Oren Levin-Waldman

  • 17 Dec 2016 8:43 AM | Mike Lillich (Administrator)

    First published online in the Yonkers Tribune.


    By Oren Levin-Waldman


    It used to be that those who worked could claim that they were truly independent. Today with wages declining and middle class job opportunities drying up, it may no longer be the case that one who works is truly independent. A low-wage worker often needs government subsidies just to make ends meet. And yet even those who earn livable wages may no longer be truly independent, as increasingly workers work at the whim and mercy of their employers.


    In today’s economy we all work in a wage-labor economy. What that means is that we work for the wages we are paid and the employer owes us little more than the actual wages paid. In the older feudalistic economies of centuries past, the lords of the manors had a moral obligation to take care of their serfs. In today’s wage-labor economy, once wages have been paid to workers for their actual labor, employers have no further obligations.


    Although many employers offer health insurance and pension contributions as part of their benefits packages, they technically are not obligated to. That they do means that these benefits are merely part of the wages they pay. Again, beyond those wages, there is no further obligation. And yet, one might think that there would be a moral obligation for transparency, especially when it comes to managerial decisions that could profoundly affect the lives of their workers.


    Let’s start with the basic assumption that the value and profitability of any firm is affected by the labor that went into it. It is a fallacy to think that a company like General Motors is profitable because of smart decisions made by managers. The decisions they make with regards to investment, strategy and marketing may contribute to the company’s profitability. But if not for the labor of those workers assembling cars in plant, there are no cars to sell, and the company has no value.


    Workers’ labor, then, should entitle them to more than their wages. Should they not be entitled to share in the profits? And yet, it is the manager and shareholder who shares the profit. And in today’s limited liability corporation, when the manager makes a reckless decision that could result in the loss of profits and mass layoffs, it is the worker who first pays the price.


    Prior to limited liability corporations a factory owner who made a bad decision stood to lose all. Because the owner assumed the risk associated with investment decisions, s/he was entitled to reap to profits when those decisions turned out to be good ones. Now the manager, who really doesn’t own anything except shares, does not lose all. On the contrary, on the advice of investment banks, the manager following a reckless decision merely cuts through retrenchment. Of course retrenchment is a nice euphemism for laying workers off.


    When a manager really makes reckless decisions and is even fired by the board for losing money, that manager all too often gets a nice golden parachute. Not the worker who is paying the price for decisions made by others. One might think that by virtue of the time and effort that workers invest into their labor to collectively make the company profitable, they would be entitled to some voice in those decisions that profoundly affect them. Of course, that would be the essence of economic democracy.


    Arguably true democracy would require that individuals have a voice in all decisions that profoundly affect their lives; not just the political ones. But to give workers a voice in the decisions of their companies is contrary to the essence of the capitalist market place. After all, managerial decisions are guided by the twin axioms of maximizing profits and minimizing costs. This is, after all, the very meaning of efficiency.


    A company that opts to disinvest in the U.S. and set up operations where labor costs are a fraction of what they are in the U.S. is said to be making a sound and efficient economic decision. Carrier’s decision to keep its plant open in Indiana and maintain over a thousand jobs in the U.S. has been criticized for being economically inefficient. In a global economy capital moves to where it can get the best return on investment. And to allow workers a voice in those decisions would simply be inefficient. After all, if workers could vote on matters of capital mobility, how many would vote to effectively lay themselves off?


    Still, what is good for an individual company is not necessarily good for a national economy. What is good for the financial managers who move money around in search of growth, even if that entails massive layoffs, is not good for those working on Main Street dependent on economic development. Lest we forget, that is in part what the 2016 election was about.


    It may be impossible to “restore” the economy to its greatness, whatever that means. But what is clear is that the nature of the typical labor contract needs to be redefined. The wage labor economy that has characterized most of the world’s economies since the Industrial Revolution may now be obsolete.


    We no longer live in a world where one farming one’s plot of land has no impact on others. Everything is interdependent. Investment decisions and other managerial decisions have profound impacts on the lives of many, including workers and the communities they live in. To live in a democratic society but claim that those rules don’t apply to the private marketplace is unconscionable. When management makes decisions that affect others, then there needs to be some type of accountability. Why? Because the independence and autonomy of others is at stake.


    Ideally, we would attach some form of property rights to workers’ labor because it is their labor that ultimately adds value to their companies. Workers should have some voice that corresponds to the time and effort they invest in their countries. Managers shouldn’t only be held accountable by their corporate boards of directors, but by their workers who are also stakeholders. We really need to get away from the shareholder economy and think more in terms of the stakeholder economy.


    Perhaps the future of unions isn’t just the back and forth over wages, benefits and work rules, but worker voice and management transparency. A stakeholder economy would also remove many of the controls that employers already have over their workers. Many pension plans are already portable through 401Ks. We also need portability in health insurance. If we are not ready for a single-payer system, then employers should provide health benefits in the form of vouchers that allow workers to purchase their own insurance on the open market. After all, movement towards a stakeholder economy would be aimed at achieving greater independence, or developing what Amartya Sen has referred to our capabilities.

     

    Prof. Oren M. Levin-Waldman will engage in a discussion of this very subject matter on the Wednesday, December 14, 2016th broadcast of Westchester On the Level with Narog and Aris at 10am EST by accessing the following hyperlink… http://tobtr.com/9649585… to hear the program “Live” or “On Demand”. Listeners are welcome to ask a question or share their perspective with respect to this subject.


  • 30 Nov 2016 3:56 PM | Mike Lillich (Administrator)

     By Oren Levin-Waldman


    First published online in the Yonkers Tribune.


     http://www.yonkerstribune.com/2016/11/public-choice-models-of-democracy-and-the-2016-election-by-oren-m-levin-waldman-ph-d


    Various public choice theorists have argued that rising income inequality can be dangerous to democracy because one possible response might be a popular uprising. One such model holds that authoritarian elites are likely to democratize when they are fearful that a mass uprising could lead to their overthrow from power. Hence in response to a possible revolution, the elite takes revolutionary steps by offering greater democracy, which at a minimum means offering greater procedural equality.


