Sharing the Burden
To the scientist, the widespread tendency to accept defeat and quit trying to find satisfactory answers to our economic problems is one of the most disturbing features of the current outlook on economic affairs. It seems almost incredible that the same human race which has surmounted one physical obstacle after another, and is now in a position to claim a substantial degree of mastery over the forces of nature, should surrender ignominiously in the face of a challenge posed by economic institutions of its own making. Yet that is just what is implied by most of the proposals for meeting the unemployment problem that are now receiving serious consideration, and the same defeatist attitude is painfully apparent in many other economic areas.
Because of the Vietnam war and the accompanying inflation, which have kept unemployment at what have been considered tolerable levels for a number of years, the problem receded into the background temporarily, and is only recently resuming a prominent place in the public consciousness. For a survey of thinking on the subject we therefore need to go back a decade to the last period in which it was a subject of general concern. In 1963, for example, the opinions expressed by A. J. Jaffe of Columbia University were cited in Business Week as typical of existing ideas with respect to the employment issue:
A more detailed outline of what may be considered as typical thought on the subject is provided by the following list of solutions to the employment problem most generally advocated at that time by leading authorities on economic problems (from an article in the U. S. News and World Report, 57 with selections from the explanatory comments included in the article).
It is true that we do not often encounter such a forthright and candid admission of defeat as number 8 in this list of most generally advocated solutions: the one that proposes that we should accept unemployment. But most of the other alternatives in that list, as well as many of the other suggestions that are not included in the most generally advocated category, are similar admissions of defeat, differing only in that they try to disguise that brutal fact in one way or another. The great majority of presentday proposals for handling the unemployment situation are not directed toward increasing productive employment; they are simply directed toward sharing the burden of unemployment.
The critical tenor of the preceding paragraphs is not directed at the principle of sharing the burden; it is directed against the acceptance of defeat. If the unemployxnent problem were, in truth, incapable of solution, sharing the cost thereof would be eminently reasonable, and if equitably distributed should not be a particularly heavy burden in this country, as the efficiency of the individual enterprise system is so much greater than that of any competitor that the average standard of living of the community in general, after taking care of liberal payxnents to those involuntarily unemployed, would still be far above that which could be attained under any other economic system thus far developed. And even if we do not concede that the problem is inherently insoluble, sharing the burden as a temporary expedient until something better is available is obviously justified from the standpoint of equitable treatment of all concerned. But to settle for any program of sharing the burden in lieu of a genuine solution of the unemployment problem is pure defeatism.
As soon as we adopt, and put into effect, a full employment program of the type outlined in this work, there will be no more unemployment burden to share, and the primary purpose of the sharing measures now in effect, or currently advocated, will be eliminated. However, most of these programs have collateral aspects of one kind or another which will induce their partisans to continue promoting them irrespective of whether or not they are needed from the employment standpoint. It therefore seems advisable to discuss the most important measures of this type, with special reference to their applicability under conditions of full employment.
The concept of sharing the burden of unemployment by sharing the available work was discussed at length in Chapter IV, and needs no further comment here, except as a matter of emphasis. To the extent that the workers prefer leisure to goods, reduction of working hours is entirely in order, but the whole idea that there is a limit to the amount of work that can be made available is totally false, and reducing hours of work for the purpose of sharing employxnent is a costly mistake. The same is true of all of the other means of enforcing involuntary idleness that are currently in vogue, such as high overtime premiums, mandatory retirement at a specified age, and limitation of the earnings of social security recipients. While it is generally agreed that our economic goal should be a higher standard of living, we deliberately enforce policies which reduce production, the only agency by means of which that higher standard of living can be attained, irrespective of how we define the higher standard. Such glaring inconsistencies as this raise considerable doubt as to the legitimacy of the title sapiens which the human race applies to itself.
All that has been said with respect to limiting production by reducing working hours is equally applicable to those practices which limit the productivity during the working time. For some strange reason, however, the general public attitude toward these practices is altogether different. Because of the general acceptance of the totally false contention that there are not enough jobs to go around, the public looks with a substantial degree of approval on reduction of working hours, forcing the older employees into retirement to make room for the younger people, and other measures to cut down the size of the working force, but when the workers undertake to restrict their output during working hours, an action that is directed toward the same end, the public approval abruptly vanishes.
