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In his new book, The Once and Future Worker, Manhattan Institute scholar Oren Cass challenges our basic assumptions about what prosperity means and where it comes from. The nation’s economic consensus has long regarded the economy as a “pie” to be grown and divided amongst consumers, but rather than produce a rising tide that lifts all ships, this “economic piety” has led to decades of stagnant wages, a labor-force exodus, too many unstable families, and crumbling communities. The fault doesn’t all lie with the Left or the Right, but with a centrist economic model that abandoned the interests of workers, who provide the foundation for a prosperous society. Cass explains where we went wrong and how reorienting public policy around the interests of workers rather than consumers flips the national debate on its head―or, rather, returns it to its feet—with implications for the environment and organized labor, trade and immigration, education and the safety net, and proposals like “free college” or a “universal basic income."
Oren Cass, Senior Fellow, Manhattan Institute
Adam J. White, Research Fellow, Hoover Institution
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Operator: Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's Labor & Employment Law Practice Group, was recorded on Tuesday, November 13, 2018 during a live teleforum conference call held exclusively for Federalist Society members.
Wesley Hodges: Welcome to the Federalist Society’s teleforum conference call. This afternoon’s topic is a review of the book The Once and Future Worker. My name is Wesley Hodges, and I’m the Associate Director of Practice Groups at The Federalist Society.
As always, please note that all expressions of opinion are those of the experts on today’s call.
Today, we are very fortunate to have with us the author of the book, Oren Cass, who’s a Senior Fellow at the Manhattan Institute. Here with us for the conversation is Adam White, who is a Research Fellow at the Hoover Institution. After our speakers give their remarks today, we will move to an audience Q&A, so please keep in mind what questions you have for the book or for the author or for the conversation as it flows today. Thank you very much for sharing with us today. Adam, I turn the baton to you.
Adam White: Wonderful. Thank you very much. Thank you very much to all of you for joining us today. Thank you to The Federalist Society for hosting this, and thanks to Oren for writing this wonderful book. I should say Oren and I are friends, and we’ve been colleagues. But I can say without any conflict of interest that I think this is a great book, a really great example of smart and readable policy argument and so on. I’m so glad that we’re going to have a chance to discuss this book today. Isn’t today the roll out day, Oren? Today’s the first day the book’s out, right?
Oren Cass: It’s official day zero, or day one, or whatever we call it.
Adam White: Congratulations.
Oren Cass: Thank you.
Adam White: I’m so glad we get to discuss it today. So let’s just jump right in, Oren. I guess the big picture question: What’s the book about?
Oren Cass: The book is about work, is the short answer. The slightly longer answer is that the book is about what has gone wrong in our economic policy and our culture as a result of a shift, really over the past couple of generations, to looking at everything in terms of consumer welfare. All of modern economics pretty much assumes that consumer welfare is what matters, that more cheaper stuff is better, that we want rising living standards and, of course, economic growth. That’s true. Those things are important, but we’ve focused on them to the exclusion of the other side of the coin, which is work, which is people’s identities as productive contributors to their communities, as supporters of families.
And when you kind of step back and look at what really matters in life, it turns out that work actually matters more, that people’s life satisfaction that their families, that their communities -- all that really depends a lot more on whether they have the opportunity to be productive workers and to achieve self-sufficiency and so forth. And so the book both outlines how going from a focus on workers to an obsession with consumption has caused a lot of the problems we see and then talks about all of the policy implications that would follow if we actually looked through that other lens and thought about worker interests first.
Adam White: Now, what are the main arguments that you’re responding to in this book? What segments of the policy and political community see things the other way, see it from a consumer-centric perspective?
Oren Cass: Well, I think it’s both sides. It’s whether you’re talking about the mainstream of the Democratic or Republican Party, at least the pre-Trump Republican Party. Both sides have focused really strongly on this concept of the economic pie, which is a sort of very strained metaphor as soon as you actually squint at it that equates the economy with a pie and suggests that as long as we keep making it bigger, everybody can have a bigger slice. And ideally—and this tends to be the Republican view—it will just automatically be the case that as the economy grows everyone gets a bigger slice. Or if necessary—and this tends to be the Democrat view—we can always kind of cut some pieces of pie off some people’s plate and put it on to other people’s plate, and then everyone will be better off. Who doesn’t like pie?
But now to stretch the metaphor much too far, that doesn’t consider who bakes the pie. So if you’re not just interested in serving pie and giving enough to everybody, but you’re interested in who’s participating productively, the metaphor actually falls apart pretty quickly. And so the mainstream model of economic policy we’ve focused on, which is just growth at all costs on the front end and then let’s fight about how much to redistribute on the back end, you get different flavors of that from the parties. But at the end of the day, they’re both focused on the same goal, and it’s not the right one.
