time, and so it’s a kind of get, don’t worry that it’s small to begin with. Get your foot in the door
in the dark, as it were, and then push to open
the door further later. And an interesting feature is that the, the EITC has had strong
bipartisan support from Republican and Democratic administrations and has been expanded numerous times. By 2017, it was costing
the federal government more than 70 billion in wage subsidies to more than 25 million families, and it doesn’t now phase out
completely until $50,000, which is above the median income. So, it’s 25 million families. You’re talking about 100
million people probably, close to it, are being supported, in some measure, by the Earned Income Tax Credit. They’re either getting a tax deduction or they’re actually getting a check from the federal government. Now, this is… This is not chump change, right? Another feature of it
that is very appealing is that it’s very cheap to administer. You don’t need a new, you don’t need a new
bureaucracy to administer it. It’s administered,
basically, by the IRS, right? You don’t need a whole department of the Earned Income Tax Credit. So, that’s an additional feature of it. And also, it has a very interesting set of incentives attached to it, which is, unlike a minimum wage which creates the incentive
of race to the bottom, this actually creates an
incentive of the race to the top. Because if you have state
EITCs, as many states do, what’s gonna happen is if you, if a particular state offers a better, a more generous EITC than a
different state, all else equal, the company will move to the state that has the better EITC benefit because it’s a wage subsidy. It’s a wage subsidy but it’s, so it’s making things
cheaper for employers and so it can be a magnet for firms rather than a disincentive for firms to move into your state. So, this is a hugely
appealing feature of it from the standpoint of
avoiding the race to the bottom and, on the contrary, creating
an opposite incentive. Another desirable feature of it is that while it is a subsidy to the firm, it’s paid directly to the worker. And if you think about that rather than, say if you look at the infrastructure bill that the Congress adopted last year with tax breaks for firms
that invest in infrastructure, one of the stock critiques
is it’s very difficult to make sure they actually
make those investments in the infrastructure. They do the planning in
R&D and the planning, and there’s money paid to consultants, and maybe they do it or maybe they don’t. Or if you think about
place-based incentives to firms to move to different areas, there’s lots of criticism of
them by economists that they, that they lead to a lot of clientelism and corruption and so on. When your payment is going
straight to the worker, there’s no, there’s a much
smaller possibility of that. Now, economists will still object that this is distorting labor markets, and some people think
it’s morally obnoxious because it’s giving firms
incentives to pay lower wages, and it does give firms
incentives to pay lower wages. Nonetheless, you can
see the potential here for a coalition. And, indeed, business has tended to like the Earned Income Tax Credit. I think that it’s one reason why Republicans have tended to get behind it. And certainly in the last decade, the increases in the EITC
are by far the biggest increase in downward
redistribution that we have seen at the hands of the federal government. This is, I think, genuinely is an idea that has time has come, and you should think about the likely expansion of the EICT, EITC as a way of generating employment and increasing wages that is going to have more rather than less of a future. Of course, it is, the
other reason Republicans are willing to get onboard with it is that it’s linked to work. There’s no, this is unlike the, unlike unconditional basic income. You only get it if you actually work. Nonetheless, employers can keep wages low, knowing that they’re gonna get the subsidy for providing the employment. So, I wanted to spend
our final few minutes talking about unemployment
and adjustment assistance. Again, I think an extremely
important set of policies in view of the, the insecurity of insistence. Now, unemployment insurance
in America is a very, has a very depressing history. If you go back to the
Social Security Act of 1935, there was a lot of talk at that time of creating a national
unemployment insurance system based on a tax you pay when employed, but there was a strong body of opinion that said the Supreme
Court would strike it down as unconstitutional for technical reasons that needn’t concern us. So, instead what we got
was unemployment legis… The unemployment system was created as part of the Social Security Act, but essentially it’s a kind of unfunded mandate on the states, and all the federal government
supplied was some guidelines and some administrative support, and in particularly extreme circumstances such as the Depression or
after the financial crisis, the government, the federal government will make lump sum contributions to sort of prop up unemployment
insurance in the states. But basically, it’s a state-based system. And that immediately has
one very bad feature, which is state legislators do not want to have very generous
unemployment insurance because they worry about the race to them. They don’t wanna be paying it and so there’s a lot of
resistance at the state level. The benefits that they
create, state unemploy, they’re often very short-term, they replace about 40% of prior earnings, and they mostly don’t keep
people out of poverty. There’s particularly low
coverage for low income workers, so it’s not a good country
in which to be unemployed. And, indeed, the short-term
character of the support, the hurdles to getting it, and the prevalence of
longer-term unemployment I was telling about in an earlier lecture may mean that in 2016, only about a quarter of
