Neoliberalism and the Rise of the Net Social Wage
A new paper from PERI finds that there is a sizable deviation in net social wage data in the 21st century. The study’s author, Katherine A. Moos, examines possible causes-such as healthcare inflation and unemployment-and aims to explain why neoliberal governments would tolerate a growing discrepancy between labor benefits and taxation
SHARMINI PERIES: It’s the Real News Network. I’m Sharmini Peries coming to you from Baltimore. A new study published at The Political Economy Research Institute, PERI, tracks how labor taxes and transfer payments evolved in the last 60 years. The paper is titled “A Neoliberal Redistributive Policy: The U.S. Net Social Wage in the 21st Century.” It’s author, Professor Katherine A. Moos, is joining us today. She teaches economics at the University of Massachusetts – Amherst and a member of the Political Economy Research Institute, PERI. Thank you for joining us, Katherine.
KATHERINE MOOS: Thank you for having me.
SHARMINI PERIES: Katherine, let’s start off with what you in terms of your paper means by social wage as opposed to just wage and also, why is it important to track it?
KATHERINE MOOS: Sure. Social wages refer to the goods and services that people receive in a society, that are provided in a society. The measure that I look at in my paper is called the net social wage and it’s a specific methodology developed by economists Anwar Shaikh and Ahmet Tonak that looks at how much workers receive minus all the taxes that they pay out. So it’s looking at the net effect of redistributive policy.
The reason why it’s important to track the net social wage is that if you’re interested in understanding what is the effect of these transfers, what’s the effect of these taxes, we might be interested in looking at, do workers pay more in taxes than they’re getting in benefits? Or are they paying more in benefits than they’re getting in taxes? These are the kinds of things that we can look at by studying the net social wage.
SHARMINI PERIES: Right. One of the other reasons why this is really important, especially according to, let’s say, one of the very famous feminist economists, Nancy Fraser from The New School, says that using say the term “welfare” for example, stigmatizes people and so the social wage becomes even more important here. But explain a little bit more about this stigmatization and why it is important to factor this in in the kind of work you’re doing.
KATHERINE MOOS: Sure. Yeah, so I think Nancy Fraser’s point about the U.S. welfare state containing a lot of stigma for low-wage workers is well taken, and I think this was a distinctive feature of the U.S. welfare state, that we have many means-tested programs that carry a lot of stigma. That makes people think of transfer payments as something that are for other people or for low income people and it really reduces support for them among the middle class and a sense of solidarity.
The net social wage is, what’s important to realize about it is that it contains both what we think of as traditional welfare programs like TANF or other forms of cash assistance, but it also contains other types of transfers that we don’t traditionally think of welfare. So it contains tax credits that go to middle class families. It contains spending on schools and roads and things like that. So in this way the net social wage is a more, is a broader measure of social wages than just the aspect of our welfare state that is very stigmatized.
SHARMINI PERIES: Are transfer payments in your analysis there in order to reduce inequality in society?
KATHERINE MOOS: So this is an interesting question. I think what we can say for sure is that fiscal policy, taxes and transfers, can be used both to minimize inequality, but it can also be used to increase inequality. Many programs that attempt to redistribute income to low income or middle income families I think are an attempt to minimize inequality, but what we’re seeing now and we’ll certainly see this once we measure the effects of the Republican tax bill is that these policies can also be used to increase inequality.
So the effect of fiscal policy in that sense really depends on how the programs and the taxes are designed. That being said, it’s also important to realize that the net social wage as I’m using it in my paper looks at workers as a very broadly defined class. It looks at workers as those of us who depend primarily on our wage income to survive. So this includes even within the category of workers a lot of inequality.
One of the sort of stylized facts of the 21st century is inequality and we’re seeing most of the income gains really going to the top 1% of workers and very few income gains going to middle class and low wage workers.
SHARMINI PERIES: Right. Katherine, we’ve heard again and again President Trump make various comments about how unemployment is low under his administration. Now, the neoliberal argument about cutting welfare is that it increases the incentive to work and indirectly reduces unemployment. But your data shows that unemployment was relatively steady over the period of I think 1960 to 2010, but that unemployment intensity has skyrocketed, say, under the Obama administration. What is unemployment intensity and how is it related to social wage?