Adam White: I have to admit when I posed the question that way it was a bit of a leading question or a trick question. I’m not sure which. Because it’s one of the things I like about the book that you sort of point out, that this is one area where both parties, both sides of the political argument, tend to agree widely – that economic consumption really is the central focus. I can’t remember. You traced the pie metaphor back to Harry Truman, was it?
Oren Cass: Yeah. It’s crazy. Almost every president -- you can go and look through the archives and almost every president uses the metaphor. Both the Wall Street Journal and New York Times editorial boards use it. Both Perkins and AEI use it. I would put that right at the exact center of the centrist economic consensus. Yet, while it’s fashionable to kind of blame the fringes for whatever’s wrong, I think in this case the accepted centrist view is what’s wrong.
Adam White: So you actually coin a term for this. You call it economic piety, which is one of two of the clever terms you coin in the book. The other one’s the working hypothesis, which you already sort of sketched out a little bit, but why don’t you tell us in a bit more detail what is your working hypothesis?
Oren Cass: Yeah. Sure. I wanted to call the book the "Working Hypothesis" because I thought it sounded really cool like a spy novel or something. And everyone else said, no, it sounds like a really boring, nerdy book. So we went with The Once and Future Worker instead, but I still got to call the introduction the "Working Hypothesis." And the book is really built around this hypothesis, which is that a labor market in which people can find work that’s going to allow them to support strong families and communities is really the central determinate of our prosperity. And therefore, it should be the central focus of our public policy.
And the thing about a labor market is that it can work very efficiently as a market, but when we say a market works efficiently, we have to assume we don’t care where it settles. A market can efficiently settle at a very high level of output. It can efficiently settle at a low level of output. It’s just a question of what conditions it’s operating in. And people aren’t products. We can’t treat the labor market that way. We can’t take whatever outcome it delivers and say, “Great. That’s the efficient outcome.” We actually have to have a bias toward a particular outcome, which is a labor market that is going to let people engage as producers. If we make that the starting point for what we’re trying to accomplish, then we have to have a really new discussion about what kind of policy should be on the table.
Adam White: It’s interesting that you phrase your argument less in terms of economic gain and much more in terms of culture and family formation and communities. For all the years I’ve been reading you, you’ve tended to focus on more traditional sort of policy analysis, focused on quantitative metrics. After all, you are a product of Bain & Company, so you’ve always sort of worked within that sort of consultant approach. This is a very, very different book. What spurred you to write this?
Oren Cass: Well, that’s a good question. I think the Bain lens is actually an interesting place to start because you’re right. I like a very robust quantitative approach to policy. But one of the things you see in, whether you’re talking about the business world or the policy world, is that what you choose to measure ends up dictating a lot of what you choose to do. And so in the business world as well a lot of times, you look at what’s wrong with a company. It’s not that they’re dumb or they’re inefficient. It’s that they were focused on the wrong thing. And so in the policy context, I think one of the things I was really struck by is that in a lot of the policy arguments I find myself in, whether it was on education policy or trade policy, the rejoinder coming from the other side tended to be “Well, my policy is best for economic growth.” Right? “Look how much higher GDP is if we do X.”
And that struck me as just a wildly unsatisfying defense. I think growth is absolutely important. It’s something we should be cognizant of. At the end of the day, we do need growth if our prosperity is going to increase over time, but it seemed to be missing the forest for the trees. It reminded me a lot of the business executives who would say, “Well, look at how great we’re doing on some metric.” And you’d say, “But is that really the metric you need to be doing well on if you want your business to succeed.” I think it’s a metaphor that I use in the book is I feel like what we had happen in America is a lot like kind of the romantic comedy heroine who the trailer says she had everything she wanted, or so she thought. We got what we thought we wanted. We had the nice apartment and the fancy job, and we looked around and we still weren’t happy.
So that’s why I think we have to step back and go back a little bit to first principles of what are really the most important determinates of prosperity. And when it comes to growth in particular, kind of flipping it on its head, I think we have this mindset today that, as long as you get lots of economic growth, everyone’s going to be happy and all of the good things we want from society will flow from that. I think it goes the other way. I think we have to think about growth as the emergent property of a healthy society, that it’s the society that has strong families and communities, that’s giving everybody an opportunity to engage as productive citizens. Those are the conditions that are going to produce the growth at the end of the day.
Adam White: So we can all be happy that we have iPhones and cheap iPhones and that might be a decent short-term measure of prosperity. But in terms of long term economic growth and long term societal happiness, it really is these cultural factors, the cultural aspects of work and supporting a family that matters the most, I take it?
