Home > Economics - General > Equality, freedom and wage labor

Equality, freedom and wage labor

July 14th, 2012

I haven’t been active in the debate between Crooked Timber members and various others (Bleeding Heart Libertarians, Matt Yglesias, Tyler Cowen) so far. Broadly speaking the claim on the BHL side has been that if only some minimal conditions (existence of a universal basic income, for example) were met, all employment contracts could be assumed mutually beneficial and there would be no need for governments to regulate their terms, for example to prevent sexual exploitation.

Most  at CT have been dismissive of these claims, but I’d like to explore the question a bit further. Is the objection that the necessary conditions aren’t likely to be met in practice, or that the employment relationship is inherently unbalanced, simply by virtue of the fact that one party gets to boss the other around.

Suppose that the following conditions were met

* Full employment, so that the cost to a worker of finding a new job is no greater than the cost to an employer of hiring a replacement

* A minimum wage adequate to allow a decent living standard without requiring acceptance of degrading working conditions

* A universal basic income sufficient to ensure that, even without working no-one need be poor

* A default employment contract, incorporating prohibitions on sexual harassment, rights to regular breaks and so on, unless these are explicitly contracted out

Would we then feel that legislative restrictions on employment contracts were needed, and, if so, which and why? Or, is the question badly posed in some way

I can think of two ways to argue that the question might be badly posed.

The first is that capitalism could not sustain such conditions, and so the question could never arise in practice.  For example, it might be argued that the tax rates required to finance a UBI would not be consistent with a high (post-tax) minimum wage, assuming that capitalists still had to earn a positive rate of return.  I’m not convinced of this, especially since developed countries seemed fairly close to meeting these conditions towards the end of the postwar boom. But, arguably, that’s why the boom ended.

A second response, which I find more appealing, is that such conditions would give workers sufficient bargaining power to demand union representation, and that union contracts would embody the standard protections.

But I’m also attracted to a third view, one which would give a little more ground to the BHL position, though at quite a high price. That is the view that, if only we had the substantial measure of economic equality described in the conditions above, we could indeed dispense with a lot of government intervention, and thereby enjoy more freedom in matters such as contracting over working conditions (or, as discussed in another thread, selling kidneys).

I’m not convinced that this is right, but I think a lot of the heat in the debate reflects the extreme inequality of current conditions, particularly in the US. The BHL side of the debate wants to believe that a modest tweak to current conditions would provide sufficient independence to make free contracting on equal terms a meaningful concept. The CT side mostly takes it for granted that the required degree of equality can’t be achieved in practice, and that it’s therefore silly to concede anything to demands for freedom of contract.

Obviously, I think CT has had the better of the debate. Still I’m attracted to the idea that a more equal society would also be one in which there was less need for detailed and prescriptive government interventions. Against this, I share the intuition that bosses will always be bossy and (at least some) will always try to abuse their position.

So, I’ll leave it there, and request civil discussion,

Posted via email from John’s posterous

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  1. TerjeP
    July 19th, 2012 at 20:46 | #1

    EG – NPT is not related to the vintage of the employee.

  2. critical tinkerer
    July 19th, 2012 at 20:47 | #2

    @P.M.Lawrence

    Look again. Nowhere do I suggest putting incentives on people to take up any of these options, let alone hurting them more
    “Option”? What option? To work under unemployment benefits? If you work then there are many expenses then if you do not work. That hurts.
    What additional options are you talking about, besides receiving the same benefits wether working or not with additional cost. That is not an option.

  3. Ernestine Gross
    July 19th, 2012 at 20:56 | #3

    TerjeP, your comment is irrelevant to my point in my preceding post.

  4. TerjeP
    July 20th, 2012 at 05:59 | #4

    Maybe I misunderstood you then. Can you explain this bit:-

    If NPT is linked to unemployment (in aggregate) then businesses do have an incentive to fire people (create unemployment) and then rehire (not necessarily the same people) and get paid for it.

  5. Ernestine Gross
    July 20th, 2012 at 07:26 | #5

    @TerjeP

    There is no explanation required if you read the entire post addressed to P.M.L.

  6. Freelander
    July 20th, 2012 at 16:48 | #6

    Sometimes, even very large print is not enough for the hard of thinking.

  7. critical tinkerer
    July 20th, 2012 at 17:17 | #7

    @TerjeP
    EG reworded my points of rehiring temp agency work and small businesses instead of keeping the good wage workers.
    He is explaining that if the NPT is apllyed generally, to all, then there will be abuse. To prevent abuse it has to be directed only for some purposes and it has to be applyed for it by each company.

  8. TerjeP
    July 20th, 2012 at 21:52 | #8

    CT & EG – your assertion makes no sense to me.

    The simplistic NPT would offer businesses an annual tax rebate of $R times the number of full time equivalent employees for the tax year. Clearly this does not encourage any reduction in employment. Quite the opposite.

    A modified NPT might increase this rebate in times of high unemployment. The rule might be that businesses are paid 1.5 times $R when unemployment is over 10%. This higher rebate would clearly create a greater incentive to employ people.

    I can’t see any scenario where such an NPT would make employers more inclined to outsource. And give no one business has any meaningful control over the unemployment rate it’s hard to imagine any other variation of the NPT were businesses gain by shedding staff.

  9. July 20th, 2012 at 22:06 | #9

    Ernestine Gross :
    @P.M.Lawrence
    If NPT is linked to unemployment (in aggregate) then businesses do have an incentive to fire people (create unemployment) and then rehire (not necessarily the same people) and get paid for it.

    Am I right in thinking that you have read the proposal as providing tax breaks to employers linked to how many unemployed they take on? That would indeed provide incentives to do that (although I would not characterise this as them getting “paid” for it, as I want to avoid any impression that funds would be needed to flow from the government).

    However, as I indicated in the material I linked earlier, the general idea is to “… integrate the wage subsidies with the taxes paid by employers as a tax break of a set amount … per worker per non-overtime hour worked, raising the nominal rate or level of the carrying taxes or of other taxes to compensate. These tax breaks would apply to existing employees and to the self-employed as well as to the newly hired, indefinitely and not just for a limited period – the system is not what some people have sometimes misunderstood it to be, a simple targeted one aimed at helping only the unemployed, and only helping those until they were back in work (doing that would merely encourage employers to switch existing workers for new ones, and then drop those for yet newer ones after a while, and so on).”

    I believe that last sentence addresses the concerns you raise here. If I have misunderstood them, please clarify them for me.

