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- Good evening and welcome
to the John F. Kennedy Junior Forum.
My name is Remington Hill and I'm a junior,
studying Economics and African American studies
here at the college and I'm also a member
of the JFK Junior Forum Committee here
at the Institute of Politics.
Before we begin, please note the exit doors
which are located on both the park side
and the JFK street sides of the forum.
In the event of an emergency,
walk to the exit closest to you
and congregate in the JFK park.
Please also take a moment now to silence your cell phones.
You can join the conversation tonight online
by tweeting with the hashtag Big Econ Ideas,
which is also listed in your program.
Please take your seats now and join me
in welcoming our guests, Oren Cass, Derrick Hamilton,
Will Wilkinson, Annie Lawrie by video call
and tonight's moderator, Jason Furman.
(applause)
- Thanks to everyone for joining us
and Annie Laurie from the Atlantic.
Thanks to you for being here and you will say something
and hopefully we'll know you're here.
- [Annie] Yeah, can you hear me?
- I can hear you great.
We also have, Derrick Hamilton,
who's currently at the new school.
He's about to be the director
of the Cowen Center for Race and Ethnicity at Ohio State,
Oren Cass who's at the Manhattan Institute,
which is a pro market.
- Free market.
- Free Market think tank and Will Wilkinson
who is from a moderate libertarian leaning think tank,
the Niskanen Center and all four of these people
are big thinkers about big ideas
about how to change our economy.
And I find in universities,
often we're really good at finding the problems
and everything and that leads us to have a harder time
thinking outside of the box about some of the bigger ways
you could have change.
But some of the bigger ways to have change
can also have problems.
The world today works okay.
You try to do something big,
you might mess up and make it much worse.
So what we want to do today
is put some of these ideas down on the table
try to better understand them and also see
what themes come out of them.
And also, I should've done this advertising
when I was telling people.
Annie is on the screen and so it's only fair
that her book is on the screen, Give People Money.
She will do a slightly longer version
of what Give People Money is to lead us off.
And then Oren Cass is the author of the forthcoming,
Once And Future Worker and I should say,
I read both Annie and Oren's books.
I think they're both terrific reads, really provocative
and both of them made me change my mind
on some issues that I'd thought about,
thought I had thought about quite a lot
which is about the best a book can do.
So Annie, why don't you start us off with your big idea.
- Yeah, absolutely.
So the idea of a universal basic income
is a really simple one, which is that
the government gives everybody money
and it's one that has not been undertaken thus far
by at least any big government
but a lot of lower and middle income countries
have sort of related policies.
And so just want to expand on the argument
for doing it here in the United States
because it sounds at first blush kind of crazy, right?
Like, why should the government gives everybody money?
Wouldn't people stop working?
Aren't there more efficient ways of providing support
for low income families?
And so, the argument basically is this one.
One is that the United States tolerates
and in fact structures its safety net
to allow a tremendous amount of poverty.
Part of the reason that we have that
is that many of the support programs that we have
have fairly complicated requirements.
They make you jump through a lot of hoops to get them,
they make sure that you are a very certain type of person
in order to receive aid but even with all that,
some of the people that are deemed
sort of socially important to take care of such as children,
nevertheless have very high poverty rates.
So that's one argument for doing it.
The second is actually kind of a libertarian argument
which is that if you just give people cash,
they tend to spend it pretty well.
They by and large don't actually stop working
or if they do, they tend to do so
for sort of socially beneficial reasons
such as waiting longer for a job match to become employed,
staying in school longer, taking care of a kid.
So we don't worry about that too much
and it's pretty easy for the government
and low overhead for the government to just give out cash.
There's also the argument that the government
should kind of butt out of people's lives
and trust them to do with the money what they would like
versus something like a housing voucher or food stamps
where in some cases, you see people actually trade those in,
in the case of food stamps because what they really need
is gas to put in their car or money to keep the lights on.
And then I think that there's a broader argument to be made
that in an economy as rich as the United States is
that you do just want to have
a universal guarantee for people.
A lot of times, there is no currently
no form of sort of social insurance that helps people
kind of regardless of circumstance, save for income
and this would provide that.