There is no logical basis for this difference in attitude. The effect on production is exactly the same whether working hours are reduced or production during working time is restricted. The general economic effect is likewise identical. In both cases the net result is simply a higher price for the consumer. The workers who restrict output but insist that they continue to receive the same wages as before are simply demanding the same pay for less work, which is not essentially different from demanding more pay for the same work, the usual objective in wage negotiations.
A great deal of criticism is directed against the labor unions for adopting work limiting practices, opposing mechanization, featherbedding, etc., all of which are clearly detrimental to the economic wellbeing of the community. The fault, however, lies not with the workers and their organizations but with those who are persuading them that there is not enough work for all, and that a certain amount of unemployment is inescapable. If this doctrine were true the labor union opposition to productive efficiency would be entirely in order. After being led to believe that there is only a limited amount of work available it is certainly not inconsistent for the workers and their organizations to take actions directed toward spreading the work among more individuals and making it last longer. If we cannot provide work for everyone we cannot legitimately condemn the efforts of the workers to distribute the available work equitably among those who want it.
The remedy is to recognize the basic principles that govern employment and revise our policies accordingly. A false doctrine such as the contention that there is not enough work for all cannot do otherwise than produce contradictions and inconsistencies at every turn. When it is once understood that there is no limit to the amount of work to be done, and that the more we work and the more productive we make our efforts the higher standard of living we can maintain for everyone, all of these contradictions will disappear, providing that we put our knowledge into practice and adopt the necessary measures to give everyone an opportunity to work. It will then be clear to all that there is no beneiit to be gained by restricting production, and the bulk of the opposition to productive efficiency will vanish. In justice to the workers it should be recognized that they are not restricting production because they object to the extra effort; on the contrary the normal American worker would rather be busy accomplishing something than wasting time. But the failure to organize the economic system in a manner which insures full employment, a failure excused by the contention that full employment is impossible, has brought about a situation wherein the workers feel, with some justification, that increases in productivity are simply depriving fellow employees of their means of livelihood.
It cannot be too strongly emphasized that for the present and as far as we can see into the future there is no limit to the amount of work to be done. Unless there are developments of which we have no hint as yet, even in this atomsplitting day, we will still be living in an age of scarcity hundreds of years from now, although in the meantime we will unquestionably make much progress toward a better and more comfortable life. We can, and we must, organize our economy in such a manner that involuntary idleness can be eliminated.
A particularly noteworthy feature of the list of eight most commonly advocated solutions far the unemployment problem reproduced at the beginning of this chapter is the prominence accorded the idea that we should look for a foreign answer to this purely domestic problem. Three of the eight measures listed involve foreign activities of one kind or another. Enlargement of foreign aid programs, according to Solution 5, would give a lift to sales and employment in this country, and Solution 6 advocates that we should make opportunities for American men and machines by creating outlets overseas. Solution 4 proposes that we export our excess workers to countries that are currently more successful in dealing with their employment problems.
From the employment standpoint, the effect of all of these foreign measures, whether they operate by exporting workers or by exporting goods, is simply to reduce the number of workers or the number of hours available for domestic production. In this respect they operate in exactly the same manner as any other measure that cuts the size of the working force. Producing goods for the benefit of foreign countries is economically equivalent to the pyramid building that the Keynesians advocate where normal employment is lacking. If we spend our time and effort building pyramids, then we get whatever the pyramids are worth to us. We get nothing else, because the secondary effect on the economy, which Keynes and his disciples visualize, does not actually exist. Keynes multiplier is a myth. Similarly, if we spend our time and effort producing goods to give away to foreign countries, then we get whatever satisfactions we may derive from our philanthropy, and we get whatever political benefit or loss may accrue from the way in which our aid is distributed, but we get nothing else.
Although the fact is not generally recognized, all, or practically all, that is accomplished by a public works program undertaken as an employment measure is to share the unemployment burden. As pointed out in Chapter VII, public works undertaken for employment purposes are inherently low in value, and the net cost to the general public, after giving credit for any tangible values that are produced, is greater than the cost of supporting the unemployed on welfare or unemployment compensation. There are some collateral advantages in having these individuals at work rather than idle, but the waste of effort on these projects is so apparent, and the character of the work is so often illsuited to the background of the individual worker, that the effect, both on health and morale, is bad. The case in favor of public works as a means of sharing the unemployment burden is therefore very weak.
