Oren Cass on the Value of Work — Confessions of a Supply-Side Liberal

*Link to Jason Willick’s interview of Oren Cass shown above*

Beyond the day-to-day tussle in Washington and other capitals, one of the most important policy debates today is between advocates of a higher minimum wage, advocates of universal basic income and advocates of government wage matching. Oren Cass, in his interview by Jason Willick flagged above, makes a good case for wage matching. All the bullet points below (except the links to other posts at the very bottom) are quotations from this Wall Street Journal interview.

Work isn’t just about getting money. It is also about getting self-respect and respect from others:

Whether and how people are employed—what their role is in society’s productive system—“is both an economic and cultural question.”
Karl Marx speculated that workers with leisure time would “hunt in the morning, fish in the afternoon, rear cattle in the evening, criticise after dinner.” He was wrong. People out of the labor force—especially men—are more likely to be “sleeping and watching TV” than hunting or fishing, Mr. Cass says. Unemployment, more than any of life’s other rough patches, leads to unhappiness and family breakdown. People want to “know what our obligations are, and feel that we’re fulfilling them,” he adds. When this foundation of society starts to crumble, political upheaval tends to follow.
Work determines “whether we feel that we’re respected and admired,” Mr. Cass says, “and whether we have something that we’re good at.” Technocrats haven’t yet figured out how to redistribute self-esteem.
Can working-class Americans “buy more cheap stuff? Absolutely. And do we now transfer more money to them, so they can buy even more cheap stuff? Yes,” he says. “But their ability to participate meaningfully in the labor market, and to become self-sufficient supporters of families has eroded badly.”

Most of those at the bottom say they want jobs, not handouts:

… says Mr. Cass, the “further down the income ladder you go, generally speaking, the less enthusiasm there is for redistribution as a solution. People will tell you they want to work.” He adds: “It’s when you get to the top of the income distribution that you find a whole lot of people are basically like, ‘Why can’t I just write a check?’ ”

Oren advocates wages subsidies—a match rate by which the government matches a certain percentage of earnings. Funds would have to be found for wage matching in the government budget, but as a way to help those at the bottom who are able to work, wage matching has key advantages:

Unlike programs such as unemployment insurance, wage subsidies don’t reduce the incentive to work. His imagined subsidy would add a percentage of workers’ earnings to each paycheck up to a target amount, boosting the return on their labor.

Government benefits “can start to get pretty close to what a low-wage job provides in the market,” Mr. Cass says. In contrast, a wage subsidy increases the difference in value between social programs and work so that more people choose the latter.

One of Oren’s most intriguing points is that a wage-matching program needs to be paired with a cultural shift toward viewing low-skilled labor as honorable—and providing such jobs as honorable:

He argues that this widened economic gap between idleness and work should be paired with a cultural one, where idleness is stigmatized and work of all kinds is valued and celebrated. Today, he says, “being an employer of less-skilled workers is sort of a straight ticket to the exposé about how your workers don’t earn enough money.”

Personally, I find the line of attack that companies providing jobs for low-skilled workers are taking advantage of the government safety net especially annoying. Surely, offering jobs for low-skilled workers is better for society than not offering jobs for low-skilled workers. These workers need more take-home pay, but if we are OK with redistribution at all, it is appropriate that the take-home pay they need for a living wage should come from the taxpayers rather than hoping that an employer will react to a higher minimum wage by hiring more workers.

Wage matching can be even more powerful if paired with an online government-sponsored market for workers. Morgan Warstler designs such websites, and writes about their benefits in his Medium post “Guaranteed Income & Choose Your Boss: Uber for Welfare.” I have become more and more favorable to this idea over time. There are many benefits to government wage-matching done through a website like that for delivering Obamacare subsidies, but with more stability and a better user interface. Here is my list:

