Robert Haveman Responds
In my essay, I stepped back to review the nature of the employment and equity
problems plaguing the industrialized world, and to put forth a combination
of policy measures that may offer a better way of doing business. Some of
the commentators liked the ideas; all had reservations and alternative suggestions.
Political Feasibility. Benjamin Page suggests--contrary to both conventional
wisdom and Rebecca Blank--that the universalistic aspects of the program may
make it politically attractive. To him, opposition to the proposals will come
from politically powerful businesses and high-income people, who fear loss
of a competitive edge in the face of increased international capital mobility,
immigration, and a global labor pool. These interests require either productivity
enhancement or tax relief as the price for any program aimed at improving
opportunities for poor people and unskilled workers, and see neither in my
Page's concerns strike me as deeply disturbing, and too pessimistic. Even
edgy business interests and wealthy people understand the dangers to long-term
prosperity from persistent poverty, dependency, and the demoralization that
comes from lousy jobs or no jobs at all. A plan offering the combination of
both more efficiency and more equity than our current arrangements should
strike a responsive chord. If socially productive social policy proposals
face the obstacles that he describes, perhaps we should all trade in discussion
and debate for more activist ventures.
Rebecca Blank also sees political obstacles. In her view, cash-based redistribution
systems, even when they are linked to work subsidies, are objectionable because
of their universalism. She suggests that analysts and reformers should respond
to the nation's current fascination with more targeted programs, and with
mandates aimed at encouraging specific behaviors, and assist in the design
and implementation of effective versions of this strategy.
Frankly, I don't much like that role. In my view, those of us concerned with
issues of efficiency, equity, independence, incentives, and opportunities
ought to identify and debate policy approaches that promote these principles,
whether or not they march to the beat of current paternalistic policy-making.
I am also troubled by Blank's characterization of my proposal as a centralized,
universal, guaranteed income support system. To be sure, it has a refundable
credit income tax at the base of the system. However, by design, the implicit
income guarantee of that plan is a modest, well-below-the-poverty-line minimum,1
similar to some of the flat rate tax proposals supported by some economists,
and politicians of all stripes. The guarantee level in my proposal simply
assures that no citizen will fall below some minimally acceptable level of
living, a standard that we still do maintain in the United States.
Indeed, the main thrust of my suggestion is targeted, and it is aimed at
encouraging a specific behavior--namely work. How else can one view the wage
rate subsidy, the marginal employment tax credit,2
and the elimination or scaling back of more generous unemployment compensation,
disability, and welfare programs? Given the low guarantee of the credit income
tax, and the scaled-back categorical cash transfer programs contained in the
proposal, the work is necessary in order to live a middle class life, and
if that work carries a low market wage rate, it ought to be subsidized.
Substantive Policy. Blank and Robert Solow take me to task for failing
to include in my portfolio direct labor market job search and training programs
designed to raise earning power at the bottom of the distribution. They are
right; I do not emphasize these measures, and for good reason. Over the past
two decades, we have tried and evaluated scores of such approaches. The results
are not encouraging. While many of the best ones pass a benefit-cost test,
the earnings increases of the low-skilled trainees rarely exceeds $1,000 per
year.3 Earning power at the bottom of the distribution
is raised, but not by much. Solow notes that such efforts might be worthwhile
in the long-run "if we knew where to start." That is precisely the rub, and
the reason why they are not highlighted in my proposal.
Fritz Scharpf makes an important distinction among European welfare states.
He notes that some (e.g., the Scandinavian states) sustain high employment
through large-scale public employment in service activities sheltered from
international competition. In the health care, child care and education sectors,
workers are paid relatively high wages, apart from their productivity. The
continental welfare states (e.g., Germany and France) do not adopt this approach.
From this he concludes that the strategy that I suggest may be successful
for the latter states, but not for Scandinavia. While his distinction among
the European states is most helpful, I fail to see why elements of my suggested
approach would not be effective in Scandinavia. By his own description, these
states are hard pressed by the high tax burdens required to support both the
subsidized, high paid public jobs in sheltered service activities and generous
categorical cash transfer programs. Would not these states benefit from a
wage rate subsidy supporting the somewhat lower pay of unskilled workers that
private employers would hire? Would not the competition to the public jobs
provided by private sector competition promote efficiency? Would not a scaling-back
of the high benefit, categorical transfer programs in these countries reduce
the high rates of low-skill worker joblessness which these countries are increasingly
On a quite different note, Arnie Graf and Jonathan Lange criticize the income
support and subsidized wages to poor citizens and low skill workers that I
suggest. They characterize these as "subsidizing the private sector," and
urge me to sign on to living-wage ordinances, which are but disguised well-above-market
minimum wage plans. I have little trouble accepting the modest labor demand
reductions associated with upward adjustments in the existing federal minimum
wage. However, Graf and Lange's proposed high living-wage mandates fly in
the face of a labor market that I am prepared to alter, but not to flaunt.
Finally, Solow notes that for wage rate subsidy and employer-based subsidy
arrangements to be successful, they need to be permanent fixtures with continuing
costs. I agree. The fact is that reducing poverty and inequality--and bringing
youths and those with low skills to the point where work will "work"--cannot
be done "on the cheap." Surely, parents know this from their own child-rearing
experiences. We give our children lots of education, with monitoring and advice
and expectations and parental participation in schools. Then, when they finish
their schooling, we support them for a time while they get their heads together.
Sometimes they engage in a job search, sometimes they ski, sometimes they
travel. Following this, we actively and individually help them with their
job search. We help them prepare a rsum, put them in touch with friends and
acquaintances, help them prepare for job interviews--all so they can find
their own special niche in the world of work. Finally, we often support them
in moving far from our home if that is where the best opportunity lies. And
think of how often, even with all of the nurturing, the process doesn't work
out too well.
1 Robert Solow also misses the skimpy nature of the low
guarantee, which minimizes the marginal tax rate disincentives about which
he is concerned.
2 Solow erroneously suggests that the marginal employer
subsidy may fail to provide incentive for hiring low-skill workers. Consider
an employer needing labor equal to $50,000 of productivity. Assuming substitutability
between low- and high-skill workers, either hiring five low-skill workers
at $10,000 each or hiring one high-skill worker at $50,000 will meet the need.
A subsidy equal to $25,000 is reaped if the five low-skill workers are hired;
hiring the high-skill worker carries a subsidy of $5,000. Therein lies the
3 See the articles by Blank, Burtless, and Glazer in Demetra
Nightingale and Robert Haveman, eds., The Work Alternative (Urban Institute,