Oren Cass: Yeah. I think that culture’s important. I think we should also give a little bit of credit to work as also a very concrete economic factor. The cultural elements of work matter a lot. But, at the end of the day, when we talk about people working, a lot of that is economic, too. We’re talking in very concrete terms about how much people are able to earn, but we’re recognizing that the reason that work’s important, that when we take sort of the broader view of human flourishing and what leads to happiness, and satisfaction, and mental health, and self-esteem, and family formation, all of these things that we want, how many iPhones you have just doesn’t turn out to explain very much.
And they’re cultural in a sense, but those more production-based factors, what you get to do with your time, what your role in the community is, is much more important than what you get to consume.
Adam White: Now, to be fair, both political parties talk a lot about creating jobs. That’s maybe the most prominent campaign rhetoric on both sides is who’s going to create more jobs. So aren’t you wrong to say that we need to focus more on work? It seems that both parties are already characterizing their policies in terms of work.
Oren Cass: Yeah. Everyone certainly talks about jobs, and I think that confirms the intuition that people know that that’s what matters in their own lives. The interesting thing, though, is then to go a step below that and look at what are the agendas they’re claiming are good for jobs. What you discover very quickly is they are not coincidentally just the agendas they would have preferred anyway that they’re passing off as jobs agendas. In the right of center, a so-called jobs agenda is almost always tax cuts and deregulation. And there are cases where some of that might be important to creating the environment for more jobs. But it’s certainly not sufficient. And I don’t think it’s even, in all cases, necessary.
Then it’s even starker when you look at the left of center Democratic Party. I think Hillary Clinton’s speech at the Democratic Convention in 2016 is kind of the quintessential illustration of this where she has a sort of very definitive line that her primary goal is more jobs and higher wages for American workers. And then she launches into kind of this Clinton-esque bullet list of policies, none of which have anything to do with jobs. Citizens United is on the list. Women’s control of their own healthcare is on the list. Social security is on the list. Fighting climate changes is on the list.
And you step back and you say, “Okay. You just said jobs and then reeled off just a list of other things you like. You’re not actually focused on jobs.” And certainly, neither party is willing to talk about the things that would require actual tradeoffs, that would require them to give up on some other priority in order to put a focus on jobs.
Adam White: Now, the second part of your book, the second half, proposes some much more directly work-focused policies that you think policy makers ought to pursue. Before we get to that, I do want to just dwell a little bit more on the first part of the book. Because in addition to your coin of the phrases "the working hypothesis" and "economic piety," you talk about "productive pluralism," sort of, I don’t know if you want to call it a market, but the basic approach and the way the nation should think about work and what kind of jobs are good or not good or worth having. What’s "productive pluralism"?
Oren Cass: Yeah. I apologize. It’s not nearly as catchy as the other two little phrases. But it’s an important one because I think, a little bit to your point about it sounds like I’m talking about very cultural things, we do need a way to make concrete what is this goal that we’re talking about, if it’s not just economic growth. So the concept I try to introduce and describe is what I call "productive pluralism", which is the idea that what we should be striving for as a society where everybody, regardless of their own aptitudes, regardless of the sort of way in which they’re most interested in ordering their own life, regardless of where they live, they have the opportunity to find work that’s going to allow them to support a family and contribute to a community.
And so there’s both the productive component of that. But I think the pluralism component is also really important as well because something that we lose with our obsessive focus on GDP and consumption is we lose sight of the fact that people don’t all want the same things. Money is fungible. If all we want is to make sure everyone can buy whatever they want, then just having enough money to pass around, per se, is a great solution. But if we recognize that what people really care more about is other things about their life, is their ability to pursue the kind of vocation that they actually get satisfaction from and are good at, that they might want to live in a particular kind of community; they probably want to live close to their own family and so forth, then those are things we have to assign value to. And so when we say, “Oh, sure. Everybody has opportunity as long as they move to Houston and become a welder,” I don’t think that’s good enough.
I think we have to recognize that part of what has historically worked in this country and what we should set as our expectation is that we’re going to have the kind of pluralistic economy where single income and two income families can thrive, where people who only complete high school and college graduates can thrive, where people who want to live in rural areas and people who want to live in big cities can thrive. And all of those choices are going to come with tradeoffs. I’m not saying everyone should go be an astronaut, but we should really recognize that there’s real value in having those opportunities available to people so that what they end up doing aligns as closely as possible to what they’ll want.
Adam White: The way you phrase sort of the goal, the idea that work either a single-income or two-income family -- that the working parents or the working family members could support a family with work that they find fulfilling. I don’t know if that’s exactly the word you used. Maybe I added it myself. But that really requires focusing on both parts, right? One is the nature of the job and how it fits the worker in question. Then, also, it has to be work that pays enough in our market system to support the family, right?
Isn’t there sort of a tension between those two goals: encouraging people to find work that’s fulfilling, while at the same time hoping that the work that’s chosen will be compensated sufficiently? At what point does the government have a role to play in either side of that equation?
