The Working Hypothesis
Richard Aldous: Hello and welcome. My guest today on The American Interest podcast is Oren Cass, senior fellow at the Manhattan Institute and author of the new book The Once and Future Worker: A Vision for the Renewal of Work in America. Oren, welcome to the show.
Oren Cass: Thank you so much for having me.
RA: Congratulations on the new book. Not only are you worried about how the economic pie gets divided up in society, you also think the whole idea of a pie is wrong to start with.
OC: Yeah, that’s right. I think we’ve talked about the economic pie and taken it for granted for so long. [It’s] really both political parties; you can read about it in The Wall Street Journal or The New York Times. Everyone kind of assumes we’re going to grow the economic pie, everyone can have a bigger slice, and who doesn’t like pie? That’s an almost exclusively consumer-focused conception of our economy. It assumes that we don’t care how the pie gets made or who gets to help bake it, to stretch the metaphor maybe too far.
I think, in fact, that that doesn’t reflect people’s experience. I think people care a lot more about their role as productive contributors, as people who are actually making something and involved in productive work themselves, and so if all we worry about is maybe letting a few people make the pie and then redistributing it around, I think you can end up with a very broken system.
RA: Some people—for example, you quote Steven Pinker in your book—have said that, actually, we’ve made a lot of progress in pulling people or lifting people above the consumption poverty line. Not only have they been able to eat more pie, but they’ve also got things like iPhones in their back pockets.
OC: Well, that’s right. The idea of the consumption poverty line is a really interesting one. In some respects, it’s important. I think it’s important for us to understand that, with respect to material deprivation, we’ve made extraordinary progress through the construction of our safety net. When you hear things like all these Americans are living on less than $2 a day, I think that’s been fairly conclusively disproven. In fact, we have managed to make sure that just about everybody has access to food, and shelter, and medical care, and so forth.
That’s worth celebrating in its own right, but it’s important to recognize that that doesn’t, by itself, meet people’s needs; that if people aren’t actually able to find work that allows them to achieve self-sufficiency and to participate fully in the economy, then we haven’t really lifted them out of poverty. We haven’t really put them on a successful trajectory, and we’re not really going to get the kinds of outcomes that we hope for in society.
RA: A lot of these things do actually seem to be about morale as much as they are about this consumption poverty line. For example, you point out that half of Americans born in 1980 are earning less at 30 than their parents had made at the same age, that most Americans still don’t have even a community college degree. Then you have these terrible figures about what you describe as the deaths of despair, that mortality rates have risen in this century. Americans are riven by high levels of suicide, liver disease, drug overdoses, and so on. In many ways, in terms of morale, it’s a very bleak picture.
OC: I think it is pretty bleak, and I think the key driver of that morale is work. I think what we miss when we talk about the consumption measures and say, literally, “Look how many people have iPhones,” is that that’s not actually what drives life satisfaction. It’s not what drives happiness. It’s not what drives fulfillment. It’s not what provides opportunity to children. It’s not what helps families form and stay together. For all of those things, we actually have to look at work, and we have to look at whether people are encountering a labor market in which they have the opportunity to participate, to fulfill their own obligations to society and to the family, and to feel like they’re actually doing something that contributes to the world.
RA: Actually, you describe this as your “working hypothesis,” in other words, that the labor market is a key determinant in thinking about supporting strong families and communities and long-term prosperity and that, actually, public policy really should be focusing on this.
OC: Right. The labor market is, on the one hand, a very abstract concept. With the stock market, everyone can picture the ticker with the prices, or at the supermarket, everyone can pick through the bins of produce. The labor market we talk about in funny ways. For instance, we say that employers provide jobs, and that’s not actually right. It’s people who provide their labor to the labor market, and employers are the buyers in the labor market.
At the end of the day, the labor market is just a market. It works on a lot of the same principles, and it dictates what kind of work is available, who’s able to do it, where it happens, at what wages. Those things are what determine the opportunities that are available to people. When we just focus on the economic pie and we say, “Well, as long as consumption is rising, we’re doing fine,” we actually end up pursuing a lot of policies that can very badly damage the labor market, especially for less-skilled Americans, for Americans who might just be struggling to make ends meet.
