Job Insurance – Part 3 (What Is A “Work” State?)

In Budget Politics, Economic Planning, Economics, Full Employment, History and Politics, Living Wage, New Deal, Politics of Policy, Progressivism, Public Policy, Public Works, Social Democracy, Social Policy, Social Security, Welfare State, WPA on August 20, 2009 at 10:16 am

Introduction:

When I talked about “a work state as a social model” for Europe and other nations looking to tackle poverty and unemployment, I skimmed over the topic of what, exactly, a “work” state means, and why it would inspire people from other countries to emulation. So in the interests of making myself clearer, today’s post is dedicated to explaining the concept.

What Is a “Work” State?

In brief, when one talks about a “welfare state,” one is not merely describing individual policies, like old-age pensions; rather, a welfare state embodies a social compact between the state and its citizens to provide for the welfare of all; a social safety net that covers everyone and provides a basic social minimum necessary “to live the life of a civilized being according to the standards prevailing in the society;” and the political consensus that makes welfare a permanent responsibility of the state, regardless of which party’s in power. A welfare state also extends beyond the merely political. It ultimately touches and shapes virtually every other aspect of life: the economy is radically transformed by the introduction of powerful “automatic stabilizers,” the redistribution of purchasing power, and the substantial taxation that makes it possible; our society is transformed, as old conceptions about responsibility for oneself, others, the elderly, children, and so forth are altered, and the poor lose the stigmatized status of silenced wards of the state and become rights-bearing citizens again.

The concept of a “work” state owes much to the work of Edwin Amenta, who, in his paper “Bring Back the WPA” (into historical discussions of the New Deal), argued that the New Deal created not the partial and incomplete welfare state that social scientists often talk about, but rather an “”incipient “work and relief” state favoring the unemployed, providing means-tested work for some and stipends for others who were encouraged to exit the job market.” In such a state, the WPA provided jobs to the “employable” poor, Old Age Assistance and Aid to Dependent Children provided stipends to the elderly poor and poor single mothers, who were in turn removed from the labor market to reduce competition for employment.

This work and relief state, virtually unique at the time (although Sweden was in the process of independently deriving something similar in what would later be called the Scandinavian or social democratic welfare state), was America’s innovation in the field of social welfare, our legacy to the long trans-Atlantic history of social welfare reform. A “work” state is a modern update of this idea, adapting the WPA to a permanent “job insurance” program, and taking into account the existence of Unemployment Insurance, Social Security, and a number of other social welfare programs. Yet the two share one basic similarity – both involve a public commitment to the provision of employment for all that intersects with all areas of public policy and extends its influence into the broader economy and society as well.

How a Work State Works:

As I’ve discussed before, the foundation of a work state is a well-designed system of job insurance. Here’s how it would interact with other institutions to form a specific kind of state.

Social Insurance:

When the Committee on Economic Security was drafting their report calling for the establishment of Social Security, as I discussed in the firts part of this series, staffers from the Federal Emergency Relief Administration (FERA) who would later go on to run the WPA pushed for a series of job insurance options to be included in the bill. While a decision was eventually made to divide the bill in half between what became the Social Security Act of 1935 which established Social Security and what became the Emergency Relief Appropriations Act of 1935 which appropriated $4.8 billion to establish the WPA, they did include within the CES report a vision of how the two were supposed to work hand-in-hand:

Since most people must live by work, the first objective in a program of economic security must be maximum employment. As the major contribution of the Federal Government in providing a safeguard against unemployment we suggest employment assurance– the stimulation of private employment and the provision of public employment for those able-bodied workers whom industry cannot employ at a given time. Public-work programs are most necessary in periods of severe depression, but may be needed in normal times, as well, to help meet the problems of stranded communities and overmanned or declining industries. To avoid the evils of hastily planned emergency work, public employment should be planned in advance and coordinated with the construction and developmental policies of the Government and with the State and local public-works projects…

We believe it is desirable that workers ordinarily steadily employed be entitled to unemployment compensation in cash for limited periods when they lose their jobs…for they will be able to reenter private employment after a brief period, but if they are unable to do so and remain unemployed after benefit rights are exhausted, we recommend they should be given, instead of an extended benefit in cash, a work benefit–an opportunity to support themselves and their families at work provided by the Government. Similarly we deem provision of work the best measure of security for able-bodied workers who cannot be brought under unemployment compensation. (Ed: emphasis mine)

In this vision, “employment assurance” was to be the safety net under the safety net, working to make the social insurance system function more efficiently and comprehensively. Unemployment Insurance was to cover workers for short periods of time, after which “employment assurance” would kick in when benefits ran out. Even more importantly, “employment assurance” would provide real economic security to (at that time, a majority of) Americans who didn’t qualify for Unemployment Insurance – namely temporary workers, workers in small businesses or non-interstate businesses, and agricultural workers and domestic workers, the latter two categories including two-thirds of all African-American workers and over half of all female workers. Through jobs programs, these workers could be snuck in the back door of Social Security – as “employment assurance” workers would pay into Social Security and create eligibility for its benefits.

Today, we can see the signs of how this would work:

Job Insurance and Unemployment Insurance – are essentially complementary; Unemployment Insurance would cover people for the normal length of time between jobs, and then Job Insurance would kick in when Unemployment Insurance ran out.  Similarly, Job Insurance would reduce the number of people applying for and receiving Unemployment Insurance, easing the fiscal strain on the UI system. Moreover, workers on Job Insurance projects would pay into the UI system, replenishing its funds and rebuilding their eligibility instead of exhausting it.

