Equality, freedom and wage labor

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,

148 thoughts on “Equality, freedom and wage labor

  1. I think that what is wrong with our system is that it is insufficiently situationally flexible.

    An alternative structure would be to have an “employment bill of rights” which set out the national employment culture. Then to establish fairness, rather than apply a minimum wage, apply a minimum standard of living. The advantage of this is that it is regionally flexible and automatically adjusts for cost disparities such as housing, food, transport, education, health care access and child minding. Individual and/or collective contracts would then cater for skill and performance factors.

  2. It strikes me that the first point is that not all people are equal. There are considerable different levels of knowledge and intelligence–not to mention inclination to chicanery, etc or just in knowledge of where the marketplace is going. Heck ,for that matter, a large number of people are illiterate, innumerate or otherwise challenged to conclude a contract.

    I would suggest that this is more common among prospective employees but I am sure we have some outstanding incompetent employers as well. Setting a binding contract on someone who does not understand the implications of a contract is a bit worrying.[1]

    Of course, this approach would be a boon to the law profession. Any time I went to hire someone or to apply for a job I would need the contract vetted very carefully by a lawyer since if there was no government regulation of the labour marketplace I would have to suppose that there is no common consensus for basic things like a lunch break or time to go to the washroom. If the employer is offering a pension then do I need my own actuarial study to decide if it is safe to go with the pension or opt out?

    Actually I once saw an example of this at a slightly higher level. I was on vacation with some relatives, one of whom, an American, was thinking of taking a new job in the USA. It appeared to me that much of his job negations had nothing to do with work conditions or salary, most of it, at least that I heard, was a negotiation about health benefits, something that is usually of vary minor importance, if of any in Canada. Multiply this by each employee having to hammer out vacation times, pension rights if any, and so on and we have a complete muddle.

    I would also question the concept
    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

    On a slightly more practical idea, it is not at all clear to me that a UBI would be that onerous in the long run. At least in my country,Canada, we spend inordinate amounts of money “delivering” various kinds of social assistance. Some “social” programs are so designed as to impede or frustrate anyone trying to get off the program. One simple UBI program with a suitable tax-back rate for those with higher incomes might save money in the long run since the most vulnerable portions of society might not have to resort to criminal or quasi-criminal activities to stay alive and various stigmae resulting from “being on Welfare” etc might be reduced allowing better access to jobs and so on.

    Against this, I share the intuition that bosses will always be bossy and (at least some) will always try to abuse their position.

    Check your history for the rise of trade unions. My take on unions is that if a company has one it usually earned it: Twelve or sixteen hour days, abysmal safety records, no tenure, arbitrary hiring and firing , gross discrimination and a few other things were major causes for unionization.

    Arguably, a major reason for lower union participation in Canada, and probably in other parts of the OECD, is government regulation has reduced the need for really active unions. A relaxation of labour laws is very likely to cause more unionization

    There quite often is a real disconnect between senior management and owners and front-line employees. I once heard the head of a one of the big five Canadian banks suggesting that any university student applying for a student loan should just go and negotiate the interest rate with the local bank manager. He really did seem to think that a student negotiating a CDN$ 5K loan was in a good position to dicker.

    Arguably, a major reason for lower union participation in Canada, and probably in other parts of the OECD, is government regulation has reduced the need for really active unions.

    No bosses cannot always be expected to be sweet and kindly.

    [1] The US sub-prime fiasco is a good example of this. Obviously many people did not understand the contracts.

  3. The unions argument, that workers aren’t skilled negotiators, is a reasonable one. However I would argue that only the worker knows what would makes them happy. A few times I have negotiated employee deals and most often they are to the employees financial detriment – but they felt they had a victory and were pleased!

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

    In practice this seems quite unachievable. If you can avoid both work and being poor then there will be a lot of people not working. Which will increase the cost of the associated basic income through the weight of numbers and the burden on those saps that do work.

    A basic income is still a good idea as a replacement for the likes of the minimum wage and other price regulations in the labour market. However it can’t be so lucrative that many could or would adopt it as a lifestyle alternative to working for income. It has to be a modest thing that acts as a safety net and a wage supplement not as a lifestyle alternative to working for income.

    One alternate way to lower the effective minimum wage to zero from a market price perspective without reducing income is to provide an offsetting tax rebate to employers based on the product of the minimum wage and the number of full time equivalent workers on the books. However this is a little messy and overly compensates for the minimum wage. The over compensation could be reduced by tweaking the system based on the unemployment rate. It could even be made specific to the unemployment rate for a given region.

  5. “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).”

    translated: if we were all rich enough we’d need fewer laws

    yes, i agree – very profound

    pop

  6. Blogger “jrkrideau” makes some good points. A proliferation of contracts and contract negotiations (with each individual worker negotiating a contract with an employer) will be highly inefficient and time wasting. The contractural overheads versus benefit to employer, employee and general economic efficiency would rapidly reach a point of negative returns.

    So what would happen in practice? In practice employers will begin to offer basic take-it-or-leave-it contracts (with very few rights and conditions plus the lowest possible pay scales) to all prospective employees except those relatively few with high skills that are highly differentiated from those of the general workforce. Thus we would exchange social democratic government regulations (legislation) for full capitalist regulation or rule of society. You simply hand the running of society entirely over to the owners of capital.

    The real problem, that too few want to explore anymore, is capitalism itself.

  7. TerjeP says; “If you can avoid both work and being poor then there will be a lot of people not working.”

    Yes, that is absolutely right.They are currently the owners of capital, the rentiers and the managerial class who do their bidding. None of these people do real work. They are the parasites.

  8. @rog
    “A few times I have negotiated employee deals and most often they are to the employees financial detriment – but they felt they had a victory and were pleased!

    But why not? They made have made trades for quality-of-life issues that were not reflected in money terms. I have known more than one person to turn down increased monetary reward because the job would negatively impact Quality of Life.

  9. Surely the problem lies in the concept of ‘a universal basic income sufficient to ensure that, even without working no-one need be poor’.

    Poverty has come to be a relative rather than an absolute condition in post-industrialised countries. It would therefore seem logically impossible to fix a UBI that lifted the whole population out of poverty. It would simply have the effect of raising the poverty line.

    Quite apart from that, the bipartisan notion of mutual obligation and the strong cultural attitudes deploring welfare bludging mean a UBI will not be introduced in Australia within any timeframe useful for public policy planning. The speculative discussion on CT has all been very interesting I suppose as an abstract exercise; the danger is that conservatives will distort the bits they like and apply them to the actually existing socio-political situation. For example “Even the hard left like Quiggin supports deregulation of the labour market if there is a proper safety net. Australia has a proper safety net. Therefore the left is hypocritical in opposing individual employment contracts! (laughter and cries of ‘Hear Hear’)”

  10. TerjeP says; “If you can avoid both work and being poor then there will be a lot of people not working.”

    Iconoclast sees that things are more complex and says “Yes, that is absolutely right.They are currently the owners of capital, the rentiers and the managerial class who do their bidding. None of these people do real work. They are the parasites.”

    Totally agree with Iconoclast, and I think we’d all be better off if some of those libertarian capitalists, those ‘jahb creators’, stopped ‘working’ and did a degree in psychology. They might then understand that the jahb’s they create, like in call-centres and payday lenders, are meaningless, soul destroying work that actually create stupid lazy, work-averse and even dishonest people.

    In my experience there are very few people who don’t want to work. The people in my small rural community who don’t have a job – they are either retired or a disability pension – do lots of work. They do voluntary work that pays nothing and in fact often costs them in petrol money and other incidental expenses. The work they do is helping other people in nursing homes and hospitals, they go to the local school and participate in the lives of the children in our community. In other words they are building community. How much will that be worth in the uncertain future we are facing?

    Some unhappy unhealthy people do sit home, idle and feeling bad. Some of the young ones who can’t get a job even pretend that they like being idle but this is a ‘defence mechanism’ they use to protect themselves from the cruel and ignorant accusations from the ‘capitalists and their ‘running dogs’ who see ‘bad people’ everywhere, except of course inside their own self-satisfied, self-congratulatory selves.

    What I see as the fundamental problem with our society is the current narrative about human nature which allows people to believe that there are good people; the capitalists or those capable of becoming capitalists and then there are ‘the others’.

    That was the bit that libertarians liked best about Rand and Hayek; both these faux-philosophers made this division between people explicit in their faux-philosophy and it must be so hard to give up the joy and self-satisfaction they feel when casting aspersions on the moochers.

  11. I am going to have to support TerjeP a little bit in his argument.

    Given the situation of “guaranteed” security a large percentage of the population will settle into a level of situational security and minimum effort. People are perfectly able to fill their time with other exploits if work is not necessary.

    It is essential to say here that there should not be a compulsion that people should “work” in our societial sense. If people can achieve a (self fulfilling) worthwhile existence disconnected from the economic millwheel, then this an entirely fair and natural method of existence. (there is another word for this but cannot recall it). The only proviso is that such people are taking a free ride on education, health, and possibly access to infrastructure. To this I would argue that such an imposition should be tolerated as an expression of the full spread of human (positive) possibilities.

    In Christchurc NZ where I lived for nearly 2 decades there were a number of people who had obtained real estate to freehold level in the Muldoon era when such property was very cheap and organised their affairs such that they were able to live permanently on the dole. They were fairly obvious as they lived a meagre life style, and fairly hollow by my observations, from the male side, and from the female side where such was achieved as a solo parent (more common) more fulfilling but again fairly shallow engagement with the rest of society.

    Maori people who engaged in this fringe existence had a more solid claim to such and were more creative with it, more success, and had a more fulfilling life, largely due to their extended family structure and their connection with the sea and its bounty.

    It is all part of the legitimate spread of human outcomes.

    Having said all of that, humans need to be energetic and active. Without that we really do lose validity. But Active can have many meanings.

  12. Yes. Clearly, if you make it too easy to be poor everyone will choose to be poor. Poverty as a lifestyle choice has always been society’s most pressing problem.

  13. Freelander,

    When, in the 70’s I moved from my Elizabeth Bay flat to move into a 2 metre square trailer beside the 44 foot ferro cement boat that I was building in Glebe Point my fellow departing flat mate, Fiona Bryce (who was an advertising script writer at the time) gave me a little graphic to affix to the canvas wall of my tiny enclosure, a graphic wisdom which stated that

    Rich is a State of Mind.

    There is no greater truth than that.

    I was rich with no income and the smallest accommodation in that huge City. I was rich because I had purpose, self fulfilment, a future that I believed in, and I was extremely busy.
    Those were some of the best years of my life. In amoungst this I managed to fit in an appearence on the ABC Inventors show, while I was completing the yacht that subsequently became my home.

    Rich IS a state of mind.

  14. But how can we have continuous productivity improvements if avoiding gainful employment is an all too easy lifestyle option?

  15. JQ, it seems to me you got yourself entangled with verbal theoreticians. Perhaps there is a benefit flowing from getting a bit of insight as to what these people want.