    In the corporate sector the ‘competition’ for profits (and bonuses) is such that there could be race for strategic head culls (contemporary management language) and smal business owners wouldn’t necessarily mind making more profit. There is a serious incentive compatibility problem.
    Without further restrictions, your argument about the fiscal position does not hold.

    Am I right in thinking that, here, you are concerned about the sustainability of an NPT, in view of its effects on government revenue? If so, you are right to be concerned, because it would fail horribly in this respect if it were done wrong, i.e. without setting the right parameters. But there is no problem if the following are used:-

    - “subsidy levels have to be set similarly to unemployment benefits or somewhat below, so that their effect matches the spread cost we need to counteract” (here, I am not thinking of benefits received but of the costs of those, i.e. including the on costs of administration, etc.).

    - “raising the nominal rate or level of the carrying taxes or of other taxes to compensate” (in Australia, the carrying tax would most likely be GST).

    The second point creates short term revenue neutrality, i.e. no change in revenue between immediately before and immediately after implementation. The first point creates long term budget neutrality, i.e. no fiscal problems over time, as it links revenue changes with changes in outgoings on unemployment benefits. (Feel free to start thinking about invariants, Noether’s Theorem, and so on at about this stage.) Over and above that, we can reasonably expect GDP increases to increase revenue elsewhere in the revenue base: “Professor Swales’s modelling indicates that … both GDP and employment levels increase – GDP about half as much as employment levels in percentage terms”.

    Cynic that I am, I do not expect much initial improvement as businesses would expect the government to change the rules on them as soon as they had hired materially more people. So on the one hand budget neutrality is important to make the policy sustainable until expectations changed, and on the other hand the only likely rapid effects are reductions in downsizing as those decisions can be deferred longer, and increases in apprenticeships and on the job training as those can be expected to lead to more productive workers fast enough not to cause a problem from having unjustifiable workers if the rules did change.

    I believe the only genuine problem in this area is the political one of perception: “this does mean some big numbers in the intermediate calculations, which might frighten some people even though they don’t correspond to anything real any more than the large displacement of a ship that almost fills a dry dock means that you need that much water in the dry dock to float the ship – Archimedes’s paradox”.

    There are at least two areas needing care, but they are not fiscal: even though aggregate burdens remain the same or even improve, some sectors or firms might fare worse than others; and, higher nominal GST rates also affect things like working and fixed capital, so it would be better to get revenue neutrality by changing rates on other taxes as well, and not simply on GST (plus, of course, yet other unrelated reforms could and should be developed and implemented to help with savings and investment).

    Again, please clarify your concerns in this area if I have misunderstood them.

    However, if NPT is linked to economic conditions, experienced by a segment of businesses and considered temporary, and management’s performance is satisfactory with respect to a set of specified conditions (eg debt/equity ratio, business internal gini coefficient), then NPT could provide a mechanism in the area of industry policy. In other words, management would have to apply for NPT.

    While I do see a role for industry policy, it strikes me that any effort to focus or target an NPT would undercut the crucial feature that, by working across the board, it offsets a negative labour market externality that spills over across the board. That is, it would create “leaks” in what the NPT is trying to achieve.

  10. July 20th, 2012 at 22:41 | #10

    critical tinkerer :
    @P.M.Lawrence
    I really do not get problem you are trying to solve with NPT.?
    I tried reading your recomendations at spectacle, but i can not get past the wrong assumptions there like ˝of paying people to be unemployed and of penalising employers˝ which is just moralizing from nowhere.

    No, it’s not, it’s leading in to the audience I most had in mind – people with compassion but hard heads, whose understanding so far has led them to think that nothing can be done that would not make things worse. So I started by summarising a typical position of theirs. Oh, and it’s not an assumption – it’s what they believe they see.

    Majority of people do not want to be morally dissabled by not working even if it pays less.
    Employers employ because they need employees, not because it costs them. They will not employ uneeded people even if you compensate some of the costs.

    Oh? In the extreme, they would – they would just pay people to sign on with them instead of with Centrelink, and pocket any profit from more efficient administration. (No, that’s not an assumption either, I just mean that if they didn’t need to increase HR much they would get the administration outgoings as profit, and so on.) But it’s far more likely that they would take people on and ask them to do at least a little around the place to help out. Follow that logic far enough and you will see that at present there are quite a number of people who aren’t quite worth hiring for the value they contribute, yet who would just be worth it under an NPT. That effect keeps acting at all levels of employee productivity, although it becomes proportionally less significant the more productive they are. Taken all together, though, it means that, apart from people who actually need care, everybody would become employable (not counting job search time, frictional unemployment).

    We had had conditions similar to NPT when there was no worker income tax and no minimum wage in 18 and 19th century so what happened?

    No, we did not have “conditions similar to NPT when there was no worker income tax and no minimum wage in 18 and 19th century”. There was the Elizabethan Poor Law (with its Speenhamland variant) and then the New Poor Law, all putting that negative externality into effect, all on top of expropriations like the Enclosures of the Commons and the Highland Clearances that removed personal resource bases.

    Crises hit just as same, wages are offered at low and still unemploymentr was there.

    And that’s just precisely what you would expect if you let things rip without one or other of the possible fixes.

    Just what problem are you trying to solve, besides employers problem of production cost???
    ANd if you say there would be no unemployment with NPTthen why not implement my formula if it would have no impact in your ideal market??
    In my opinion, you just trying to regurtitate old formulas which bringing us the race to the bottom; Let’s reduce production costs other matters less important.

    If you look at what I wrote – if – you will see that your opinion does not match that. An NPT isn’t that at all. But then, you admitted stopping reading at the first paragraph, so you wouldn’t know.

    Why not reduce cost by untaxing idustrial production and tax rent-seeking high? Since corporate and income low marginal tax is incentive to empty corporate budget and reduce workers pay by money going to menagers only, it hurts corporations, people and economy.
    Why do not you study how low marginal taxes are incentives that made the high inequality possible and how it works against corporations, people and economic development? Try to figure that out and you could be famous, maybe Nobel, not some marginal ideas that were before.

    If you read to the end, you will see me asking and answering the question, “Well, if this is so clever, why isn’t everybody rich?” And, by the way, one of the people I cite as working in the NPT area already got the Nobel Prize (Edmund Phelps).

  11. Ernestine Gross
    July 21st, 2012 at 00:16 | #11

    @TerjeP

    Please consult the literature on “incentive compatible mechanism” (if you put this term into google you’ll find academic literature among others. I checked the Wiki entry. There is a note saying it is a stub. So, finding a sentence from this entry isn’t going to be helpful.) I suggest you pass the topic “incentive compatible mechanism” to P.L.M.