Oren Cass: I think you’re right that there’s a tension there, and you’re also right that you added the word fulfilling, which I didn’t use for a reason. Which is I think that a lot of how our culture, and especially the elite segments of our culture, talk about work, really miss a lot of what work is about and how a lot of people actually think about work in their own lives. There’s a very famous commencement address that Steve Jobs gave at Stanford in 2005 or 2006. It has tens of millions of views on YouTube. And he analogizes a job to a lover and talks about how you shouldn’t settle. You have to keep looking until you find what you love. Now, first of all, by the way, being an IT executive was not Steve Jobs’ passion, which is [an] interesting backstory to the whole thing.
But this idea that someone’s job should be their passion and the thing they love, it’s not realistic for most people. It’s not the right standard to set, and it doesn’t turn out to actually be necessary. If you look at how people actually feel about their own work, one striking thing you find is that most people actually report -- an overwhelming majority of people actually report being at least somewhat satisfied with their jobs. When you look at what makes people satisfied with their jobs, it’s not necessarily that they have these sort of changing the world types of jobs. In fact, a lot of times, those people are not necessarily happy at all. What turns out to be most important to most people is that it’s something that they’re good at. It’s something that pays the bills, meaning that what is fulfilling about work is that it is the way you provide for your family, to think back to that term of breadwinner. That still has a tremendous amount of resonance for people.
And so when we have this culture -- one thing I like to point out is all of our sitcoms now, all the award winning sitcoms are about white-collar professionals living in coastal cities. Our sitcoms used to be about blue collar folks: All in the Family, Taxi, Cheers, so on and so forth. We don’t even tell those stories anymore. And yet working to live, as opposed to living to work, meaning work being just one part of your day, something that -- you have something that you can be proud of that you do, that makes ends meet, that supports your family, that is what is fulfilling about work to a lot of people. In that respect, I think it’s absolutely something we can achieve.
Adam White: My sitcom growing up was the A Team, and that looked like pretty fulfilling work. But it wasn’t available. Setting aside the sitcoms, it has been interesting to see that there have been TV shows in pop culture that have focused on work as something less glamorous but still fulfilling. Obviously, the one that comes to mind, first and foremost, is Dirty Jobs, which was on for years and years. At the same time, you’ve seen books about work like Shop Class as Soulcraft by Matthew Crawford, which was a New York Times bestseller.
He was urging people to think more broadly about work, and by more broadly, I mean looking beyond the sort of conventional career tracks that everybody seems to pursue now coming through and out of college. And that encouraged people to find work that might not require a college degree but which would be very productive, might compensate people very well but is off the increasingly beaten path. And your book seems to be a contribution in that vein as well.
Oren Cass: Yeah. I think that’s right, and that’s certainly my goal. I think one of the biggest divides we have in this country, and thickest bubbles that so many policy makers and pundits and so forth are in, is between college graduate and not college graduate. And the reality is that most Americans still don’t earn even a community college degree. Barely one in five actually successfully go high school to college to career, ending up in a job that even required the kind of degree that they earned. So we’ve built this culture and this mindset that’s all about how do you get people through college and into that kind of job. And first of all, it’s just not attainable for a huge share of the population.
And second of all, it doesn’t align with what an awful lot of people want. There are a tremendous number of very good jobs that support families, that have the kind of characteristics I was just describing that can be fulfilling that don’t require a college degree at all. And yet, we have taken away -- we’ve withdrawn so much of the respect and admiration for that kind of work, which ends up having very tangible costs. It’s what I call the "social wages of work", which is part of the reward you get for working is the money in your paycheck. But part of the reward you get for working is the sense that you’ve accomplished something, that you’ve fulfilled your obligations, that you’re respected in the community.
And if you take that away and you don’t give that respect, and you don’t have a culture where people feel that sense of accomplishment for the work they’re doing, that can be every bit as substantive and tangible an effect as cutting someone’s pay. And I think that’s what we’ve done for a huge swath of the kinds of jobs that are attainable for a lot of people.
Adam White: There’s a lot more in the first part of the book that we just don’t have time to get to on the call, including a very interesting discussion of technology, the ways in which it has contributed to our current situation for better and for worse, and ways in which you think technology hasn’t been the cause that it’s either been credited or blamed for being in some of our current social and economic situations. But let’s move to the second part of the book where you really do present policy alternatives that you think would promote work as the organizing principle of federal and local policy.
And I’ll just tick through the list just so the listeners know. You focus on environmental regulation. You focus on education policy. You focus on trade and immigration. You focused on organized labor, labor unions and the role they do play, the role they could play. And then finally, you focus on taxes on work and subsidies for work. We’ll save that last one for last, but of the first four, environmental regulation, education, trade and immigration, organized labor, could you just pick one and sort of sketch out what your basic argument is?