There will be better incentives to work.
There will be a lower cost for low-skill services—which will lower the cost of living, especially for those at the bottom, who can’t afford high-skill services. (Note that occupational licensing restrictions have to be relaxed to get the full benefit of this effect. One way to do this is by adding a new occupational category in each general area of work that is specifically designed for low-skill workers, and has few hoops to jump through. For example, it could be expected that someone meeting the definition for a “haircutter”—which might have only, say, one weekend’s worth of required training, entirely focused on safety—would have lower skill than someone meeting the definition for a “barber” or “hair stylist,” who has had to jump through more hoops.)
With a star rating system (stars), those who have little experience, or are ex-cons, can develop a good record as workers.
A star rating system for each day or at most each week of work makes the power one wields by a rating on any one occasion small enough that it should be hard to sue someone for giving a low rating for someone’s work. That contributes to honesty of those doing the rating. (There should also be ratings of bosses; that helps workers avoid choosing a bad employer.)
Honest ratings of workers can lead to a lower natural (long-run-normal) rate of unemployment.

I explain the last point in my post “Janet Yellen is Hardly a Dove—She Knows the US Economy Needs Some Unemployment”:

Low pay affords workers an attitude of “Take this job and shove it!.” If workers have no reason to obey you because they are just as well off without the job—and owe you nothing—it will be hard to run a business. And if you hire someone at very low pay who actually sticks around, it is reasonable to worry about what is wrong with the worker that makes it so that worker can’t do better than the miserable job you are offering them. The way out of this trap is for an employer to pay enough that the worker is significantly better off with the job than without the job.

It might sound like a good thing that firms have a reason to pay workers more, except that, according to the Efficiency Wage Theory, firms have to keep raising wages until workers are too expensive for all of them to get hired. The reasoning goes like this: There will always be some jobs that are at the bottom of the heap. Suppose some of those bottom-of-the-heap jobs are also dead-end jobs, with no potential for promotion or any other type of advancement. If bottom-of-the-heap, dead-end jobs were free for the taking, no one would ever worry about losing one of those jobs. The Johnny Paycheck moment—when the worker says “Take this job and shove it”—will not be long in coming. If they were free for the taking, bottom-of-the-heap, dead-end jobs would also be subject to high turnover and low levels of emotional attachment to the firm. …

There are other conceivable ways to reduce the necessity of motivational unemployment in the long run.

If all jobs had advancement possibilities—that is, no jobs were dead-end jobs—it might be possible to motivate workers by the hope of moving up the ladder. This works best if workers actually learn and get better at what they do over time by sticking with a job.
If doing what needs to be done on the job could be made more pleasant, it would reduce the need for the carrot of above-market wages or the stick of unemployment.
If workers could trust firms not to cheat them and were required to pay for their jobs, they would be afraid of having to pay for a job all over again if they were fired.
There could be a threat other than unemployment, such as deportation.
Unemployment could be made less attractive.
Worker’s reputations could be tracked more systematically and made available online.

To make possibilities 5 and 6 more concrete, let me mention online activist Morgan Warstler’s … proposal that would make unemployment less attractive and would better track workers reputations: An “eBay job auction and minimum income program for the unemployed.” The program would require those receiving unemployment insurance or other assistance to work in a temp-job—within a certain radius from the worker’s home. The employer would go online to bid on an employee to hire and the wages would offset some of the cost of government assistance. Both the history of bids and an eBay-like rating system of the workers would give later employers a lot of useful information about the worker. Workers would also give feedback on firms, to help ferret out abuses.

(Even if it is reduced, if any motivational employment is necessary, it is an important thing to understand in macroeconomics. See “Why We Want More Jobs.”)

I suspect surveys show that a majority of Americans feel that those at the bottom should be able to make a living wage. Unfortunately, there is no guarantee that will happen without some government intervention. Consider the alternatives:

Universal basic income makes people want to work less, making them more likely to forgo the non-money benefits of working as well as the money.
Higher minimum wages make employers want to employ people less (especially when they are very high in relation to the marginal products of the relevant category of workers).
Wage-matching honors work and, in particular, honors those who produce valuable output. And it helps the poor by giving them access to inexpensive services from their peers as well as by augmenting their wages.

Don’t miss these other posts (some of them link-posts to outside pieces) on these alternative policies: