Something is happening in progressive conversations about income distribution that should have begun some time ago. Many liberals used to assume that as the world economy became more advanced and more interconnected, incomes would rise even for the poorest: as Representative Ro Khanna (D-CA) puts it, “the bet that President Clinton and Tony Blair made, was that as we moved through globalization, and through a technology revolution, that we would be able to lift millions of people out of poverty around the world, and do very well in the United States.” Given the extreme rise in inequality and concentration of gains at the top, it’s clear now that this bet has been lost, and that proactive policies will be needed to address the failure of that vision—income inequality simply isn’t going to fix itself.
Income inequality simply isn’t going to fix itself.
And progressives are responding to that fact. After decades of stagnating wages for middle-income, low-income, and poor working Americans, transformative ideas to give Americans a raise are now moving to center stage.
In order to give some of these ideas a broader forum, The Century Foundation’s Bernard L. Schwartz Rediscovering Government Initiative (RGI) held an event, co-sponsored with the Cornell Research Academy for Development, Law, and Economics (CRADLE) and the Democracy Collaborative, to discuss them in-depth. Held on June 12 in Washington, D.C., “
Raising American Incomes: Debating the Best Path Forward” focused on clarifying the benefits and limitations of three major proposals being put forward that offer promising policy pathways toward rectifying the troubling wage stagnation trends that have beset our country for so long.
VIDEO Setting the Stage
Representative Khanna, who presented the keynote address at the forum, posed the following as a core question: “How do we, in [the midst of] a technology revolution akin to the industrial revolution…make sure that people and places that have been left behind have an economic stake in it?” In few places is this question more pressing than in his district, California’s 17th congressional district (eastern and southern San Francisco Bay Area), where, for instance, Uber is creating, as he says, “thousands of millionaires” in some communities, while other community members can hardly afford to use the ridesharing service at all. His call to action for the event was to address these big structural issues, and, in particular, to debate how to democratize the economy pre-production, rather than redistribute incomes after wealth has already been concentrated.
Jeff Madrick, the director of RGI, introduced the event by emphasizing the striking wage stagnation trends that largely began in the early 1980s. But the event, he says, is especially timely now because of a crucial difference between 2019 and 2016. Namely, unlike just a few years ago, current presidential candidates are putting this issue at the core of their platforms. Many candidate proposals include elements of the three ideas fleshed out by experts during the event: the earned income tax credit and other tax credit policies, a federal job guarantee, and worker ownership of businesses.
Moderator Dylan Matthews, a senior correspondent at Vox, noted that one of the benefits of hearing, and discussing, these three presentations together is that they address the same issue—income stagnation—from three different perspectives. The first, he said, is that the government should serve as a redistributive agency, and fill in gaps in the social safety net. The second is a macroeconomic-perspective jobs guarantee, which can raise wages across the labor market and serve as a source of demand, especially in times of recession. The third is that with adequate democratic ownership, redistribution might not be necessary. (A useful primer on these policy paths, released at the event, can be found
here.) The Case for Tax Credits
According to Sharon Parrott, senior fellow and senior counselor at the Center on Budget and Policy Priorities (CBPP), the earned income tax credit (EITC) and child tax credit (CTC) should be a component of any proposal aiming to raise incomes broadly. The EITC and CTC are two of America’s largest income support programs, providing $90 billion in benefits to twenty-nine million households in 2014. She noted that the credits have high take-up rates (percent of people who receive the benefit out of those who are eligible), low administrative costs, and little stigma associated with participating in them, and that they have maintained broad and public bipartisan support.
Most of the 2020 presidential candidates include an expansion of the EITC as a central part of their platforms, and there are active proposals to expand it in Congress, as well. All of the EITC proposals include significant expansions for families with kids, including higher benefits for the lowest-income workers, and many of the proposals would expand EITC to also include workers without children.
Citing a recent
report by the Institute on Taxation and Economic Policy, Parrott noted that among five major proposals for EITC and CTC expansion, each would direct between 55 and 75 percent of total benefits to the bottom of the income distribution. While the EITC and CTC can substantially reduce poverty levels, Parrott noted that the benefits currently are not sufficient to support very low income and unemployed families, even if they were made fully refundable and available, and are only part of a strategy that includes child care, job creation, and paid family leave.