    As a variant on this theory, the median voter theorem holds that the greater the level of inequality the greater will be the gap between median income and society’s average income, and it is the size of this gap that determines the tax rate for the purposes of redistribution. In other words, the median voter theorem holds that when there is a rise in income inequality, governing elites will seek to redistribute income from those at the top of the distribution to those at the bottom of the distribution through taxes.


    This, of course, raises an interesting question: Is redistribution in any way comparable to a revolution? Or is it simply akin to the elite in the first model attempting to democratize? Instead of offering procedural equality, the masses are now being offered a form of economic equality. Of course, things can never be fully equal; so the quiescence of low income voters is simply bought with programs.


    Of course, nobody is going to argue that the 2016 presidential election represents a revolution against rising inequality. And yet, if we substitute new terms for the terms in the first model of democratization, we ironically enough can see the 2016 election. First and foremost, a revolution of sorts is bound to occur when the elites are unresponsive to the concerns of the masses.


    And yet, here we have a backlash against the standard response of “democratization” through the purchase of quiescence through redistribution. Can anybody deny that the forgotten members of the middle class that voted for Trump were really saying no more to programs? They were clear: We want decent paying middle class jobs that allow us to live autonomous lives in dignity.


    In the 2016 election, we certainly had a backlash against those elites who long assumed that they knew what was best for everybody else. The growth policies that long formed the basis of a bi-partisan consensus since the end of World War II were effectively repudiated. The public made it clear that policies predicated on free trade in a global economy where decent wages cannot be guaranteed are simply not good enough. The idea that an economy that falls short in producing sufficient opportunity can be supplemented with redistributory programs was effectively rejected. Politics of diversion — where the focus is diverted from the economy to a host of social policy distractions, most notably identity politics — was also effectively rejected.


    The median voter theorem effectively holds that in a democracy we can theoretically vote on a tax rate that redistributes income. But what happens when the political system is unresponsive to a so-called democratic vote on the tax rate? A pseudo right wing backlash? If we modify the models we can understand what happened. There is a call for redistribution of sorts here, but not as we traditionally understand it. By rejecting the open borders policies of the establishment as represented by both parties, the voters effectively said they want resources redistributed from Wall Street and financial managers who only promote growth to Main Street where there is economic development that will create decent jobs for the middle class.

    I

    t is too simple to dismiss the election as rural America rebelling against urban America. It might be more accurate to suggest that Main Street — where goods and services are produced — rebelled against Wall Street — where growth occurs simply by moving money around. Not only is there growth from moving money around, but there is growth when jobs are destroyed.


    This is what the voters rejected, and it is also what the political elites with their allies in the media could not get a handle on. After all, who wouldn’t be satisfied with low paying jobs and social supports as supplements? There is no question that the mantra of “making America great again” may conjure up some negative images. But to create a narrative that only means that white America wants to return to positions of dominance really misses the point and trivializes the concerns of the middle class that has fallen through the cracks. For many it meant nothing more than living in an economy where one can work, earn a respectable wage and be self-sufficient without having to be partially dependent on the government for supplements.


    Based on the 2016 election, we might postulate the following: A political elite during a period of rising inequality will seek to purchase the quiescence of low-income voters by offering them programs that will be paid for by higher taxes on the wealthy. In, other words, it will redistribute. When the elites cannot agree on a tax rate in accordance with the median voter theorem, these same elites may seek to ignore the fundamental issues that caused the rise in inequality, most notably the changing economy and labor market, by refocusing the public debate on various social issues. That is, they engage in the politics of distraction.


    Redistribution is simply being substituted for democratization. Because inequality is merely the symptom of larger structural economic issues, there is a limit to both redistribution followed by changing the subject. When those limits are reached, we can expect there to be a mass response, even at the most nominal level of voting. When this voting results in an apparent sea change in the composition of government in terms of both ideology and public officials, it becomes clear that on a political level that the voters have brought about a figurative revolution. This is precisely what happened in the 2016 election, but instead of the elites offering greater democratization, the masses engaged in their own grassroots democracy.


    Of course, another way to look at it is to say that the public responded with a statement that it really did not want the traditional approach of redistribution in response to rising inequality. Rather it wanted the approach that accords with core American values: A return of good paying jobs that allows workers to be self-sufficient.


    If, however, we aren’t likely to see a return of the manufacturing base, then we need to think in terms of making the service economy one that pays better. Here the answer is to have higher wages, if even through a wage policy that serves to bolster wages of not only the bottom of the distribution, but the middle class as well. Higher wages are preferable to policies of redistribution through higher taxation. Rising wages of those at the bottom and in the middle can also narrow the gap between the median wage and society’s average wage. Do we really need to ask again what the voters were signaling they prefer?


    Just published: Wage Policy, Income Distribution, and Democratic Theory:
    http://www.routledge.com/books/details/9780415779715/#review

  • 29 Sep 2016 11:32 AM | Mike Lillich (Administrator)

    (First published online by the Yonkers Tribune.)


    By Oren Levin-Waldman


    It would appear that neither of our political candidates really gets it. For Donald Trump all we need to do is grow the economy by 4 percent and if workers could be more flexible in their wage demands, then all will be good. And of course, Hillary Clinton tells us that measures that enable more to go to college free of debt will ultimately help the middle class. This is the answer to stagnant wages? Both overlook the obvious that labor market institutions matter, and it is because of their decline that the middle class has been suffering.


    Both appear to subscribe to the neoclassical argument that inequality has grown and the middle class has shrunk because of an oversupply of unskilled labor. For Trump growing the economy will generate more opportunity thereby pushing up wages. And for Clinton, educating workers will in theory enable them to command higher wages. It isn’t clear that an oversupply of more skilled and educated workers won’t also exert a downward pressure on wages. And yet, the issue isn’t an oversupply of unskilled workers, but an oversupply of workers lacking market power.


    The fundamental difference between the neoclassical school and the institutional school is that the latter recognize that in the market place the balance of power between workers and employers is asymmetrical. The neoclassical model assumes that workers bargain with their employers equally. The institutional model makes no such assumptions. And yet the distinction between an oversupply of unskilled workers and workers lacking market power may appear to some a very subtle distinction. Why? Because the lack of skills may be the reason for the lack of market power. This may be partly true, but it misses the role that labor market institutions play in achieving a more fair and equitable economy.


    Let’s rehearse the neoclassical model. An equilibrium wage or market clearing wage is when the demand for labor intersects the supply of labor. As the prices of labor decreases, more employers will demand labor services, thereby employing more. Of course, each worker presumably has a wage, known as a reservation wage, beneath which s/he will not work. So how much of their supply of labor services is contingent on the wage being offered? Should there be an oversupply of workers lacking skills, we would expect to see a shifting out of the supply curve, thereby resulting in an even lower equilibrium wage. Only if the demand curve were to shift out would we see that equilibrium wage returns to where it was.


    In this model, then, there cannot be unemployment because workers can always lower their wage demands until their labor services are demanded. Hence the argument that it is wage rigidity, i.e. the refusal of workers to accept lower wages, that results in them being unemployed. Moreover, institutions that artificially raise wages like unions and minimum wages only prevent workers from accepting lower wages.


    Much of economic policy in the U.S. has been predicated on the assumption that this model is in fact correct. And yet, there are serious flaws. First of all, it really matters not how low workers’ wage demands are. If there is no aggregate demand for goods and services, then workers can lower their wage demands to zero and there will still be no demand for their labor. Moreover, if workers were to all accept lower wages during economic downturns, then they would lack the wherewithal to purchase goods and services, thereby resulting in less aggregate demand, which would make more unemployment a foregone conclusion. Of course, the neoclassical model assumes firms will similarly lower prices, but there is a limit to how much price adjustment there can be given that there are fixed costs.


    The second major flaw is that the model assumes that workers negotiate as equals with their employers the terms of their employment. Obviously those with more skills can command higher wages. But in the real world the only real negotiation that occurs is that workers are offered jobs and told what they will be paid. They are then free to either accept or not accept the offer. If after a while wages don’t increase, the only option that workers have is to leave in search of something better unless all the workers can stand together, backed up with the threat of a strike, and demand more.


    What is often missed is that employers are “wants traders” while workers are “needs traders”. Employers, after all, have resources which enable them to wait it out until workers accept their terms of employment. Workers are “needs traders” who often have no choice but to accept what is being offered if they don’t want to starve. In short, employers have market power; workers do not. Hence the need for market power.


    When the National Labor Relations Act, otherwise known as the Wagner Act, was enacted in 1935, the effect was to give workers market power, or what some would refer to as a degree of monopoly power. By legalizing collective bargaining and giving workers the strike weapon, workers effectively achieved voice through their new market power. This was not such a revolutionary concept. Even Adam Smith in his “Wealth of Nations” recognized the need for workers to band together in the face of employers colluding with one another to drive down wages. The minimum wage, then, only extended that market power to those workers who weren’t covered by unions.


    Do these institutions artificially raise wages? Yes. But so does the market power of employers in artificially suppressing them. In other words, there is no such thing as the “natural” market place. If we accept the neoclassical premise that only if workers have skills, i.e. something employers need, can they demand higher wages, we have to accept that similarly if they have market power they can also demand higher wages. After all, without either, employers will use their market power to drive wages down because the fundamental axiom of economics is maximization of profit and minimization of costs.


    Here is where the candidates seem to miss the point. Workers need neither to be more flexible nor to receive more programs. They need institutions in place that will boost wages. Only by raising wages can we grow the economy because the greater purchasing power that accompanies them will result in greater aggregate demand for goods and services. Restoring the middle class requires restoring institutions. Until our candidates begin speaking about institutions, we will have one more election where the candidates succeed in nothing more than speaking past one another. And while they continue speaking past each other the middle class continues to decline even more.

  • 27 Jul 2016 3:54 PM | Mike Lillich (Administrator)

    By Oren M. Leven-Waldman


    First published online in the Yonkers Tribune.


    In this most unusual election the Democratic party appears to be moving leftward with a call for a $15 an hour minimum wage, free college for in state residents in families earning less than $125,000 a year, and a variety of other programs to assist those at the bottom and in the middle of the income distribution. Meanwhile, the Republican nominee is calling for greater protection of American industries to protect American jobs from the ravages of globalization. In essence, both sides are rejecting the fundamental tenets of free markets, which have been at the heart of America’s core philosophy of individualism for more than two centuries.


    Of course, free markets since the New Deal in the 1930s have not meant the same thing they did during the era of laissez-faire and robber-baron capitalism of the late Nineteenth Century. But adherence to free markets has surely been the defining characteristic of Republican party politics since its inception in the 1850s. Moreover, the regulations sought by Democrats beginning in the 1930s were always with the intent of preserving the foundations of free markets. What we see in this election year raises an interesting question: Have we reached a point where capitalism no longer works?


    Clearly those on the Left do not believe that the economy is working for them. Middle class wages have been stagnant for more than four decades now, and inequality has risen. A strict adherence to free market ideology would mean that government does not intervene when the marketplace fails to provide sufficient opportunity for individuals to support themselves and live independent lives. It also means that it does not provide social supports to those who cannot make it on their own, and it does not regulate working conditions or consumer product safety.

     
    If the result of globalization is that the living standard of workers falls because wages also have to fall in order to compete, then so be it. After all, this is the essence of a free market, which also creates the conditions under which individuals can achieve the ultimate in human agency and individual freedom. But those who challenge this free market ideology are really saying that human agency and individual freedom are unattainable under these conditions.


    And yet, it would appear that many of the angry voices that are supporting Donald Trump’s candidacy for president are also acknowledging that an economy that no longer sustains a viable middle class because it has failed to provide enough good paying middle class jobs is similarly one that encroaches upon their freedom and enslaves them to the whims of capitalists whose loyalty is no longer to U.S. territory. These voters clearly want to be protected and are rejecting a fundamental tenet of capitalism: free trade.



    Although it is true that free trade may appear to be resulting in fewer opportunities in a global economy as the need to compete applies a downward pressure on wages, the real issue, and not altogether unrelated, is that new technology has been the driver of wage inequality as greater skills leads to higher wages at the top and an oversupply of lower skilled workers will lead to lower wages at the bottom. To upgrade everyone’s skills for the new economy would require massive investments into education and training. Even if those investments were made, there is no guarantee that wages would be higher, as an oversupply of more skilled workers would result in more downward pressure on wages.


    So let’s ask again: have we reached the point where capitalism no longer works? Is that what voters are telling us? Or are they really saying that it really does not comport to core American values of human agency, personal autonomy and freedom if it only benefits the elites and not the masses? It would appear that they are saying that what we have in the U.S. is no longer capitalism, or even regulated capitalism characteristic of the 1930s, but crony capitalism.