    Since around 2003, there is a scheme in Germany, known now as Hartz IV, which provides a minimum cash income per months together with a rent allowance to unemployed people whose unemployment insurance payments have expired and who have used up specified proportion of their private wealth. There has been opposition to this scheme from the beginning and it is ongoing, including high level court cases as to the adequacy of the minimum income. The opposition to this system comes not only from the least skilled (stereotypically thought of as the long term unemployed) but also from non-managerial professional people (engineers, technicians, researchers) who are on incomes between say Euro 80,000 to Euro 200,000 p.a.

    Hartz IV is named after a person who proposed the original version. This person was Peter Hartz, a Human Resource Executive, at Volkswagen, a large German company. He was later accused and then convicted of various wrong-doings in his job. He was fined about half a million Euros and was put on probation. http://en.wikipedia.org/wiki/Peter_Hartz

    The Hartz IV history surely raises a few question: Who is ‘the employer’ in a corporate enterprise and who is ‘the employee’? (Yes, at a price, lawyers do eventually find their way around ‘the [several times restructured] enterprise’ to find a billing address, but the person whom they call ‘the employee’ may come and go without ever having met ‘the employer’. Enterprise Agreements, also promoted by HR ‘experts’ contain the same strange categories.) What can we expect if two employees of ‘an enterprise’ negotiate a contract affecting only one of them? (see Hartz).

    As is indicated in the above link, neither a social democratic party government (Chancellor G. Schroeder)*, nor workers representations on the supervisory board, nor government ownership in Volkswagen prevented having a ‘Human Resource Executive’ to fail in his duties while telling others what to do.

    The story told in the post is an example of interest groups confusing wishful thinking with theoretical knowledge and an attempt to carry on regardless of empirical evidence.

    ——-

    *I understand the Schroeder government survived because it decided against sending troops to Iraqu.

  16. Without agreeing with BilB on every point, I do believe he makes a valid one, namely that the categories of ‘the employer’ and ‘the employee’ are also senseless because they ignore the motivation of people to do particular type of work beyond making a living. There is also a hint of changes in preferences for type of work versus monetary rewards over the life of a person.

    Sure enough, this bings me to my favourite topic of grievance: macro-models with ‘capital and labour’, characterised by the letters K and L (if you are lucky you find, K and L are real valued variables).

  17. I’m a little bemused when people attribute to me a form of bitterness towards poor people that simply does not exist. I feel bitter towards many aspects of our “system” but I’m rarely bitter towards anybody for more than half an hour and even then they have to do something that offends me in some personal way. Also whilst I’m well off I wasn’t always well of and plenty of libertarians I know are low or modest income. If you disagree with libertarians then fine but dressing them up as monsters is such a hollow leftist cliche. Not everybody who disagrees with you is evil.

  18. I totally agree that rich is a state of mind but the problem is that in this society it is so very hard for the poor to ‘feel’ rich when they are regarded as inherently lazy and stupid and will always do the wrong thing; unlilke bankers of course.

    It takes a great deal of learning and/or a damn good upbringing to understand that rich and happy does not come from being selfish and greedy. But where are the narratives in our society that tell us this? What has been driving our values is the idea that greed and selfishness and material success or economic growth is all we need.

    Terje, bemused you say? lol I’m happy that you are just bemused and not calling me names this time. I don’t think you are bitter; you may be showing a tendency to self-pity and to exaggerate the bad things that lefties say about libertarians though. Who would suggest that libertarians are evil; that”s just silly but it may be that there is bad stuff happening because of what they do?

    The way I see it, libertarians are just a certain type of person who like to make pejorative value judgements, but there’s room for all types of people in my human nature narrative; diversity is the key to a decent society and diversity includes lazy and stupid people.

    How about a UBI and free therapy for all libertarians and other poor people?

  19. I really think Australia should pursue the Job Guarantee idea in the form (or close thereto) put forward by Bill Mitchell.

    To my mind, paying unemployment benefit to get no paid economic work out of a person makes less sense than paying a basic wage, getting some productive work and getting some back in taxes anyway. Arguing that worthwhile work cannot be found for most of these people is incorrect IMO. Maintaining an entire society and all its people and infrastructure in good order means there are always things that could be done to improve life, infrastructure and environement.

    The entire welfare and compliance structure could be changed over to be a Job Guarantee structure. The idea I think would be to phase it in over several years, progressively moving people from unemployment to the JG. What would be wrong with letting people elect to work from 20 to 40 hrs per week at their choice on the JG? This would be with the proviso that once they elect hours they must stick with them for 6 months at a time. Pay would be minimum wage adult hourly rates with annual leave loadings. Once the JG was fully available there would still be some other benefits like sickness and invalid benefits but no unemplyment benefit.

    Minimum wage legislation could be removed from all private enterprise work. But if employers try to pay too much less than the JG, people will elect to move to the JG.

  20. if there is a universal basic income sufficient to ensure that even without working no-one need be poor, why have a minimum wage?

    any downsides of a universal basic income is easier to manage that those of a minimum wage?

    a default employment contract unless these is contracting out, is the same as employment at will unless there is contracting in

  21. jrkrideau :
    On a slightly more practical idea, it is not at all clear to me that a UBI would be that onerous in the long run. At least in my country,Canada, we spend inordinate amounts of money “delivering” various kinds of social assistance. Some “social” programs are so designed as to impede or frustrate anyone trying to get off the program. One simple UBI program with a suitable tax-back rate for those with higher incomes might save money in the long run since the most vulnerable portions of society might not have to resort to criminal or quasi-criminal activities to stay alive and various stigmae resulting from “being on Welfare” etc might be reduced allowing better access to jobs and so on.

    The Latin word ‘stigma’ is not a feminine noun of the first declension but a neuter noun of the third declension, and so its plural is ‘stigmata’.

    There’s nothing wrong with treating ‘stigma’ as an English word, with the normal English plural ‘stigmas’. But there’s no justification for ‘stigmae’.

  22. Since you wonder, yes, I have heard of typos.

    I’d be prepared to bet money this wasn’t one, though.

  23. Ikonoclast’s proposal makes sense to me if
    a) there is ” L” (one type of labour only) and
    b) the supply of “L” at price p[L] exceeds the demand for “L”at price p[‘L] permanently and
    c) there is only 1 location in ‘the economy’

    But (a) is definitely false on empirical grounds and therefore (b) and ( c) are not interesting (even for ‘the economy’ Lichtenstein).

  24. @J-D

    J-D :

    jrkrideau :
    On a slightly more practical idea, it is not at all clear to me that a UBI would be that onerous in the long run. At least in my country,Canada, we spend inordinate amounts of money “delivering” various kinds of social assistance. Some “social” programs are so designed as to impede or frustrate anyone trying to get off the program. One simple UBI program with a suitable tax-back rate for those with higher incomes might save money in the long run since the most vulnerable portions of society might not have to resort to criminal or quasi-criminal activities to stay alive and various stigmae resulting from “being on Welfare” etc might be reduced allowing better access to jobs and so on.

    The Latin word ‘stigma’ is not a feminine noun of the first declension but a neuter noun of the third declension, and so its plural is ‘stigmata’.
    There’s nothing wrong with treating ‘stigma’ as an English word, with the normal English plural ‘stigmas’. But there’s no justification for ‘stigmae’.

    And there’s no justification for suggesting that “stigma” is a Latin word at all, save as a loanword from the original Greek – from which it gets its plural. There is a place for pedantry in an incidental way, as a concomitant to painstaking precision, but none at all when it fails to deliver that. It’s like claiming that the plural of “ignoramus” is “ignorami”; it only highlights the lack of basis.

  25. Two things:-

    – TerjeP’s original description of how a UBI would have to be set lower than sufficient for survival is quite accurate (we discussed this elsewhere, exploring the Negative Payroll Tax approach that he also mentions; I drew that to his attention, but as I am not alone in advocating it he may have heard of it elsewhere too). However, he hasn’t brought out transitional issues, or emphasised that it would operate as a top up allowing people to price themselves into work at less than a living wage (another top up to the UBI one), giving both higher employment and decent living standards – so it would be futile if there were still a mandated minimum wage. NPT would be faster acting and consistent with previously mandated minimum wage arrangements, and could be switched to a UBI over time – and, in turn, that could be switched to Distributist style private resources yet later (eliminating many bossy boss scenarios and undercutting the rest since self employment would be far more realistic; it would not be a question of a “free” choice between comparable bosses).

    – I came to the NPT idea from considering a labour market imperfection, an externality favouring unemployment driven by the disconnect between the spread costs of unemployment benefits and the employer cost benefits of hiring and firing. There is another material distortion: corporate structures, and the legal assistance they get, favour firm sizes suited to bossy boss scenarios, disfavouring self employment and working for small firms that might be more genuinely paternalistic (in the best sense of that word), and in any case would be more numerous and so would offer more genuine choice of employers (this, too, ties in with the Distributist arrangements mentioned above). Coase put considerable work into looking into optimal firm sizes; his work should be used as a framework for analysing this, but not using the assumption that what is, is the product of properly operating competition; there is a thumb on the scales here too.

  26. @J-D
    Don’t bet, as you realised it was not a type , wrong gender! And only 40+ years since my last Latin class. How quickly we forget.

  27. “To my mind, paying unemployment benefit to get no paid economic work out of a person makes less sense than paying a basic wage, getting some productive work and getting some back in taxes anyway.”

    I also think this is the wrong thing to do also; it is not good for people to get something for nothing. Human nature is such that we need some worthwhile meaningful aim in life and the receipt of taxpayer’s money, ‘should’ imply some sort of obligation on the recipient to repay the taxpayer in any way that they can.

    The problem lies with the lack of understanding on the part of ‘the taxpayer’ about the value of what ‘others’ have for them; for society. If everyone acknowledges that Maggie was wrong and there certainly is society; that society is all there is to being human. We are not a collection of individuals who compete for resources and the ‘best’, the ‘fittest’ survive. This idea is crap, crap and crap again, I say.

    If everyone understood that there is new knowledge about human nature and human culture, that explains all the stupid and laziness we all see around us, but which really upsets some of us, we would be on the fast track to working out a functional efficient and compassionate system, where growth in human ability to create happiness would be valued more than being ‘rich’ and having more stuff than other people…. oh and can I have a pony with that?

    “Arguing that worthwhile work cannot be found for most of these people is incorrect IMO. Maintaining an entire society and all its people and infrastructure in good order means there are always things that could be done to improve life, infrastructure and environment.”

    Absolutely agree Iconoclast. There is such a lack of creative intelligent thinking among those ‘jahb’ creators.

  28. Ernestine Gross :
    Ikonoclast’s proposal makes sense to me if
    a) there is ” L” (one type of labour only) and
    b) the supply of “L” at price p[L] exceeds the demand for “L”at price p[‘L] permanently and
    c) there is only 1 location in ‘the economy’
    But (a) is definitely false on empirical grounds and therefore (b) and ( c) are not interesting (even for ‘the economy’ Lichtenstein).

    Ernestine, reducing the entire social economy to a simple spurious equation or model proves absolutely nothing.

