THE PURSUIT OF EQUITY

Thurow, Lester

Probably all the people in the United Statesóleft, right, and centerówould say they are in favor of an equitable society. The differences arise with regard to what exactly is meant by equity,...

...Yet this gap clearly serves as an adequate incentive to keep most of the workforce working...
...The burden of proof is on those who advocate inequality, not on the advocates of equality...
...Given the opportunity to retire on one-half the median income, few would take advantage of the opportunity...
...The solution of that problem can be left to the future...
...They simply collect more tax revenue than they need for current expenditures and then lend to or invest their savings in industrial enterprises...
...Sometimes I think that all attitudes about social policies spring from differences of opinion as to whether man is by nature fundamentally lazy or whether man is by nature a working, toolbuilding animal...
...The problem is not finding worthwhile things to do...
...AFDC was initially set up with the idea that mothers with small children should be encouraged to stay at home...
...A lack of employment opportunities is not a temporary short-run aspect of the U.S...
...But there is an easier and faster way to demonstrate this point without going into the subtleties of a voluminous economic literature...
...but their annual earnings clearly should be different...
...Income-support controversies obviously arise when we start thinking about the "undeserving poor"óbasically AFDC mothers and the "lazy...
...Whatever the reasons, we need face the fact that our current economy and our current institutions will not consistently generate jobs for everyone who wants work...
...Income Support IF A REAL guaranteed job program were in place, it would be possible to reduce welfare programs and expenditures while at the same time expanding the benefits for those who legitimately cannot be expected to work because of age and/or physical impairments...
...Since, in our democratic country, the society's idea of a fair distribution of economic resources depends upon some bringing together of our various individual ideas of equity, the first problem is to determine how each of us would specify an equitable society...
...Elderly families with one or two individuals would get less than this, based on studies of differences in the cost of living between families of four and families of one or two...
...Washington, D.C.: The Brookings Institution, 1969...
...The norm is equality, and inequalities must be shown to be beneficial...
...While the distribution of economic rewards offered to fully employed white males is clearly adequate to encourage individual work effort, it does not speak directly to the problem of individual incentives for savings and the accumulation of capital...
...They never have and they never will...
...If this were the case, what distribution of prizes would we like our lottery to distribute...
...But, instead of arguing about this point, let's put it to the test and see how many people really want to work and how many are in fact lazy...
...I, 91, p. 50...
...If, on the other hand, man is a working animal, substantial income support levels can be offered without causing the human animal to retire from work activities...
...Observe the actual earnings of yearround full-time white male workers (see the table below...
...fears of inflation...
...Some of them would of course be given guaranteed jobs working in day care centers...
...In the periods between these recessions, unemployment was high...
...Whatever monetary costs are necessary, however, should be raised by a system of wealth taxes, designed to bring the distribution of wealth and capital income into conformity with that of earnings...
...economy has proven incapable, in periods of peace, of consistently generating jobs for everyone who wants to work...
...Societies can and do operate without individual savings...
...The President's Automation Commission Report listed millions of potential public service jobs in the mid-1960s, and anyone with even a little imagination can think of many things that could be done to make this a better society...
...With a guaranteed job program I suspect that there would be fewer AFDC mothers (some would voluntarily choose work and others would then be able to find men who could provide economic support), but there certainly would still be female-headed households with children...
...Those on welfare almost universally say they would prefer work to welfare...
...There are economic studies of saving behavior equivalent to those of work, Distributions of Economic Resources* (1973) Earnings of Income of all Fully Employed Persons with White Males Income $ 0- 2,999 3.8% 35.3% $ 3,000- 5,999 8.9 20.9 $ 6,000- 9,999 26.9 19.6 $10,000-14,999 34.2 14.4 $15,000-24,999 20.2 7.6 $25,000 & up 6.0 2.3 Share of Share of Total Earnings Total Income Bottom Quintile 7.7 percent 1.9 percent 2nd 14.0 6.8 3rd 18.6 14.0 4th 23.7 24.3 Top 36.0 53.0 *U.S...
...There would be a move toward socialism in that government would own the means of production for those who participated in the guaranteed job program and the government would assume a social responsibility of making sure that everyone who wanted to had an opportunity to work...
...Now compare this distribution of earnings prizes for fully employed white males with the distribution of income prizes for the entire population...
...THE PURSUIT OF EQUITY 257 going to be elderly and that we may have our personal resources depleted by illnessóbut we all know that we are not lazy and most of us either think or know that we will not end up AFDC mothers...
...they were felt to be more valuable in the home than at work...
...Only then can we move on to the problem of determining and implementing our collective wisdom...