The communal self help projects which make their appearance in every depression are not a factor in the current situation, but they are of interest because they provide a clear illustration of one of the possible ways of lowering the survival limit. This scheme gets around the minimum productivity limits of normal employment by forcing the workers to bear the burden of the inefiiciency of the substitute work; that is, the survival limit is lowered at the workers expense. Since the general economic organization is undeniably responsible for the lack of regular employment, rather than individuals, this plan penalizes the individual for the shortcomings of the community: a policy which is certainly lacking in equity. In actual practice there would probably be a considerable amount of open or concealed subsidization of these projects by the government, and to this extent the general public would stand part of the cost of supporting the erstwhile unemployed, but even at best such programs are distinctly unfair to those who have to participate, and for that reason they are seldom given much consideration except in extreme emergencies.
The manner in which these projects accomplish the lowering of the survival limit that is required in order to increase employment should be noted specifically, as it has a bearing on some of the subjects that will be discussed in Chapter X. The essential element in this proposed method of dealing with the problem is the introduction of wage flexibility. The principal factor responsible for the high survival limit that now prevails in normal industry is the inflexibility of wages under presentday conditions. It is evident that if wages can be made completely flexible, as they are in these communal projects, where the worker accepts the net value of his production, whatever that may be, the survival limit drops to the point where it no longer constitutes any obstacle to full employment. Wage flexibility is therefore a feasible means of eliminating unemployment, and while it is clearly inequitable to put all of the burden of wage adjustment on those who are unfortunate enough to be unemployed, and these self help projects must be rejected for that reason, it would be entirely possible to accomplish the same results in a less objectionable way; that is, we could reduce the survival limit and thus increase employment by introducing some flexibility into all wages. The arguments for and against general wage flexibility will be explored in Chapter XI.
One proposal that has received considerable attention is the stabilization of employment by action of individual industrial organizations or trade groups. Superficially this would seem to have a great deal of merit. If a large corporation employing thousands of persons can so adjust its affairs that it levels out the employment curve and carries ~pproximately the same working force through good times and bad, it would seem at first glance that this should be a substantial contribution to general stability. But these appearances are misleading. Any stability of employment that is achieved in the individual enterprise by such means is attained at the expense of employment elsewhere in industry. The unbalance between total producer income and total production costs that is responsible for cyclical unemployment is not reduced in any way by the stabilization program of the individual producer, nor is the excessively high survival limit that is responsible for the inability of the weaker producer to continue operations relieved by continuity of employment in the facilities of his stronger competitors. The only net result of the stabilization action by the individual producer is that the burden of adjusting operations to conform to current economic conditions is shifted to others.
This situation is not altered if the stabilization is accomplished by setting up reserves in good times and drawing from these reserves when the need arises. Investment of reserve funds does not decrease the total current purchasing power of the community, nor does the withdrawal of these funds through subsequent sale of the assets increase total community purchasing power. In either case the change in the purchasing power available to the owner of the reserve fund is offset by an equal and opposite change in the purchasing power of the other party to the marketing transaction. Hence the use of reserves does not transfer purchasing power from one time to another unless these reserves are held in the form of cash. Obviously, producers in general are not able to stand the financial burden of carrying cash reserves of any significant size. These industry stabilization plans are therefore harmful, rather than helpful, as they magnify the difficulties that are faced by all producers who are not fortunate enough to be able to participate in the programs.
These comments do not apply to the elimination of seasonal fluctuations by action of individual business enterprises. Here the underlying economic situation is sound, and there is sufficient total income to maintain employment in one place if not in another. Under these circumstances, the budgeting of controllable work by individual producers to minimize seasonal peaks and valleys in the employment curve reduces the losses involved in shifting workers from job to job, and also tends toward more efficient utilization of labor. Encouragement of scheduling work in individual industries in such a manner as to reduce seasonal fluctuations in the demand for labor can therefore be listed as one of the measures that will be helpful in cutting down the size of the task to be accomplished by a direct employment program. In general, such intracompany labor stabilization works to the benefit of the producers themselves, and it will become even more profitable when an effective employment program is initiated and the floating labor supply is eliminated.