My argument, and what I call the working hypothesis that the book focuses on, is that that’s what we’ve gotten backward; that to actually do policy right, the labor market should be what we focus on, making sure everyone actually has the opportunity to find a job that’s going to allow them to support their families, their communities. That’s what’s going to drive our prosperity, and economic growth is going to be the outcome. Economic growth is what you get at the end of the day if you actually have built a healthy society. It’s not the thing to aim for up front and then hope the healthy society comes out the other end.
RA: Presumably, in many ways, society is pushing the rock uphill on this one. We had Jamie Susskind on the podcast last week to talk about his new book, Future Politics, in which he looks at the challenges that things like AI and algorithms are going to have on the labor market, and that’s not a particularly bright future in many ways.
OC: I should say I’m actually much more optimistic about the implications of the technology, and that’s something that I address a lot in the book. I think this argument that either the problems that we’re having now or the problems that we are going to have are a function of technology is a little bit misguided. Certainly, if you look at the evidence as of today, we see very little sign that technology is what’s causing disruption. If anything, we see a lack of technology. What I mean by that is that, when we talk about automation or this idea of machines doing work that people used to do, that’s literally synonymous with productivity gains. The entire premise of rising wages and rising prosperity for workers is that we find ways for workers to make more stuff with less of their time. That has always been the formula. It’s really the only formula.
What we’ve seen happening is not that, all of a sudden, machines are rushing in and replacing workers at an unprecedented rate. In fact, the rate at which we’re managing to do more with less, the rate at which productivity is rising, has actually slowed. We’re actually in an unprecedented period of poor productivity gains, and so what’s happened to the labor market, and especially in an area like manufacturing, is not that machines are suddenly pushing people out faster than they used to. It’s that we’ve stopped growing the amount of stuff we make, so instead of seeing a formula where the same number of people can make more stuff than before, we’re seeing fewer people making the same amount of stuff as before.
That’s what needs to change. We need to get back to an economy in which we actually encourage the growth of output, that we encourage development in our manufacturing and industrial sectors because that’s actually what a lot of people still want more of and what workers would be capable of doing more of, and that really is exactly the roadmap to prosperity and one that’s compatible with a lot of technological progress.
RA: One of the issues that you identify in the book is the problem of low wages. There have been a number of ideas circulating about how to deal with this, including things like a universal basic income. What do you make of that?
OC: I think universal basic income is exactly the wrong approach. Certainly, it doesn’t take on wages at all. It ignores the question of wages, and it’s really the exact logical endpoint of this obsession with the economic pie or what I call in the book economic piety, which is this idea that it doesn’t matter if we just have a few people creating all of the economic activity and wealth, and then we can just chop that up and mail checks to people, and then everybody can be happy. That’s really the concept underlying UBI. As we were just talking about, I think that’s exactly wrong. I think, if you’re not building an economy in which everyone has an opportunity to be a productive contributor, then you’re headed down a path of very serious dysfunction.
I also think we have to look at UBI not just in economic but, really, especially, in cultural terms, that a huge part of the value of work for individuals and their families comes not just from the dollars in the paycheck but also from those more social and cultural dimensions, that it really is the means by which people fulfill their obligations to their families, to their communities. It’s the means by which they find fulfillment in their day-to-day lives. If we say, “Actually, the obligation for providing for yourself and your family is no longer an individual obligation, that’s now the government’s obligation,” you’re actually, in a very real sense, depriving people of something. You’re taking away the possibility that work will fill that role, and I think that’s going to have very negative consequences.
RA: One of the other ideas which has got a lot of traction is what’s sometimes termed the “Fight for $15,” the campaign to raise the minimum wage. That does seem to have got traction. For example, Amazon and Jeff Bezos have announced that they are going to introduce that at the company. Do you think that that is something which has a future for addressing the kind of issues that you’re talking about?