...The only solution is a socialized sector of the economy designed to give work opportunities to everyone who wants them and cannot find them elsewhere in the economy...
...2See, g.e., Marvin Kosters, "Effects of Income Tax on Labor Supply," in The Taxation oflncomefrom Capital, Harberger and Bailey, eds...
...Evidence from Gallup polls seems to indicate fairly widespread support for the idea that the minimum acceptable income is approximately half of the actual median family income for the deserving poor.' For a family of four this would have meant a minimumincome support level of $6,500 in 1974...
...economy...
...The earnings of fully employed white males may also be more unequal than is necessary to keep the economy functioning, but this is a problem we can postpone worrying about until the whole economy reaches the relatively low degree of earnings inequality that currently exists among fully employed white males...
...First, it is not a program of employment at minimum wage rates...
...Given the gap between the current degree of inequality in the economy as a whole and that among fully employed white males, there is little point in arguing whether we should or should not proceed beyond this "interim equity target...
...Patterns of labor-market behavior and the outputs of our economy would be fundamentally altered...
...That right to work, as much as it is desired within commonly agreed standards, is a fundamental part of "equal opportunity" in the economic sphere...
...Similarly, a structure of input and output relationships that is fair for fully employed white males is presumably fair for the rest of the economy...
...Unless you think that the culture of women, minorities, and underemployed white males is different from the culture of employed white males, there is every reason to believe that a reward structure that is capable of keeping white males economically on their toes is also capable of doing the same for other Americans...
...as a ."work ethic" society, this should be a moral duty as well as economically desirable...
...As long as any useful output is produced, a work project is preferable to that project called involuntary unemployment...
...All men are by nature equal...
...To achieve the suggested standard of equity, we must face the fundamental failure of the U.S...
...Anyone who wishes to work fulltime year-round, however, should be offered that chance...
...Transfer payments were $140 billion in 1974...
...Third, the program should not be viewed as a temporary antirecessionary measure...
...Inequalities greater than those that now occur in the earnings of fully employed white males are not functional...
...3See, e.g., "Symposium---The Graduate Work Incentive Program," Journal of Human Resources, Spring 1974...
...AFDC welfare payments could be abolished and AFDC mothers could be absorbed into the guaranteed job program...
...The time has come, however, to admit that the pursuit of equity and equal economic opportunity demands a fundamental restructuring of the economy...
...Equity demands it...
...They should not have to go through the administratively costly and potentially demeaning experience of proving that they are disabled by age or health...
...If the option is between idleness and work, the choice is simple...
...If the guaranteed jobs are to be real jobs, then any guaranteed job program must produce some economic outputs...
...But most of us would also probably be quick to respond that the previous Gedanken experiment was unfair or incomplete, since it did not take into account the problem of generating economic prizes...
...Institutions cannot work, but institutions can save...
...These outputs might constitute street cleaning and competition with public sanitation departments, or rebuilding rail roadbeds and competition with private industry...
...Politically, we are reluctant to give jobs, because to do so would require a major restructuring of the economy...
...Most of these individuals are already covered by the Social Security system, and it is simply a matter of deciding upon their appropriate minimumincome support level...
...How many people would need to be employed in a guaranteed job program...
...The period since World War II illustrates the point...
...It is quite appropriate to point out that fully employed white males must work full-time year-round while many individuals in the economy do not wish to work full-time...
...It focused solely on the problem of distributing economic prizes, while the real problem is to both generate and distribute economic prizes...
...If a guaranteed program is to achieve the objectives for which it is intended, it must have several characteristics...
...economy...
...253 sions, 2 and the negative income tax experiments, 3 all indicate that current inequalities are much larger than those necessary to produce and expand the current Gross National Product...
...There is no reason, however, why some of the jobs could not be temporary short-run jobs for people who are temporarily unable to find work in the conventional private or public sectors of the economy...
...In the world of the guaranteed job "no work, no eat" is not an impossible dictum...
...These attitudes about working mothers have changed, but it is difficult or impossible to implement our new attitudes in an economy without enough jobs to go around...
...It would have some low-wage jobs and some high-wage jobs, but most jobs would be in the middle range, and some or all of its workers might be unionized...
...Recent recessions have been caused by Administrations that deliberately set fiscal and monetary policies so as to slow down the economy, create unemployment, and slow the rate of inflation...
...Macroeconomic policies could be used to hold the economy at a point where there were jobs for everyone who wants to work, but they will not in fact be used for that THE PURSUIT OF EQUITY 255 purpose...
...4 1 here is no substitute for individual work effort...
...it is a permanent, endemic part of the U.S...
...But differences may be necessary...
...In the long run, guaranteed jobs and opportunities for fulltime or part-time work after the age of 65 would substantially reduce the need for income support even among the elderly...