Most of the sharing programs are still only proposals, or measures that have been used only in a minor and somewhat incidental way. The one conspicuous exception (aside from the public welfare programs, which are not primarily aimed at relief of the unemployed) is unemployment insurance. This system, now in full scale operation, levies a tax on the workers and on their employers (the latter is, of course, passed on to the general public through the price mechanism) and from the fund thus created payments are made in specified amounts for specified periods of time to those who qualify under the current definition of unemployed. The unemployment benefits are, in principle, related to minimum living standards rather than to current wage levels, and are therefore substantially lower than normal wages.
As long as unemployment is permitted to exist, some program such as unemployment insurance which, to a degree, spreads the burden over the community at large, rather than concentrating it on a relatively few unfortunate individuals, is clearly justified as a matter of equity. It should be recognized, however, that this is a very unsatisfactory method of handling the problem. The only satisfactory remedy for unemployment is an adequate supply of selfsupporting jobs. Spreading the burden is a poor substitute at best. By accepting unemployment and directing attention merely to achieving an equitable distribution of the loss that is incurred, the community as a whole is forfeiting a large amount of potential production, while at the same time the individuals who are affected are reduced, for the period of unemployment, from a comfortable living to a bare minimum.
Furthermore, drawing pay for not working is habit forming, and we are developing a class of professional unemployment compensation and welfare recipients that is already a serious problem, and will be still more critical in the years to come. Current proposals to liberalize the unemployment benefits are likely to aggravate this aspect of the problem. As viewed by Myrdal, such proposals underestimate how unhealthy and destructive it is for anybody and particularly for young people without much share in the national culture to go idle and live more permanently on doles.58
When we are able to guarantee one hundred percent primary employment by means of measures such as those discussed in this work, the need for unemployment insurance will be eliminated, and the present program can be discontinued. It will be necessary to make allowance for a short interval between jobs perhaps something on the order of two weeks to give the employment machinery time to operate, but, as previously mentioned, it will be quite in order to require a severance payment by the employer (to the employment agency, not to the worker), and the worker can be paid his regular wages during the interim period, whatever it may happen to be, out of the funds accumulated from these severance charges.
In order to put some teeth into the employment guarantee, it will also be necessary to require the government employment agency to pay wages at this regular rate beyond the normal interim period if there is any delay in placing the worker on a new job. Inefficient operation of the employment system could be costly under such an arrangement, but even at worst these costs will not be more than a very small fraction of the present unemployment payments. This proposed method of operation will also have the important advantage that if such abnormal costs are incurred, they will stand out in their true light as symptoms of in efiicient operation, rather than being buried in the manner of the costs resulting from the widespread abuses of the existing unemployment compensation system, and initiation of corrective measures will be correspondingly facilitated.
A proposal that is very popular among industrial workers is a guaranteed annual wage. This idea also draws considerable support from the socioeconomist, whose emotional reactions are strongly influenced by the workers viewpoint. Such guarantees, says Yoder, would represent a distinctly forward step toward wage stabilization and wage security.59 In essence, however, this is simply unemployment compensation in a different form. It has a greater appeal to the worker because it gives him a higher rate of pay during the idle period and contains no time limitations, but from the standpoint of the community at large this plan is subject to exactly the same objections as unemployment insurance, particularly the fact that it abandons the goal of maximum utilization of the potential labor supply. If such a program is put into effect a large amount of potential labor is irretrievably lost.
An argument commonly offered by the workers in support of such proposals is that office employees are, in effect, given a somewhat similar guarantee through being paid by the month rather than by the day. The weakness of this argument is that whatever assurance of continuity the office personnel may have which is not as much as those on daily rates usually think is not continuity of pay but continuity of employment. The nature of office work is such that there is less variation in the labor requirements than is the case in production operations, but when the work does decrease, the ofiice employees are laid off just as quickly and just as definitely as the factory employees.
It should also be noted that the general practice of including seniority provisions in union contracts has had the de facto effect of guaranteeing continuity of employment to the more senior employees, both in office and in plant, at the expense of those with less seniority. This is, of course, directly contrary to the principle of sharing the burden which the labor unions are so strongly advocating in their support of such measures as guaranteed annual wages, reduction of working hours, limitation of laborsaving devices, etc., but it is rather typical of the general attitude toward these sharing measures. We favor others sharing with us, but we oppose sharing with others.