Oren Cass: Yeah. Let’s talk about the regulation side of it because I think that’s one that has been talked about and debated a lot but not necessarily in quite the right terms. One of the things I think is most striking about the way that we’ve transitioned to this obsession with consumer welfare is that you even see environmentalists have done it. So when you think about what cost benefit analysis actually means, and when we try to count in dollar terms the benefits of cleaner air for instance, what we’ve done is convert environmental quality into a consumable good. So we say having fewer parts per million of some pollutant in the air has cash value to people that they should essentially be willing to trade off other consumption for. So if you can buy less of other stuff, but you have cleaner air, we’re going to define you as better off.
That’s an interesting construct, but where it really goes array is when you then think about the cost side. Because if you’re purely focused on this consumer welfare frame, then what you’re doing to workers and employment and industrial investment in wages doesn’t matter. And, in fact, it doesn’t appear in the analysis. So we count all of these great consumer welfare benefits on one side, and then the only cost we talk about is the actual monetary cost of installing the pollution control equipment. So we say, “Ta-da. We’ve essentially made an investment that pays off for consumers.” If you say this about work, if you instead say, “Well, wait a minute. What are we doing to our labor market and where investment is flowing within that market and what kinds of jobs we’re creating and what kinds of wages?” the analysis would look completely different.
So there’s a really important philosophical point here which is that cost benefit analysis as conducted in not a neutral choice for good democratic regulation. It actually has these very important value judgements built in, and ones that are steering us in the wrong way.
And then, second, concretely, we’ve struck the wrong balance. That because we’ve done it this way, we’ve wildly overprioritized environmental quality at the expense of industrial investment and development and employment. And that certainly doesn’t mean we should get rid of regulation or not care about the environment. I think those things are important.
But we have to recognize that there’s actually a tradeoff there that, today, we ignore in a lot of our formal policy making and ask what is the balance at the margin that we want to strike between even further gains in environmental quality versus a resurgence in industrial investment. And we’re still striking the balance from 1970 of saying environmental quality comes first. I think if you look at both how much better our environment is now and how much worse our industrial economy is now, it’s time to strike a different balance and recognize that good blue-collar employment for less skilled workers has to be a higher priority and has at least as much social value as your next marginal gain in environmental quality.
Adam White: The point about cost benefit analysis is a relatively small part of your book, but I did want to highlight it. And I’m glad you did because I think it’s a fascinating discussion. It’s also colorful. You refer to modern cost benefit analysis, as it’s practiced in the agencies, as having the air of a show trial, which I think is absolutely right. But also, I’m think about it a lot these days. The program I run at the Scalia Law School is going to have a big workshop and conference next year on why run cost benefit analysis. Cass Sunstein has a new book out on cost benefit analysis.
But in thinking about these things, I went back and looked at some things that Justice Scalia wrote before he was a justice, before he was even a judge, actually, where he reacted to the Reagan executive order on cost benefit analysis with a little bit of wariness. And he warned that if we try to reduce the entire rulemaking process just to some sort of abstract cost benefit analysis, we’ll lose sight of the fact that rulemaking really is an exercise in value judgements and tradeoffs, including a lot of factors that can’t be quantified. It was interesting to see him almost 40 years ago being the one sort of warning against that. And now, I see you in your book doing something very similar.
Before we get to the wages and taxes and subsidies, I do want to just dwell for a moment on the labor unions point because I thought this was very interesting what you’re proposing be done with the role of labor unions, and also the role of federal labor law. You say, currently, the federal labor law serves as the floor, leaving the companies and unions free to bargain above it. But you say, actually, what we ought to think of this as is a default rule and give the unions and the employers the opportunity to negotiate in either direction, either up or down or what works best for that company and that union. Could you explain that a bit?
Oren Cass: Yeah. The thing about organized labor is organized labor is great, in theory, which I suppose is a surprising thing to come from someone who’s quite conservative. But I think it’s incredibly important to recognize that what we call organized labor in this country is one very specific flavor of Great Depression-era legislation that has not changed and that may or may not have been suited to the situation in 1935. But it’s certainly not suited to the situation today. And so we’re unfortunately in this situation where you have one political party that is incredibly reliant on the existing form of organized labor for its financial support. And so Democrats have a labor policy of just let’s keep this thing alive and try to force people into it. And then you have another party, the Republicans, who think it would just be great if it died. We’ll just stand on the sidelines and watch it wither away.
I don’t think either of those are right. I think we should want to have an organized labor system in this country and want it to be different from the one we have now. In an ideal world, that would actually be something you’d find very interesting cross-partisan alliances in support of. And so the point you raised, which I think is right at the heart of this, is that one of the things that has gone so wrong with our system of organized labor is that all of the things that the sides used to bargain over have now been codified into federal law. So people rightly celebrate that unions helped to bring us the 40-hour work week, and paid overtime, and benefits, and pensions, and safety regulations, and so on and so forth. But those used to be the things that you bargained over. And now, those are all in law.