  29. This is van Gogh on laziness; totally off topic but hey freedom, or even better, creativity.

    “the man who is idle despite himself, who is consumed inwardly by a great desire for action, but who does nothing, because it is impossible to do anything, because it is as if he was imprisoned in some way, because he lacks what he needs to be productive, because inevitable circumstances have reduced him to this.

    “Such a man does not always know himself what he could do, but he feels instinctively; I am good at something, I can sense a reason for my existence.”

    This resonates with me because it is what I felt when I was ‘made to feel’ – wrong way of framing the problem but I wasn’t enlightened back then – false shame for being a moocher, for sucking at the taxpayers teat etc. I mistakenly thought I was doing a good job and in return for my single parent benefit I was raising the next generation to be able to do better than I had and to be able to contribute.

    Can I just pat myself on the back here and say that I actually did a bloody good job and have 2 children earning in the 6 figure bracket – I think that is the term. They are paying tax and happy to do so. The youngest is more ‘difficult’ but is on the right pathway now and will be able to pay his hecs back and also pay tax to support others less fortunate than him.

    It hasn’t been easy for him, being so ‘easily led’ and ‘impressionable’. Note that there is no need for an aspie diagnosis. There have always been people with different abilities and problems. I was the same, but back when I wanted lots of stuff I didn’t need, the banks wouldn’t lend me money. My son didn’t benefit from the ‘freedom’ to borrow more than he could afford, that freedom that the banks so conveniently provided. Of course, it was for the well being of the moochers that they did ‘free’ up the requirements. I know that. He also didn’t benefit from the freedom that bad bosses have been given to take advantage of his trusting nature.

    But back to whinging about the appallingly inhuman narrative from the libertarian voices that I and all those on welfare have had to listen to over the past decades. Oh we were useless criminal stealing their dollar, etc etc. Thank god for psychology, cos Im pretty much over that cruelty now. I forgive – lol – and understand that the libertarian narrative was based on prejudice, misunderstanding, ignorance, and distrust; those oh so ‘common’ attributes typical of badly brought up people. They really couldn’t help themselves.

    Terje says, “I’m rarely bitter towards anybody for more than half an hour and even then they have to do something that offends me in some personal way.” Lucky you Terje, do you think you could be that way and not get fired if you had to work for a boss who felt free to dispense her political and economic views to employees?

    I’m using ‘boss’ as meaning an employer or manager, IMW – in my worldview – a boss is anyone with power over me – it is the power that is the problem not the literal ownership of the capital. In none of the casual menial jobs I did, was there the option of being personally offended by the (usually stupid) opinion that the boss offered; it was a matter of ‘tugging the forelock’ and getting on with the job.

    But that’s character building right? So how come bosses don’t need any character building? Ah of course, they are those born with all the ‘character’ they need.

  30. The European Commission does or did advocate flexicurity- easy hire and fire, minimal labour regulation and strong social welfare – as practised in Denmark, *en.wikipedia.org/wiki/Flexicurity*

    I note this abstract on a paper re flexicurities applicability elsewhere:

    We argue that the efficiency of the Danish flexicurity Model, which combines high unemployment benefits with low job protection and high participation rate, relies on strong public-spiritedness. We also argue that Continental and Mediterranean European countries are unlikely to be able to implement the Danish Model because the lack of public-spiritedness of their citizens raises moral hazard issues which hinder the implementation of efficient public unemployment insurance.

    *www.iza.org/en/webcontent/publications/papers/viewAbstract?dp_id=1928&menuTriggered=true&noPageLoaded=true*

    I think flexicurity is worth considering but I’d be worried that it may contribute to the spread of an indolent, dysfunctional and crime ridden underclass such as we see with Aboriginals in many parts of Australia. Flexicurity may also be incompatible with our high immigration levels and increasingly heterogenerous society, as these seem to destroy the public trust and public spiritedness the American Economic Journal abstract cited above considers important.

    I strongly disagree with BilB’s comment ” People are perfectly able to fill their time with other exploits if work is not necessary.” Actually it is extremely difficult for most people to productively use all their waking hours if they aren’t in paid employment. I’m surprised by your apparent ignorance of the copious studies on this issue.

  31. Mel thinks flexicurity is worth considering but says “I’d be worried that it may contribute to the spread of an indolent, dysfunctional and crime ridden underclass such as we see with Aboriginals in many parts of Australia.”

    Oh you troll Mel; you want an argument about whether Aborigines are as intelligent as ‘us’. ROFL, you don’t need to be argued with; the evidence is overwhelming now that your IQ fundamentalism is, wait for it… ignorant and lacking any rational scientific support but I have no interest in doing your research for you.

    “Actually it is extremely difficult for most people to productively use all their waking hours if they aren’t in paid employment. I’m surprised by your apparent ignorance of the copious studies on this issue.”

    Oh yeah where’s your links to this evidence? LOL one of the best comments I read on the BHL site was from someone – I assumed it was a young male just like my youngest son was a few years ago – who said, and he was not joking, “But if people have enough money for food shelter and the internet why would they leave the house?”

    Quite obviously Mel you need to meet up with some more of the younger generation and up-date your prejudices and tired old hobby horses.

  32. Sorry you may have missed the point, I was making that being on the internet can be a full-time occupation and perhaps a useful one in the future?

  33. Following on the comments, it seemed to me a lot of the commentators are commenting when they haven’t followed the debate on Crooked Timber.

    The CT members argued against labour market deregulation on the basis possibility of workplace coercion that arises when lack of regulations and have provided real life cases of of these coercion. The comments here seems to be all about the same old UBI is welfare kind of debate.

    In fact the UBI were suggested by BHLs as a basic need for giving choice to workers to leave employment if they face coercion in workplace. The BHL argues that such will allow worker’s to freely quit when they are forced to do something in workplace without being unable to meet the basic financial obligations such as food and rents, so regulations will not be needed.

    The CT members rebuttals are interesting as well on the basis that one people could of made decisions to take on mortgage or have kids when they took the job or worked in the workplace for a few month before making this decision of whether to do as the boss told or to quit and go on UBI (of course, in my opinion UBI should not be so generous to be able to support mortgage payment with 3 kids to feed, otherwise it will be a very high burden on the state). As well as, they might also be weary that it will be difficult for them to find another job (full employment was assumed by the BHLs), might not want to leave the social circle in the workplace etc.

    I think CT members are on the upper hand because their arguments are much more sensible amd realistic. BHLs assumption and arguments are unrealistic and have conflicted with their belief such as the assumption of full employment and UBI as that will require a sufficient tax rate to fund it (although a UBI of say 40-50% of median income using the poverty line is not too expensive to fund, BHLs will cry the tax is too high regardless).

  34. Julie Thomas:

    “Oh you troll Mel; you want an argument about whether Aborigines are as intelligent as ‘us’. ”

    Don’t be such a rude twit, Julie, I never mentioned IQ. Dysfunctional, indolent, drunk and violent indigenous subcultures are an observably obvious phenomena and the crime stats, mordibity stats, alcohol related disease stats etc are readily available. I’m not sure why you have such a huge bug up your arse but please leave me out of it.

  35. Julie Thomas:

    “Oh yeah where’s your links to this evidence? LOL …”

    You could always use your brain and look for it yourself as there are hundreds of readily available peer reviewed studies that may be accessed (either completely or abstract only) on the web and which pertain to the issue. This one discusses unemployment and ill health and incidentally addresses risk taking behaviours associated with a lack of gainful employment:

    “Research supports a link between individual unemployment and future premature morbidity and mortality. Age adjusted all-cause mortality is substantially higher among individuals with a history of unemployment relative to persons who never have been unemployed (see [1]). For example, among individuals aged 15–47 years who were included in the Swedish twin registry, unemployment in 1973 predicted increased mortality risk 10 and 24 years later relative both to employed persons in the general population and to their employed twin siblings [2, 3]. Associations were independent of age, smoking status, alcohol consumption, and preexisting chronic illness. Much of the longitudinal evidence supporting an association between unemployment and future morbidity has focused on psychological symptoms and self-reported health [4]. In a Swedish study examining long-term effects of unemployment among school leavers, experiencing at least 6 months of unemployment between ages 16 and 21 was associated with more smoking, greater psychological symptoms, and among men, greater physical symptoms at age 30 [5]. Similarly, in a study based on data from the Health and Retirement Survey, U.S. workers aged 50 and older who suffered involuntary job loss reported more depressive symptoms and worse physical functioning up to 2 years later [6]. A subsequent follow-up of this study demonstrated a link between unemployment and verifiable physical disease in that workers with a history of unemployment were at increased risk of experiencing a clinical cardiovascular event up to 10 years later relative to those who remained employed, even after controlling for relevant risk factors [7]. Additional evidence to support unemployment as an antecedent of future morbidity is offered by census studies conducted in Denmark and the United Kingdom that have found unemployment to predict incident of cancer, particularly of the respiratory tract (see [8]). Among two cohorts of Danish persons aged 20–64 in 1970 and 1986, respectively, unemployment predicted an increased risk of cancer morbidity and mortality 5 years later [9]. Examination of smoking trends indicated that the elevated risk was explained only partially by increased smoking rates [9]. ” etc etc etc *http://www.psy.cmu.edu/~scohen/Janicki_2008_AnnBehavMed.pdf*

  36. @Ikonoclast
    I agree with this, but often when people first enter the workforce, there is a temporary period of unemployment. I would like for these people to receive the dole as it is now for a short time (say 6 months) so they can devote all their time to look for work. If they can’t find work in this time, they should be transferred to the JG program.

  37. I’m going to back track and address just JQ’s original questions without much reference to the comments. Warning: long.

    The employment relationship is inherently unbalanced, simply by virtue of the fact that one party gets to boss the other around – when conditions are such that effectively only those employment arrangements are on offer (as now). But when self employment is realistic for many, and even more so when there are many smaller firms that include some that operate more collaboratively, people don’t have to settle for such arrangements and firms have an incentive to offer other arrangements. Aside: during my MBA, many years ago now, the Organisational Methods texts brought out the empirical observation that medium sized firms were more collaborative, possibly because small firms could more easily apply close supervision from the top informally and large firms could more easily afford the overhead of bureaucratic structure to control departments and individuals.

    JQ asks if a question relating to four points might be badly posed. It is, but through incompleteness rather than inaccuracy. I will fill out the points and the question further, but no doubt that will still not complete them. As to the points:-

    – “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”. For completeness, “a new job” needs to include a self employment option, setting up a partnership, going into a family business, and so on. This need not be an assumption, an exogenous input to these issues that would need separate action to bring about; it is in fact an outworking of some of the recommendations and policies proposed, so it is endogenous to all this and not a separate, free standing thing.

    – “A minimum wage adequate to allow a decent living standard without requiring acceptance of degrading working conditions”. This should not be understood as a mandated minimum wage sufficient to achieve this by itself. It would work if it could be understood as a wage level that, with other personal resources such as private portfolios or a universal basic income, reached that minimum level; or if it could be understood as a wage level that reached that minimum through wage subsidies or similar. However, a mandated version works out as a hidden tax on employment and is generally incompatible with the first point except under unsustainable boom conditions (Australia can be thought of as benefitting in this way from its lower population levels during much of the first two thirds of the 20th century – lower relative to land and capital, that is).