...At the moment, all programs to put AFDC mothers to work flounder because there are no jobs for them to be found...
...To the extent that we were unable or unwilling to hold the private economy at the full-employment level, we would have the beginnings of a socialized economy...
...The reasons for this are many: time lags in the decisions process...
...If an equitable distribution of economic resources is ever to be achieved, it will require the provision of jobs for everyone who wants to work...
...incompetence...
...Everyone who wants to should have a chance to work...
...Not to do so is equivalent to saying that you must go to church to be ethical but then locking the church doors...
...As a result the "interim equity target" should be thought of as a standard of potential equity that anyone can achieve if he or she is willing to work full-time year-round...
...In the long run, I suspect we would discover that most human animals are not lazy, and a generous negative income tax program could be instituted without huge cost and with some substantial gain in the treatment of the "deserving poor...
...I now believe those teachings to be technically correct but irrelevant...
...Given this burden of proof, what does the evidence show...
...Individuals who wish to work part-time should be able to participate in an economy where the distribution of hourly earnings is no more unequal than that for full-time year-round workers...
...Instead of a situation where the share of the top quintile is 28 times as large as the share of the bottom quintile, we have a situation where the share of the top quintile is only 4.5 times as large...
...In the current world it is simply absurd...
...If we shall really have a capital shortage in the future, the equitable way to raise the necessary capital is not to lower the already low tax rates of the rich but to raise whatever savings are necessary by increasing tax revenue in an equitable way...
...If we really instituted a guaranteed job program of the nature outlined, I would be willing to abolish all possible sources of welfare for the able-bodied...
...Fortunately, this is one of the few cases where all the empirical evidence points in the same direction...
...116 and 146...
...Individual work incentives are necessary to a rapidly growing economy, but individual savings incentives are not...
...Thus a guaranteed job program must have a structure of earnings and promotion opportunities equal to that of fully employed white males...
...The tax system (positive and negative) could be made more progressive and, if anything, work efforts would increase rather than diminish...
...While no one can know the proportions of lazy and working creatures among the human species until we have job opportunities for everyone, I personally fall into the camp that believes the lazy are few and far between...
...But if work is the only ethical way to receive income, we have a moral responsibility to make sure that everyone who really wants to can find work...
...While we might disagree on the amount of inequality we would be willing to generate, most of us would not advocate great inequalities, and all of us would be for some minimum prize (our survival could depend on it...
...If these policy-makers had been forced to hire in the public economy those people they deliberately rendered unemployed in the private economy, I suspect there would have been a sudden increase in the desire to maximize private employment opportunities...
...Surveys of work behavior,' econometric studies of work deci'See, e.g., George Break, "Income Taxes and Incentive to Work," American Economic Review, September 1957...
...I meet many people who are worried about the lazy, but few who will say that they are among the lazy...
...Most of our current savings are not, in fact, voluntary individual savings but involuntary institutional savings in the form of pension plans, retained corporate earnings, depreciation allowances, etc...
...Second, it must be an open-ended proram, providing jobs to everyone who is able and willing to work regardless of age, race, sex, education, etc...
...Given care in selection, there is no reason why the projects could not generate substantial net benefits...
...If we really object to income supports for mothers with dependent children, we will be in a position to implement that objection in a world of guaranteed jobs...
...A new source of competition would arise for both public agencies and private firms...
...Abilities and talents will play a role in that a person gets a job within the distribution of job opportunities, but no one will be denied full- or part-time work who desires it...
...The U.S...
...Governments also can save...
...Thus the number who would need to be employed in public projects would be large, but still, it would be much smaller than the current number of unemployed persons...
...Given what we preach about the U.S...
...Given these beliefs, all differences in economic rewards must be based on evidence of their necessity for keeping the economy operating...
...To keep an economy growing, individuals must be willing to work...
...Yet we deliver money...
...They exist...
...Conclusions HISTORICALLY, one of the interesting things to observe about our economy and our political structure is that we find it much easier to set up welfare programs to give people money than to set up work programs to 258 LESTER THUROW give people work...
...If man is by nature lazy, and given the slightest opportunity will lay down his tools and quit working, then the world must be carefully structured to force him to work...
...Given current discussion of the possible existence of future capital shortages, it is necessary to think about savings incentives as well as work incentives...
...We consistently preach that work is the only "ethical" way to receive income, and we cast aspersions on the "welfare" society...
...Payments for labor, materials, and capital might be high but, like all economic projects, the costs would depend on the difference between the value of output produced and the payments made to factors of production...
...The basic problem is that our social attitudes about working mothers have changed faster than our institutions...