the unemployed workers in America were receiving benefits, down from over a third in 2007, so, you see there the effects of the long-term unemployment and the difficulties of getting it. And also another thing that’s happening is that more and more long-term unemployment, employed workers are
just choosing to go onto Social Security disability benefits. Applications for disability
insurance have skyrocketed, so they’re leaving the
workforce permanently. Again, it’s a very costly solution to the problem. And because the wages that are taxed to fund unemployment
benefits, there’s a cap, it’s also a very
regressively financed system. So, the unemployment insurance in America is never been robust, it’s difficult to get,
and it’s failing badly I think is about the best
that you can say of it. But there’s a more
interesting set of programs that I wanna end by
spending a little bit of, a few minutes talking about, and this, this is the idea that was known as trade adjustment insurance, trade adjustment assistance, and it was a missed opportunity
politically for the, because of the way in
which it came to be enacted and then implemented. So, it was adopted in the
Kennedy Administration in 1962. This was an era of trade deregulation, not unlike the era in the post-Cold War, and the Kennedy administration
really wanted to get trade agreements with other
countries to improve trade. And the unions were a lot
stronger then than they are now, and the way the administration
got the unions to support it was to get behind this idea of
trade adjustment assistance. And it was gonna be… It was going to be robust
unemployment insurance coupled with funds to support relocation
and free retraining. And so the AF-of-L-CIO supported it. They supported the Free
Trade Act on the grounds that this would be the quid
for the quo, if you like, to use the language of the week. That we would start to get
this adjustment assistance paid to workers. They would get better unemployment, longer-term unemployment support, and they would get support to relocate, and they would get free retraining to
re-enter the workforce in, in another occupation. It was a huge administrative catastrophe. President Kennedy was assassinated, and when the Johnson
administration came in, they had different priorities, and they were doing civil rights, they were doing voting rights, they were preoccupied
with the Vietnam War, so this was not a high
priority of the administration, and they didn’t set up an
effective implementing strategy for this program. And so throughout the 1960s, actually, not a single claim
for trade adjustment assistance was actually funded. And business had been very
skeptical of this program and had not really supported it, but as the 1960s wore on and the desire for free
trade agreements in many sectors got stronger, business decided that
they liked this idea. But by then, the AF-of-L-CIO had concluded they had been so badly
burned that George Meany, who was it’s head and who had
actually championed the idea, he rechristened it burial insurance, and the unions have since
opposed all free trade measures. And so it’s really a lost opportunity because it was the one
time in American history that American unions had actually been in favor of free trade. A real lost opportunity. And this is an idea that
has really taken hold in some other countries. The gold standard here is Denmark, which supplies 60% of your
lost wages for three years plus huge amounts of retraining for workers to re-enter the workforce. Very tailored to individuals. They spend a lot of resources on it. This to is an area where we argue in “The Wolf at the Door” is an idea whose time has come, but it has to be rethought
in the following, I’ll just finish with this, has to be rethought in the following way. One of the problems with it was that the unions had a lot of
trouble supporting it, not only because they had
thought they had been burned but they said, “Why
should we only help people “who’ve lost their jobs to trade?” Indeed, one of the reasons
it was so hard to get it was you had to prove you’d
lost your job due to trade rather than for some other reason. They said, “That’s unfair “because what about industries
where people lose jobs “that are not due to trade?” And, indeed, in the Reagan administration when they decided to essentially
underfund the program so much as to effectively kill it, Reagan made exactly the same argument. He said, “It’s arbitrary
just to help people “who’ve lost jobs to trade.” Well, in our era, where jobs are probably
increasingly going to technology, as we have heard about,
it should be re-conceived as universal adjustment assistance, and I think it would
be much easier to build and sustain the coalition to protect it. So, what business should fear if they don’t get behind
these kind of proposals is that Andrew Yang will
turn out to have been right. (students laughing) And just, we’ll let… I’ll leave you with this epitaph on the 2016 election, and I won’t tell you who said it until after I’ve read it to you. Trump’s election wasn’t about Trump. It was a throbbing middle finger in the face of America’s ruling class. It was a gesture of
contempt, a howl of rage, the end result of decades of
selfish and unwise decisions made by selfish and unwise leaders. Happy countries don’t elect
Donald Trump president. Desperate ones do. In retrospect, the lesson seems obvious. Ignore voters for long enough
and you’ll get Donald Trump. Yet the people at whom
the message was aims never received it. Instead of pausing, listening,
thinking, and changing, America’s ruling class withdrew
into a defensive crouch, beginning on election night. Well, that’s enough of it. We’re out of time but it’s Tucker Carlson. You might be surprised to know. All right, we will see
you after next week. (bright music)

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