OC: I’m worried by that approach as well. I think the Amazon example actually illustrates the challenge, which is if you look at what Amazon did, they raised the wages at the bottom, but also, with much less fanfare, also announced that they’re, I believe, almost entirely discontinuing profit sharing with their workers, and it’s not clear the extent to which the total money that goes to workers is even going to go up as a result. Then, in parallel with this, they announced they were launching this big political lobbying campaign to try to force other firms to do the same thing, so it was really as much a competitive maneuver as it was some sort of kind-hearted offer to boost workers’ fortunes.
That’s what we should expect. The labor market is a market. I think one thing we’ve learned in many types of markets over time is that, if you go in and try to just intervene and command a different result, what you often get is not the result you wanted at all. One thing that we’ve seen in recent years as we’ve added more and more burdens onto employers and onto the employment relationship is employers are essentially doing everything they can to get out from under those burdens and to avoid employment relationship. Most of the growth you see in employment in recent years, for instance, is actually coming in the form of temporary, and on-call, and contract, and gig-type jobs, which ultimately isn’t necessarily good for employers or workers.
RA: It does seem to suggest that there might be political lessons, though, that could be learnt from that campaign, the Fight for $15. Whatever the outcomes, it is something where they set a very specific objective, and they did manage to move the dial in terms of a massive company in the United States.
OC: It certainly had an effect, and I think that, in a lot of these areas, what we will see, as more pressure builds behind the inadequacy in our labor outcomes, is there will be more and more pressure to make some change. I think the challenge for policymakers, and for employers, and for activists is to figure out how to do it in a way that’s constructive and that’s actually going to not just feel good in the moment but is actually going to produce benefits for workers in the long run.
That’s why I think we really need to focus less on, essentially, just rules that say we want something different to happen and more on the actual structural conditions in our economy because, at the end of the day, a market is a processing mechanism. It takes the conditions that it encounters, and it spits out results. If we’re not happy with the results, we really need to go back and look at the conditions that we’ve asked the market to operate in and say how can we change these conditions to be ones in which we’re going to get better results?
RA: The really eye-catching idea in your book strikes me as being that for a subsidy for low-wage work. Tell us how that would operate.
OC: Yeah. A wage subsidy is actually, I think, something that contrasts very nicely with a minimum wage increase because both come from the same place, which is to say we’d really like to see low-wage work pay better.
Let’s take a hypothetical $9-an-hour job and say, gosh, we’d really like that to be a higher-paying job. Well, how are we going to do that? The minimum wage increase approach is to say, well, let’s just order the employer to do that. The alternative, which is a wage subsidy, is to say we actually want to put more money in that paycheck, but we’re going to do that through a public program. We are actually going to, essentially, create a reverse payroll tax, so just as today when you get your paycheck you see that little line for FICA and the amount that the government has taken out, we could just as easily create a line that says work credit, and you see the extra money that the government put in. For low-wage workers, you could say, “Look, that $9-an-hour job, now it is a $12-an-hour job. We’re going to put an extra $3 an hour into the paycheck.”
In a sense, from the worker’s perspective, it has a comparable effect to the minimum wage increase, but from the labor market perspective, it’s an entirely different, almost opposite policy because now you’ve done something where, as the minimum wage discourages the employment of these kinds of workers in these kinds of jobs, the wage subsidy is going to encourage it. It’s going to make it more attractive for employers to create and offer this kind of work. Then you have to ask, well, who pays for it? On the one hand, certainly, a wage subsidy looks more expensive. The government, via taxpayers, has to put that money into the paycheck.
On the other hand, in the abstract, it’s not any more expensive. Either way, somebody has to put the extra money into the paycheck. One thing economists fight about a lot is who’s actually putting that extra money into the paycheck through the minimum wage. Sometimes it’s the employer. Sometimes it’s actually, ultimately, the customers in the form of higher prices. Sometimes it’s other workers who see lower raises or lower wages themselves to cover the cost of the minimum wage increase. I think if, as a society, we have a commitment to saying we want to get those paychecks up, it should absolutely be society’s program to put that money in and to do it in a way that’s going to encourage and foster the low end of the labor market instead of really interfere with it.
RA: How do you win the public opinion war on something like that? For example, coming back to the $15 fight, that’s something where people can say, “Well, look, Amazon is having to fund that,” whereas there are going to be critics with the subsidy who are going to say, “Oh, this is just another handout.”