It would arguably encourage things like entrepreneurship.
It would help people and sort of unusual,
but nevertheless quite common circumstances
such as if you needed to leave a bad housing situation
or if you were in an abusive relationship.
So I wrote a whole book on it
but I'll stop there and I'm very interested
to hear all of our other big ideas from our big thinkers.
- Great.
Thank you Annie.
So Derrick is the co developer of the leading
or one of the leading federal jobs guarantee programs.
So tell us about that.
- I guess co-develop with Sandy Darity at Duke University,
Mark Paul, let me give shout out to other people real quick.
Elena Ha, Daniel Bustillo, Kaiser, Ofrono Mobial
and then special shout out Policy Link,
Angel Blackwell and Sarah Trehalf.
So the idea of a federal job guarantee
is not new nodes at radical.
President Roosevelt cold for economic bill of rights
and the first thing that he called for
was the right to guaranteed employment.
Unfortunately, since the Nixon administration,
the political sentiment regarding social mobility
has radically shifted from government mandates
of economic security to a neo liberal approach
that where the market is presumed to be the solution
for all our problems, economic or otherwise.
As a result, the onus of social mobility
has shifted onto the individual.
Pervasive in the implicit on federal markets
is the ideas that the virtue of the free market,
you can turn your proverbial rags into riches.
In other words, the deserving poor who end up poor,
they're stigmatized by the political fodder
of anti-blackness, whether they're black or not.
They receive their just rewards and they simply fade away
or have to do something else over time.
But the private sector alone has never been adequate
to deal with reinforcing inequalities.
Over the last 45 years
all the gains from American's productivity,
have gone to the elite while real worker wages
have remained roughly flat.
Even those that have a job, 44% of them are homeless,
40% of them working contingent jobs,
and 44% have earned below $15 an hour.
Jobs stimulates plans championed on both sides of the aisle,
they use tax incentives and deregulation
to cajole a bribe and already record profit earning
private sector to create more jobs
under the whimsical notion of trickle down economics.
Or if we encourage them to build our infrastructure,
that could lead to a transfer value
of our public infrastructure onto corporate interests.
Instead we favor of federal job guarantee
which is a direct source to deal with unemployment
and it provides a stimulus effect
to stimulate a panopy of activity in the economy.
It would enable all workers,
particularly those at the low end
to bargain for better wages and benefits
without the fear and threat
of destitution from unemployment.
A federal job guarantee would eliminate
working poverty altogether,
it would eliminate involuntary unemployment,
it would address cyclical unemployment
as well as structural unemployment
and it would provide public options of employment
to better enable existing workers
to bargain for decent wages, working conditions,
again, without that fear of being destitute
from unemployment.
Our job creation plan provides direct competition
to the private sector,
particularly at the low end of the market.
It's not an employer of last resort program.
So rather than subsidizing low wage work,
we will raise the floor on wages and benefits
through competitive alternative to precarious work.
We will structurally change the US economy
away from low wage work.
We say that's a feature, not a flaw.
Moreover, it will provide the best buffer
against the threat of oncoming automation
which might lead to employment transitions
due to technical change.
We are not promoting welfare to work
but rather we're talking about an authentic right to work.
The jobs had reigned from construction, education,
health services, supportive housing, libraries,
child and elder care, arts and culture,
projects designed to transform our cities
to green municipalities that are emission free
and sustainable and resilient.
The work could also address disability interest
so that we are able to not only employ people
that are designated as disabled,
but empower them so that they can be more independent
in their living.
The federal government states, Indian nations,
local municipalities, community councils,
they all could conduct inventories of their needs
and develop a job bank of task
in which we will prioritize those communities
that are in the most need,
as well as provide stimulus to those communities
that are in most need.
A job guarantee would mitigate
the personal familiar course demand
from damaged mental health, having workers out of work
does emit damage to the human spirit.
The unemployed themselves, say they would rather work
than receive a subsidy.
Dignity is multifaceted.
One's dignity is not limited to work,
but everyone should have the right to work
with dignity of at least decent wages,
benefits and good working conditions.
- Okay, great.
An alternative also focused on work
is Oren on wage subsidies.