    – “A universal basic income sufficient to ensure that, even without working no-one need be poor”. TerjeP’s comment addresses this, bringing out the fact that this is above optimal and would show as too many simply not working from choice and too much funding being needed, not just for those but for everybody including those in work. However, a universal basic income sufficient for comfort at low wages would work, since people would still have the incentives to work and – in a steady state – funding would be practical unless and until a Malthusian crisis meant that there was not enough to go around anyway (remember, the appearance of lack of constraints might lead to a drift into that). The negative externalities this would fix show that there would be a net gain at these levels, not a cost such as a higher universal basic income would present. Even so, wage stickiness and such might mean that there would be a transitional problem, with not enough funding to cover a stage where not enough were yet working at lower direct wages. This and externality issues lead me to favour a Negative Payroll Tax in the short term, while the funds churning and government control lead me to favour a more Distributist situation using privately held resources in the long term. (That link covers one possible transition.)

    – “A default employment contract, incorporating prohibitions on sexual harassment, rights to regular breaks and so on, unless these are explicitly contracted out”. This would be unnecessary if the problem of inadequate employee bargaining power were fixed, and ineffective if it were not. The only value it could offer is as a Schelling Point and reference.

    I would add another point: large employers receive artificial support through corporate legal frameworks, tax structures like GST with an overhead falling more heavily on small employers and the self employed, and so on. These reduce employee bargaining power further; they should be reformed, though there might be a delay while the culture responded and an unbalanced reform might cause other harm (recall that 19th century Britain revived the corporate form as a general approach so it could catch up with other countries that had already brought that approach in).

    As regards the question itself – “[i]s 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” – JQ offers three ways it might be badly posed, which I can flesh out thus:-

    – Capitalism definitely could not sustain his four points the way he presented them, but it definitely could sustain the variants I and other commenters have brought out, and there are practical transitions too. Whether they are politically realistic is another question.

    – As, when and if there were little or no support for large, artificial arrangements like corporate empoyers, unions would also be undercut at more than the shop level. So it would not be the case that “such conditions would give workers sufficient bargaining power to demand union representation, and that union contracts would embody the standard protections”, since such conditions would not support those results either.

    – As to “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).”, what high price? Ask the who/whom question. Dispensing with [the need for] a lot of government intervention only incurs a cost to people with vested interests in that. Promoting people out of poverty, engineering out needs – those don’t incur a price in worse working conditions or selling kidneys out of need or whatever, because people wouldn’t be thrust into that under an actually achieved success. (Remember, I’m not suggesting declaring victory politically and eliminating the safeguards on that basis, but rather that as, when and if victory were really achieved they would become unnecessary. “Whither away, state?” or “wither away, state”.)

    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.

    A modest tweak to current parameters would be enough, but the result would lead to conditions that were very different, and there are time scale issues and interim safeguards involved too. So whether the BHL side are right depends on just which question you are asking. Me, I think they are right in terms of the way they themselves present matters, but not in terms of the way the CT side presents matters. There is a lot of talking past each other going on.

    If by “in practice” the CT side includes political problems, they may well turn out to be right after the fact, but on the one hand they themselves are part of those obstacles so their objecting is of the nature of a circular argument, and on the other hand the only way to do it is to do it, so in that sense debate is meaningless. They are quite wrong as to whether the fixes would work if they were tried, but considering the political resistance to the proposals of the likes of Professors Kim Swales and Nobel winner Edmund Phelps as well as mine over the last twenty years, they may well be right that it is not practical in that sense. But politicians have a vested interest in maintaining a dependent population on a drip feed of support rather than in fixing their problems, just as a wise rat catcher never catches the last rat but leaves a breeding stock, so there is a real political problem for so long as we continue to operate within a framework of representative democracy – there’s an Agency Costs thing going on. Go Mutualism and the genuinely free market sort of Anarcho-Capitalists! (With a nod to the Distributists.)

  38. Lucky you Terje, do you think you could be that way and not get fired if you had to work for a boss who felt free to dispense her political and economic views to employees?

    Most of my bosses and most of those that have worked for me have at various times shared political and economics view points with me. Quite often there is disagreement. Nobody has ever lost their job over it and it never made me bitter (I don’t think it made them bitter either). One employee I had loved to bait me in political arguments and generally I enjoyed the tussle. I judged him on his capacity to do his job effectively and as such he had nothing to worry about even if he had a touch of Marxism about him. As such I can’t relate in any first hand way to your anecdote although I can easily relate to the notion that some bosses are harder to work for than others. If you’re in a low paid job you are more likely to have a low paid boss and they are more likely to be shitty managers. Skill tends to follow the money.

  39. P.M.Lawrence :
    – I came to the NPT idea from considering a labour market imperfection, an externality favouring unemployment driven by the disconnect between the spread costs of unemployment benefits and the employer cost benefits of hiring and firing.

    PML – I did not find the NPT idea independent of you. Your exploration of the idea was the first I had seen of it. I agree it has a number of advantages in transitional terms. Firstly it is a much simpler political sell as you can introduce it without having to broadly engage in debating the problems of the minimum wage and without having to dismantle the institutionalisal mechanisms supporting the minimum wage. Basically it side steps much of the public debate but still corrects much of the market distortion wrought by the minimum wage and addresses the associated social problem of unemployment. I really do love your idea.

  40. Mel I stand by that statement, though I think that you miss understand the meaning.

    That aside, my policy platform so far would be

    a) a workers bill of rights to outline the work environemnt in the Australian context ie hours, holidays, conditions, respect, etc. In this way there is no longer the requirement for long legal documents for each and every working situation.
    b) a minimum standard of living which is determined for each region to outline the basic income level required for a respectable existence. This is automatically CPI adjusted as its basis is test and adjusted periodically. In this way the “basic wage” is relevent to the area where the work is to be carried out.
    c) individual or collective agreements to cover skill, education and performance factors. This is by nature a short document of simple agreement at the point of retention.
    Now for the unemployed
    a) for the long term unemployed I have long proposed an employment buddy system called the registered shared job. In this 2 people agree to fill one job for a time with each covering the others availability shortcomings. This can also work for students. By this method an employer achieves a full time employee and receives a tax incentive (reduced tax for the employee) for their effort.
    b) I am not averse to the unemployed on benefits being asked to do several days a week of work for a local participating business or entity where available. I can see plenty of fish hooks in this on the one hand, but on the other there are plenty of benefits particularly for the young. Perhaps this could be optional and desireable. I am still thinking about whether there is a meaningful method to create fulfilling work for the unemployed while they wait for their optimal sitiuation to arise.

    c). As for financing the unemployed completely, this can only be done if there is a mechanism in place to ensure that agile government policies work to minimise the list tenancy time for unemployed. In other words the government cannot lamely accept cost of supporting non productive people, it must react to the unemployment level and deliver real policies to eliminate the problem.

  41. Another point is that capitalism has proven itself utterly incapable of providing anything like full employment in any country for any prolonged length of time. Even fast growing countries like India have massive unemployment and underemployment. The situation is even worse in libertarian wet-dream minimal government jurisdictions like Somalia, DRC Congo and South Sudan.

  42. Warning! Long Post follows.

    The first implicit assumption, made by P.M. Lawrence and TerjP, is that progressively lowering the minimum wage will automatically and progressively increase employment offers (reduce unemployment). This fails to recognise a number of practical lower limits on the minimum wage. It also fails to realise the beneficial macro-economic effects of good wages on aggregate demand.

    The second implicit assumption seems to be that if the free market or capitalist system cannot gainfully employ people (market failure) then there is no other way of gainfully employing people. This view suffers from two important oversights. One, it assumes that gainful employment is only that which is economically and monetarily measured. It assumes people are only doing things useful for themselves and/or society if they are earning a wage or other monetary income. Two, it assumes that there is no other way to usefully mobilise people into training, development or paid employment other than by the free market. That is, it assumes that state has no way ways (from conscripted actions to monetarily rewarded actions) to usefully mobilise the unemployed.

    If the above point were true, then all armies of capitalist societies would have to be raised solely by free market actions. That is to say only privatised armies could exist but not conscripted or government-paid armies. The clear ability to mobilise an army from consolidated revenue proves the clear existence of the state’s concomitant capacity to mobilise an Employment Reserve from its unemployed numbers if it has the political imagination and will. There are no real obstacles to this. The obstacles are purely ideological.

    First, let us deal with wage setting. It is clear that a mandated minimum wage of $1,000,000 a day would reduce employment to virtually zero. It is also clear that a minimum wage offer of $00.01c a day would find no takers. Between these extremes there must exist a band where a minimum wage is feasible and practical in that both employers and prospective employees are willing to “strike a bargain”.

    On the employee’s side, if there was no welfare safety net, then a minimum wage must be equal to the reproductive cost of labour or at least the subsistence cost. We can see that a person selling his/her labour must first subsist. Subsistence will comprise food, clothing and accommodation of some basic adequate form. Over and above the subsistence cost, there are costs involved in working; for example fares, work clothes, higher calorific requirements and perhaps some other costs. If this minimum-wage working class is expected to have the capacity, or is to be granted the “right”, to breed the next generation of minimum wage workers then the further costs of rearing, clothing and basic schooling for children must be part of the wage. Replacement birth rate is about 2.2 children per couple on average ignoring migration effects.

    Further to the above reproductive and participation costs of labour are the social costs if certain public health standards are to be met. If the minimum-wage social class is to live in acceptable conditions of personal and public health then their wage (in the absence of welfare and social wage components) must contain a portion sufficient to meet these needs. Ignoring public health costs at this level will impact on the whole community as middle and upper classes can also succumb to epidemic illnesses in the absence of adequate general public health levels. Then there are the humane civilization values to be considered. Society as a whole has to decide what allocation if any to make for these needs. Individual employers (small, medium or large business) may be tempted to not pay for health and human values in a minimum wage but public and democratic pressure from the larger constituency is likely to see pressure for some allocation in wages, or by default, in government welfare.

    Thus the workers’ absolute needs (reproductive cost of labour) and social needs democratically determined (minimum public standards for health, education and basic rights) will set a lower bound on a practicable minimum wage for unskilled labour. The employers’ costs and feasible rates of profit will set an upper bound. It is possible that the employers’ upper bound (the most they can pay for poor to mediocre unskilled labour) will be lower, in at least some conditions, than the worker’s lower bound as determined by the reproductive and reasonable social costs of labour.

    Given this, we then have an area of market failure where the free market cannot gainfully employ all employable and willing persons. The free market result is that these people are unemployable but the societal result is that a substantial number of expensive and complicated “capital equipment” units, namely human beings who cost substantial inputs to raise and educate, are now being wasted. Would any good business waste and leave idle items of expensive capital equipment? No. Thus for the nation state it is not overall “good business” economically or socially to waste these persons and leave them idle. This is even leaving aside humane considerations.