...The distribution of economic prizes for fully employed white males is much more equal than that for the population as a whole, although it is a long way from complete equality...
...There are, however, many substitutes for individual savings...
...but they are not necessary to keeping the economy functioning at its current level...
...254 LESTER THUROW but it is important to understand that there is a fundamental difference between savings incentives and work incentives...
...At the moment, with 8 million people unemployed, the answer is obviously many millions...
...While Western societies agreed several hundred years ago that no one should be allowed to starve to death on the streets, minimum support levels, it has been felt, must be kept so close to the extinction level that they attract no one...
...As I was growing up professionally, I was constantly taught the received wisdom that there were no technical reasons why macroeconomic policies could not be used to consistently generate jobs for everyone who really wanted to work...
...What would such a program cost...
...Inequalities greater than this are clearly unnecessary and therefore constitute inequities...
...Department of Commerce, Consumer Income, Series P 60 & 97 (Washington, D.C.: Government Printing Office), pp...
...economy...
...As a result, the prime requirement for the achievement of equity revolves around a restructuring of the economy, so that it does provide jobs for everyone...
...Now let's turn to the "lazy...
...Our public rhetoric would lead you to believe the opposite...
...If a guaranteed job program were actually to exist, however, the performance of macroeconomic policy-makers would improve...
...Real economic competition, however, would almost certainly increase...
...Since private enterprise is incapable of guaranteeing jobs for everyone who wants to work, this means that government, and particularly the federal government, must institute programs to guarantee work for everyone who wants it...
...Even if this were not true, the program would still need to be permanent, since no industry could be expected to go in and out of business over the course of the 256 LESTER THUROW business cycle and still operate efficiently...
...We all know that we are 5See Lee Rainwater, "Economic Inequality and the Credit Income Tax," Working Papers, for a New Society, Vol...
...For the moment, leave aside the "lazy" or AFDC mothers and think about those individuals who, everyone would agree, could not be expected to work...
...This leads me to advocate a negative income tax program with a guarantee level at about half of the median income, because this is the most human and administratively easy way to pick up those individuals who really cannot work...
...Therefore we would want to know what incentives (potential economic inequalities) were necessary to produce the current quantum of economic goods and services, and whether there was a fair set of relationships between individual inputs into the economy and individual receipts from it...
...But there is no way to achieve it by marginally tinkering with current economic policies...
...From the point of view of both work effort and capital accumulation, the current degree of inequality among fully employed white males is adequate to keep the economy growing as rapidly as it has in the past...
...Those who are physically able to contribute to the economy should receive rewards based on their contributions, just as fully employed white males receive rewards based on theirs...
...Since the project would be employing idle economic resources (workers without jobs), the real economic costs (opportunity costs) would be substantially less than monetary costs...
...economy...
...The differences arise with regard to what exactly is meant by equity, and the divergent evaluations of the costs and benefits in conflicting ways of achieving equity...
...Compared to what we are now spending on transfer payments, the costs of doing this would not be great...
...If you believe in the norm of equality, but with the reservation that violations of equality may be functionally necessary to operate our real-world economy, I would put you in the mainstream of modern Rousseauian thinking...
...To aid in this process, perform the following "Gedanken experiment": Imagine that all economic resources were to be awarded in a random lottery where none of us would know whether we were to gain the largest or smallest prize...
...Jobs for Everyone TO GENERATE EQUITY, a society must offer not only a fair outcome but a fair process...
...If equity requires jobs for everyone Who is able and willing to work, we face the need to restructure our economy...
...A guaranteed job program also would eliminate the endless sterile debates about what fraction of the unemployed are lazy and unwilling to work...
...At the same time, however, I am willing to make a short-run compromise with those who believe that the human species is fundamentally lazy...
...Recessons occurred in 1949, 1954, 1957-58, 1960-61, 1969-70, and 1974-75...
...As a result, I would suggest that we consider the current degree of inequality among fully employed white males our "interim equity target...
...Those advocating inequality must prove that any diminution in inequality would reduce the size or rate of growth of the economic pie that is available for distribution...
...Savings studies show that higher taxes cause reductions in individual savings depending on the consumption function that is relevant to each income class...
...not jobs...
...Based on hours of work, this group still provides most of the labor used in the U.S...
...At the same time we are not willing to give enough money to achieve equity...
...The objective is to open a structure of economic work opportunities for everyone that are equivalent to those open to fully employed white males...
...Most of us set our goals higher than this and find work an intrinsic part of our nature...
...No one should deny that a real, open-ended guaranteed job program would constitute a major restructuring of our economy...

Vol. 23 • July 1976 • No. 3


 
Developed by
Kanda Software
  Kanda Software, Inc.