So if you organize a union, and if your union is going to collect dues from workers, it now has to show up and get something else. Well, what else is it going to get? As more and more of the things that it might get are taken off the table, you’re left with sort of marginally costlier and less valuable concessions that end up looking like the crazy work rules and seniority provisions that we now think of and that are so harmful both to the firms and, ultimately, to the workers themselves. And so what I think would make a tremendous amount of sense is to step back and say, “Wait a minute. Why do we have all these federal rules in the first place?” The answer is because we think individual workers are not on a level playing field to bargain with their employers. I think that’s probably right.
But once you have an organized workforce that can bargain collectively, that’s not a concern anymore. So there’s no reason that they should need to adhere to the same federal rules if, as a collective, they think something else would be preferable. So if you took all of those federal rules and said, “Look. In an unorganized workplace, this is going to be the terms and conditions of employment. But in an organized workplace, have at it. You can depart from any of these you want,” then you would create a completely different dynamic in the relationship between management and labor. So for one thing, you can imagine, management would be much more interested in having a partner in labor to bargain with. That’s all of a sudden a much more appealing opportunity.
And secondly, the kinds of agreements you can strike would be ones that were actually value adding. So instead of just being a hostage negotiation – what do you give us so we don’t strike? – it would actually be a chance to sit down and say, “Look. Time and a half for overtime, we don’t actually care about that as much, as long as overtime is scheduled well in advance. So let’s strike a deal where overtime under various conditions is not paid as highly, but you agree to get rid of just-in-time scheduling and mandatory overtime.” That’s the kind of bargain you could imagine a retailer and retail workers wanting to strike that would add a tremendous amount of value to both sides.
And so moving to that structure for what it means to bargain collectively I think is one that would benefit both sides, create a labor market that works better, gets better compensation to workers, and then encourages the formation of unions in the first place in a way that would allow them to support workers because workers can benefit from that.
Adam White: Now, just one last question before we open the floor to the audience. What I see in this book as your most notable, or maybe controversial, definitely creative, proposal is a rethink of how the federal government could subsidize work directly through instead of, I guess, a payroll tax – the opposite of a payroll tax, a payroll contribution. How should the government subsidize work?
Oren Cass: So the form of wage subsidy that I propose, like you said, is essentially the opposite of a payroll tax. So we already know how to look at how much each worker earned every pay period and take some money out of their paycheck based on that. We could just as easily put another line item under FICCA on your pay stub that said work credit. If you’re a low-wage worker, then for every hour you worked we would put additional money into your paycheck. Let’s say a $9 an hour worker might get a $3 an hour subsidy. So you get your $9 an hour from the employer and another $3 an hour from the government. And your paycheck at the end of the week looks like you were earning $12 an hour.
If you do that, you get a number of really important benefits. One is you encourage more workers to come into the labor force because you can now actually advertise that as a $12 an hour job and make the jobs more attractive. Another actually really nice benefit is you make it more attractive for employers to invest in these kinds of businesses and create these kinds of jobs because they will capture part of the value of the subsidy as well. And that’s something we should celebrate. If we want more good work opportunities for less skilled, lower wage workers, we have to recognize that employers have to be our partner in that enterprise.
And then the final benefit is there’s more money in the paycheck, which means that, at the end of the day, you’re bringing more jobs closer to being ones that allow people to support their families. And if we do something in that way, I think you move the labor market towards the equilibrium we want, which is more jobs at higher wages, especially for the less skilled workers.
Adam White: Now, why not just raise the minimum wage?
Oren Cass: Well, the minimum wage is what you can kind of line up against the wage subsidy as the traditional left-of-center proposal. And I think it reflects very well what’s wrong with a lot of left-of-center approaches to labor market policy, which is to say, if we don’t like how things are coming out, let’s just order something different. Let’s just by fiat say we would like a different outcome. The problem with doing that in a market is it tends to make the market work worse. And so in the minimum wage context when you do that, you’re again saying let’s make that $9 an hour paycheck a $12 an hour paycheck. But you’re telling the employer they have to put that extra money in. You’re essential taxing the employer $3 an hour to have the $9 an hour worker.
So while, in theory, the outcome for someone who benefits looks similar, you have two huge problems. One is it’s just not very fair. If the employer’s the one who ends up paying for that -- that employer might be a small business owner trying to make ends meet. It might be a franchisee. He might end up raising prices on other customers. He might end up having to reduce wages for some other workers. It’s not clear that any of those are the people on whom we should put the burden of getting these paychecks higher for less skilled workers. I think it’s much preferable to look at the tax system we have, which is how we collect money for social priorities, and say that’s where we want the money to come from.