Parrott also mentioned that some EITC proposals would expand the eligibility to Americans who care for children and the elderly, which would address a large group of people who are often left out of work-contingent benefits. Lastly, we should note, a new proposal from Representative Rashida Tlaib (D-MI) would offer direct cash subsidies to those who are unemployed with no earnings, a design similar to that of a universal basic income.
Meanwhile, all the new CTC proposals would make the tax credit fully refundable and available to the poorest families with children, even those who make no earnings. They also would increase the maximum credit for people with children under age 6, reflecting research that shows the impact of poverty is often greatest among young children.
The Case for a Federal Jobs Guarantee
Pavlina Tcherneva, associate professor of economics and director of the economics program at Bard College’s Levy Economics Institute, has spent her career, as she puts it, imagining how to fulfill the first item in Franklin Delano Roosevelt’s second bill of rights: the right to a decent job. This policy idea addresses two major concerns on the micro level, with implications for the broader economy. The first is the threat of unemployment, and the second is the range of pernicious employment conditions that many experience at some point in their working lives, such as poverty-level wages, discrimination, wage theft, and harrassment.
Both of these concerns need not be inevitable. In response to them, Tcherneva proposes a federal jobs guarantee, in which a job would be available at a decent wage for everyone who is willing and able to work. This would in turn set a wage standard for the whole labor market. For example, if a public job were available that paid a minimum of $15 per hour with health insurance, a worker making less pay without health insurance would have an alternative. Other employers would have to comply with public job standards in order to keep their workers.
On a macro scale, the jobs guarantee is an automatic stabilizer. This means that during cyclical downturns, when businesses tend to hire less and fire more, the jobs guarantee absorbs the shock by hiring those who would otherwise be unemployed, and prevents a downward spiral of decreased demand and further decline in jobs. Tcherneva notes that the policy promotes wage-led growth by creating demand, which is especially important during an economic slump.
Finally, and perhaps most socially important, these public jobs wouldn’t be random: Tcherneva proposes that it’s time to re-envision where the public purpose goes, and use the guarantee to direct employment toward work that could fulfill that purpose. “We have urgent tasks ahead of us to solve, that have public purpose,” she said at the June 12 forum, “not the least of which is addressing climate change.”
The Case for Democratizing Ownership of Capital
In the previous two proposals, the role of government is to redistribute income and to create jobs, respectively. In the third policy pathway, the role of government is to foster collective, democratic ownership of businesses. To compare it with the other two proposals, this third, rather than rearranging economic gains post- production, would aim to redistribute income pre-production. Joe Guinan, vice president of theory, research, and policy and executive director of The Next System Project at the Democracy Collaborative, argued for “a democratic ownership revolution in America, [or] the widespread democratization of the ownership of capital, and the rights to the returns of capital.”
There are a few main forms that democratic ownership could take. According to Guinan, there are already 11,000 worker-owned firms in America, including firms that have employee stock ownership plans, as well as worker cooperatives. Regardless of corporate structure, the idea is that with employees maintaining an ownership stake, the firm would now be liable to the needs of its workers and stakeholders, rather than just its shareholders.
There are already 11,000 worker-owned firms in America, including firms that have employee stock ownership plans, as well as worker cooperatives.
Guinan laid out four main ways that the government can support worker ownership. First, policy can support ownership conversion from the growing cohort of older retiring owners to new worker-owners, for example by granting workers the
right of first refusal when other offers are being considered. Second, existing federal programs that aim to support small and medium enterprises with technical assistance and capacity building could be extended to help with employee ownership conversions. Third, government can use its purchasing power to direct its procurement toward worker-owned businesses. And the fourth way, first developed by the historical thought leader on employee ownership conversion, Rudolf Meidner, a Swedish economist, would issue an economy-wide ownership conversion by incrementally placing all private ownership into worker-owned accounts. Deepening the Discussion
The June 12 forum did not simply include opening remarks, presentations, and a keynote: it also included wide-ranging discussion and debate. Here are two of the core questions asked during those discussions, and how our presenters responded to them.
1. How does the policy you’ve presented address marginalized people and communities?
Moderator Angela Hanks, deputy executive director at the Groundwork Collaborative, urged the panel to acknowledge that the “income problem” did not just start forty years ago: for many workers—and marginalized, black, disabled, and/or immigrant workers in particular—“there has never been a good labor market.” To do justice to that fact, she asked all participants how each of their respective policies aim to address these historical inequities.