  12. critical tinkerer
    July 21st, 2012 at 01:32 | #12

    @TerjeP
    I believe that you just can not imagine a corporation gaming a sistem even tough it is its purpose to make more profit in any way possible.
    ANd what you and P.L.M. think of people as problem we think of pay of available jobs as problem, jobs those people that you find lacking fill. Moralizing people instead of available jobs. We moralize employers, you moralize workers.
    There is so many examples in the world that show how people will work their ass off if pay is good, Countries with best productivity are the countries where pay is good for all jobs.

  13. TerjeP
    July 21st, 2012 at 09:47 | #13

    CT – Of course people and corporations game the system. But the game has to be profitable in order for it to be widespread. EG has proposed a game which would not be profitable. I suspect her formulation is based on a misunderstanding of how the NPT would work.

  14. TerjeP
    July 21st, 2012 at 09:59 | #14

    Please consult the literature on “incentive compatible mechanism”

    As best I can tell from this referal you are implying that some employers may misrepresent how many employees they have in order to access more of the proposed tax rebate. That is an issue but it is a very manageable one. Certainly no more problematic than tax avoidance or welfare fraud.

    If however you were attempting to make some other point then it would probably be best if you made the point rather than making riddles. Riddles can be fun but I’ve tried yours before and they are generally tiresome and somewhat patronising.

  15. BilB
    July 21st, 2012 at 12:47 | #15

    Face it, Terje.

    This NPT thing is a dead duck. It might be useful for a handfull of businesses with a specific labour access problem such as fruit picking and businesses that can obtain some benefit for having more people standing around (like walking billboards or as a deterent for security reasons), businesses such as Hoyts for instance, but for the rest of industry having more people even at half the price is still an extra expense with no gain. To take on extra people you need to have extra sales. No doubt PML would swing in here and say that having full employment would create the extra business, I don’t believe that. This is one of the fallacies of the NPT argument.

  16. critical tinkerer
    July 21st, 2012 at 15:43 | #16

    @P.M.Lawrence

    Follow that logic far enough and you will see that at present there are quite a number of people who aren’t quite worth hiring for the value they contribute, yet who would just be worth it under an NPT

    When you find “quite a number of people who aren’t worth hiring for the value they contribute” is when economy is rising, when employers expect the surge in demand, the cost of having them employed matters much less. The recent fantastic surge in productivity in USA came as firing of those marginal employees and as dangers of being fired working on the workers mind to less extent. There are no such marginal employees today in depression when employers expectations are; stagnation in demand. They will not hire untill there is rise in demand no matter how much help with costs they get. At the present there is tremendous amount of profits in large corporations due in effect to cutting less esential employees from payroll, hence there is unemployment that you would like to reduce. In normal time there is no considerable unemployment that you can affect with NPT.
    Acctually, NPT would work much more effectively when economy is booming then in depression due to expectation of surge in demand.

    And as BilB pointed out;

    To take on extra people you need to have extra sales. No doubt PML would swing in here and say that having full employment would create the extra business, I don’t believe that. This is one of the fallacies of the NPT argument.

    Because NPT would not change buying power of unemployed then there would be no upsurge in demand necessary for employers to start hiring, unemployed would be receiving same benfits weather working or not.
    In short, you can make NPT work with equilibrium models of macro but not with IS-LM models/accounting macro models. Just as equilibrium models can not explain what is happening now in depression, your NPT model could not work in depression.
    P.S. I read your article past midway but everything is pointing to wrong assumptions as culprit since logic and everything else is good later on, but everything is built on wrong assumptions then the whole conclusion is wrong.

  17. critical tinkerer
    July 21st, 2012 at 15:53 | #17

    @P.M.Lawrence
    We on the left are complaining about your assumtions that you start with not what follows in your work while you are defending your work and not thinking about assumptions. We are talking past each other cause of it.
    Your wrong assumptions are in the title.

  18. critical tinkerer
    July 21st, 2012 at 17:55 | #18

    Much better solution to unemployment problem then NPT is what Germany did in 2008, an active solution that requiers predicting rise in unemployment which your equilibrium model can not predict. Germany offered to corporation to pay for difference in having part tima workers stay instead of firing extra workers. To keep all employees and spread work hours to all instead of firing extras. Government pays for difference in expenses to corp. They succesfully kept unemployment low untill their economy recovered in two years.
    This way goverment marginally lowered expenses for unemployment, workers did not suffer psycological deppression asociated with loosing a job and kept spending and employers kept confidence about their government which gave them time to reasess the situation instead of going into apocaliptyc thinking which lower demand would bring into vicious cycle.

  19. Ernestine Gross
    July 21st, 2012 at 23:11 | #19

    @P.M.Lawrence

    I approached NPT with an open mind and came to the conclusion as stated @50,p2.

    @9, p3, you tell me that I have misunderstood the idea of NPT. After considering your reply I now have a few questions, one theoretical and one applied:

    1. What is the problem to which NPT, as described by you, is a solution?
    2. How would ‘revenue neutrality’ be of any use to, say Spain which attempts to reduce its budget deficit and there are about 24% unemployed people? (Setting aside the revenue neutrality, I can’t see how NPT would be of any use to Spain’s population.)

    (De Gaulle comes to mind. The then French President is reported to have said: Researchers who search, we find. Researchers who find, we search.)

  20. TerjeP
    July 22nd, 2012 at 11:47 | #20

    PML can answer for himself but my answers to those questions are simple:-

    1. The social problem called unemployment.
    2. Spain has a payroll tax of nearly 30%. There is no point contemplating a negative payroll tax to reduce unemployment when simply reducing the existing payroll tax should happen first. How to pay for such a reduction whilst reducing the deficit must logically entail economic growth, spending cuts and potentially increases in other taxes such as income tax or VAT. It should also seriously consider defaulting on it’s debts.

  21. Ernestine Gross
    July 22nd, 2012 at 14:05 | #21

    @TerjeP

    As for your point 1. See my post @50, p2.

    As for your point 2. I take your information on the payroll tax in Spain as given. Happy to read you concede that NPT is not a solution when unemployment is serious. I concur with you that reducing payroll tax first does indeed reduce the price of employees (‘labour’) relative to machines (‘capital’), in the cost accounting files of business. This matters for commercial decisions.