    The unemployment roll should be progressively converted to a Workforce Reserve roll. The notion of involuntary unemployment and underemployment should, could and would cease to exist as a category in a properly run social democratic, mixed economy state. Official unemployment would cease to exist and be replaced by membership of the Workforce Reserve. The Workforce Reserve would be progressively mobilised into training and into useful social, environmental and even cultural work. How could this work within the national budget?

    “Unemployment payments fell from 46 per cent of median household income in 1996 – a little below a conventional relative poverty line – to 36 per cent in 2009-10, a long way below such a poverty line,” University of NSW professor Peter Whiteford wrote in a report to Treasurer Wayne Swan.

    So let us assume that we first slightly more than double unemployment payments to 75% of a median household income or perhaps to 75% of the minimum wage. (These numbers would be a bit different of course.) But let us assume that this measure about doubles the cost of this benefit in the national budget. The 2010-2011 budget outcome for sickness and unemployment benefits (rounded up a little) was $7 billion dollars. Thus to double these benefits to about 75% of the minimum wage would cost an extra $7 billion. This is not a big number in the context of entire budget outlays of $356 billion. In round numbers it is 2% of the budget. If another $3 billion was allowed annually for building and maintaining an administrative department of the Workforce Reserve, the total would be $10 billion annually at current budget levels. This does not count cost savings from winding down and/or transferring aspects of unemployment administration.

    About 625,000 people are unemployed currently in Australia. For an extra $10 billion annually we could motivate, train and employ (say on about a 25 hour to 30 hour week at minimum wage rates) all of these people. The uptake would be progressive of course. We could initially fund this by raising taxes to raise 25% or $2.5 billion of this, by finding savings of $2.5 billion from corporate, middle class and fossil fuel subsidy type welfare and by increasing the budget deficit by $5 billion.

    The NATSEM Income and Wealth Report shows it costs about $450,000 in today’s dollars for the average family to raise two children from birth to age 20. Let us assume the state has contributed only another $50,000 (a very modest assumption). Thus it costs Australian society $500,000 per two children or $250,000 per child. Let us assume the previous cost of raising all unemployed people to 20 is the only cost we count. Let us assume a bench line of 600,000 unemployed. If we multiply 600,000 by $250,000 we get $150,000,000,000 or $150 billion. We have $150 billion of idle human capital. If someone had $150 billion of idle, unsaleable but potentially productive capital equipment costing $7 billion a year to mothball and which could be put to full productive use for a total of $17 billion a year (an additional $10 billion) then I suspect they would look seriously at business cases to see how they could do it.

    Measures that required an extra $5 billion in deficit and another $5 billion in raised taxes and removal of distorting subsidies (as detailed above) would be considered unexceptional in any other kind of national emergency (war, major natural disasters, major pandemics etc.) Why should the national emergency of mass unemployment be any different?

    The work that these people could do is grist for another post. IMO, it would not be difficult in the long term, to gainfully utilise all these people for socially useful work.

  43. Ikonoclast :
    Warning! Long Post follows.
    The first implicit assumption, made by P.M. Lawrence and TerjP, is that progressively lowering the minimum wage will automatically and progressively increase employment offers (reduce unemployment).

    No. Read it again. Not only is there no such assumption, implicit or otherwise, there are explicit statements that minimum wage mandates need not fall under a Negative Payroll Tax.

    What is asserted is that a Negative Payroll Tax would automatically and progressively increase employment – not just offers, as that wouldn’t help if job losses grew more – but that is not an assumption either, it is a conclusion drawn from modelling (you can find that by following the link I gave, particularly to Professor Kim Swales’s material if you want formal modelling). In fact, in my last comment I went to some trouble to point out that the full employment issue would not be an assumption but a result.

    This fails to recognise a number of practical lower limits on the minimum wage. It also fails to realise the beneficial macro-economic effects of good wages on aggregate demand.

    Again, no. This is not only incorrect, it is irrelevant since that is not the operative mechanism. If you had followed the link I gave you would have read the following on this subject:-

    … This boosts employment, but not through a mechanism that uses aggregate stimulus of the economy; some critics have objected that this approach does not create jobs by stimulating the economy, but they are building in the assumption that employment levels are only connected to the levels of economic activity, and so they are leaving out the mechanism involved. (This mechanism actually does end up stimulating the economy, too [emphasis added], but in a secondary way.)

    So who’s making unstated assumptions?

    The second implicit assumption seems to be that if the free market or capitalist system cannot gainfully employ people (market failure) then there is no other way of gainfully employing people.

    Yet again, no. Think through the implications of my remarks about all this including making more self employment possible.

    This view suffers from two important oversights. One, it assumes that gainful employment is only that which is economically and monetarily measured. It assumes people are only doing things useful for themselves and/or society if they are earning a wage or other monetary income. Two, it assumes that there is no other way to usefully mobilise people into training, development or paid employment other than by the free market. That is, it assumes that state has no way ways (from conscripted actions to monetarily rewarded actions) to usefully mobilise the unemployed.

    Yes, it does assume all that. Don’t make that assumption and wish it on me.

    If the above point were true, then all armies of capitalist societies would have to be raised solely by free market actions. That is to say only privatised armies could exist but not conscripted or government-paid armies. The clear ability to mobilise an army from consolidated revenue proves the clear existence of the state’s concomitant capacity to mobilise an Employment Reserve from its unemployed numbers if it has the political imagination and will. There are no real obstacles to this. The obstacles are purely ideological.
    First, let us deal with wage setting. It is clear that a mandated minimum wage of $1,000,000 a day would reduce employment to virtually zero. It is also clear that a minimum wage offer of $00.01c a day would find no takers. Between these extremes there must exist a band where a minimum wage is feasible and practical in that both employers and prospective employees are willing to “strike a bargain”.

    There is no “must” about it; it all depends. The whole problem of using mandates is that today’s developed economies don’t have any such sweet spot. Wage levels low enough for everybody to price themselves into work – labour market clearing wages – can easily be too low for everybody to live on. This is clearly visible as far back as the economic history of early 16th century England, when bands of sturdy beggars who couldn’t find work roamed the land.

    I will neither quote nor reply to the rest of that, as it does not pertain to misunderstandings of what I presented earlier.

  44. @Ikonoclast

    Sorry to say, Ikonoclast @33, it is not me who is “reducing the entire social economy to a simple spurious equation or model”. I am saying your proposal corresponds to such a simple model and one needs only, say 2 people with different trades to have sufficient empirical data to refute the empirical validity of the model.

    PS: P.M. Lawrence is right regarding what are assumptions and what are results (conclusions).

    P.M.L’s negative payroll tax argument by itself is not an argument against government involvement in the economy or in favour of ‘small’ government per se. It is an argument about a mechanism which provides an incentive for businesses (capitalist or otherwise) to substitute work done by people for work done by machines (in the limit). Alternatively put, it is a mechanism to change relative prices within the local economy, taking prices for traded goods and the exchange rate as given. Depending on the implementation, this mechanism may be operating sometimes for short periods of time and sometimes for longer periods.

    I don’t know the details, but potentially this mechanism could be used to counteract what is currently discussed under the heading ‘two-speed’ economy. I don’t know P.M.L’s position on this, but potentially it could provide one leg of a program to redistribute profits from, say the mining sector to keep manufacturing going while the A$ is high (the other leg would be the mining super profit tax or whatever it is called now). It is better than tax reductions for small business because tax reductions are neutral regarding machines versus people or imports vs local production, while a negative payroll tax is dependent on employment. Moreover, it trumps the Bill Mitchell (MMT) idea for the obvious reason that it assists people to continue to work in areas where they are skilled and which they presumably like to work in. Mitchell’s idea is wonderful if you want to have a mechanism for a more or less permanent underclass. Again, I don’t know P.M.L.’s position on this, but I can’t see why a selective (industry specific) negative payroll tax cannot be used to complement state owned enterprises which deal with work in relatively new areas such as the environment. It all depends.

    It is not possible to theorise backward, from the macro-level to the real life economy without ending up with potentially m- arguments, where m is the number of people in the economy. The best example in support of what I say is the macro-economic dynamic general equilibrium model. It contains 1 (one) individual (or n identical individuals, ie “L”!) Why this model is called a general equilibrium model I do not know. Just as financial accounts of a business can’t be used to ‘innovate’ (excluding creative accounting), so macro-economic data, such as GDP cannot be used to find a mechanism to generate a happy and productive workforce; these accounts are monitoring devices for monetary transactions. Full stop. Why some macro-economists associate ‘output’ with GDP is a mystery to me (Keynes talked about effective demand vs Walrasian demand; this I understand.)

  45. To have UBI without minimum wage, it would be necessary to have a mechanizam for countering overwhelming employee power to negotiate. I would reccomend, in some situation where political power is above oligarchal power, to implement a clause:new tax rate=tax rate + unemployment rate*2. Well i would reccomend that formula at the present too.
    P.S. For TerjeP and liberaterians; Remember that tax is applyed only to profits, not on operating expenses, so it would affect only savings.

  46. Quasi relgious deducations from rational actors and 0 transaction costs suck. Its a good enough aproximation in many circumstances, labour conditions is obviously not one of them…..

  47. @Ikonoclast

    Clearly you were not paying attention and PML has rightly taken you to task for that. I’ll deal with one or two more minor points.

    I don’t buy the aggregate demand argument but let’s humour it regardless. If we lower the minimum wage by phasing in a UBI or if we keep the minimum wage and nullify it’s price impact on labour demand via a NPT then in both cases the aggregate income of the workers effected ought to be higher. So any suggestion that aggregate demand will be lowered is a straw man.

    Governments can raise armies. They can also disband them. The huge number of soldiers disbanded from armies at the end of WWII did not lead to high unemployment due to a decline in aggregate demand.

    The notion that people do useful things besides paid employment isn’t in dispute. Asserting that it is in dispute is again a straw man argument.

    Your suggestion that a minimum wage of 0.01 cent a day would find no takers seems an odd remark. If people don’t accept the legislated minimum then employers either go without workers or bid above the minimum. And in any case we already know that if the circumstances are right and the work is purposeful then many people will work for absolutely nothing. It’s called volunteering. If you like the work and also get paid some travel money it doesn’t make you less likely to engage than if you got nothing. It makes engagement more likely.

  48. Critical Thinker – So if the unemployment rate is 50% we should have a 100% tax. Ensuring no business is profitable. Ensuring there is no business. Ensuring unemployment remains ridiculously high. Forgive me if I don’t embrace your prescribed madness.

  49. To fund Australia’s unemployment of around 480,000 with a reasonable income of, say, $25,000 per person would cost $12 billion. This could be funded by a 4% universal duty on imports of goods and services. If you implemented such a scheme you would have to have a very vigorous policy to ensure that the unemployed figure did not rise to 10%.