     
    It will be recalled that Marx astutely observed that capitalist markets left to their own devices would implode underneath their own weight. Firms would seek to lower labor costs in order to remain competitive, and as more workers would find themselves too poor to maintain demand for goods and services in the aggregate, the system would come crashing down. With the middle class effectively disappearing under the weight of greater globalism, we can see that Marx’s observations were essentially correct.


    Although Marx called for a communist revolution in the name of greater democracy and equality for all, the alternative to the revolution has been Burkean style conservatism: the idea that radical steps need to be taken in order to conserve the traditions of the past. Regulation of the market place and other interventions such as legislated wage floors were considered to be radical steps aimed at preserving the market place.


    It isn’t so much that capitalism no longer works as it is the appearance that it no longer works because of the deterioration of labor market institutions and the distortions in the tax structure. Wages for the middle class have stagnated and inequality has risen in large measure because union membership has declined and the minimum wage has failed to keep up with inflation. European countries with more centralized wage setting institutions have lower levels of inequality. Distortions in the tax code have favored economic growth at the expense of development


    We would all benefit from a simpler tax code that has two or three flat rates with no deductions. But the elites won’t entertain the idea of tax reform because it would deprive them of the vehicle by which they can purchase votes through the dispensation of goodies. Political elites, after all, need to be reelected and if they cannot appeal to those making large contributions, they won’t be. You will recall when I noted in this space a few weeks ago, the quiescence of low-income voters is purchased with programs that increase their money utility, which in turn allows politicians to pursue policies favorable to wealthier interests — the same interests that will contribute to their campaigns.

    But what if the angry voter on both the Left and Right is simply falling through the cracks? Well most democracy models suggest that they will call for a different type of revolution. This could be occurring in some respects with the leftward movement of the Democratic party with the adoption of many of Bernie Sanders’s proposals. And it could be occurring on the right with the embrace of Donald Trump’s protectionism and isolationism. Perhaps the problem is that the voters understand that the elites don’t really care about the middle class, and it is the middle class that is hurting. Contrary to the laissez-faire view that capitalism requires a strict separation between the public and private sectors, it requires a more effective public-private partnership.


  • 14 Jul 2016 7:39 AM | Mike Lillich (Administrator)

    By Orin Levin-Waldman


    First published in the Yonkers Tribune.


    As we approach the November election with what appears to be a not very good choice between an apparently corrupt and dishonest Democrat and a somewhat buffoonish Republican, we are left to ponder the real issues that aren’t being addressed. Hillary Clinton offers the same bromides we have heard before. She’ll fight hard for working Americans by providing more subsidies where needed, and in an appeal to Bernie Sanders’ voters free college for those families whose income is less than $125,000. And Trump, of course, will make America great again without really telling us what that means.


    It doesn’t take a rocket scientist to figure out that both candidates offer empty platitudes which explains much of why a large chunk of the American electorate is angry. Why, you might ask, should they be angry? Because wages have been stagnant for more than 40 years now? Because once well-paying manufacturing (and also unionized) jobs have been replaced with low-paying service jobs? Because higher paying service jobs require skills and the cost of higher education and other retraining programs are too high.


    Because the Affordable Care Act did not make healthcare accessible and affordable to all as promised. Because we are living in a global economy and we are forced to enter into trade pacts that only leave American workers more vulnerable. Because the demise of labor market institutions like unions and the minimum wage, that served to bolster wages in the past, have only resulted in growing income inequality, and hence the disappearance of the middle class.


    But these are only the economic issues that have piqued voters’ anger while the political class remains tone deaf. Are voters also not angry about politicians who seem content to ram unpopular legislation and/or executive directives down their throats? 


    After all, it is never the case that the policy is bad or misguided, rather the public wasn’t communicated with hard enough. Could it be that when terrorism hits our shores that Americans will have become tired of being told that it is a matter of insufficient gun control? Or maybe they don’t want to be told how to practice their faith by the President who proclaims to know more than everybody else.


    At the moment, the race would appear to be a statistical dead heat and there is no reason, other than the fact that nobody trusts Hillary Clinton, that she shouldn’t be leading Trump by double digits. It isn’t that Trump is any more trustworthy, rather he speaks what is on their mind, which is a political system dominated by insiders who instead of listening to the voters simply manipulate them. They see a system totally non-responsive to those without resources and totally unaccountable. When he says the system is rigged, he appears to speak what people believe.


    They see a president that says the Constitution and separation of powers is too inconvenient for him; so he’ll govern through executive orders. There is no question that the nation’s immigration system needs to be overhauled, but you don’t simply ignore the sensibilities of the American public and issue an executive order to immigration officials in the Executive branch to not enforce existing immigration laws. What many voters see is a president effectively saying that certain laws don’t apply to those who govern.


    They see a presumptive Democratic nominee publicly reprimanded by the FBI director for careless handling of classified information on an un-secured  private email server, but who will not face criminal prosecution because “no reasonable prosecutor” would bring forth charges. Why? Because she is the presumptive nominee and a criminal prosecution can upset a national election. Or is it because the Department of Justice is loathe to prosecute cases it isn’t sure it can win? And yet, what the American public sees is a two-tiered justice system: one for the elite, and another for the little people.


    What the American people see in Hillary is a 2016 version of Marie Antoinette: let the little people eat cake. Now they are going to trust her to make their lives better. And yet despite the promises made by Trump to make America great again and how amazing things will be, it is probably the case that few are under any illusions that a Trump presidency will bring back manufacturing and restore the middle class.

    To a certain extent, each candidate follows the established formula. Play to those who make the greatest contributions to their campaign. Then purchase the quiescence of others with different programs. After all, the goal isn’t really economic development and shoring up the middle class; it is about winning elections. And yet, the sad part is that many voters already understand this. Obviously the political elites have not gotten the memo.


    So let’s try this again. The election should be about the middle class and investing in people and their human capital. That requires a distinction between economic growth (which is what Wall Street is all about) and economic development, which is about actually investing in people and creating jobs. Our candidates are really concerned about growth. Shoring up the middle class at this point probably requires a pseudo mercantilist policy where the larger public interest takes precedence over the pursuit of individual self-interests.