    But how did Spain get into its current difficulties? The after tax relative price of ‘labour’ and ‘capital’ is only one factor. To the best of my knowledge, Spain did not have a government deficit problem prior to the GFC. It was the private sector (banking, building and construction), the real estate sector went bust in the first instance and then the banks got into difficulties. It was private financial capital which was misallocated (too much of a good thing). The segment specific bust has immediate implications for the income distribution.

    I concur with you on the general idea that the taxation system should not be biased against employment. Beside the payroll tax, there is another tax item which penalises employment and wage rates, although it is not so directly observable. I have in mind the tax-deductibility of interest (‘expense’ in financial accounting) which encourages borrowing. If a business experiences ‘financial distress’ (ie difficulties in paying interest and debt obligations), there is only 1 variable it can control to reduce costs and that is labour. The decision makers (excluding single owner operator, ‘self-employed’), like everybody else, are interested in their own survival first (no incentive to cut CEO incomes, to use the most obvious example). So, high debt/equity ratios imply a risk for employment. Point 1.

    Without specifics, it is not helpful to make policy recommendations. But consider the following. Suppose we define a policy variable, k, which can take values from 0 to something bigger than 1 but finite. The value of k, determined by government in a flexible manner (like income tax rates), specifies the maximum debt/equity ratio (book value) for which interest payments can be made tax deductible (the lower limit is 0). (There are a few complications regarding long term loans but this is a grandfathering problem of detail).

    Suppose there would be a policy variable k and it would be used by governments. Then several other areas of ‘the economy’ would be affected in a desirable way:

    1. Leveraged buy-outs (management as well as private equity) become risky (with less risk to employees but loss of fees to corporate lawyers, managers, accountants, and advisers. This counteracts growth in income inequality)
    2. Some take-overs (as for 1)
    3. The value of equity options (and therefore options trading not subsidised by taxpayers)
    4. Management performance schemes linked to share prices or share options (not subsidised by taxpayers
    5. Bankruptcies due to financial policy under the control of top management not subsidised by tax payers
    6. Financial system risk not subsidised by taxpayers.

    The above 6 points are all factors that feature in the GFC.

  22. TerjeP
    July 22nd, 2012 at 16:27 | #22

    Beside the payroll tax, there is another tax item which penalises employment and wage rates, although it is not so directly observable. I have in mind the tax-deductibility of interest (‘expense’ in financial accounting) which encourages borrowing.

    A more serious problem is the tax on profits. If you have less retained profits then you are more dependent on finance when pursuing growth. I prefer the Estonian tax model that let’s companies retain all profits free of tax but applies a tax on dividends instead.

  23. TerjeP
    July 22nd, 2012 at 16:28 | #23

    Historical Spanish public debt:-

    http://www.indexmundi.com/g/g.aspx?c=sp&v=143

  24. TerjeP
    July 22nd, 2012 at 16:31 | #24

    As for your point 1. See my post @50, p2.

    Yes I’ve done that. Your point there seems nonsensical to me.

  25. Ernestine Gross
    July 22nd, 2012 at 16:52 | #25

    @TerjeP

    @ 24: A lot of IT stuff is non-sensical to me. So we are square in the ignorance department, I suggest.

    @23: Thank you for looking up the Spanish public debt aggregates to confirm what I said.

    @ 22: “If you have less retained profits then you are more dependent on finance when pursuing growth.”

    Not true in general. Issue shares (listed or unlisted).

    Very small enterprises do rely more on bank finance. But several of the points in the list I gave, including bankruptcy and financial system stability, are not relevant for very small enterprises.

    Furthermore, a government can introduce a dividend imputation scheme, like in Australia, such that tax payments are linked to a progressive income tax scale (although not perfectly).

  26. TerjeP
    July 22nd, 2012 at 17:34 | #26

    Australia’s franking system avoids double taxation but still starves growing businesses of cash.

    Equity finance is an option but it can be complicated. For small enterprises a lower tax burden makes more sense. You can collect when they start paying dividends to the owners or else via capital gains if the owners sell their stock in the interim. I’m not sure why the taxman should collect long before the investors do.

  27. TerjeP
    July 22nd, 2012 at 17:36 | #27

    @ 24: A lot of IT stuff is non-sensical to me. So we are square in the ignorance department, I suggest.

    You’re assuming a comprehension problem. I’m assuming something else.

  28. July 22nd, 2012 at 17:38 | #28

    BilB :
    Face it, Terje.
    This NPT thing is a dead duck. It might be useful for a handfull of businesses with a specific labour access problem such as fruit picking and businesses that can obtain some benefit for having more people standing around (like walking billboards or as a deterent for security reasons), businesses such as Hoyts for instance, but for the rest of industry having more people even at half the price is still an extra expense with no gain. To take on extra people you need to have extra sales. No doubt PML would swing in here and say that having full employment would create the extra business, I don’t believe that. This is one of the fallacies of the NPT argument.

    No, I would simply direct your attention to where I already addressed this, in my comment of 22:41, on 20.7.12 replying to Critical tinkerer. I don’t know if you missed this or if mine was still hung up in moderation when you asked.

    Oh, and you really should not claim that “This is one of the fallacies of the NPT argument” about your own suggestion that I would claim “that having full employment would create the extra business”. Not only is that a straw man, it’s got nothing to do with the NPT mechanism at all.

  29. July 22nd, 2012 at 17:45 | #29

    critical tinkerer :
    @P.M.Lawrence
    We on the left are complaining about your assumtions that you start with not what follows in your work while you are defending your work and not thinking about assumptions. We are talking past each other cause of it.
    Your wrong assumptions are in the title.

    You have already been told, not just by me, that this stuff is not “assumptions”, it’s the result of arguments. Now, it’s quite possible for things like that to be wrong, but you can’t turn them wrong by calling them assumptions and saying you don’t accept those assumptions. And that is the cause of talking past each other – that you only accept the existence of opinions and assumptions, and insist that reason and argument have no place but must be taken as opinions and assumptions.

  30. Ernestine Gross
    July 22nd, 2012 at 17:51 | #30

    “Equity finance is an option but it can be complicated.”

    Obviously, the proverbial Wall Street bankers thought so too because these ‘investment bankers’ found it easier to collect fees for processing sub-prime mortages and selling the falsely classified ‘investment grade’ CDO to the public instead of raising equity capital and lend to these borrowers directly. Clever, isn’t it, the assessment of credit risk is outsourced to people who have no chance to make a credit risk assessment, namely the buyers of these CDOs. Since these things didn’t exist for a long time, there was no historical data either for people to make an educated guess.

    And now we have the mess, including horrific growth in income inequality, mass unemployment, small businesses going to the wall and a government debt explosion and costly court cases.