- Yeah, thank you guys very much for coming.
I guess I want to talk about a big economic idea,
bolting conceptual and sort of substantive policy terms
because I think it's helpful as you hear all of these ideas
to think about which visions of prosperity
we're actually banking on and trying to make things better.
So the big idea and this goes a little bit
to what we just heard as well is that work is what matters.
That when we're looking at our prosperity as a society,
what really matters is that people can find
productive work to do and that they can through that work
support their families and their communities.
And on the one hand that sounds like common sense.
On the other hand, it is dramatically divergent
from the economic policy we've actually pursued,
which is almost exclusively focused
on consumer welfare.
We're going to grow the economic pie.
Everyone can have a larger slice
and we don't really care too much about who baked the pie
to stretch the metaphor a little bit too far.
So if we say that work matters
and that the real key to our prosperity
isn't just going to be more pie for everybody,
it's actually going to be jobs that everyone,
regardless of their abilities, regardless of where they are
can use to support their families and their communities,
then we're going to need some policies to support that
because there's nothing in economics
that says the labor market
is going to land there on its own.
The policy that I'm very interested in
is what's called a wage subsidy
which is in its simplest terms,
direct additional money from the government
in your paycheck.
So the easiest way to think of this
is just like right now we have payroll taxes.
And from your first dollar,
you've got that line called Fica in your check.
Any Friends fans, Rachel Green gets her first paycheck
from the coffee shop, opens it up
and says who's Fica and why's he taking all my money?
We tax actually quite heavily
even waitresses at coffee shops.
We could just as easily do the reverse.
We could have a line in that paycheck that says work credit
and it could be additional money in the paycheck,
particularly for people with low wages.
Now we have something along these lines already
called the earned income tax credit or EITC.
The way the EITC works is at the end of the year
when you file your taxes,
if you're of a certain kind of household,
typically if you have kids,
if you're in a certain earnings range,
you get a big chunk of money up to five or $6,000.
That certainly helps households.
It is not a great way to actually make jobs
look attractive in the moment.
It's not a great way to deliver money to people regularly
in a way that's going to meet their financial needs
and what you find is typically workers either
aren't really aware of what it is
or how much they're going to get.
And conversely, actually once they do receive it,
first of all, they use it to pay overdue bills,
which isn't the right structure for earning
and actually you also see a lot of people
exit the labor force because they just got this windfall.
So the key is to shift this, first of all,
let's not just focus it on families with kids,
which is where almost all the money goes today.
Let's just focus on the worker
and if you're a low wage worker,
let's say that you're eligible for the same amount
and then let's put it in every paycheck.
And so what would happen is it would literally
just be a function of your hourly wage.
You would pick a target wage.
Let's say we pick something around $15 an hour
and if you're a market wage is below that,
we're going to make up half the difference with a subsidy.
So your eight-dollar an hour job,
seven dollars less than 15, so you get a 3.50 subsidy.
It's now $11.50 an hour job in every paycheck.
A $10 an hour job, five dollars off,
so you get to $2.50.
It's now $12.50 an hour job.
And obviously that phases out.
So by the time you are at 15 or above,
you're not getting a subsidy anymore.
This would be transparent to the worker,
you'd see in the paycheck what you're getting.
It would also be saying that therefore could be advertised
when you're marketing a job.
You could say, look, this is what the job is going to pay
inclusive of the subsidy, which I think will be important
both in encouraging employers to create an offer of the jobs
ended encouraging workers on the margins
of the workforce to take them.
And then obviously the last question is how you pay for it.
A big part of the answer is we actually already have
a massive safety net that redistributes
more than a trillion dollars a year,
typically through programs that either ignore work entirely
or actually discourage work
because we take the benefit away if you start working.
So I think the best thing to do
would just be to take a share of this.
For the program I'm describing,
you would use about 200 billion out of the trillion
and say we're now going to make promoting work
actually a significant part of the safety net.
And so we're not shrinking the total amount of support
we give to low income households
but those benefits that look like food stamps,
housing vouchers are really going to be concentrated
on people who aren't working
and if you are someone who's working,
you're actually going to get that support
in the form of cash, which as Annie described,
is really what people want most
and is a way to make the benefit more valuable.
