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| Even if it's not this bad, we need to prepare |
Automation and artificial intelligence are increasingly
disrupting the labor market. Some see a coming “job apocalypse.” Others simply
see a continuation of existing trends toward growing inequality as more and
more people fall out of the middle class into less stable, lower-income
employment. In either case, we are not prepared.
One of the many things that need attention is our social
safety net, especially those parts of it that deliver health care and income
support to those in need. This post suggests two major safety net reforms that
would mitigate the impact of coming shocks to the labor market.
A scenario
A specific scenario will help focus the discussion — one
based on a job category that is likely to grow in the coming years even as many
routine and repetitive jobs disappear. That category comprises home
health aides, personal care aides, and other occupations that can be
loosely referred to as “eldercare.” These jobs are resistant to automation
because they are neither repetitive nor routine. Moreover, they are jobs where
people value the human touch.
So here’s the scenario: You have a nice job as a welder,
which, for an experienced worker, pays about the median family income. Out of
the blue, you are replaced by a robot. After a while, with your unemployment
benefits running out and a growing conviction that you are never going to get
another production job, an employment advisor suggests you try work as a home
health aide.
There is plenty of work to be done. You have your choice of
working for an agency that will place you with clients in need, or you can
become self-employed, taking advantage of on-line platforms that match
caregivers with customers. The catch is, you won’t be able to earn much more
than $20,000 a year as you start out, and even as you gain experience, you are
never going to get back to what you earned as a welder. If you’re trying to
support a spouse and two kids, you’re not even going to make it up to the
poverty level. Plus — your benefits are gone, your work schedule is
unpredictable, and your back hurts more from lifting patients in and out of bed
than it was even when you were zapping big chunks of steel together.
What reforms to the social safety net could help you survive
in this new world of work?
Priority one: Decouple health care from employment
The first thing you are going to need is dependable access
to health care for yourself and your family. You may miss the kind of
employer-sponsored health insurance (ESI) you used to have as a welder, but
although most people who have ESI say they like it, as public policy, it has
serious flaws. Three of them will become even more troublesome if a
full-fledged job apocalypse strikes:
- Job
lock: Workers fear to change jobs, to go into business
themselves, or to transition to the gig economy because they fear that
they may lose access to health care.
- Inequity: Employees
in the top fifth of the income distribution get an average of $4,500 in
benefits from ESI while those in the bottom fifth average just $500 in
benefits.
- Fragmentation: Thousands
of ESI plans mean fragmentation of the health payment system, driving up
administrative costs and opening new avenues for rent-seeking by
providers.
How can we ensure that people without employer-sponsored
insurance don’t lose access to health care altogether? Some would-be reformers
advocate a “single-payer” plan like Medicare for All, but there are
legitimate doubts about the affordability of that approach, and many who
currently have some kind of coverage fear being forced into a one-size-fits-all
government insurance plan. There are better ways to fix our healthcare system.
Here are three options that could be fully funded even without increasing what
the government already spends on health care:
- My
favorite: Universal Catastrophic Coverage. UCC would fully
protect everyone from financially ruinous medical expenses while asking
those who can afford it to pay a fair share of the cost of their own care.
- A
promising GOP alternative: Bruce Westerman’s Fair Care Act (FCA) would use
government-sponsored reinsurance to make private coverage universal and
affordable.
- A
Democratic Band-Aid: Several presidential candidates propose adding
a public option to the ACA. That wouldn’t go as far
as UCC or the FCA, but it would give coverage-of-last-resort to people who
lost, or could not afford, employer-sponsored coverage.
Priority two: A floor on income that leaves work
incentives intact
Low pay is likely to be an ongoing reality for home care
aides and many other service workers. If that is true, then the only realistic
way to avoid ever-increasing inequality is to give people a guaranteed minimum
that is high enough, when combined with the income from modestly paid work, to
allow a decent standard of living. The guaranteed minimum would also give
something to fall back on in times of crisis caused by recession, family
obligations, illness, or disability.
Many people worry that offering people a guaranteed minimum,
even at a sub-poverty level, would spawn packs of loafers living in pup tents
on the sidewalk and spending their handouts on drugs and alcohol. Like most
economists, I do not share that view.
The influence of income on work effort has been widely
studied. Some studies are based on how people react to lottery
winnings, inheritance, tribal casino dividends, and the like. Other studies use structural data on wages, salaries,
and work behavior. Typically, such studies do find that, other things being
equal, people tend to take work less and take more leisure as their incomes
increase, but the effect is small. The majority of studies of “income
elasticities,” as they are called in economic jargon, indicate that other
things being equal, a 10 percent change in income will induce a zero to 1
percent increase in hours worked. And that does not mean that a 10 percent
boost in income would cause 1 percent of beneficiaries to stop working
altogether. More often, it would mean continuing to work but taking a vacation
or day off now and then.
In real life, though, while income does tend to have a small
negative effect on work effort, the amount of take-home pay a person gets from
an extra hour’s work has a much stronger positive effect. Isolating that
effect, it appears that a 10 percent increase in take-home pay tends to cause a
1 to 4 percent increase in hours worked. Economists call that the “substitution
effect.”
A properly structure reform of the social safety net can
take advantage of the fact that the strong substitution effect of higher
take-home pay outweighs the weak effect of higher income. Here is what needs to
be done:
First, as I have explained in detail elsewhere, any guaranteed minimum
income or basic income that is used to provide a floor to people’s standard of
living must replace our current fragmented, in-kind system of
means-tested welfare, not be added on top of it. The problem with the current
system is the way it aggressively cuts benefits for each dollar earned. A study
from the Congressional Budget Office shows that when the
effects of the benefit reductions in EITC, SNAP, TANF, CHIP, and Medicaid are
combined, a family with income just above the poverty level may keep as little
as 20 cents for each added dollar of earned income. A guaranteed minimum income
would let low-income workers keep all, or nearly all, of their added earnings,
greatly increasing work incentives.
Second, if you think that is not enough work incentive, the
reformed safety net could pay out part of its benefits in the form of wage
subsidies for low-income workers. The earned income tax credit already does
that to a limited extent, but its incentive effects could be considerably
strengthened. One change would be to pay benefits in the form of extra cash
added to the monthly paychecks of low-paid workers, rather than as an annual
tax credit. Another would be to extend the income range over which wage
subsidies operate. A third would be to allow people without children to qualify
for the program.
A guaranteed minimum income plus wage subsidies for low-paid
workers is a combination that I call Integrated Cash Assistance.
You can find a full description here.
A final caveat
Let me end with a caveat: No reform of the social safety net
is going to cure all our problems. The shock of accelerating changes in the
labor market, whether we call it a job apocalypse or not, is going to disrupt
many lives. The effects will go far beyond the merely economic. People whose
lives are upended, even with the best safety net, are going to be vulnerable to
stress, depression, and anxieties that will in some cases have ugly outcomes
like substance abuse, suicide, domestic violence, and child neglect.
We should not expect cash assistance alone to cure all these
ills. More narrowly tailored, hands-on help will continue to be needed in many
cases.
Still, I believe that a reform of the social safety net that
offered universal access to health care, decoupled from employment, and
replaced our current system of in-kind, means-tested welfare with a program of
integrated cash assistance would make America much better prepared for a job
apocalypse.
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