    If the taxman (thank you for not saying taxwoman) had collected a lot of tax long before the investors became investors, the mess might be smaller.

  31. July 22nd, 2012 at 18:33 | #31

    Ernestine Gross :
    @P.M.Lawrence
    I approached NPT with an open mind and came to the conclusion as stated @50,p2.

    I am sure it is my failing, but I genuinely could not see what you were getting at just there – apart from the fact that you believed there would be an incentive to fire some workers and replace them with others, and that the fiscal position would not be as I hoped. That is, I could not see why you thought that would be how things worked out. Like TerjeP, I could not see the relevance of “serious incentive compatibility problem”. I don’t mean I don’t get the concept, I mean I don’t get how it would come up. The simplest implementation would involve giving people anonymous, transferrable vouchers they could give their employers, which would be the supporting documentation to get the tax breaks. The incentives to make sure the vouchers reached the right hands at the right times would be just the same as with any money supported in a Chartalist way on the back of taxes: people would value the vouchers enough to look after them while they were used. So, either it’s a non-problem or you were getting at something else that I still don’t see.

    @9, p3, you tell me that I have misunderstood the idea of NPT.

    Actually, I went to a lot of trouble not to tell you that, partly because it is quite possible – a priori – that you know something I don’t, and partly because I wasn’t too sure what you did understand by all this, as I point out just above.

    So I very carefully asked if I was right in thinking your position was such and such, providing what I hoped would be further and better information in case that was your position and asking to be corrected if that was not your position.

    At this point, I still don’t know if you understand the NPT far better than I do, if you are missing something I have somehow failed to bring out, if we are at cross purposes, or something else. But I do know that, if I am in error, it must be an error subtle enough to have got by both Phelps and Swales as well as me.

    After considering your reply I now have a few questions, one theoretical and one applied:
    1. What is the problem to which NPT, as described by you, is a solution?
    2. How would ‘revenue neutrality’ be of any use to, say Spain which attempts to reduce its budget deficit and there are about 24% unemployed people? (Setting aside the revenue neutrality, I can’t see how NPT would be of any use to Spain’s population.)
    (De Gaulle comes to mind. The then French President is reported to have said: Researchers who search, we find. Researchers who find, we search.)

    The first question is badly formed, because first we have to know some background. In fact, NPT should not be thought of as a solution to a problem so much as the elimination of a labour market externality. That, in turn, presents a problem to the unemployed, those at risk of unemployment, and those whose conditions are affected by that; in a different way, it presents a different problem to those who would rather have larger aggregate output in the economy at the same cost (broadly understood); and so on. So the problem is different for people in the country to what it would be for those considering investing in the country from outside, and of course for some people it is a non-problem because they don’t have a dog in the fight – or even because they have an interest in palliatives over cures.

    Now, I personally have the first sort of interest in the issue, making it a problem in my own terms. But JQ presented the matter in his original post in the manner of a detached, intellectual challenge related to some discussions that had recently come up. That’s not to say that it is only a sort of puzzle, but rather that detached analysis is often the way to go – if nothing else, it helps keep things clear rather than emotionally heated. So I have been trying not to handle this as a real problem but as an intellectual one, but even so I know, wearing my other hat, that a lot of this could matter to a lot of people in a lot of very immediate ways. But not to everybody, and certainly not to those with an emotional or practical investment in helping the poor (as opposed to helping them not be poor).

    Now, as to Spain, there the issue is that Spain mainly has a different sort of problem. To use a loose analogy, the patient has a disease that – like many – has fever as a symptom, but where many fevers should be treated as such to cure the patient, here treating the fever (high unemployment) would not cure the disease (excessive financial commitments), though it might help to buy time to deal with the main problem – if only someone knew how to do that. In Spain’s situation, I would not be surprised if trying an NPT without the other measures hit the pushing string zone I described: “But you can only apply these virtual wage subsidies up to the size of the economy, because they can’t get bigger than the tax base involved; if you try more, it’s like pushing on string – everything goes slack. In the ultimate, if the population got too big or the economy got too small, it would be too much for the economy’s current capacity and would work through as Malthusian constraints. Now, many people deny that there are any such limits, because they think we can always push them back. But here we are looking at how to structure the economy properly, which means we have to pay attention to those constraints because that is precisely how we can push them back …” Revenue neutrality only works up to the size of the revenue base; after that, you push on string.

    I never claimed that NPT was a wonder cure for every economic ill, just that it addressed one particular area.

  32. TerjeP
    July 22nd, 2012 at 18:42 | #32

    Wall Street bankers operating in the US are subject to taxes on profits. So I’m not sure how your example is relevant.

  33. July 22nd, 2012 at 19:00 | #33

    TerjeP :
    CT & EG – your assertion makes no sense to me.
    The simplistic NPT would offer businesses an annual tax rebate of $R times the number of full time equivalent employees for the tax year. Clearly this does not encourage any reduction in employment. Quite the opposite.
    A modified NPT might increase this rebate in times of high unemployment. The rule might be that businesses are paid 1.5 times $R when unemployment is over 10%. This higher rebate would clearly create a greater incentive to employ people.

    Unfortunately, setting it higher than matching unemployment benefits would undo a key feature: budget neutrality. Not only would higher tax breaks push for more employment, they would also cut the revenue base more than the savings on unemployment benefits, so that would affect the government in a way it wouldn’t like (I’m told “rebates” rather than tax breaks or offsets is wrong as with them the government can pay a taxpayer net). Not only would that matter for the politics and the sustainability, it might lead to overshooting the optimal level that helps GDP most. With enough overshoot, GDP would actually be lower even than in the damaged situation with high unemployment.

    I can’t see any scenario where such an NPT would make employers more inclined to outsource. And give no one business has any meaningful control over the unemployment rate it’s hard to imagine any other variation of the NPT were businesses gain by shedding staff.

    Not an NPT itself, but the carrying tax and various other taxes like Corporation Tax matter. Firms can shift locations to get under more favourable tax regimes. If other countries’ GSTs were low for other reasons, Australia might have to lower the take of its GST. But that would mean a lower maximum setting for the tax breaks before the pushing string problem hit. “Luckily”, governments don’t compete that much in a race to the bottom for taxes. More seriously, there are other practical ways to restructure the tax and revenue base and the tax break implementation so they would continue to work in the face of this – up until really hitting Malthusian constraints, if that ever happened. But that’s not currently an issue.