    I prefer this mechanism for funding the unemployment benefit as it provides a soft but natural balancing force. As unemployment rises exports usually fall and the balance of trade usually goes negative. A duty on imports provides a deterent to imports favouring local production. If unemployment falls then the economy is stronger and imports are more affordable. The cost of a universal import duty is shared across economy fairly evenly.

    With such a policy a fair standard of living for the unemployed is fully funded. There then just remains the task of providing work for all and ensuring that those who can work take up the available opportunities. That is a more difficult task.

    So I believe that the combination of

    An employment bill of rights
    An automatic standard of living derived minimum income
    Unemployment funded from a universal duty on imports of goods and services
    Government policy dynamically directed to achieve zero unemployment

    ……provides a workable solution to the question. So if the question is badly posed, it is still rational.

  50. So PML proposes a negative payroll tax! Another handout for business! It’s funny how neolibs and business graduates always favour subsidies for the capitalists. Assistance for the unemployed or any other needy class must always be indirect according to these thinkers. The assistance must always be channeled through capitalists and owners thus giving them maximum opportunity to rent seek on the way. That is the real rationale of all such proposals. Negative gearing is another example of this “give through the owner class so they can rent seek” philosophy. it’s about time we slouighed off these tired old capitalist tricks.

    I would certainly favour removal of the payroll tax but not implementation of a negative one.

    Ernestine’s persistent attempts to debunk macroeconomics are quaintly Quixotic and very amusing.

  51. @TerjeP

    “And in any case we already know that if the circumstances are right and the work is purposeful then many people will work for absolutely nothing.”

    Nice way to assume away the problem – the supply-siders dream world.

  52. Yeah Wikipedia wouldn’t have been allowed in a social democrat nirvana. All that purposeful work for zero pay. Just evil.

  53. So PML proposes a negative payroll tax! Another handout for business! It’s funny how neolibs and business graduates always favour subsidies for the capitalists.

    That seems to be a rather unthinking remark. Yes it is a subsidy but not for capitalists in a general sense. It still has to be funded and whether it is funded by spending cuts to welfare (due to reduced unemployment) a general increase in corporation tax or by some other means needs to be resolved before you can say much about who is a net beneficiary. Clearly though the policy as articulated by PML is designed to advantage low skilled marginal workers suffering involuntary unemployment. So to criticise it as a subsidy to capitalists is a needlessly cynical reflex.

    In many ways it is comparable in concept to a carbon price. It uses a price signal instituted by the government to encourage the private sector to efficiently solve what it considers to be a social problem. I personally think unemployment is a vastly more significant social problem than CO2 emissions but that is another matter.

  54. And TerjeP forgets to prove that contributers to Wikipedia have zero life time wealth and zero life time debt.

  55. Tom :
    @TerjeP
    Using wikipedia as an example of people willing to work for free is bogus, are you actually being serious here?

    If the work is purposeful to those involved then people often work for free. I give up many hours a week as part of a voluntary organisation. I see many other people do the same thing. I’m not making this stuff up. People will work for nothing if they find the activity meaningful. If you don’t believe this then open your eyes. And if you think paying people some travel money or offering them a little training along the way will suddenly discourage them then I think you are mistaken.

  56. @TerjeP

    I partly agree to your comment, people editing wikipedia (including net users from all over the world) are doing it for free. However the reason I find your example critical is because people don’t edit the wikipedia as a full time job. They will usually do it as a leisure or desire to contribute their personal knowledge. I personally know people who spends at least 1 day per week doing volunteer work, but that doesn’t equate to people don’t need a paid job.

    In fact, people who works for free as well as having a paid job proves that they are willing to “work for free” only to the extent that they have enough money to get by from their paid job.

  57. corrections: “I find your example critical”

    should be: “I’m critical of your example”

  58. @TerjeP

    It’s not an unthinking remark, TerjeP. (By the way, I admire your courage in commenting on a blog where you get a lot of people against your views. I am not sure I would have the courage or maybe patience and persistence to comment regularly on Catallexy.)

    As I said, I have noted in neoconservative and libertarian economic prescriptions a prediliction for indirect approaches to economic problems. These approaches have a consistent features. They deal democratic government and direct government action out of the game. I’ll write more on this sometime.

  59. Tom – you seem to have lost track of the context. If somebody is paid a low wage but also receives a modest UBI then they may be satisifed to have the low paid work if it is meaningful and able to get by materially given the combination of the two. It may not be everything they aspire to but it may be enough to keep them engaged in making a contribution. Obviously people’s circumstances, skills and motivators vary and those that want to pay a low wage in a zero unemployment environment will have to keep that work as meaningful as possible or else bid more in wages.

  60. TerjeP :
    [W]e already know that if the circumstances are right and the work is purposeful then many people will work for absolutely nothing. It’s called volunteering. If you like the work and also get paid some travel money it doesn’t make you less likely to engage than if you got nothing. It makes engagement more likely.

    @TerjeP

    Interestingly Terje, there is a body of literature suggesting that paying volunteers does not increase volunteering and in fact decreases it. This is related to the literature on motivation and the interplay between monetary and non-monetary motivation. Obviously, paying volunteers a high enough rate will increase motivation but at that point it is called employment and not volunteering.

  61. “Obviously, paying volunteers a high enough rate will increase motivation but at that point it is called employment and not volunteering.”

    However in the psychological literature this is a switch from intrinsic to extrinsic motivation. It is not at all obvious that paying a “high enough” rate will incearse motivation. At bet it changes motivation and, in fact, may decrease the motivation to perform the ‘work’. It may increase the motivation to get money.

    In an educational context, paying students for grades may change their intrinsic motivation to learn to an external motivation to pass the course. Learning becomes tangential? I don’t know if anyone has checked this out but it certainly follows from theory.

    I think Danial Ariely’s first book–which ref I have apparently lost–deals with this in a behavioural economics framework.

  62. Good point. Better to have someone that wishes to do the right thing, than having to incentivize the unwilling.

  63. @TerjeP
    @TerjeP
    Correct if you asume that corporations would not be incentivized to solve the unemployment problem way before it reaches 30%. Corps would solve the problem way faster then the government because they hold the power over government and even if not themselves thy would force the government to do it for them.Very simple.

  64. TerjeP :Tom – you seem to have lost track of the context. If somebody is paid a low wage but also receives a modest UBI then they may be satisifed to have the low paid work if it is meaningful and able to get by materially given the combination of the two. It may not be everything they aspire to but it may be enough to keep them engaged in making a contribution. Obviously people’s circumstances, skills and motivators vary and those that want to pay a low wage in a zero unemployment environment will have to keep that work as meaningful as possible or else bid more in wages.

    If the person receive modest UBI as well as having a low paid (or unpaid) job while able to get by materially would mean that at least the person is unable to get by without the income from UBI. So assuming that UBI exist, it would need to be funded by the government through taxation. Several questions now arises:

    1. If an organisation is employing somebody to do work for them, why would the government have to pay for their labour cost?

    2. If such condition applies where UBI will also be paid to employed workforce, is there a means test for receiving UBI? If so how can the scheme avoid being exploited by the market? E.g. setting the industry wage level artificially low while relying on UBI to provide the income necessary to satisfy the household materially needs.

    3. If UBI also applied to employed workforce, is taxation associated with UBI elastic to meet obligation of UBI?

    4. Assuming an organisation is not-for-profit organisation and the people applied to work there is doing so for volunteering or community service purposes (since zero unemployment is assumed by the BHLs). Would the purpose and meaning of volunteer work be defeated?

    5. If the individual accepts the low wage work because the individual knows he/she can pass the means test to receive UBI (remember zero unemployment is assumed). What would be the reason for the public to provide the individual with UBI? To put it in the usual libertarian speaking, why should we pay for other people when they choose to accept low wage and accept being exploited by the market?

    So far these questions arises in my head from your reply. In my opinion UBI is best to act like unemployment benefit, indeed the BHLs initially suggested UBI as an alternative and option for the employees to leave employment if he/she faces coercion in workplace (to provide freedom of choice for employees as a protection to workplace coercion). I would not think they meant UBI to be provided for everyone even the employed.

    If such that there is zero unemployment, a person looking for low paid or unpaid work because the person finds it a meaning job should not receive UBI. If so, this also means that the person have sustantial wealth to allow the person to not receive enough income for necessary material consumption.

  65. Th fallacies in the Negative Payroll Tax notion are that
    a) ultimately everyone has to eat, so the gross minimum income base line amount is relatively constant for any one level of unemployment, regardless of how it is funded. If business pays a small amount and the government tops that up, the top up has to be raised somehow, and that falls on the community which ultimately falls on business turnover. Nothing is gained.
    b) the argument that providing business with cheap labour somehow solves the unemployment problem is false because business will let go more expensive employees in favour of the cheaper ones. Employment level constant. Where there will be a small difference is that richer business people will take on desperate people as domestic servants to make their lives easier.
    c) the argument that people deliver a constant level of performance regardless of how badly you treat them is very false, and that if you pay people less then they will work harder is even more so. (Else why do executives get performance bonuses)

    The whole thing is an exercise in wishful thinking.

    The only real issue is that of incentivising people to move from income support to full or parttime work at a different income level.

    One of the things that PML has said that I fully agree with is that self employment is the best model. And to that end there are practical things that we can do.

    I am going to add to my model that Self Employment should be a High School subject before year 9. Everyone should learn the basics of running a small business and understand the notion of being a self employed contractor. if people themselves never become a self employed contractors they will by default have the knowledge to take on contractors through their lives with more confidence and knowledge of the pitfalls.

    I would venture to say that the knowledge of how to be a self employed person instilled in people from high school level would provide the confidence to earn a living independently, and would at least halve the unemployment level.

    The other thing that I was thinking was for there to be a social score card with a penalty tax rate for negative scores. but I can see plenty of problems with that.

    Thinking.

  66. I’ve thought about it a bit more. What I would try to incentivise people off income support is a requirement to engage in re-employment courses or self employment courses, two or three days a week, and then apply a diminishing level of income support which moves from generous to meagre.

    That is for single poeple. Family bread winers require a different model which I have no idea for yet.

  67. At the bottom end of the “incentivisation programme” for individuals, after one year on income support those who choose to remain being supported by the community would be inducted into a “Land Army” where they would be organised to do useful work around the country while continuing to receive training for employment opportunities.

  68. @BilB #24

    Please widen your thinking, I don’t disagree with the fact that there are people who uses unemployment benefits as a source of income to not work, however that is only a proportion of the unemployed (very small proportion in my opinion). I doubt that you believe the near 12% unemployment rate for the 15 – 24 age group and the people that are underemployed are all lazy or lack necessary skills.

  69. I agree, Tom. Most people want to work. It is only some who have an extended problem. People in that group will have a very large range of special circumstances which our compassionate system needs to cater for. This is our social contract.

    Youth unemployment is a difficult area whichwill require some very clear innovative thinking, and understanding, to resolve. This is very specifically an empathy failure of the command generation. The young highly media technology driven generation have very different needs to that of the older physical consumer products driven generation who have control over industry, government and infrastructure.