Job Insurance and Social Security – Job Insurance reinforces Social Security. By keeping unemployment as low as possible, Job Insurance maximizes the worker to pensioner ratio, and by maximizing consumption and production, helps to keep revenues flowing as strongly as possible into the Social Security system. Moreover, just as is the case with UI, Job Insurance would help to make Social Security as inclusive as possible, by ensuring that workers who might otherwise have long gaps in their work history (which by preventing them from building up “points” towards their retirement, reduces their retirement pension) keep working and paying into the system, so that they are able to retire on time with a full pension.

Job Insurance and Payroll Taxes – reforming the payroll tax helps Job Insurance. One of the major drawbacks to the current regressive payroll tax method of financing our social insurance system is that it makes employment more expensive, and Job Insurance is no exception. By making the payroll tax progressive, you make Job Insurance much cheaper to run, cutting the cost of creating a million jobs from $40 billion to $30 billion, which would allow the same amount of financing to create a third of a million more jobs. (On a similar note, eventually moving to a single-payer health care system would also make Job Insurance cheaper, by de-linking health care from employment)

Economy:

As has already been discussed, a job insurance system would create great changes in America’s economic structure. To begin with, the average unemployment rate would fall, and job losses created by recessions would be greatly curbed. The impact of this would be felt in several areas:

  1. by “short-circuiting” the employment effects of recessions, the down-swing of the business cycle would be greatly curbed; recessions would still happen, but they would be shorter and much more shallow than they are now.
  2. by maximizing the number of people earning wages at any given time, consumption would be boosted, which in turn has a multiplier effect, boosting economic growth. And this would be quite large in effect, considering that a Job Insurance program that works to keep unemployment at 4% or below would involve at least 1-2% of the workforce being employed who wouldn’t otherwise – that’s anywhere from 1.5 to 3 million paychecks (or about $36-72 billion a year in additional spending).
  3. in a similar vein, by maximizing the number of people working at any given time, production is also boosted, which would also increase the average growth rate of the economy. The “value added per person employed” (i.e, how much the average worker produces in a given year) in the United States is roughly $68,000 a year. This should tell you a few things – first, given that the median household income is $46k a year, American workers are not getting a fair value for their work; second, a Job Insurance program that pays about $24k a year (not a great wage, but enough to keep a family out of poverty), creates much more in value to the taxpayer than it costs in wages. When you add it together, a jobs program employing 4 million workers might cost $160 billion to run, but it will produce as much as $274 billion in goods and services. Even if we assume, for the sake of being conservative, that the average unemployed worker is about half as productive as the average employed worker (which is unlikely, given that most workers experience unemployment at some point and that most unemployed people move back into the workforce after a period of time), the “social profit” of a jobs program would easily make up the cost of its operation.
  4. Perhaps most importantly, by reducing the competition for jobs, a job insurance program would alter the relative bargaining position of employers and workers, especially since the $24k salary of a Job Insurance job would force low-wage employers to raise their wages to prevent themselves from being out-competed. This in turn would help to reverse what I think is the fundamental weakness in the American economy – our wage growth is far too low, and far too concentrated at the top of the economic scale to keep up with increasing production, which renders our economy totally dependent on the availability of credit to keep economic growth going. Higher wages would not only make our economy more just, it would also make our economy more stable.

Society:

Ultimately, the social changes wrought by a “work” state are harder to guess at. What I would hazard is that the social nature of work would change; workers would know that they were less dependent on their employers for economic survival, and could assert themselves in more than just economic ways, becoming less deferential in their attitudes to their superiors, more comfortable in speaking their minds, and less accepting f rude or abusive treatment.

Furthermore, knowing that you always have a safety net below you also increases people’s tolerance for risk. Contrary to the arguments of libertarian economists like Friedrich Hayek, having a social safety net allows people to be more entrepreneurial and independent, because they know that they can go start a business or go back to school or pursue a creative or artistic vision without losing their health care, or putting their families at risk of destitution. In addition to being more daring, I also think that knowing you have the right to a job probably will diminish the amount of stress people have regarding their jobs and the economy, making us both happier and healthier.

Conclusion:

As Edwin Amenta and other scholars have noted, this was what America was supposed to be. In 1945-6, when the National Resources PLanning Board had published its historic report “Security, Work and Relief” laying out how a “work” state could work, when FDR had come out with his Second Bill of Rights speech, when the Full Employment Bill was being pushed through Congress, America stood at the brink of a great transformation, a realization of all the hopes and dreams of the New Deal. It would have been our legacy to the world, our nation’s contribution to a great trans-national conversation about how to build a better society.

We came within an inch of doing it in 1946; why not try again?

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  1. […] catch up on part 1 (national job insurance), part 2 (state job insurance), part 3 (the meaning of a work state), and part 4 (the experience of working on a Job Insurance project), […]

  2. Hey good stuff…keep up the good work!🙂

  3. This blog rocks! I gotta say, that I read a lot of blogs on a daily basis and for the most part, people lack substance but, I just wanted to make a quick comment to say I’m glad I found your blog. Thanks,

    A definite great read…

    -Bill-Bartmann

  4. […] directly, both now, and in the future as well, in order to accelerate the recovery process and to maintain unemployment rates that are closer to full employment during future periods of economic growth. To that end, a jobs […]

  5. […] works both in recessions and in “good times.” At base, job insurance ultimately is a plan for full employment, that least remembered and most-tantalizing dream of American […]

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