A guarantee of employment accomplishes the same objective as a guaranteed annual wage; that is, it assures each individual in the working force the income appropriate for a fully employed worker. The advantage of the employment program is the elimination of the waste due to idle time. When such a program is put into operation, any agreements such as the seniority rules that assure continuity of employment for certain individuals can remain in effect, and those workers who lose out by reason of the operation of these rules will be provided with other employment under the new program. As consumers and members of the general public, all of these workers will share in the general increase in production resulting from the full utilization of the available labor.
The concept of some kind of a guaranteed minimum income for everyone has recently become a very live issue. A n.umber of suggestions along this line have appeared from time to time in the past, but the matter was taken out of the preliminary discussion stage by a recommendation that was made, and later abandoned, by President Nixon. There is now widespread support for such a guarantee, and before these words appear in print some legislation of this nature may have been enacted. Insofar as this income guarantee may apply to persons who are not capable of working, it is outside the scope ofthis discussion. Indeed, it is outside the province of economic science altogether. But the impact of such a program on the status of the employable segment of the population should have some very serious consideration.
It should be understood, however, that the issue that is being debated as these words are written, the question as to whether a plan that incorporates an income guarantee is or is not preferable to the welfare system that has been in operation for several decades, is not relevant in the context of this present work. On the basis of the findings of the theoretical study of the employment situation, as detailed in Chapter VI, the next three chapters will develop a sound, practical program whereby fulltime productive employment can be provided on a guaranteed basis for everyone who is willing and able to work. The question that we will want to examine, therefore, is not whether an income guarantee is preferable to welfare, but how such a program, in application to the employable segment of the population, compares with the guarantee of fulltime employment that is now possible on the basis outlined in this work.
Whether or not we should place a floor under income; that is, assure everyone a certain minimum income even if he is unable to engage in any remunerative work, is a separate issue a noneconomic issue that we do not need to consider in the present connection. A guarantee of employment will give every worker the assurance of an income appropriate for the kind of work he is capable of doing. This does not prevent the community from supplementing that income, if it sees fit to do so, by subsidizing the low end of the wage scale. The issue, as it applies to those capable of working, is simply: Shall we guarantee income or shall we guarantee employment?
From an economic standpoint there can be no doubt as to the answer. Providing employment for the potential workers rather than supporting them in idleness increases the total production of the community, and raises the average income of the individuals involved in the program, while at the same time it lightens the burden on the taxpayers. Furthermore, this method of handling the problem tends to minimize the dimensions of that problem; that is, if x potential workers are without income because they are unemployed, it is never necessary to provide more than x new jobs.
On the other hand, if the problem is handled on an income basis rather than on an employment basis, utilizing welfare or some income maintenance program to compensate for the lack of income from productive activities, the dimensions of the problem are greatly increased. Whenever measures are put into effect that make it possible to live without effort, or with little effort, the number of persons who contrive to be included under the program is always very much larger than the number who would be without normal income if no such program were in existence. Under the same conditions as before, where x potential workers are without income because they are unemployed, adoption of an income maintenance program of any kind will inevitably result in several times x families being supported by the program. The income maintenance approach thus multiplies the problem manyfold.
This is not speculation or guesswork. Even the most casual consideration of the normal reactions of human beings will make it clear that this is what will happen, and an examination of experience with the welfare programs will show that this is what is happening. Where do the people who go on AFDC (Aid to Families with Dependent Children, the largest and most costly of the welfare programs) come from in the first place? They come from this group of people that we have grown accustomed to calling the working poor. As fast as we have been able, under the present WIN program, adopted in 1967, to train people presently on AFDC, there have been two and three and four or more families added to the rolls in these States for every one that we have taken off .60 So said the Chairman of the House Committee on Ways and Means in 1970. But what can we expect, when the working poor are offered a choice between continued labor and a life of ease under only slightly lower (in many cases, even higher) living standards? Regardless of what we call it welfare, or income maintenance, or family assistance, or anything else any program that takes the place of work as a source of income encourages idleness, and drastically reduces the working population of the nation.
Every program of this kind contains some provisions that are supposed to exclude those who are capable of working and supporting their families, but there are always many ways of evading the restrictions, even if the administrators of the programs attempt a strict enforcement of the rules, which, in practice, is rarely true. As pointed out in connection with the statement quoted above, the philosophical inclinations of social workers and administrators do not run in this direction. The net result, therefore, is just what was described: that is, the working poor are siphoned off into the welfare or assistance category.