So fairness is one problem, and then the second problem is just the practical problem that you’re going to get less of these jobs instead of more of these jobs. That if you essentially charge the employer a fee to employ the less skilled worker, you’re going to have less of that kind of employment overtime. When in fact, we want and need more of it. And you’re not necessarily going to see it right away, right? Businesses that already exist are going to have to find a way to do what they can within the constraints that they’re facing.
But over time, if the message you’re sending to entrepreneurs and investors is business models that would use a lot of less skilled labor are relatively less attractive, that’s not where the investment’s going to go. And our labor market is going to shift further away from the kind that we want, which is one that is inclusive and has opportunity for everybody.
Adam White: Okay. Just one last question. Since you phrased it that way, your response to minimum wage called to mind one of my reactions to your proposal on the wage subsidy. As we think about sort of the second-order consequences of a wage subsidy, just like you’re thinking about the second-order consequences of raising the minimum wage, isn’t there a risk that if the government subsidizes wages then employers will be able to just bid down what they were already offering?-
In the end, isn’t there a risk that the worker will take home the same amount of pay because employers will know they can just reduce what they were going to offer? The same net pay goes to the worker who was already willing to take a job at that low price already. Isn’t there a risk that the wage subsidy becomes an employer subsidy?
Oren Cass: Yes. Some of that will happen, and that’s why I say the employer does benefit as well. But in general, that’s not mostly what’s going to happen, and there are a few ways we know this. One is because we have a program already called the Earned Income Tax Credit. The United Kingdom has a similar program of its own that pays, essentially, a large subsidy to some workers only at the end of the year, during tax time. So you suddenly get a $5,000 check, which is not the right way to make a labor market work better or to help a low-income household manage their finances. But we can study those, and what we find is that, in general, programs like that about 70 to 75 percent of the value tends to accrue to the worker. And about 25 to 30 percent accrues to the employer.
And the way to think about that, if you go all the way back to Econ 101 and you imagine your supply line and your supply curve and your demand curve and we’re going to put some taxes and subsidies and shift the lines around and find some equilibria—hopefully, this is bringing back fond memories and not nightmares for folks—but the best way to think about this is that let’s say you take that $9 an hour job and you add a $3 an hour subsidy. Essentially, what your question is well, why don’t they just pay $6 an hour and the worker still gets $9? And the answer is because if they could get workers for $6 an hour, they would hire more. We can see how many workers they’re hiring today at $9 an hour. If you told them they could get them for $6 instead, they would start hiring more workers and essentially start biding the price back up.
And so the equilibrium that you’re going to land at is somewhere in between going all the way down to $6 and paying the worker $9 or staying right at $9 and paying $12. You’re going to land in a place where some of the value goes to the worker, some of it goes to the employer, and that ends up being a function of what’s called the elasticity of supply, of how many workers are going to come off the sidelines as you offer these subsidies. But at the end of the day, if the employer is getting value out of it, what that tells you is you brought a whole bunch of new workers into the workforce.
You expanded the supply of workers, and you know that they’re getting at least some of the value. So that’s exactly the outcome we should be rooting for. We’ve created more jobs. We’ve gotten more people into the workforce, and they’re taking home more money at the end of the day then they were before.
Adam White: Well, since we used the word of the day, inelasticity of demand, I guess it’s time to go to the floor for questions. So can we open the floor?
Wesley Hodges: Absolutely, Adam. Thank you both so much. It does look like we do have one question out of the gate. Let’s go ahead and move to our first caller.
Caller 1: Hey, I’ve got a question regarding taxes. What effect, if any, would a transition from income taxes to some form of consumption taxes have on employment, good or bad?
Oren Cass: It’s a great question, and I think it highlights really discretely this tradeoff between consumption and production. Right now, we put most of our taxes on work. In a sense, we penalize people for working, and then we don’t put taxes on consumption. And we reward the consumption. So I think there’s a lot of appeal in the idea of doing the reverse and saying working is going to be tax free, but then we are going to tax the consumption. And we’re going to encourage savings and investment. I think there are two counterbalancing concerns that are pretty serious.
One is just purely logistical. Transitioning at this point from an income tax system to consumption tax system is, frankly, pretty implausible. Nothing’s impossible, but all of the transition costs and the distortions you’re going to create along the way turn out to be pretty dispositive. And then the second thing is that the one thing you lose if you go from an income tax system to a consumption tax system is you lose the ability to put most of the burden on higher income earners. There would be a whole other debate to be had about fairness, but at the end of the day, if we have a lot of lower income households that are trying to make ends meet, we can tax them very lightly right now.