  34. critical tinkerer
    July 22nd, 2012 at 23:24 | #34

    @P.M.Lawrence

    Not only would higher tax breaks push for more employment,

    This is your wrong assumption i am talking about.
    Let me spell it again. Your wrong assumption that you work with is: If employment cost is reduced, employers would hire more people.
    Employers would hire more people only when demand is rising or expectations are that it will rise. The proof of this is that you can see plenty of employees not making their worth employed, as you pointed out, but only when demand is rising. In depression there are no such employees. We witnessed skyrocketing productivity in USA in 2009 at the time when unemployment skyrocket. The reason is that less esential employees were fired.
    If there is no expectation of rising demand for their products and services, there will be no more hiring no matter how much NPT lowers labor cost. That difference would go into profits. Work with that assumption and see if NPT would work. You will get the same conclussion as Iconoclast, Ernestine and me.

  35. Ernestine Gross
    July 23rd, 2012 at 01:26 | #35

    @P.M.Lawrence

    I understand you say unemployed people will get a voucher that certifies the person for NPT. NPT is a tax concession for ‘the employer’ who hires a person who can present the voucher. If I have understood you correctly then I uphold my conclusion @50, p2. This is so because both unemployment data as well as a NPT com voucher system is public knowledge. Therefore ‘employers’ also know it. I assume you agree that business people (‘the private sector employer’) want to make a profit and the higher the better. Hence the profit motivated ‘employers’ prefer an employee with a voucher to an employee without a voucher because the after tax cost is lower. I assume you also agree that individual private sector employers are only interested in the profit of their enterprise and they cannot be expected to work through the implications of their actions for every member of society. By retrenching employees, the pool of unemployed is increased. By rehiring the retrenched people, they will come with a voucher. I call this a serious incentive compatibility problem. And this problem is unresolved.

    I fully concur this thread deals with theoretical issues. Hence my post @50, p2. As for JQ’s specific question, one of his conditions is full employment. Another condition is equal transactions costs for ‘the employer’ and ‘the employee’ in the labour market. These conditions would at most strengthen my argument about a serious incentive compatibility problem being created by the introduction of NPT.

    You say my first question is badly formed. My first question is: “What is the problem to which NPT, as described by you, is a solution?”

    We are talking theory here, and not bleeding heart emotional conversations or the promotion of some personal preferences for institutional arrangements. I assume we agree on this. In this case, it is common knowledge, at least between you and me, that the introduction of a solution to a problem which does not exist results in the creation of a problem.

    As for the applied problem of Spain, I’d like to reiterate the financial mess was created by the private sector (in contrast to Greece).

    I do not agree on your version of NPT[FN1], I still see NPT as one possible policy tool in the industry policy area as per my post @50, p2.

    [FN1] NPT is nothing but a tax subsidy paid to employers.

  36. July 23rd, 2012 at 09:50 | #36

    Ernestine Gross :
    @P.M.Lawrence
    I understand you say unemployed people will get a voucher that certifies the person for NPT. NPT is a tax concession for ‘the employer’ who hires a person who can present the voucher. If I have understood you correctly then I uphold my conclusion @50, p2. This is so because both unemployment data as well as a NPT com voucher system is public knowledge. Therefore ‘employers’ also know it. I assume you agree that business people (‘the private sector employer’) want to make a profit and the higher the better. Hence the profit motivated ‘employers’ prefer an employee with a voucher to an employee without a voucher because the after tax cost is lower.

    I take it that you do appreciate that, once the system came in, there would be never be any employees without vouchers, apart from those who had already surrendered their vouchers for that period?

    I assume you also agree that individual private sector employers are only interested in the profit of their enterprise and they cannot be expected to work through the implications of their actions for every member of society. By retrenching employees, the pool of unemployed is increased.

    That is absolutely true. But how does that matter?

    By rehiring the retrenched people, they will come with a voucher.

    But, precisely the same incentive applies to retrenching them in the first place, in the opposite direction.

    Let me provide a worked example. Fred Nerk works for Bill Berk for $40,000 p.a., while Joe Erk is unemployed and receiving quarterly benefits of $4,000 (which cost the government $1,000 in administration). The NPT is implemented using vouchers. Bill Berk panics at his apparently higher tax bill, until he realises that he himself, Fred Nerk, and all his other employees now have vouchers triggering tax breaks of $5,000 each quarter (issuing them is administratively cheap, since practically everybody gets them). Joe Erk walks up, under the mistaken impression that only the unemployed are getting vouchers, and makes the following proposal to Bill Berk: “If you hire me instead of Fred Nerk, I’ll give you my quarterly vouchers for tax breaks and we can split the difference, making you $2,500 better off each quarter and me $2,500 better off each quarter than Fred Nerk was – I’ll get $50,000 p.a., and worth every penny for finding this loophole for you”. But Bill Berk knows he is already handling the vouchers that Fred Nerk gets, and that he would lose those under the proposed arrangement. So he says to Joe Erk, “Nice try, but that wouldn’t make me better off because I would lose the vouchers I am already getting from Fred Nerk. But I’ll tell you what, in return for your vouchers I’ll give you $18,000 p.a., and you can come and sit next to Fred Nerk and help him when he needs it until you get more useful for something.”

    I call this a serious incentive compatibility problem. And this problem is unresolved.

    Were you under the impression that only the unemployed would generate the tax breaks? If so, you fully and clearly identified a genuine problem area that the NPT carefully avoids by not targetting people. That turns it into a non-problem.

    On the other hand, if you are looking at something else again, then it is something that I still have not spotted, and we are still talking past each other.

    I fully concur this thread deals with theoretical issues. Hence my post @50, p2. As for JQ’s specific question, one of his conditions is full employment. Another condition is equal transactions costs for ‘the employer’ and ‘the employee’ in the labour market. These conditions would at most strengthen my argument about a serious incentive compatibility problem being created by the introduction of NPT.
    You say my first question is badly formed. My first question is: “What is the problem to which NPT, as described by you, is a solution?”
    We are talking theory here, and not bleeding heart emotional conversations or the promotion of some personal preferences for institutional arrangements. I assume we agree on this. In this case, it is common knowledge, at least between you and me, that the introduction of a solution to a problem which does not exist results in the creation of a problem.

    In my view, there have been endemic problems in the unemployment area for generations, with even periods of low unemployment requiring heavy intervention that brought its own costs in the form of side effects.

    As for the applied problem of Spain, I’d like to reiterate the financial mess was created by the private sector (in contrast to Greece).
    I do not agree on your version of NPT[FN1], I still see NPT as one possible policy tool in the industry policy area as per my post @50, p2.
    [FN1] NPT is nothing but a tax subsidy paid to employers.