- Great.
Will, I haven't even read your idea.
So I'm in as much suspense as everyone else.
- Well, thank you.
I hope it's worth the surprise.
And it's an honor to be included in such a gust company.
I'm going to start out
by just asking a question for everybody.
Raise your hand if you think you pay too much for rent
or your mortgage.
We got a lot of students.
I think most of us who live in a big city
like Boston or New York or L.A or Chicago
are paying way too much.
And the reason that property values are so expensive,
why mortgages are so high, why rents are so high,
is that the supply of housing has not expanded
in line with demand for housing.
It's pretty simple economics.
Now the question gets a lot more complicated
once you drill down,
but we just have a big mismatch of supply and demand
and if a lot more people are chasing
a very limited a stock of housing, the prices go up.
And why has that happened?
There's a lot of reasons, but one of the main reasons
is zoning laws or land use policy in cities
and other kinds of municipalities.
Zoning laws restrict what kinds of buildings
can be built in what areas of town.
They tell you how many bedrooms a house has to have,
how many stories it can be.
And over time, over the past 30 years or so,
those laws have become much, much, much more restrictive.
And they're incredibly damaging along several dimensions.
One, housing costs are eating up
more and more of people's paychecks.
So the percentage of your household budget
that goes to housing keeps getting bigger
and bigger and bigger and for a lot of people,
that means that after they pay for housing,
they basically have nothing left to live on.
On the flip side of it, people who've got a house
back when they were cheaper,
are sitting on this quickly appreciating asset.
So their wealth is growing.
It's ballooning while poor people
can't accumulate any wealth at all
because they have nothing to save
after they pay for their housing.
So there's a question of just equity there
but there's a bigger comprehensive macro economic problem.
Productivity in the economy is driven
by the productivity of labor markets
and over decades and decades,
economic production in the United States
has become more and more concentrated in a handful
of you know, very big metropolitan areas,
just a handful of cities now produces
way over half of US GDP.
People don't really realize how much
of our wealth comes from big cities.
Like New York city produces the GDP of Canada,
the entire country, right?
Boston producers like the GDP of Thailand
and when these housing restrictions,
when land use restrictions make housing too expensive,
it makes it impossible for workers to move
to the labor markets where they're most productive.
And over time, if you add up millions and millions
of workers who would be more productive
if they couldn't move to Boston
or could be more productive if they moved to Los Angeles
or if they moved to New York,
if they can't move to the places
where they're most productive,
the entire economy loses a huge amount of output
leaving everybody in the country poor.
So there's been a number of economic papers,
recently the said that GDP could be massively higher
if land use restrictions had remained
at about the level of 1980
and the numbers are dramatic.
So my proposal is to do something
that people think is impossible, but it is,
which is incredibly vigorous federal action
to deregulate local land use.
Now this is one of those issues where people assume
that it's a local issue
and that there's nothing that the feds can do about it,
but that's just wrong.
There's a number of things they can do about it.
One, you can just directly legislate,
to more clearly articulate
the content of people's property rights.
So congress can just say that,
excessive land use restrictions
or excessive zoning constitutes a taking,
which is in the, what is it?
You're the lawyer,
the Fifth Amendment, if the government takes your property,
they have to give you compensation.
And Congress has all the authority it needs
to just articulate and refine what it is,
what it means to take somebody's property.
So that's one thing you can do.
Two, the federal government can just flex its power
under the Commerce Clause.
One of the biggest assets the United States economy has
is this giant free mobility zone.
We have open borders internally
and our labor markets cross state lines
and the productivity of the entire economy
depends critically on the mobility of workers
over this big free labor zone.
However, land use restrictions really materially impact
that asset that we have.
The Commerce Clause says that
Congress can regulate interstate commerce
if it has a regulate stuff that's happening
in a particular place,
if it has substantial effect on interstate commerce
and this does.
Another thing that you can do
is just to attach strings on and this is an idea
that the one time I've actually articulated it
in a Washington post piece,
we need a lot of infrastructure upgrades.
We need to spend a lot of money on infrastructure.
