Gavin's recent contribution is a fine and thoughtful one to a very
wide-ranging debate, particularily in its critique of the rather too
fashionable arguments on globalization and technology change as
explanations of persistent unemployment and inequality. From a
sociologist's perspective, I would nonetheless like to take issue with some
of the alternative explanations offered (no less fashionable) which instead
implicate rigidities in wages, taxes and transfers--explanations also
implied, though in different varieties, by other recent contributors.
To begin with unemployment benefits, the scope of potential reforms in
these systems and their likely effects on unemployment can all too easily
be exaggerated. With the exceptions of Belgium, Denmark and New Zealand,
there were as recently as in the mid-80s no national systems of
unemployment benefits in the OECD which combined unlimited benefit duration
with generosity of rates, here defined as net wage replacement rates for
average industrial workers at 50% or more (according to the database for
the Social Citizenship Indicators Project at Stockholm University). Since
that time, conditions have if anything been made more strict in these
countries. Benefit "suboptimalities" which can on good grounds be
questioned to exist, I would wish to argue, cannot reasonably be held to
provide good overall explanations of unemployment rates among OECD countries.
Judgements of this kind are of course affected by how generosity is
measured. Even low flat-rate benefits can of course provide higher wage
replacement and incentives for "non-work" for low wage workers than they
would, for example, for core industrial workers. This point nonetheless
serves to amplify the importance of specifying what one means in
comparisons of this kind. Further, in prior studies and literature reviews
by colleagues to Gavin and to myself at Nuffield (and elsewhere)--by
Atkinson and Micklewright (1991), Atkinson and Mogensen (eds) (1993), as
well as by Bean (1994)--the impacts which unemployment benefit is found to
have on unemployment rates and durations have generally been found to be
quite small. I daresay that it can at least be questioned as to whether
the more recent findings to which Gavin refers can be regarded as
superseding this evidence--this could of course be argued if the more
recent findings have been obtained by use of improved methods and data.
As far as labour taxes and minimum wages are concerned, I must plead less
knowledge of the literature, but from what I've gathered there is actually
quite a lot of controversy, also among economists, about what the actual
impacts of such measures are. If high labour taxes stand in proportion to
highly developed productive capacity and value added, and if they in
addition are used to finance investments in human capital, infrastructure,
and transfer income for working- AND middle-class households with high
propensities to consume, there is no necessary reason why the net burden of
taxes and transfers on the economy should be prohibitively high. The
distribution of taxes and transfers may of course look very different than
in the image just sketched--this however again serves to amplify the point
that specifying their impacts is an empirical matter whose resolution may
vary considerably between nations and over time. Indeed, regression
analyses such as those conducted for 22 OECD countries in the period
1960-90 by Therborn (1992), though not too sophisticated methodologically,
rather indicate the absence of any relationship between unemployment rates
on one hand and either relative unit or non-wage labour costs on the other.
Connections of this kind, as Gavin rightly points out in his discussion on
inequality, say nothing in themselves about causality--the connections
between labour market policies, education and labour market outcomes can be
expected to run in any number of different directions, probably
simultaneously. For the UK, differences in disposable income (after taxes
and transfers) increased by even more between 1981 and 1991 than did
inequality in market incomes. This indicates --contrary, AFAICS, to what
is implied by Andrew Smith--that changes in the welfare state must account
for a considerable proportion of the increase in inequality which the UK
recently has experienced. Higher expenditure levels on the welfare state
do not substantially modify this conclusion--they mainly indicate the rapid
growth of program clienteles (particularily unemployed) in receipt of
"insufficiently" reduced benefits. In Sweden, changes over a similar
period were about as large for both market and disposable incomes though
the levels of inequality actually "attained" remained lower. In Finland,
despite much higher latter day unemployment, inequality of disposable
incomes changed not at all while market income inequality increased
considerably--this indicates that tax and transfer system redistribution
were still doing a good job at equalizing incomes even under considerable
economic strain. (For further detail, see Gottschalk and Smeeding (June
1997), Journal of Economic Literature).
So what are the implications of all of this? I think that the recurring
emphasis on aspirations and opportunities which reoccurs in "centre-left"
rhetoric disregards much more basic differences in incomes and resources
which need to be addressed also on their own terms--incomes and resources
which can be quite dependably provided by a (note! well designed!) tax and
transfer state. It is not enough to say that the "aspirations" of the
"dispossessed" need to be changed--increased incomes and life chances stand
that much better a chance of improving aspirations for an even better life,
particularily for those who have too little of even the basics to get by.
If I see people who are having trouble staying afloat in rough seas, my
primary concern is not to exhort them to better display their aspiration to
swim. Indeed, where strength and wherewithal is lacking, even heartfelt
aspirations may make little difference for people's objective situation.
If throwing in a lifering decreases short-term incentives to swim among
those to whom it is thrown, so be it. It's a price worth paying for human
decency, and I find the efforts made thus far to demonstrate the level of
that price somewhat contradictory in their results to say the least.
all best,
Eero Carroll
Swedish Institute for Social Research
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