    It isn’t enough to simply protect jobs; wages have to be protected too. A wage policy that will bolster the wages of the middle class is essential and so too is the restoration of institutions like unions that give workers voice. Just as American workers need portability in their pensions, they need it in their healthcare. This means that healthcare should no longer be employer based. We should either have a single payer system or employers as part of their benefits would give their workers vouchers so that they can purchase their own insurance. This might bring competition into the health insurance market, thereby driving down premiums.


    We need to recognize that manufacturing jobs are not coming back and that the service jobs are the new blue-collar jobs. That means they need to have the dignity that manufacturing jobs of yesterday had. Because this dignity came from unions, service workers need to be organized. If employers aren’t going to reward higher productivity with higher pay, then they need a little push with mandated minimum wages. A mandated minimum would enable employers who want to pay their workers more to do so without having to worry about being undersold by the competition that won’t.


    Alas none of the candidates are really talking about helping the middle class. They are simply following the standard formula of empty platitudes and where possible purchasing their quiescence. Perhaps that is why there is so much anger.

    Wage Policy, Income Distribution and Democratic Theory By Oren M. Levin-Waldman.

    Wage Policy, Income Distribution and Democratic Theory By Oren M. Levin-Waldman.

    Just published: Wage Policy, Income Distribution, and Democratic Theory:
    http://www.routledge.com/books/details/9780415779715/#review
    Oren M. Levin-Waldman, Ph.D., Professor at the Graduate School for Public Affairs and Administration at Metropolitan College of New York, Research Scholar at the Binzagr Institute for Sustainable Prosperity, as well as faculty member in the Milano School for International Affairs, Management, and Urban Policy at the New School. Direct email to:
    olevin-waldman@mcny.edu

  • 16 Jun 2016 8:28 AM | Mike Lillich (Administrator)

    First Published in the Yonkers Tribune.


    By Oren Levin-Waldman


    In his famous work, “An Economic Theory of Democracy”, published almost sixty years ago, Anthony Downs sought to apply public choice assumptions to the operations of democracy. According to the Downsian model, all actors, including political parties, interest groups and governments, behave rationally. Each party seeks to maximize its advantage or utility, which means that each is motivated by self-interest. Political parties, for example, will seek to maximize its utility by doing whatever is necessary to gain political support and win elections.


    The Downsian model, then, is based on the assumption that every government seeks to maximize political support. It is further assumed that the primary goal of government in a democratic society, where periodic elections are held, is reelection. Political parties, then, formulate policies in order to win elections; they don’t win elections in order to formulate policies. Politicians in the model, then, are motivated by a desire for power, prestige, income, and the “thrill of the game.” The relationship between what government does and how citizens vote is derived in the model from the axiom that citizens act rationally in politics.


    When voters make their voting decisions they are considering the utility they derive from government activity. Moreover, all citizens are constantly receiving benefits of one kind or another from government activity. Therefore, each citizen, according to this model, will vote for the party that s/he believes will provide him/her with the higher utility income, i.e. benefit and/or advantage. Rational people aren’t interested in policies per se, but in their own utility income.


    As government seeks to maximize political support, it carries out those acts of spending which gain the most votes by means of those acts of financing which lose the fewest votes. Government spending is increased until the vote gain of each marginal dollar spent equals the vote loss of each marginal dollar of financing. In cost-benefit terms, a government pursues a policy and/or program when each expenditure is said to be worth the cost in terms of votes.


    In the model, citizens only vote to influence government policies, and they are only interested in each party’s statements, positions, and/or ideologies to the extent that they serve as guides to the policies the party will pursue once in office. Also in lines with the Downsian hypothesis, parties also seek as their final ends the power, income and prestige that go with attaining office. All this means that a government may pursue policies that are in the interests of certain key players and not in the interests of others because the expected loss is not presumed to be great.


    This might then suggest that in the case of growing income inequality, if the interests of those who benefit from the inequality are served and these interests are the prime donors to those seeking office, and every actor is pursuing his/her self-interest, then there is no reason to address the issue of income inequality. We can only presume that there is no benefit to assisting low-income citizens who are more likely to be hurt by growing income inequality. A key reason for this might be that low-income citizens don’t have the resources to contribute to campaigns and they tend to be less likely to participate in the political process, even at the most nominal level of voting.


    Downs, however, suggests something a bit different, which ultimately forms the basis of the median voter theorem. He assumes that at some point low-income citizens will eventually tire of being discriminated against , or ignored, by government policy. To counteract the influence of high-income citizens and their domination, they may seek to form large collective bargaining units, similar to unions in the labor market. Once part of such a collective bargaining unit, or interest group, this individual voter will no longer feel that her vote is worthless because by joining others it ensures that her vote will count.


    And yet, Downs goes on to say that low-income citizens have essentially traded their political influence for money utility. This would seem to imply that as long as low-income voters get benefits in the form of money income, they will happily trade away any political influence to the government to in turn pursue policies that serve the interests of more affluent interests — interests that don’t need money income from the government per se, but do need policies that may enable them to become wealthier in the market place. And yet, everybody in this scenario is behaving rationally.


    If we apply this to the current labor market, we get the following scenario: Public officials don’t raise the minimum wage because it is not in the monied interests of those who donate to their reelection to do so. But in order to obtain the quiescence of low-wage voters, these officials provide the low-wage voters with subsidies, which we now know cost the taxpayers $152.8 billion a year. Low-wage voters, in other words, have traded their voice — political influence — away for money utility. The monied interests have gotten the policies that serve them, and public officials have been reelected.


    One view is to say this is corruption. Another view is to acknowledge that it is win-win and everybody is being represented, albeit in a perverse fashion. Of course, this is a classic case of the Marxist argument that the state throws the poor a bone. In order to obtain the quiescence of low-wage voters, who in more authoritarian regimes might rebel violently, public officials engage in redistribution. Remember, raising marginal tax rate on monied interests will not upset them because there are sufficient deductions to enable them to avoid paying higher taxes.


    Still, assuming that the quiescence of the poor is purchased through redistribution, it does not follow that redistribution has to follow the traditional model that tax rates need to rise in order to pay for programs. Rather redistribution can occur through wage policy. If all this is true, then policymakers ought to think of the minimum wage as the response to growing income inequality. Profits would be redistributed to workers in the form of higher wages. But low-wage workers would still be working for those higher wages, meaning that they are returning something of value.