    It’s hardly “nothing but” that, since it is carefully structured not to involve or require funds flows in that direction. That makes it a virtual subsidy, with all funding costs carefully engineered out. Anybody who pulled out the corresponding numbers from the intermediate calculations, then called them a subsidy being paid, would be mistaking them for an amount the government could get. But if the government simply cancelled the NPT tax breaks and left the carrying taxes at the higher rate they were set to so they could carry the tax breaks, that wouldn’t bring in that amount – because the tax paying sector wouldn’t be able to pay that much.

  37. TerjeP
    July 23rd, 2012 at 10:13 | #37

    I understand you say unemployed people will get a voucher that certifies the person for NPT. NPT is a tax concession for ‘the employer’ who hires a person who can present the voucher. If I have understood you correctly then I uphold my conclusion @50, p2.

    This confirms for me that you have not understood the NPT proposal made by PML.

  38. TerjeP
    July 23rd, 2012 at 10:18 | #38

    Unfortunately, setting it higher than matching unemployment benefits would undo a key feature: budget neutrality.

    I wasn’t advocating such a change. Merely trying to explain that making it vary based on the unemployment rate wouldn’t lead to employee churn or lower employment as suggested by EG. However the quote in my previous comment demonstrates that EG is thinking of some sort of bounty scheme for giving a job to an unemployed person which is not what NPT is about. So clearly there is a misunderstanding. I’m not sure why because I think your proposal is quite clear.

  39. Ernestine Gross
    July 23rd, 2012 at 11:38 | #39

    P.L.M. and TerjeP, good luck to you in trying to fix a problem by the same or related means by which it was created. No wonder, the actual problem to which your version of NPT is supposed to be a solution is not precisely defined. This is the end of my interest in this topic. I make this clear so that you don’t spend time writing lengthy posts, allegedly for my benefit.

  40. Ernestine Gross
    July 23rd, 2012 at 12:04 | #40
  41. TerjeP
    July 23rd, 2012 at 13:10 | #41

    I make this clear so that you don’t spend time writing lengthy posts, allegedly for my benefit.

    How magnanimous.

  42. July 25th, 2012 at 10:44 | #42

    Ernestine Gross :
    P.L.M. and TerjeP, good luck to you in trying to fix a problem by the same or related means by which it was created. No wonder, the actual problem to which your version of NPT is supposed to be a solution is not precisely defined. This is the end of my interest in this topic. I make this clear so that you don’t spend time writing lengthy posts, allegedly for my benefit.

    I do not write this for E.G.’s benefit, but for the benefit of those readers who may come after and may mistakenly take her views as accurate descriptions of what I was trying to bring out.

    PLM is a computer language, and it is not a proper reference to me. Insignificant in itself, the error shows a tendency not to pay attention – particularly since it is not an isolated incident.

    The “actual problem to which [my] version of NPT is supposed to be a solution” is precisely defined: it is one particular negative externality currently obtaining in the labour market, driven by a disconnect between the costs of unemployment and the costs and benefits of hiring and retrenching, that suboptimally promotes unemployment and lowers production. Of course, defining it that way takes precise technical terms, which come over as jargon to those who are unfamiliar with them, so it helps to use metaphors and analogies to show these things to a wider audience – but that does not mean the problem is not precisely defined, it only means that loose analogies and overview presentations are only those.

    If “good luck to you in trying to fix a problem by the same or related means by which it was created” is supposed to mean that the only way to fix a problem is not to get to grips with it, huh? If nothing else, wouldn’t that practically guarantee ending up without a precise description and understanding of the problem, the very thing E.G. claims as a flaw? Doesn’t this open up a heads I win, tails you lose thing, since either we are condemned for facing the problem or we are condemned for not having faced the problem?

    But if it only means that, having come to grips with the problem, we are suggesting doing the same or similar things as led to the problem, well, no – we are suggesting undoing, working against the harmful stuff. By that reasoning, any Pigovian solution to an externality is something that perpetuates it, and in general that any work in a problem area is bound to make a problem worse. “You cannot untie your tangled shoe lace by working with it! That’s how it got tangled in the first place!”

  43. Ernestine Gross
    July 25th, 2012 at 23:40 | #43

    @P.M.Lawrence

    Apologies for having written P.L.M. instead of P.M.L. Otherwise:

    If NPT is linked to unemployment (in aggregate) then businesses do have an incentive to fire people (create unemployment) and then rehire (not necessarily the same people) and get paid for it. In the corporate sector the ‘competition’ for profits (and bonuses) is such that there could be race for strategic head culls (contemporary management language) and smal business owners wouldn’t necessarily mind making more profit. There is a serious incentive compatibility problem.

    Without further restrictions, your argument about the fiscal position does not hold.

    However, if NPT is linked to economic conditions, experienced by a segment of businesses and considered temporary, and management’s performance is satisfactory with respect to a set of specified conditions (eg debt/equity ratio, business internal gini coefficient), then NPT could provide a mechanism in the area of industry policy. In other words, management would have to apply for NPT.

  44. July 26th, 2012 at 15:19 | #44

    Ernestine Gross :
    @P.M.Lawrence
    Apologies for having written P.L.M. instead of P.M.L. Otherwise:
    If NPT is linked to unemployment (in aggregate) then businesses do have an incentive to fire people (create unemployment) and then rehire (not necessarily the same people) and get paid for it.

    If implemented properly, NPT should be linked to the amount of employment at the level of the firm. That means it would be directly linked to employment (in aggregate). Employment and unemployment are complementary, but they are not direct inverses as their total is only roughly constant, since the total size of the labour pool varies with demographics etc. That means NPT would be indirectly linked to unemployment (in aggregate), but not wholly determined by it.

    Under these conditions, the spill and fill process you describe would actually work out as follows:-

    - businesses that fired people (creating unemployment) would lose the NPT tax breaks on those people at that stage;

    - if they then rehired (not necessarily the same people), they would then regain the NPT tax breaks on those people, but it is loose use of language to call this “get[ting] paid for it”, as the net funds flows would never be towards the businesses involved but towards the ATO;

    - so there would be no net advantage generated by the process taken as a whole.

    This follows from the fact that NPT tax breaks would be generated by staffing levels without regard to previous employment or unemployment status, precisely by not targetting NPT preferentially to any segments of the pool of legitimate labour.

    In the corporate sector the ‘competition’ for profits (and bonuses) is such that there could be race for strategic head culls (contemporary management language) and smal business owners wouldn’t necessarily mind making more profit. There is a serious incentive compatibility problem.