That money tends to go from the federal government
to states through big grants for infrastructure,
the federal government can tie strings to that
and say you don't get this money
unless you deregulate local land use.
Now tying strings to federal funding
is only constitutional if the strings are related
to the spending in the right way,
but it is in this case because the direct value
of infrastructure is directly related
to the number of people in these big cities who can use it.
So if you dangle a huge pot of money
out in front of the states and say,
here, California have billions and billions of dollars,
but you can only get it if your three biggest cities
meet a target in the increase in their housing supply.
Say such that the increase in prices don't outpace
wage growth, that they like stayed related
in the right kind of way, that they're not getting
more and more expensive relative
to what people have to spend,
if you just set that rule and say like,
if you don't meet this requirement,
you don't get any of this money,
well then states will have a big incentive
to put the hammer down on municipalities
to make sure that they figure out a way
to expand their housing stock.
That doesn't mean the federal government
has to tell them exactly how to do it,
it just tells them that they have to do it
if they want to get this money.
So I think I probably went on too long,
but that's the idea.
And this doesn't cost anything really, by the way,
like so all these ideas costs a lot of money,
this doesn't really cost anything,
it just releases a latent productivity.
- Wanted to do a sort of quick round in reverse order
so Will, if we've heard too much from you,
now it's gonna get even worse.
One or two comments on some of the ideas you've heard,
something you like, something you don't like.
Don't be comprehensive.
And then...
- I'll go in order.
I like Andy's idea.
I'm a proponent of a universal basic income myself.
One of the difficult issues with UBI is exactly
how you finance it and how big it can be.
And so that's one of the biggest questions
that people just have about it.
What is the size of the sort of minimum
guaranteed income and how are you going to finance it?
Like you can get a pretty small UBI
by rearranging entitlement programs that we already have.
But if you want a big one, it's a lot of extra money
and so that's just a question,
so that's something I'd ask Annie
is like how she sees the best way to finance that.
I also really like wage subsidies.
So I think it's in some ways,
just in the menu of policy options, wage subsidies and UBI
tend to be in competition
for that kind of the same pool of money.
And people who like wage subsidies
are people who really want to emphasize
the importance of work.
People who like UBIs really want to emphasize
the importance of making sure that everybody
has a threshold level of income.
So like I guess I'd want to know why you think
that a wage subsidy is a better use of money than UBI.
A Universal Basic Income
it's a guaranteed income floor basically,
so everybody would get a certain amount of money
every month or every year.
And so the question is sort of a big it's going to be?
- Oren, what don't you like about UBI
and Annie, you're going to go last,
you're going to be able to just clean up
all the missed statements.
- I think Will put it well
that the UBI versus wage subsidy debate comes down
a lot to how you feel about work
and I think it's important to think about it
not just in economic terms but cultural ones as well.
One thing I will press Annie on
is to define what UBI we're exactly talking about
because you can sort of get into a shell game
where it's affordable if it also phases out
and you end up taxing people a lot
or you only give it to certain people
and if you actually do the full one,
that truly just gives everyone enough money to live on,
you're truly talking about
trillions and trillions of dollars.
So first of all, I would say wage subsidy and UBI
are not competing for the same pool of money.
UBI needs about at least an order of magnitude more
and then I think it really comes down
to a question of, how we want to find people's obligations
and role in society.
If you create a UBI,
you are effectively moving the basic obligation
of supporting yourself and your family
from the individual onto the government.
From again, from this perspective
of the economic pie is big enough,
we can give everyone a big enough piece
that absolutely appears to solve the problem.
If we actually take a view of prosperity,
which I do that says no,
people feeling like they are fulfilling
their own obligation as a productive contributor
and supporting a family
and that's what gives work meaning in a lot of cases
and that in turn is central to their lives
and to forming families and to raising kids,
then a UBI is actually incredibly destructive
and whereas a wage subsidy really promotes
that kind of behavior.
So that's the distinction that I would draw
and you know what I always use the question
I posed to folks is just, what would you give a UBI
to your own kid?
Would you say to your own kid,
"I just want you to know,
"no matter what you do with your life,
"don't worry about it.