    Of course, this doesn’t allow the monied interests to avoid paying more taxes through their deductions because the marginal tax rate would not be raised. And yet, they too could gain if the current tax code was replaced with a more flat tax. Then again, the politicians would lose their principal vehicle for purchasing votes. Is it any wonder that things are the way they are?

     

    Just published: Wage Policy, Income Distribution, and Democratic Theory:

    http://www.routledge.com/books/details/9780415779715/#review

    Oren M. Levin-Waldman, Ph.D., Professor at the Graduate School for Public Affairs and Administration at Metropolitan College of New York, Research Scholar at the Binzagr Institute for Sustainable Prosperity, as well as faculty member in the Milano School for International Affairs, Management, and Urban Policy at the New School. Direct email to: olevin-waldman@mcny.edu


  • 02 Jun 2016 8:56 AM | Mike Lillich (Administrator)

    By Oren Levin-Waldman


    Editor's note: This op-ed first appeared online in the Yonkers Tribune.


    As rational actors we identify our goals and objectives, evaluate the different paths towards achieving them, and then we make a choice. In the marketplace, rational firms seek to maximize their profits while minimizing their costs. Consumers seek to maximize their utility, which means obtaining goods at the lowest cost. And workers seek to maximize their wages without having to sacrifice their leisure time.

    I

    n the political realm rational voters will vote for the candidate and/or political party whose platform will most maximize their interests. Therefore, if one group of voters who are poorly paid are promised more programs and/or higher wages, they will naturally vote for the candidate making those promises. Conversely, if another group of voters is promised more favorable business conditions so that they can profit more, then that is the candidate they will vote for.

    What happens when voters are promised things for which they voted accordingly, and then those promises cannot be delivered because the political system militates against them? Do we then say that they acted irrationally? Consider the following scenarios. In the first, we have Bernie Sanders’ voters choosing a candidate because he promises to deliver free college education, to make Wall Street pay for its abuses, and to raise the minimum wage. All of his supporters are “progressive” who believe that big business in cahoots with the Washington establishment have been riding roughshod over the hard working middle class.

    I

    n the second, we have Donald Trump who has promised to make America great again by bringing back manufacturing, making it more difficult for foreign goods to come in and threaten American jobs, and by stopping the inflow of immigrants, especially those who come illegally, because they take American jobs. Of course, he has promised to build a wall along the southern border, to pursue a foreign policy of America First, and to make our allies pay for their own defense. His supporters also believe that private interests in cahoots with the Washington establishment have been riding roughshod over the interests of the hard working middle class.


    Both camps ironically enough do share one thing in common, which is the belief that the political system, because it is in the pockets of special interests, has not been responsive to the will of the American people. Instead of public officials pursuing policies that the public wants, they simply ram policies down the throats of the voters. Then when polls show that there is actually great opposition to these policies, the standard refrain is that there was a failure in communication. In other words, there is no such thing as bad policy and those public officials who push these policies are never wrong.


    We have to assume that even if one of these two were to become president, it is highly unlikely that Congress would pass the policies that are being promised. Does that mean that the voters who voted for them have acted irrationally? After all, they must be aware that in a system of checks and balances it is very difficult for presidential candidates to make good on their promises. But then again, the candidates are preying on the ignorance of the typical voter.

    In truth, it would appear that there are multiple rationalities at work and perhaps in collision with one another. Voters vote the way they do because they are promised something. Politicians who need to raise millions of dollars for campaigns are also acting rationally when they put the interests of donors first at the expense of the masses. And groups within both parties who seek to deny both Sanders and Trump the nomination are also acting rationally because they seek to maintain their privileged position in the establishment hierarchy.


    Still, one wonders how it is rational for working class individuals to vote for a billionaire who has absolutely no connection with them. And how is it rational for affluent “progressives” to support a candidate whose platform is laden with proposals aimed at punishing them for their success? Unless they believe that either candidate will succeed in blowing up the establishment that has effectively stripped them of a true democratic voice for decades now.


    Both appear to have a populist message which resonates, even though they are coming from different directions. Both are appealing to angry voters who believe that the political system is non-responsive to the interests and needs of the middle class. After seeing middle class wages stagnate for four decades now, the decimation of labor market institutions, and the pursuit of trade policies that will only make monied interests wealthier at workers’ expense, voters understand there is little difference between the two political parties.


    And yet, ironically enough, it is rational for the establishment on both sides of the aisle to hunker down and deny that both Sanders and Trump are galvanizing large segments of the electorate because the political system is not working. For the establishment to admit as much is to acknowledge that the establishment and politics as usual is really the problem.


    Let’s see if we can get to the root of the problem. Wages have been stagnant and the manufacturing base that once made “America great” has been replaced with lower paying service sector jobs. Instead of labor market institutions that might have served to maintain wages in the face of greater globalization, the political class has maintained that workers need to be more flexible while the ratio between worker and CEO pay has gone from 40-1 to 500-1. Meanwhile, healthcare costs continue to rise and many are still without because nobody could deliver a single-payer system. Moreover, representatives in Congress are only responsive to those with money. Alas, the American public understands it has been had.


    Granted, most typical voters do not understand the basics of supply and demand. But they do understand that when more unskilled workers are allowed in, or even more skilled workers allowed in on H-B1 visas, this will suppress wages. They understand that the political class could not care less about them. They may even understand that Trump is not likely to care about them any more than anyone in the past has or that Sanders will not be able to deliver on any of his real promises. But they are frustrated which is reflected in their support for them. What they do understand is that the establishment is now running scared, and that, in and of itself, may be a reason to support them. Are they irrational? No, not al all. They are experiencing a different kind of rationality.

    http://www.routledge.com/books/details/9780415779715/#reviews

    Oren M. Levin-Waldman, Ph.D., Professor at the Graduate School for Public Affairs and Administration at Metropolitan College of New York, Research Scholar at the Binzagr Institute for Sustainable Prosperity, as well as faculty member in the Milano School for International Affairs, Management, and Urban Policy at the New School. Direct email to: olevin-waldman@mcny.edu




  • 08 May 2016 12:57 PM | Mike Lillich (Administrator)

    By Oren Levin-Waldman


    First published in the Yonkers Tribune.