    Since the only incentives should apply to overall staffing, and not at all to churning employees, the only way they could make more profit from this would be to take on more employees, net. But as that is the object of the exercise, it is not an incentive compatibility problem at all.

    Without further restrictions, your argument about the fiscal position does not hold.

    The fiscal position issue – the effects on government revenues and outgoings, taken together – works out in a way that follows from the specified matching of NPT tax breaks to the costs of unemployment benefits and the uplift of nominal tax rates (gross before the NPT tax breaks, and matching them). These are indeed restrictions, but they are not further restrictions; they are fundamental parts of the specification of an NPT. So, how if at all are they inadequate for the purpose? That is, how would initial revenue fail to keep up given the uplift of nominal (gross) tax rates, and/or how would later budgets fail to keep up given the linkage between the NPT tax breaks and the costs of unemployment benefits that ensure that revenue falls from increasing employment would be matched in lock step to falls in costs of unemployment benefits?

    However, if NPT is linked to economic conditions, experienced by a segment of businesses and considered temporary, and management’s performance is satisfactory with respect to a set of specified conditions (eg debt/equity ratio, business internal gini coefficient), then NPT could provide a mechanism in the area of industry policy. In other words, management would have to apply for NPT.

    Anything like that would, by definition, not be an NPT of the sort proposed, precisely because it would involve targetting that would encourage economic activity to divert around the preferential incentives that would arise from that.

  45. Ernestine Gross
    July 26th, 2012 at 19:42 | #45

    @P.M.Lawrence

    You asserted there is an ‘externality problem’ in the labour market. An assertion does not amount to a description of the problem. Therefore I maintain the poblem to which your version of negative payroll tax (NPT) is supposed to be a sulution does not exist and, furthermore, proposing a solution to a problem that does not exist creates a problem.

    b) you are not going to change my mind with a story as to what would happen. Furthermore, asserting

  46. Ernestine Gross
    July 26th, 2012 at 19:44 | #46

    Please delete :b) you are not going to change my mind with a story as to what would happen. Furthermore, asserting” in my post @45

  47. July 26th, 2012 at 20:48 | #47

    Ernestine Gross :
    @P.M.Lawrence
    You asserted there is an ‘externality problem’ in the labour market.

    Not at the comment you are replying to, I didn’t.

    An assertion does not amount to a description of the problem.

    However, in another comment, I did give a succinct description of the problem: “it is one particular negative externality currently obtaining in the labour market, driven by a disconnect between the costs of unemployment and the costs and benefits of hiring and retrenching, that suboptimally promotes unemployment and lowers production [emphasis added]“. That only degenerates into a mere assertion that there is such an externality if you edit out the part I just emphasised. But doing that makes it a straw man.

    Of course, that is merely describing the problem, without proof; but on the one hand that was all that was at issue just then, and on the other hand further and better particulars – including proof – are available in the material I referenced, starting with the link I provided. For someone with your background, able to appreciate the working, I would suggest getting that from scrutinising Professor Swales’s modelling. Alternatively, if you prefer independent working and you have the time, I would suggest you yourself model what would happen under an NPT implemented according to the specifications provided, taking care not to build in conclusions by using aggregates around the very bifurcations being tested; any model that does not build in conclusions should reveal Swales’s result, an increase in both employment and GDP under a wide range of other economic settings. The latter should in itself show that current behaviour is suboptimal, since it could be bettered.

    Therefore I maintain the poblem to which your version of negative payroll tax (NPT) is supposed to be a sulution does not exist and, furthermore, proposing a solution to a problem that does not exist creates a problem.

    Isn’t that argument by repeated assertion itself, the very thing you suppose I did and which you reject?

    The pathway I followed to the idea that there was a problem, which is not necessarily the one followed by Swales or Phelps, started by my noticing that it is now quite common to have both high unemployment and high workloads among the employed. Without that amounting to proof, it suggested that there might be a bifurcation of the sort associated with phase change. If that were so – if – then there would have to be behaviour that could be described on a graph for which the corresponding curve reversed its slope. So I went looking for a mechanism that might deliver that, and then I noticed that you could get precisely this from the disconnect I mention above (you get the same thing in relation to “Vagrancy Costs”, observable in economic history in times and places in which there was no safety net to head those off). Now, the disconnect is a logical consequence of how things are presently structured in the welfare area, what with pooling all funding needs to be met through Consolidated Revenue and so on; the only empirical knowledge needed is that that is how Consolidated Revenue is set up. That is all that is necessary to put together a formal proof along the lines I found – and, of course, Swales and Phelps got there by other pathways, described in their own independent work.

  48. July 26th, 2012 at 21:55 | #48

    critical tinkerer :
    @P.M.Lawrence

    Not only would higher tax breaks push for more employment,

    This is your wrong assumption i am talking about.
    Let me spell it again. Your wrong assumption that you work with is: If employment cost is reduced, employers would hire more people.

    Let me just remind you, if this is wrong, it is not a wrong assumption but a wrong conclusion. That is, it is not an input to my reasoning but follows from it – so, it could be wrong if that is wrong, but it is by definition not a wrong assumption. EG herself noted this elsewhere.

    Employers would hire more people only when demand is rising or expectations are that it will rise. The proof of this is that you can see plenty of employees not making their worth employed, as you pointed out, but only when demand is rising.

    That’s not a proof, because it is a circular argument. That is, it rests upon observations of conditions under which the damaging mechanism is operating (if there is indeed such a mechanism). So the observations do not test what would happen if the proposed fix were applied.

    In depression there are no such employees. We witnessed skyrocketing productivity in USA in 2009 at the time when unemployment skyrocket. The reason is that less esential employees were fired.
    If there is no expectation of rising demand for their products and services, there will be no more hiring no matter how much NPT lowers labor cost. That difference would go into profits. Work with that assumption and see if NPT would work. You will get the same conclussion as Iconoclast, Ernestine and me.

    Even in the worst case you expect of neither increased demand nor expectation of it, employers would still hire more if an NPT were in place, simply to get the tax breaks, because those don’t just cover the benefits the unemployed get but also the administration costs of those. That means that any firm with lower administration costs could hire people, even if it had to offer the unemployed slightly more than they were getting on benefits. But – short of yet further governmental burdens – practically every firm could hire a few that way, because they would have far fewer layers to churn the funding through, and once they were hired it is likely that some work or training would be worth having done by those hired. See the example scenario I gave earlier, involving Bill Berk, Fred Nerk and Joe Erk, in which Joe Erk eventually does get a job offer.

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