If, instead, we tax all the things that they try to consume, much more of the tax burden is going to fall on them, and it becomes much harder to try to concentrate the tax burden on the higher income households that can, frankly, afford it. But I do think the thing that’s worth considering in that direction, and it goes in the direction of a wage subsidy, is to get rid of payroll taxes on low-income households. I really don’t think it makes any sense that we’re collecting 15 percent of every dollar earned for even the lowest wage worker. I’d much rather see us say that the first $20 or 30,000 of income is payroll tax free, and then we can talk about where we want to make up that revenue from.
Either we could assess payroll taxes further up the income ladder, or that’s where you could say, “Well, let’s do a partial swap and raise some more of the money instead from, for instance, a consumption tax on luxury goods.”
Wesley Hodges: Thank you very much, caller, for your question.
Adam White: While we’re waiting for other questions, Oren, what would you do for people who simply can’t work? I gather the thrust of your proposal is to reorient a lot of social welfare programs towards this, not simply add on a new program. Well, what should we do, then, about the people who are already depending on the social safety net because they’re not in a position to work?
Oren Cass: Well, you don’t have to reorient that much of it. The incredible thing is that we spend more than a trillion dollars a year on anti-poverty programs. And that’s not Medicare. That’s not social security. That’s programs means tested and targeted at lower income households. The wage subsidy program that I’m describing would need about 200 billion of that. Now, some of that you would take out of, for instance, the earned income tax credit, which is this program I described that already goes in a similar direction.
But then you would also need to take money out of some of the programs that have expanded especially rapidly since the recession, so the disability program, potentially, the food stamp program. You’d look at which areas of Medicaid we’d rather spend relatively less in because we think this would be a better way to spend the money. But it’s absolutely true that the majority of the safety net should still be focused on people who can’t work. That’s what it’s for, and there are a lot of people in that situation who I think deserve our help as well. So the way I would try and describe it is to say, look, for people who can’t work, we want to maintain the kind of safety net we have.
For people who can work, and, frankly, for a lot of people who are working while still relying on some of these benefits, we’d rather make the offer of support to them in the form of this subsidy because it’s going to encourage work. And because, at the end of the day, we think they’re going to be happier and feel rewarded for that work if the support comes in the form of cash in their paycheck instead of through another government program.
Adam White: Oren, I’d like to ask just one sort of big wrap-up question. If other audience questions jump in, we can go with those, too. But you have a lot here for policy makers. There’s a lot of things for them to grapple with. As you sort of concede with the basic project of the book is to reorient an entire conventional wisdom, a bipartisan conventional wisdom, so there’s so much here. If there was one place that policy makers should start in the things that you raise and propose, which would it be?
Oren Cass: I think the place to start is probably education. I think that’s where there’s the most prospect for bipartisan agreement. I think there are a lot of voices across the political spectrum who are acknowledging at this point that the current system doesn’t work and that we need to focus more on what a non-college track would look like. And I think that’s the place where the kinds of solutions you’d talk about aren’t obviously partisan or going to be ones that one side loves and the other side hates. Everyone agrees we need an education system that tries to serve everyone.
If we all agree we’re not doing that very well, then I think there should be a lot of interest in building an alternative track that says the primary focus of our economic support is going to be on the folks who aren’t headed for success in college. The primary thrust of our reform efforts is going to be there, and that is something that needs to be a priority for our society. You’re going to run into a lot of political challenges from an interest group perspective. You have very highly intrenched teachers’ union, high education lobby and so forth. But in terms of the actual underlying ideologies, I think there’s a lot for both left- and right-of-center people to like in trying to move in that direction.
Adam White: You know, since we were talking about cost benefit analysis along the way, I should point out that it looks like at the close of our teleforum today, President Trump nominated his OIRA administrator to join the D.C. Circuit, so there’ll hopefully soon be an opening for that job. So Oren, if you get nominated to be the next OIRA administrator, I promise not to tell anybody about all the mean things you’ve said about cost benefit analysis today. You’re secret’s safe with us.
Oren Cass: I hope whoever is nominated is interested in looking at exactly these kinds of issues.
Adam White: Let’s hope so. Well, that’ll wrap up today’s conversation. Thanks to everybody for joining us. Thanks to The Federalist Society for hosting it. As I said at the outset, thanks again to our featured speaker today, Oren Cass, for writing such an interesting book. It’s already attracted a lot of attention in some of the major newspapers and columnists, but I highly, highly recommend it myself. I think people ought to read this book.
Oren Cass: Thank you so much, Adam. It was great conversation.
Wesley Hodges: Thank you, both. Everyone remember the title of the book is The Once and Future Worker. We invite you to check it out and buy a copy or two. Now, everyone, on behalf of The Federalist Society, I’d like to thank our experts for the benefit of their valuable time and expertise. We welcome all feedback by email at email@example.com. Thank you all for joining. The call is now adjourned.
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