"You've got 12,000 a year coming,
"even if you're smoking pot in the basement
"or just going to Europe."
And obviously we would not do that,
or we would not think highly of parents
who took that approach.
If you have a UBI, your crazy uncle Sam
just came and did that to everybody
and there's nothing you can do about it.
And I don't think we'd actually want the society
that would result.
- Why don't we skip to you Annie?
- Yeah, so I would know that I don't hate
any of these big ideas.
They're just a probably an annoying position to have.
I would also note that my parents paid
an extraordinary amount of money for me to go to Harvard
and I spent a lot of time hanging out
in a basement smoking pot.
(laughing)
So those two things are probably not totally my--
- Annie my 11 year old son is here on the front row.
- Cover your ears, my apologies.
That is totally untrue.
- You're teaching him that it's okay to lie.
- That as well.
I think that there's this funny way
in which we have a tremendous amount
of government spending which goes to supporting work
and that's really great, right?
Like the EATC is an enormously successful program,
perhaps one of the most successful programs that we have.
But nevertheless, we have a lot of people
that we leave behind and those are in fact
the most vulnerable people, children,
people with disabilities, people who are illiterate
or have language challenges,
people who are in very remote areas.
And so I sort of think about UBI as reaching those folks.
In terms of the cost question, it's hard,
it's an expensive policy.
There's probably not enough money to tax
among rich people and so you're probably looking
at some other type of taxes so, people talk about things
like carbon taxes or things like moving towards
kind of consumption style, VAT tax,
but I would know, we just gave
a trillion dollar tax cuts to corporations
and to very wealthy individuals.
The United States currently taxes
and spends about 25% of GDP
whereas comparably wealthy countries in Europe
it's as much as 15 or 25 percentage points higher.
So I think that the money is there.
As to the merits of the other idea,
we're in I think that the question I would pose to you
is how do you make it so that businesses
don't just simply take the wage subsidy
and subtract it from workers' wages?
I'm sure that there is a way to do that
perhaps with minimum wage regulation, something like that.
And then in terms of the jobs guarantee,
I think that there's so many great programs
that we've seen, so things like transitional jobs programs
that have worked really well
or just direct hiring programs during recessions.
But it's a really big job to hire,
four percent of people during a good economy
and 10% of people perhaps even more during a bad economy.
And so I'm just curious as to Derrick's thoughts
on how you actually achieve that scale,
everywhere in the economy
because there's also a question of how you do it,
not just in sort of cities or places
where government services are already co-located
but out everywhere.
If you're gonna to have it truly be a guarantee.
So those are those are two of my questions.
- Well Oren we'll get back to you on Annie's question.
Derrick why don't you...
- To answer your question I'd say that,
there are many great things that we can build
in terms of our infrastructure.
Well imagine literally greening every home in America.
How many homes are there in America?
How many jobs would that create?
Beyond just my imagination,
we have historical precedences of the WPA
when we leverage larger segments of the labor market
to rebuild and build America.
We have wars where we've put Americans to work
and even outside of America,
if we think about promoting world peace,
if we start thinking about a marshall plan again,
America could literally use its employment resources
to reimagine the type of world that we want to live in.
So I think the imagination is the only constraint
and we certainly can put Americans to work.
I'd also say that the plan that I put forth
literally eliminates working poverty,
literally eliminates involuntary unemployment.
Some of my critiques of my colleagues
and I'll start with Will is that Will,
in my view, came up with a slighter hand.
He gave the proposition of New York city
and the housing cost in New York city.
The rent's too damn high in New York city.
The rent is not high.
The rent is high because of the market,
not in spite of the market.
So basically deregulating housing
and getting rid of a zoning laws
is not gonna make the rent go down
it's going to make the rent go up,
housing price is gonna go up.
Some of the things that they have controlled rents
in New York has been things like rent control,
for example, so I don't think that'll be the solution.
On an ending I don't have big objections to their proposals.
My concern would Oren's is that it's still subsidized
as low wage work, which might be the problem
in and of itself.
This is why the federal job guarantee in contrast
provides a public alternative to firms that offer low wages,
low benefits and poor working conditions.