KATHERINE MOOS: Sure, so the unemployment intensity measure is a measure of the effect of unemployment on the long-term unemployed, so it’s a measure that looks at the unemployment rate and index of unemployment duration. So what we saw in the data series that I look at is that there is great variation in the unemployment rate. Of course during recessions unemployment goes up, but and we saw that of course during the Great Recession. Under Obama we saw a huge increase in unemployment, but not to a point that we haven’t seen before.
So what I observed in my data is that during the worst years of the crisis of unemployment at 9.6%, which is very high, we had seen that before in for example 1983, but what was different when looking closer at the data was the unemployment intensity measures. So the unemployment intensity measure was much higher during the Great Recession than it had been in earlier recessions in the 20th century for example.
So what that means is is that people were unemployed for longer periods of time. That will of course affect the net social wage because as people are unemployed, they may be receiving unemployment insurance or other benefit that will affect the net social wage. They’re also not working and generating the income that will be taxed to the same level as if they were fully employed.
So that, the unemployment intensity certainly played a role in the rise of the net social wage and what’s interesting if you look at this most recent jobs report is that while unemployment, the unemployment rate is quite low, the unemployment for long-term unemployed people, unemployed 27 weeks or longer, hasn’t really changed very much. So we’re still seeing people who are unemployed for very, very long periods of time, which will of course affect the net social wage.
SHARMINI PERIES: How will it affect the net social wage?
KATHERINE MOOS: It will affect the net social wage in just what I’m saying, people aren’t generating income, which will be taxed. That’s going to affect the tax component of the net social wage and if they are receiving any kind of public benefits or unemployment insurance during their unemployment, that will also affect the net social wage. So I would expect as we saw during the Great Recession that the unemployment intensity measure can really explain part of the increase of the net social wage.
SHARMINI PERIES: Right. Finally Katherine, the focus of your paper is a turning point in which net social wage started to rise rapidly and reached a peak of 8.6% GDP in 2010. The turning point seems to be the year 2000 shortly or there afterwards. What would you attribute this to?
KATHERINE MOOS: I attribute the rise of the net social wage to a number of factors. The first one is due to the structure of the U.S. social safety net programs, which are meant to be countercyclical, so many of our programs including unemployment insurance and other programs will increase when the economy is doing poorly. That’s the design of them. They’re meant to be automatic stabilizers. They’re meant to be countercyclical.
But what that means is that when the economy is more unstable, as many economists attribute that to the deregulation of the financial sector, we’re going to see more periods of contraction in the economy, which will have an effect on the net social wage. So that’s the first one. The second one has to do with the way that a lot of social programs in the U.S. are now getting put into tax credits.
So we have a number of tax credits for both middle income or higher income workers as well as low income workers that I argue are subsidizing both the middle class lifestyle and low wage jobs. So on the middle class side of things we have things like tax credits for certain kinds of savings, investment, education spending, home ownership, things like that, and on the low wage side of things we have programs that have expanded in the neoliberal era such as the earned income tax credit and the refundable child tax credit.
These aren’t bad things, but I’m arguing that they are subsidizing the fact that wages have stagnated. They have not grown in real terms and so that the net social wage or the transfers in the means primarily of tax credits are stepping in to kind of shoulder some of the costs that have been eroded due to lower quality jobs and less benefits from employers.
The third reason for an expansion of the net social wage I attribute to the rise of healthcare costs. We know that healthcare costs in the United States are rising very, very quickly, faster than other inflation, and even though we don’t have a universal healthcare system or single payer, the U.S. government still foots the bill for almost half of health insurance in the United States with Medicare, Medicaid and other public health insurance programs.
So what that means is as healthcare costs are rising, that will affect the net social wage because that is one of the big benefits that people get from the state. So in a way, the very inefficient, very expensive healthcare system that we have in the United States is also attributing, it’s also contributing to the net social wage.
Finally there are of course demographic shifts that can’t be ignored when looking at the net social wage. People are living longer, they are collecting social security and Medicaid for longer. That will also affect the net social wage. This is again not a bad thing, but it is something that we will observe and continue to observe.
SHARMINI PERIES: All right Katherine, I thank you so much for joining us. Interesting study and looking forward to having you back.
KATHERINE MOOS: My pleasure. Thank you very much.
SHARMINI PERIES: Thank you for joining us here on The Real News Network.