    The NBN is the first real departure from traditional industry that plays to the strengths of the young, and its full implementation will see a significant shift in unemployment trends. It is no wonder that the arch conservative Coalition want to kill off this information highway.

    So I do not believe that the 12% 15-24 underemployed are lazy. They just have different expectations and do not wll want to be builders labourers, or process workers. They want to be graphics people, rock stars, sports stars, computer games builders, etc. What is missing is the high speed cross communication pipe line that will allow all of this type of genius to blossom. Vital in amoungst this is the self employment thread as I have said above. The knowledge of how to commercialise individual exploits which is only now beginning to be developed with the Creative Industries Academic theme now under way.

  70. @BilB

    While agreeing self employment can help the youth unemployment problem Australia is facing, I believe it does have it’s limits. There are a number of cases of successful business created by the youth age group, often including innovative business ideas as well.

    With that being said, there are some issues in regards to youth self employment:

    1. It’s hard to believe there will be unlimited innovative ideas

    2. Lack of work experience and understanding can create business failures which can be quite damaging to the youth’s future e.g. declaration of bankruptcy

    3. Some business models, such as e-businesses (from impression, a business model often used by youth), while successful, does not always employ much people

    4. One of the biggest limits, which is that some industries are very difficult to enter, due to competition and the ability to enact oppressive business behaviours by monopolies

    While self employment have it’s benefits, these above issues are difficult to address.

    With regards to the Art industry (music, art etc.), it’s a very difficult industry. The employment opportunity is the lowest compared to all other industries. In my opinion, demand for art is just not enough, especially in a capitalist society where people are busy working, as well as the culture does not emphasis the importance of art.

  71. Tom,

    Being self employed does not necessarily require innovation. When I was at high school I earnt quite a lot of money repairing the upholstery at the local milk bar. I knew a bit about sewing because we did a fair bit in first class primary school in New Guinea, a skill which I used many times. I made many a marble bag in primary school, and I have done miles of French Knitting (cotton real spool and 4 nails). So some knowledge of sewing, knowledge of the use of contact adhesive, and access to a Singer sewing machine meant money to buy things.

    The son of a friend of mine earnt a lot of money because he was good at arcade games, so he would build up credits on machines and sell them to other kids at half price.

    Another guy I know and a friend, fresh out of high school, developed an electronic musical instrument. That became the Fairlight.

    To be a business it does not require employing other people. Just feeding oneself and ones family is an excellent level of success, which feeds other families indirectly from materials and services supplies. (your point 3)

    Business failure is not all bad, in fact it is seen in the tech world as being a right of passage to fail and learn. Bankruptcy is not a big deal for the young who do not have a mass of assets to protect and lose. It is much easier move on at that age. (your point 2)

    The new field of Creative Industries (take a look at John Humphreys’ profile on his blog) covers a huge field of endeavour which is seen as playing a vital role in the future world of economic growth without resource consumption. This is what I mean about the rift of understanding between the young and the command generation (us). We just don’t get it, but fortunately they do.

  72. @BilB

    I must admit I missed the viability of small business such as those you suggested, a big failure on my account. With regards to having economic growth (depending on how growth is defined) without resource consumption, I’ll be spending more time to look into that, but I’m not so convinced at the moment

  73. Ikonoclast :
    So PML proposes a negative payroll tax! Another handout for business! It’s funny how neolibs and business graduates always favour subsidies for the capitalists.

    As TerjeP already pointed out, this isn’t a subsidy for “the capitalists” as it’s linked to the hiring that happens (including self employment). And where do you get off with that neolib crack?

    Assistance for the unemployed or any other needy class must always be indirect according to these thinkers.

    Er… None of this helps a “needy class”, as such. It helps people not be needy. That is precisely why helping the needy directly is so problematic, because help like that only goes to the needy and cuts off if their situation ever improves – which makes for a poverty trap.

    The assistance must always be channeled through capitalists and owners thus giving them maximum opportunity to rent seek on the way. That is the real rationale of all such proposals.

    Didn’t you notice that all this is the beginning of a pathway towards making everybody more of a capitalist and an owner? Recall the Distributist G.K.Chesterton’s remark that “the trouble with capitalism is not that there are too many capitalists but that there are too few”. So of course it helps that group – along with helping everybody into that group.

    Negative gearing is another example of this “give through the owner class so they can rent seek” philosophy. it’s about time we slouighed off these tired old capitalist tricks.
    I would certainly favour removal of the payroll tax but not implementation of a negative one.
    Ernestine’s persistent attempts to debunk macroeconomics are quaintly Quixotic and very amusing.

    It’s the opposite of rent seeking; it’s undoing a bias in the opposite direction.

  74. TerjeP :

    So PML proposes a negative payroll tax! Another handout for business! It’s funny how neolibs and business graduates always favour subsidies for the capitalists.

    That seems to be a rather unthinking remark. Yes it is a subsidy but not for capitalists in a general sense. It still has to be funded and whether it is funded by spending cuts to welfare (due to reduced unemployment) a general increase in corporation tax or by some other means needs to be resolved before you can say much about who is a net beneficiary. Clearly though the policy as articulated by PML is designed to advantage low skilled marginal workers suffering involuntary unemployment.

    As articulated by me and by Swales, it’s not designed for that, it just has more effect at that level, i.e. that’s just the way it works out after starting with different design objectives. However, Professor Phelps did start with those objectives, which led him to broadly the same solution – and, as one would expect, his reasoning and presentation didn’t bring out the other gains so much.

  75. Ikonoclast :
    @TerjeP
    It’s not an unthinking remark, TerjeP. (By the way, I admire your courage in commenting on a blog where you get a lot of people against your views. I am not sure I would have the courage or maybe patience and persistence to comment regularly on Catallexy.)
    As I said, I have noted in neoconservative and libertarian economic prescriptions a prediliction for indirect approaches to economic problems. These approaches have a consistent features. They deal democratic government and direct government action out of the game. I’ll write more on this sometime.

    Of course – because those are part of the problem. Democratic government has an incentive to maintain the poor rather than promote them out of dependence, and direct action on the poor tends to create poverty traps (see my earlier comment).

  76. Tom :

    TerjeP :Tom – you seem to have lost track of the context. If somebody is paid a low wage but also receives a modest UBI then they may be satisifed to have the low paid work if it is meaningful and able to get by materially given the combination of the two. It may not be everything they aspire to but it may be enough to keep them engaged in making a contribution. Obviously people’s circumstances, skills and motivators vary and those that want to pay a low wage in a zero unemployment environment will have to keep that work as meaningful as possible or else bid more in wages.

    If the person receive modest UBI as well as having a low paid (or unpaid) job while able to get by materially would mean that at least the person is unable to get by without the income from UBI. So assuming that UBI exist, it would need to be funded by the government through taxation.

    No, in two respects:-

    – The NPT approach deliberately bypasses the funding issue by using tax breaks instead (follow up the material I linked for detail on this). That’s why I prefer to call it a virtual rather than an actual or real wage subsidy.

    – It is entirely realistic to fund an actual UBI through a revenue yielding portfolio once that has been built up, and indeed I envision this as one of the transitional stages on the way to full resourcing at the individual or mutual level.

    Several questions now arises:
    1. If an organisation is employing somebody to do work for them, why would the government have to pay for their labour cost?

    Because the employer is not facing the true pattern of costs and benefits, since the spillover cost of unemployment is spread – a negative externality.

    2. If such condition applies where UBI will also be paid to employed workforce, is there a means test for receiving UBI? If so how can the scheme avoid being exploited by the market? E.g. setting the industry wage level artificially low while relying on UBI to provide the income necessary to satisfy the household materially needs.

    Not restricting it and having the labour market respond to it is the object of the exercise. It would be a false economy to divert this response, like pressing the accelerator and the brake at the same time.

    3. If UBI also applied to employed workforce, is taxation associated with UBI elastic to meet obligation of UBI?

    This is a separate issue we need not go into in detail. Suffice it to say that personal taxes should not take the income source into account, just as benefit recipients with other income still pay tax in general.

    4. Assuming an organisation is not-for-profit organisation and the people applied to work there is doing so for volunteering or community service purposes (since zero unemployment is assumed by the BHLs). Would the purpose and meaning of volunteer work be defeated?

    Again, this is “orthogonal” to everything else. But a properly tuned UBI would deliver less than is needed to live, so such a volunteer would still need some private means or outside paid work to live.

    5. If the individual accepts the low wage work because the individual knows he/she can pass the means test to receive UBI (remember zero unemployment is assumed). What would be the reason for the public to provide the individual with UBI? To put it in the usual libertarian speaking, why should we pay for other people when they choose to accept low wage and accept being exploited by the market?

    See above – no means test. If there were one, it wouldn’t undo the labour market externality. And it’s not “we pay them”, it’s “we undo the load that has been thrown on them as an externality” – which is why “we” should, since it’s undoing something that makes an unfree market.

    So far these questions arises in my head from your reply. In my opinion UBI is best to act like unemployment benefit, indeed the BHLs initially suggested UBI as an alternative and option for the employees to leave employment if he/she faces coercion in workplace (to provide freedom of choice for employees as a protection to workplace coercion). I would not think they meant UBI to be provided for everyone even the employed.

    Then you have not followed the material up but are substituting your own preconceptions about it.

    If such that there is zero unemployment, a person looking for low paid or unpaid work because the person finds it a meaning job should not receive UBI. If so, this also means that the person have sustantial wealth to allow the person to not receive enough income for necessary material consumption.

    Well, the UBI phase ought to end as soon as that switch to private resourcing can be made. But until then, yes, of course those people should get that UBI. Just remember that it would be lower than “enough”, and that it is not the best initial phase.

  77. BilB :
    Th fallacies in the Negative Payroll Tax notion are that
    a) ultimately everyone has to eat, so the gross minimum income base line amount is relatively constant for any one level of unemployment, regardless of how it is funded. If business pays a small amount and the government tops that up, the top up has to be raised somehow, and that falls on the community which ultimately falls on business turnover. Nothing is gained.

    Wrong. You didn’t follow up the reasoning or the further detail at the linked material, did you?

    That amount is already a cost on everybody, from the need to fund unemployment benefits. So nothing is lost with an NPT – it’s the whole short term revenue neutral, loong term budget neutral thing I cover in the linked material and the other stuff that leads to in turn. Contrariwise, people hired or not fired under the lower NPT marginal employment costs end up doing more work than the zero when unemployed – which is why there is a gain there, leading to Swales’s finding that GDP would typically rise by about half as much as employment in percentage terms. There is a gain.

    b) the argument that providing business with cheap labour somehow solves the unemployment problem is false because business will let go more expensive employees in favour of the cheaper ones.

    False. You made up the idea that only the previously unemployed qualify to generate the tax breaks. Read the material – it emphasises that NPT is an across the board thing, for everybody. And before you jump in with the usual next mistake, no, that does not mean it needs massive funding to cover everybody; look at the bits about virtual wage subsidy and revenue and budget neutrality.