OC: The key political question is how do we understand the wage subsidy relative to all of the other policy programs that we have. It’s interesting. We say it’s a handout. Well, who is it a handout to? Some people are going to be upset because it’s a handout to the workers, and it feels like another big anti-poverty program in a sense. From that side, I think one of the things that’s really important to do is to try to fund it out of our existing safety net to the extent that we can.
We already spend more than $1 trillion a year on programs aimed at lower-income households, almost all of it in ways that either ignore the value of work or actually discourage work, and so I think it would make much more sense to say, well, let’s take a significant share of that. For the kind of program I describe, let’s take 150 or 200 billion out of that trillion, and let’s actually put it toward a wage subsidy so it’s still going to low-income households. We haven’t cut the safety net and, from the other side, we’re not adding new spending, but we’re doing it in a way that we think is going to be a lot more constructive and helpful.
From the other side, an objection that you’ll hear a lot from the Left is that this is essentially a handout to employers, and why should we be helping these low-wage employers when they are kind of the bad actors who aren’t paying enough? Again, I think that reflects just a really serious misunderstanding of the labor market and the role that employers play in it. Employing low-wage workers and finding business models that are profitable and that make use of unskilled labor is actually really, really hard.
I speak a lot on business school campuses, and one thing that I often challenge the students on is I ask them, “How many of you are planning to go off and start businesses or work in companies where your business model is going to employ unskilled workers or where you’re going to be directly working with and trying to build the skills of low-wage, less-skilled workers?” The answer is, typically, virtually nobody. If we want more job opportunities for these kinds of workers, we actually have to recognize that employers are a constructive part of the solution here who we should be supporting, not people who we should be attacking and criticizing.
Then the last thing I’ll say about it, just quickly, is it’s very funny when you think about all of our safety net programs. Food stamps, for instance, are technically a subsidy to the grocery store. Medicaid is technically a subsidy to the doctor. Any time we jump into any market and say we’d really like to see a transaction happening that’s not going to happen on its own, at the end of the day, we’re doing that through some sort of subsidy.
Under the thinking of economic piety, we’ve put all of our investment into doing that on the consumption side. How do we foster more consumption by people that wouldn’t be able to happen in the market on its own? At the end of the day, my argument is let’s get back to the production side, to work, and say how can we foster more work that wouldn’t happen in the labor market on its own? I think that’s a much more constructive way to try to help folks who are struggling in our society.
RA: You mentioned going to campuses there. Do you think there is some kind of a genuine seismic shift going on among young people? I noticed, for example, that a recent poll, a Harvard IOP poll of young people showed great support for things like a Federal jobs guarantee, eliminating tuition and fees at public four-year colleges, and even for single-payer healthcare, sometimes referred to as Medicare for All, so there does seem to be a shift in opinion in that rising generation.
OC: I think that opinion certainly exists. I don’t know to the extent that it’s a shift. If I think back to when I was in college, it wouldn’t have surprised me to think that those were wildly popular then, or if you think back to any prior generation, it’s always sort of been the young people who hold the most radical left-of-center views. There’s the famous expression if you’re 20 and you’re not a liberal, you don’t have a heart, and if you’re 40 and you’re not conservative, you don’t have a head.
I think what we’re seeing is what has always been the case with young and idealistic people and, frankly, people who haven’t maybe accumulated as much life experience in the real world yet, and it’s just manifesting itself in response to the problems that we’re seeing in our society right now, which are very concentrated on a lack of economic opportunity for less-skilled Americans. I think their hearts are in the right place.
I think the discussion that we have to have and which folks on the Right, which conservatives have been woefully absent from, is how do you do that constructively? Because I think conservatives have historically taken the view, “Well, the market will just deliver the best result. We can maybe do some redistribution on the back end if we need to, and we’re really just going to emphasize education as a way to provide opportunity to everybody.” The reality is that that’s not enough. What we have historically thought of as kind of right-of-center, conservative economic policy is really almost entirely libertarian. Libertarians take the market outcome to be the correct outcome, per se, and the end unto itself. Conservatives, I think, have to take a different view and say, “We are really focused on the health of society, on the stability and flourishing of families and communities.”