Most of the proposed income guarantee programs contain provisions that permit retention of a portion ofwhatever amounts may be earned by the recipients of income assistance, and these are frequently cited by the advocates of the programs as incentives which will induce individuals to work. For example, Representative Hale Boggs had this to say:
This treatment of earned income would provide a strong incentive both to take employment and to increase ones earnings. A family with a working member will always be better off than a family without a working member. This provision gives recognition in the case of the welfare recipient of a fact of life so fundamental and so obvious that the rest of us have always taken it for granted simply that if a person would be better off working than not working he will work.61
But this is not a fact of life far from it and taking it for granted in formulating policy can lead to nothing but costly disillusionment. The average individual faced with a choice between working and not working will not work, if he can possibly avoid it; unless he feels that he will be enough better off by working to justify sacrificing the leisure. As he sees the picture, beyond the point where he can retain his full earnings he is being asked to work for half pay (or whatever fraction the plan provides), and he wants no part of that kind of a proposition.
This same provision retention of only half of the earnings beyond a specified amount is being utilized in the Social Security program as a means of discouraging the pensioners from working, and experience has shown that it is an effective means of accomplishing that objective. Now we are asked to believe that a measure which is specifically designed to prevent one group of income recipients from doing any substantial amount of work (because the Social Security regulations are based on the mistaken idea that removing the older workers from the labor force opens up job opportunities for younger persons), and is known to have that effect, will encourage another group of income recipients to do more work. We can only conclude that the right hand of government pays little attention to what the left hand is doing.
Furthermore, any income maintenance program applicable to employable individuals not only encourages living on a low enough scale to avoid the necessity of working, but is also grossly unfair to the normally employed worker in the income bracket just above the income floor. A regularly employed individual who is paid the legal minimum wage must work practically full time to earn the guaranteed annual income. But his neighbor, who manages to avoid getting a regular job, and thereby qualifies for the income assistance will receive the same total if he works only a fraction of this time. This is the kind of a situation that is responsible for the enorxnous growth of the welfare problem in recent years: the government is making it profitable to avoid work.
In the debate that is in progress as these words are written, the principal argument in favor of an income guarantee is that the welfare system has been a colossal failure. But the remedy that is proposed (or may already be in effect by the time this volume is published) is essentially nothing more than a larger dose of the same ineffective medicine. It is another welfare program in a slightly different form, one that can be expected to aggravate, rather than improve, existing conditions, inasmuch as it increases the amount and the coverage of the payments for idleness, and thus increases the incentive to avoid work.
A program that guarantees employment rather than income is not subject to these grave disadvantages, even if the low end of the wage scale is subsidized so that there is, in effect, a minimum income guarantee for those who are willing to work full time. What we are guaranteeing in this case is an opportunity to earn an income. Here the individual has the normal economic choice between work with income and leisure without income, not the simple choice between work and leisure that is effectively, even though unintentionally, provided by direct income guarantees.
While the case in favor of the employment alternative is particularly clearcut from the economic standpoint, it is difficult to see where any kind of a valid argument can be offered in support of an income guarantee for ablebodied individuals once it becomes possible to guarantee employment. There are those, it is true, who go to the extreme of objecting to any measure which forces an individual to work for his living, but since someone must do the producing, the only alternative is to force someone else to do the work for him; that is, to force the employed population to work longer hours to provide a living for the person who chooses leisure. Welfare, income guarantees, or subsidies of any other kind, do not come from the government. They come entirely out of the pocketbooks of those who earn what they receive. The human race as a whole is subject to a work or starve edict that we cannot evade we are being forced to work, if that is the way anyone wants to look at the situation and if one person fails to do his part, someone else has to do it for him. Under these circumstances, it is definitely in order to insist that each individual must at least carry his own weight, if he is physically and mentally able to do so.
Living in idleness on the kind of a minimum income that can be provided under an assistance plan also has some highly undesirable consequences, both for the individuals that are involved and for the society in which they live. Indeed, many of the social problems that are currently attributed to poverty, and are cited as justification for the income maintenance programs are largely, if not entirely, due to idleness, and will be intensified by measures such as the income guarantee that increase the idle population. The only effective remedy for unemployment is employment.