    Employment level constant. Where there will be a small difference is that richer business people will take on desperate people as domestic servants to make their lives easier.
    c) the argument that people deliver a constant level of performance regardless of how badly you treat them is very false, and that if you pay people less then they will work harder is even more so.

    Why on earth would you make that bit up? If anything, people would get more options to get out from under adverse conditions like that. Read the material and the other commernts if you want to see why.

    (Else why do executives get performance bonuses)
    The whole thing is an exercise in wishful thinking.

    Then stop making things up and look at the material that was really presented.

    The only real issue is that of incentivising people to move from income support to full or parttime work at a different income level.
    One of the things that PML has said that I fully agree with is that self employment is the best model.

    Please do not misrepresent me as “agreeing” with something I did not claim.

    What I asserted was that more survival options would open up under an NPT or a limited UBI, one of them being a more realistic self employment option, and that this would discourage employers from offering poor conditions. But it would be just as bad to push everybody towards self employment as to push everybody towards working for despotic bosses, since some people would fare badly under each – just usually not the same people.

    And to that end there are practical things that we can do.
    I am going to add to my model that Self Employment should be a High School subject before year 9. Everyone should learn the basics of running a small business and understand the notion of being a self employed contractor. if people themselves never become a self employed contractors they will by default have the knowledge to take on contractors through their lives with more confidence and knowledge of the pitfalls.

    Whether they want to or not. Please don’t try to force people to be free.

    I would venture to say that the knowledge of how to be a self employed person instilled in people from high school level would provide the confidence to earn a living independently, and would at least halve the unemployment level.

    No, it wouldn’t, unless and until the resources were there for them to apply. Without that it’s as realistic as farmers looking for tenancies when the landlords are switching to raising livestock – just having the skills is not enough.

    By the way, that analogy is drawn from many independent cases in economic history, so it’s realistic.

  78. Suffice it to say,PML, that I generally don’t agree with your thinking. Moreso not that you recant the value of self employment.

    I will repeat that nothing is gained through this “mechanism”. It is false to say that more people will be employed simply because some people are cheaper for business to hire. There may be some gain but most likely efficiency is lost and costs go higher, no gain.

    The long and the short of it is that we need more entrepreneurs finding more opportunity niches to operate in, niches that it takes time for big business to over ride or external competition to undermine.

    I think that it is smoke and mirrors, PML. But in case I missed something explain it again below in compressed point form specifically highlighting where the employment is created and the commercial opportunities to absorb that labour is created.

  79. @TerjeP “People will work for nothing if they find the activity meaningful.”

    Terje is acting the innocent; obviously those that engage in unpaid work are not dependent on that work for income. Examples of unpaid work could include lawn mowing, weightlifting, bird watching and cake decorating.

    ABS notes that unpaid work has no market value as “services emanating from unpaid work are not produced for the market, so there are no appropriate monetary prices to use in the valuation of these services. Accordingly, the System of National Accounts, 1993 (SNA) excludes the value of unpaid work from its definition of economic production..”

    http://www.abs.gov.au/ausstats/abs@.nsf/Previousproducts/1301.0Feature%20Article451996?opendocument&tabname=Summary&prodno=1301.0&issue=1996&num=&view=

  80. BilB :
    Suffice it to say,PML, that I generally don’t agree with your thinking. Moreso not that you recant the value of self employment.

    I repeat, that never was my position, and that was no recantation. For you to suggest that is to imply that I held a position I did not, and that is offensive. Do not misrepresent me.

    I will repeat that nothing is gained through this “mechanism”. It is false to say that more people will be employed simply because some people are cheaper for business to hire

    I know you are repeating it. That is argument by repeated assertion, which is not a valid argument.

    I, on the other hand, am not merely repeatedly denying what you put. I am repeatedly drawing your attention to the reasoning at the link I gave earlier and in the material it references – such as Professor Swales’s modelling, which is independent of mine. If you find flaws in that, by all means bring them out – but don’t just assert that there are flaws.

    There may be some gain but most likely efficiency is lost and costs go higher, no gain.
    The long and the short of it is that we need more entrepreneurs finding more opportunity niches to operate in, niches that it takes time for big business to over ride or external competition to undermine.
    I think that it is smoke and mirrors, PML. But in case I missed something explain it again below in compressed point form specifically highlighting where the employment is created and the commercial opportunities to absorb that labour is created.

    No. Follow the link. I have neither the space nor the time to achieve what you request in a simple comment, since you do not accept the summaries I have been able to post here. However, all that is already covered fully in the places I directed you to. By all means use that material.

  81. I’ve had a bit of a read of your page on NPT, and it seems to me that you are treating employment one dimensionally,..as though it is an end in itself, not part of a large semi chaotic system.

  82. @P.M.Lawrence
    ‘ people would get more options to get out from under adverse conditions like that.’
    Yeah, lets hurt people more so they get strong incentives to get out from under it.
    LOL
    Understanding your reasoning i would recomend making tax rate for corporations to be Tax=tax rate+unemployment rate*2+rate of people under substinance income.

  83. @TerjeP “People will work for nothing if they find the activity meaningful.”

    Terje is acting the innocent; obviously those that engage in unpaid work are not dependent on that work for income. Examples of unpaid work could include lawn mowing, weightlifting, bird watching and cake decorating.

    ABS notes that unpaid work has no market value as “services emanating from unpaid work are not produced for the market, so there are no appropriate monetary prices to use in the valuation of these services. Accordingly, the System of National Accounts, 1993 (SNA) excludes the value of unpaid work from its definition of economic production..”

  84. critical tinkerer :
    @P.M.Lawrence
    ‘ people would get more options to get out from under adverse conditions like that.’
    Yeah, lets hurt people more so they get strong incentives to get out from under it.
    LOL

    Look again. Nowhere do I suggest putting incentives on people to take up any of these options, let alone hurting them more. The incentives go on actual and potential employers to offer work, which only flows through to workers in the self employment case – but no pressure is placed on the unemployed to stop receiving unemployment benefits, above and beyond what that situation already throws on them.

    Understanding your reasoning i would recomend making tax rate for corporations to be Tax=tax rate+unemployment rate*2+rate of people under substinance income.

    I respectfully suggest that you do not understand my reasoning. It is open to you to follow that up in what I have provided in these comments or in the material I linked to, or in what that material references.

    Over and above that, by chance the Cambridge Society of Victoria is hosting some five minute talks on various topics this evening at Campari House, 23-25 Hardware Lane, Melbourne (6 p.m. for 6.30 p.m.), and I shall be talking about this. Some readers may find it convenient to get in at short notice – it’s $25 for platter food (including gourmet pizza), with drinks at bar prices.

  85. Yeah, lets hurt people more so they get strong incentives to get out from under it.

    Who is hurt by an NPT other than the taxpayer who has to fund it?

  86. “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. ”

    I tend to agree and I assume you, JQ, know exactly why – the minimum wealth condition in a model of ‘freedom’ is much stronger than UBI and NPT however implemented. This model of ‘freedom’ has strong moral assumptions. The moral premise of this model of ‘freedom and private ownership’, never strictly applicable in reality, is nevertheless the fibre on which people have been raised. It is now worn very thin, particularly at the top of many societies. People are angry everywhere in ‘the free world’.

    The mess is so big now that the German President felt obliged to publicly criticise the greed of the ‘leaders’ of the commercial world (usually called CEOs) and warned if things aren’t going to change regulatory measures may have to be considered. Note, the unemployed are not considered to be the problem but some of the employed, who call themselves ’employers’..

    The French President announced plans to reduce the budget deficit by ca Euro7 billion. It is apparently not an easy job. Things look different for a Wall Street banker. J.P. Morgan announced the loss on its gambling (derivative) operations so far is about US$4 billion (could get higher). J.P. Morgan is still making profits! I don’t think it is necessary to multiply the Euro amount by 1.25 to arrive at US$ to make precise the problem with the numerical relationships.

    Politicians and CEOs have their incomes determined by an ‘independent body’ (tribunal, remuneration committee respectively). No enterprise agreements for the public and private managers. Interesting.

    But then, if monetary wealth is the absolute measurement of ‘value’ in a society one should not be surprised that rent-seeking, ‘independent bodies’ for some but not for others, and outright theft become the new norm.

    The problem started with the deregulation of financial markets, and level playing field talk together with tax distortion arguments. This so-called micro-economic reform was, as you know, oddly uninformed by the then available economic literature.

    Good on you for keeping public discussion open.

  87. Who is hurt by an NPT other than the taxpayer who has to fund it?

    Exactly, that is why recomend those who benefit from it to pay for it prevent abuse of it.

  88. Exactly, that is why recomend those who benefit from it to pay for it and to prevent abuse.

  89. critical tinkerer :

    Who is hurt by an NPT other than the taxpayer who has to fund it?

    Exactly, that is why recomend those who benefit from it to pay for it prevent abuse of it.

    TerjeP, Critical tinkerer, this is a misunderstanding. Taxpayers do not have to fund an NPT; it does not require funding – that’s an important part of the design. There are no new funds outgoing, just the existing outgoings on unemployment benefits until those drop, and the mechanism collects just as much tax immediately after it is implemented as just before – short term revenue neutrality – and thereafter any decline in tax collected is matched to declines in outgoings on unemployment benefits – long term budget neutrality (or a gain, if the GDP increases flow through to other parts of the revenue base). The only effects of this sort are that, since GST is allocated to the states and the federal government gets the reductions in outgoings, they would need to revise their intergovernmental transfers. But it’s no skin off the taxpayers’ noses.

    Also, the only opportunities for “abuse” would be if someone who was not entitled claimed as working under it. But everybody is entitled if they are entitled to unemployment benefits. You would only get people who were not entitled if you set it up wrongly, with some people not covered. As for illegal immigrants and the like, well, they are being sought out anyway. As for completely fictitious people that employers might register, they wouldn’t have valid Tax File Numbers, and/or the employers wouldn’t have the NPT vouchers from the employees to submit along with their taxes.

  90. @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.
    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.
    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? Crises hit just as same, wages are offered at low and still unemploymentr was there.
    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. 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.

  91. @P.M.Lawrence
    Here in USA employers got the choice to reduce labor cost by getting temp agency labor for menial work, permanently, so they fire better wage workers for low wage worker at the government cost (less SS and Medicare payments and tax) and economy cost (less buying power). Same with outsourcing to small business. It is a race to the bottom.

  92. @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. 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.

  93. @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.

  94. 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.

  95. @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.

  96. 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.

  97. 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.

  98. 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).

  99. @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.

  100. @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.

  101. 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.

  102. 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.

  103. 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.

  104. @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.

  105. @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.

  106. 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.

  107. @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.)

  108. 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.

  109. @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.

  110. 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.

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

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

  112. @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).

  113. 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.

  114. @ 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.

  115. 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.

  116. 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.

  117. “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.

  118. 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.

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

  120. 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.

  121. @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.

  122. @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.

  123. 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.

  124. 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.

  125. 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.

  126. 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.

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

    How magnanimous.

  128. 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!”

  129. @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.

  130. 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.

  131. @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

  132. 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

  133. 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.

  134. 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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