Free markets are certainly a piece of that, but when we find situations where markets are not delivering that outcome—and I think that’s the case today with respect to the labor market—then we have to say that there’s a problem and that our approach to solutions might be different than what the kind of big government solution would look like. I hope it’s different, but we have to actually be out there acknowledging that there are problems and trying to offer solutions. That’s what I’ve tried to do with the book.
RA: Yeah. One of the interesting aspects of the book is, although you don’t say this explicitly, in some ways you argue against it, but there is a sense in which you recognize that there is almost a need for populists, both on the Right and on the Left, to realign our politics and to focus more on the workers who have pretty much been ignored, particularly during the ’90s and the first decade of the 21st century.
OC: Yes, I think that’s right. I think populism, in the abstract, isn’t. . . .Well, it all depends on how you define it. You can define it as something that’s bad, but the idea that looking at how people are actually feeling and what they’re concerned about and saying that that really needs to be the focus is actually a pretty important thing.
I think a problem that we really had and that really came into focus in 2016 was that we’ve trusted a certain set of economic metrics that were very focused on consumption and GDP growth to tell us how we’re doing. We’ve built a set of public policies that aimed to further progress on those metrics. When people said, “Actually, we’re not happy with that,” the response has been an extraordinarily condescending view that either they don’t understand how great things are or the appreciation that they should have for how great things are is being crowded out by a kind of closed-mindedness, and so on and so forth.
I think we actually need to step back and say, “No, people are saying that they’re unhappy because they actually have a lot to be unhappy about and, from what they are saying. . .” And I don’t hold myself out there as an expert on public opinion or what everybody’s saying or what it means, but I think the best way of understanding the challenges that we are having as a society is that we wanted the wrong things economically.
We’re sort of like the romantic comedy heroine who got all the things that she thought she wanted but she wasn’t happy because she wanted the wrong things, and so I think it’s appropriate, at that point, to step back and listen to what people are saying. Then the question is how do you marry that populism around respecting the interest that people actually have out there in society with a responsible and constructive approach to actually trying to solve those problems.
RA: Now, quite properly, you keep yourself above the partisan political debate, but Donald Trump, the President, looms over your new book. How would you assess his administration’s economic record so far?
OC: Well, I think the economic record is pretty good in terms of how the economy is performing. My concern is in understanding how much of that performance is just a function of the business cycle versus any actual progress and underlying structural factors. What I mean by that is I certainly celebrate that we have such a tight labor market. Other things equal, that’s certainly better, but if you go back and look, historically, at the peaks of business cycles, this peak is worse than past peaks. Labor force participation among men, right now at this peak, is certainly better than it was during the recession, but it’s worse than during the peak in 2006, and that was worse than the peak in 2000, and that was worse than the peak in ’89, and so on and so forth.
You see a similar trend for wage growth, and so I worry that what we’re seeing is what I would call bumps on a downward slope, that is, that the underlying secular trajectory of our economy and our labor market continues to be pretty poor and, every time we get a cyclical bump, we celebrate, as we should, but we let our guard down and say, “Well, therefore, we must have figured things out.” Until we actually make the structural changes in the policy areas that the book discusses in terms of the way we regulate, the way we educate, the way we approach trade and immigration, the way we approach organized labor, the way we approach the safety net and something like wage subsidies, the way we think about work culturally—until we make those changes, we’re not actually going to shift that underlying trajectory from a declining one to an ascending one.
I think that Trump, in some of the problems that he’s identified and in some of the topics he’s put on the table that I think were previously ignored and really need to be debated, could be a constructive force in that respect. But I don’t think we’re there yet on having an agenda defined or having the policies in place that are going to get us on track.
RA: The book is The Once and Future Worker: A Vision for the Renewal of Work in America. It’s written by my guest, Oren Cass and will be published by Encounter Books in mid-November, but listeners can get a sneak preview with an extract here at The American Interest. For now, Oren, congratulations again and thanks for joining us on The American Interest podcast.
OC: Thank you very much. It was a great discussion.