The “income problem” did not just start forty years ago: for many workers—and marginalized, black, disabled, and/or immigrant workers in particular—“there has never been a good labor market.”
According to Parrott, refundable credits can redistribute income and address income inequality to some degree. However, she noted that income distribution cannot adequately address the racial wealth gap, characterized by black families owning, on average, a few cents on every dollar that white families own. While refundable credits can help buffer some ups and downs, they do not provide a basis for wealth creation that allows workers and families to save and build assets for the future, and thereby pursue upward mobility.
Tcherneva asserted that a guaranteed jobs program can particularly aid communities where there are more young black and brown people, in which there tend to be higher rates of unemployment, and where the fear of unemployment is an ongoing reality. When there are economic fluctuations, she said, “they’re the last in and the first out of jobs…[and] providing stable, secure, dignified employment with dignified benefits is a rapid way of remedying some of these injustices.”
Guinan noted that one big reason a democratic economy is surfacing around the country is because of the pain of historical discrimination. In turn, people of color essentially have had to be more innovative about worker ownership. Successful examples include the largest worker cooperative in the country,
Cooperative Home Care Associates in the Bronx, where its employees, most of whom are immigrant women of color, organized to take ownership of the enterprise. Democracy Collaborative has also done some work on Native American reservations, where, according to Guinan, a dollar of revenue spends less than twenty-four hours before leaking out of the community’s control again. In those communities, he proposes focusing on anchor institutions, or a strategic collaboration between local institutions such as businesses, labor unions, universities, and community groups, where procurement can be directed toward building community-owned wealth. 2. Can it scale?
A crucial question in today’s progressive policymaking is how adequately a given proposal aligns with the needs that the proposal aims to address. Given the dramatic nature of today’s income inequality and the pervasiveness of low pay, the scale of the issue is quite large. Participants were asked to consider how well-equipped said policies are to meeting this challenge.
New proposals involving EITC and CTC expansion are already at quite a large scale compared with previous iterations of the programs, according to Parrott, and stand out in terms of cost within the broader realm of social policies being proposed in today’s economic policymaking. Such a scale may be bigger than even a hopeful 2020 political environment can bear, she said.
On the other hand, Tcherneva noted that, given the dimensions of these problems, we might not yet be “as bold in terms of scale as we should be going for.” Given that during the New Deal era, the nation passed legislation for a minimum wage, a forty-hour work week, the right for workers to unionize, social security, and more, she suggests we could be thinking bigger. Those policies provided an important institutional foundation, and she proposed that we should be rethinking the welfare state in a way that carries that legacy forward.
Guinan also suggested that proposals should be more aggressive, and that the nation should move toward scaling democratic ownership very quickly. As an example, he pointed to Senator Bernie Sanders’s recent
proposal to require that firms offer employee-owned stock options. Looking Forward
Bob Hockett, Edward Cornell professor of law at Cornell University, provided closing remarks. He proposed a framework for raising the labor share of income in the economy and limiting the rental returns to capital for the few at the top. For a long time, he says, there has been “income compositional asymmetry.” In his framework, the value created in the economy falls into two categories: returns to capital and returns to labor. With ongoing asymmetry, the returns to capital have been growing much faster than the returns to labor. Because of the injustice of this trend, policy should help the economy to achieve more symmetry (“income compositional
symmetry”), whereby each individual earns their returns from capital and labor at the same pace as the whole economy.
All of the policies discussed by the participants are suitable for achieving that end to some degree, because they will raise the labor share of income. As Hockett says, a higher wage share is a kind of automatic Keynesianism, providing needed demand to an economy that has underutilized assets. He thinks, however, that what could be most influential is to spread capital more widely and democratically. Worker ownership plans could not only raise the labor share, but would also raise the capital share for more Americans. With more widespread ownership, symmetry, in his view, could be achieved more quickly—that is, a healthy rebalance of wages with capital could be attained, which would also induce more rapid economic growth.
Many questions are still up for debate, including, but not limited to, how these policies can fit together; how politically feasible they will be in the coming years; how they can be paid for; and how they deal with the climate crisis. As TCF senior fellow Andrew Stettner remarked at the event’s close, the forum could have been made into all-night teach-in; but the participants covered a tremendous amount of ground in a much shorter time than that. Here’s to continuing the conversation on tackling equity with progressive economic policy.