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)