    As more states, and even localities, enact minimum wages that are higher than the federal minimum, are there contributing demographic factors that can easily be identified? It would be easy to assume that these are simply blue states and therefore they would be naturally predisposed to passing them. Or it could be that they are simply places where the cost of living is higher and that policymakers understand the challenges of trying to support a family on less. And yet, that would appear to be assuming too much.


    If we follow the logic of the median voter theorem, then states, where the distance between the median voters’ income and average income of society is greater than this distance for the nation as a whole, should be pursuing policies intended to achieve greater redistribution. This redistribution is to be achieved through greater taxation on the wealthy in order to pay for programs that assist those at the bottom of the distribution. In fact, the median voter theorem postulates that tax rates are dictated by this distance between median and average incomes.


    What then, are the characteristics of states with minimum wages currently above the federal minimum wage? These states typically on average are blue states where the cost of living is higher. But data from the 2014 Current Population Survey (CPS), a year when many states began raising their minimum wages, add some interesting dimensions. In many of these states, the value of the dollar is lower than the rest of the nation, meaning that it buys less. Translation: it costs more to live there. But these states also have a higher tax rank, meaning their taxes are among the highest in the nation.


    There are perhaps a couple of ways this issue could be approached. The first is that because both taxes and the cost of living is so high it is only a foregone conclusion that minimum wages would be raised because low-wage workers need higher wages in order to meet their obligations. Of course, that assumes that policymakers are thoughtful people who truly care about the needs of the working poor. And yet, if this were true, they would not have waited until 2014 to really begin addressing the issue.


    The second is to view the high tax rank as a proxy for redistribution. In these states, which are also blue, there may be more redistribution precisely because the cost of living is so high and the low wages that those at the bottom earn are not enough to support themselves and their families above the poverty level. Therefore, people at the bottom need subsidies. And because these states are blue, legislators are more likely to vote for them because this is also a way to get the votes of those at the bottom of the distribution. In other words, low-wage workers in need of subsidy have a vested interest in voting for candidates who promise these subsidies to them, and these subsidies are achieved through redistribution.


    The data actually suggests that states where the distance between median and average income is greater than the nation, are blue and have high union density, and where minimum wages are higher are more likely to have higher tax ranks. In other words, they are more likely to be redistributive states. The variable that appeared to have the greatest effect was high union density, followed by the median voter theorem, followed by being a blue state. This, of course, confirms the hypothesis of the median voter theorem that the greater the distance between median and average earnings, the more likely there is to be redistribution. But this would only appear to be the case in blue states. The low dollar value variable wasn’t nearly as important as high union density and median voter theorem.


    But do these variables also affect whether a state is more likely to have a minimum wage higher than the current federal minimum wage? Here the median voter theorem variable has a negative effect, but the critical variables are low dollar value, high tax rank, and high union density. Interestingly enough, the median voter theorem did have an effect when it was the distance between median and average family income being greater than that distance in the rest of the nation. Moreover, the data suggested that being a blue state had no real impact. Therefore, states where the dollar value was lower than the rest of the nation, both union density and tax rank was high and distance between median and average family income was greater were  more likely to have high minimum wages than the federal minimum.


    One obvious conclusion might be that the public does not view the minimum wage in the same light as redistribution and that the two are affected by different factors. And yet, that the family median voter theorem has an effect for higher state minimum wages where the individual median voter theorem does not might suggest that higher state minimum wages are critical to supporting a family, especially in states where the cost of living is higher.


    That the minimum wage is higher in those states where there is higher union density is important because historically the minimum wage rose when there was a constituency behind them, and that constituency was always organized labor. Of course there is a logic that minimum wages would be higher in states that have higher taxes and where the cost of living is higher. But we have no way of knowing what motivates legislators to support higher wages. Still, the most important factor appeared to be the low dollar value in those states.


    We do know that where income inequality is higher that the distance between median and average incomes will be greater. States where that distance is greater are also more likely to adopt redistributive policies. But also states where the cost of living is higher and the tax rank is higher are also more likely to have higher minimum wages.


    I have suggested many times in this space that higher minimum wages are preferable to the standard redistributive policies supported by typical blue state politicians. In those states where minimum wages are higher, income inequality tends to be lower. To the extent that income inequality is strongly correlated with the distance between median and average incomes, it then follows that the distance between median and average incomes will also be less in those states where minimum wages are higher. In other words, there is less of a need to redistribute income through the standard model of over-taxation on the wealthy to pay for programs as subsidies to those at the bottom.

     

    levin-waldman_-wage-policy-income-distribution-and-democratic-theoryJust published: Wage Policy, Income Distribution, and Democratic Theory:
    http://www.routledge.com/books/details/9780415779715/#review

     

     

    Oren M. Levin-Waldman, Ph.D., is professor at the Graduate School for Public Affairs and Administration at Metropolitan College of New York, Research Scholar at the Binzagr Institute for Sustainable Prosperity, as well as part-time faculty member in the Milano School for International Affairs, Management, and Urban Policy at the New School. Direct email to: olevin-waldman@metropolitan.edu

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  • 20 Apr 2016 2:04 PM | Mike Lillich (Administrator)

    By Oren Levin-Waldman


    First published online in the Yonkers Tribune.


    As more and more states pass legislation raising their minimum wages to $15.00 an hour, one might think that we will see greater pressure on the federal government to follow suit. And yet, what we are more likely to see is a rehash of the same debate that has unfortunately gotten us nowhere. Those on the right will no doubt claim that increasing the minimum wage will harm low skilled workers as employment opportunities for them will be diminished. And those on the left will harp on the necessity of raising the minimum wage in order to help the working poor.


    It is true that the competitive market model predicts adverse employment consequences due to an increase in the minimum wage. Actually, the model says that either there will be lower employment or productivity will increase. Productivity will either increase because employers invest in their workers’ human capital, in which case they will be more productive or employers will substitute more technology for workers. The problem with this model is that it is nothing more than a theoretical construct with inconclusive data to back it up.


    Consider that from 1981 when the Federal Minimum Wage Study Commission released its report until about 2000 that there was a consensus that a 10 percent increase in the minimum wage would result in a 1-3 percent reduction in employment among teenagers. But the same report also noted that the employment consequences would be considerably less among adults. Since 2000 numerous studies have shown that minimum wage increases affect different groups in the labor market differently.