Subsidizing them won't make them go away.
We plan to put a floor so that
if they want to compete in the market space for labor,
they have to offer really good products.
Poor people are vulnerable to extraction
and exploitation from firms.
That's how they make profits.
That is their goal.
So the policies I'm talking about is a mandated right
for empowerment for people and that relates
to Annie's policy in the notion of how do we empower people
so that they have agency in their lives,
so that they can be self determining
and make choices for their lives.
So I liked the intent around a UBI.
I have concerns with the universality of it
where everybody gets the same amount
and if everybody gets the same amount,
the most generous UBI I've seen have been $10,000.
Well that doesn't elevate everybody out of poverty.
In fact, it could be slightly inflate,
it couldn't be not slightly it could be inflationary,
but it also might have the unintended consequences
of enhancing inequality.
If I'm wealthy I can invest.
If I'm poor by definition I have to consume.
So I like providing people with direct resources,
I would only do it in a way where it's not universal,
where everybody literally gets the same amount.
- So Oren, Annie asked you a question,
I want to broaden it a little bit.
She asked you the question of you are saying,
"Let's go out there and give employers money
"and the less they pay their workers,
"the more we'll give them."
And asking us to accept something
that sounds illogical like that.
So I want to hear a little bit about that,
but I want to hear from you and then from others as well.
We teach people about evidence-based policymaking here.
You're talking about a really big new program.
Would you do this right away for the whole country?
Would you pilot it?
How would you figure out other than just your own intuition,
which is pretty good but not perfect if this works or not?
- So I think Annie's question about who ultimately benefits
and how to employers respond is certainly an important one.
One thing I'd say is we actually have evidence
on this question from the earned income tax credit.
So at the end of the day, the earned income tax credit
is a similar program.
We give money to people who are earning low wages
and we give more money to people
who are earning lower wages.
And we have studies of both the US and the UK alternative
that show that roughly 70 to 75% of the benefit
is typically captured by the worker.
Now why would that be the case?
If you imagine let's just take Target and Walmart
sitting there.
They offer whatever wage they offer.
If a wage subsidy comes into the market
and one or the other of them says,
"Well this is great, I'm just going to pocket
"the subsidy myself."
Well, the other one could just pocket a little bit less
and still be better off than they were
and attract all of the workers that they want.
So to the same extent that you have
a competitive labor market without the wage subsidy,
you would still expect to have the competitive market
with the wage subsidy.
And in fact, the only way that the employer,
if you kind of do the Econ 101
supply and demand picture,
the only way the employer can actually benefit
is if the wage subsidy causes supply to increase.
So in other words, they need more people to come
into the market to allow them to offer a lower market wage
and therefore capture some of the benefit for themselves.
Well, more people coming into the market
is exactly what we want.
So employers are only capturing some of this benefit
to the extent that we're successful
and then it's also important to flip that in your head
and recognize that any policy you propose
that helps bring more especially less skilled workers
back into the labor market,
is going to have the same effect.
So bringing more or less skilled workers
into the labor market is synonymous
with doing something that's beneficial
not only to the workers but to employers as well.
And I'm going to come to your question,
second question I just want to say one thing briefly
connecting this to Derrick's critique.
It's just not true that low wage employers
are there to exploit and extract profit
from these oppressed workers.
Workers in the labor market
and the employers who are employing them
are engaged in a mutually beneficial transaction,
which by the way is pretty hard
on the employer side as well.
I ask a lot of folks in business schools in particular,
how many of you are planning to go out there
and create a lot of low wage jobs
and build a business that's going to employ
a lot of low wage workers and work with them
to build their skills.
It's not a popular answer.
It's typically not the most attractive way
to earn a quick return in this economy.
And if we actually want an economy built on people
working productively at all skill levels,
we actually have to be supporting
the employers as well and recognize they're providing
an important social function
and not attack them as oppressors.
In terms of how you implement it
and how confident we can be,
something like the EITC gives us some evidence
at the macro level of what we might expect to see.
But certainly there are a lot of implementation challenges.
The fact that we do the payroll tax
and know how to take money out of everybody's paycheck
every pay period tells us we also,