    What the current data demonstrates is that the minimum wage debate is anything but settled. At best the data is ambiguous, which should pave the way for policy experimentation. In a book titled What Does the Minimum Wage Do? economists Dale Belman and Paul Wolfson did a meta-analysis of the studies on the minimum wage and concluded that there was no basis to conclude that the minimum wage had adverse employment consequences. On the contrary, on the whole, the benefits of the minimum wage were most likely greater than the costs.


    This does not mean that there isn’t a tipping point — a point beyond which we would see employment consequences — only that we don’t know what that tipping point is. A couple of years ago the median hourly wage for full time workers was about $14.90 an hour based on data from the Current Population Survey (CPS). It may be closer to $16.90 now. If we assume that the tipping point is between those two points, then a $15.00 an hour minimum is below that point and there should be no adverse employment effects.


    Still, the political right is strident in the claim that these increases will cost jobs. But what exactly does that mean? Will jobs be less because employers fire workers to compensate for higher labor costs? Or will fewer low-wage jobs be created in the future? The two are not the same. Of course, a higher minimum wage that attracts people into the labor market could result in lower employment because there would then be more workers chasing after the same number of jobs.


    For the business community, the issue is the shock of raising the minimum wage to even $10.00 in the first year, let alone $15.00 by 2020. But perhaps the real issue is that economic models, far from being self-evident truths, are merely bases upon which different groups can cloak their self-interest and effectively make political arguments. Each group in the minimum wage debate will use the model, as well as rely on the data, that best supports its respective interests. But at least the political right appeals to a model.


    The political left doesn’t so much reject the model of competitive markets, as it says so what? To them, the model is irrelevant. All that matters is that businesses are profiting off the backs of their workers and the current minimum wage of $7.25 is insufficient to support themselves, let alone their families. It is a matter of fairness: people who work full time should earn a liveable wage. Of course, they aren’t completely wrong, but the argument has limited political appeal. Rather than arguing for the minimum wage on the basis of class warfare, why not argue that there are indeed positive welfare effects?


    In other words, if minimum wage supporters would couch their arguments in the language of economics and demonstrate that there will be benefits for the middle class, they would actually succeed in the art of triangulation, which President Bill Clinton perfected so well. And that was coopting the opposition. Here is the argument that supporters of the minimum wage should be making, but are not: The minimum wage should be raised because as the statutory wage increases, so too will the wages of those workers earning in wage ranges above. This will have spillover effects, which will work their way up the income distribution.


    As wages increase, the wage stagnation that the country has witnessed for the last four decades will be arrested. Moreover, as wages rise through the distribution, workers will have greater purchasing power and the demand for aggregate goods and services will increase, thereby leading to more job creation. Even if we focus on the old arguments for the minimum wage and accept that there may even be some job loss in the short-term, it is well accepted that in the long-term more spending in the economy due to greater purchasing power will lead to macroeconomic benefits. Lastly, an increase in the minimum wage will narrow the gap between the top and the bottom, thereby resulting in slightly lower wage inequality.


    The minimum wage is important because it speaks to the importance of labor market institutions that serve to bolster wages, and the main reason wages have been stagnant is because these institutions have been in decline. Those who oppose the minimum wage will continue to cloak their selfish interests in the language of the competitive market model claiming to speak the larger public interest of saving jobs for low-wage workers.


    The real public interest lies in rising wages, and jobs that allow for people to live independent lives and not need to rely on the government for subsidies and other handouts. The argument of the political left for a $15.00 an hour minimum would also be stronger if it called attention to the $152.8 billion the nation spends on subsidies for low wage workers, and that $15.00 an hour is the point where we would see less of a need for those subsidies. The political right always speaks the language of personal responsibility and self-sufficiency. Here might be an opportunity for the left to actually speak the same language.

     
    Just published: Wage Policy, Income Distribution, and Democratic Theory:

    http://www.routledge.com/books/details/9780415779715/#reviews

    http://www.routledge.com/books/details/9780415779715/#reviews

    http://www.routledge.com/books/details/9780415779715/#review
    Oren M. Levin-Waldman, Ph.D., is professor at the Graduate School for Public Affairs and Administration at Metropolitan College of New York, Research Scholar at the Binzagr Institute for Sustainable Prosperity, as well as part-time faculty member in the Milano School for International Affairs, Management, and Urban Policy at the New School. Direct email to: olevin-waldman@metropolitan.edu

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  • 06 Apr 2016 1:59 PM | Mike Lillich (Administrator)

    By Oren Levin-Waldman


    First published in the Yonkers Tribune.


    According to the Median Voter Theorem, when there is greater inequality there will be a greater tendency to redistribute. Why? Because self-interested politicians seeking to gain or retain power will strive to enact public policies that appeal to the median voter. As income inequality increases, the median voter will seek policies that redistribute. What, then, are the implications of this in this election year?


    In its original conceptualization, Anthony Downs postulated that political parties converge upon the position of the median voter, i.e, the voter whose preferences are right in the middle of the distribution of voting preferences. That means that there are as many voters to the left of the median voter as there are to the right. At a minimum, this would imply that parties ought not to be ideological; rather they move to the center in order to win votes. The party that fails to do so does not get elected.


    Still, what does this have to do with redistribution? As incomes are skewed to the right, i.e. more at the top, the preferred amount of redistribution will be a function of the relative position of the median voter on the income scale. The greater the distance between the median voter’s income and society’s average income, the greater is the preferred amount of redistribution. A couple of columns ago, I noted that in 2013 median family income in the U.S. was $56,000 while average family income was $76, 966. And in New York State, median family income was $52,000 while average family income was $98,071.


    The implication would be that income ought to be redistributed so that the median and average match. It would also imply that redistribution ought to be greater in New York State than in the rest of the nation. Still, why redistribution per se? Because the median voter in New York State has as many voters with incomes below him or her as he or she has with incomes above. That isn’t the case with average incomes because a few very high incomes at the top can skew the income distribution to the right, when in reality there may be more people to the left.


    If we follow the logic of this theorem, then both parties ought to be advocating redistribution of some sort. Of course, that assumes that it is in fact agreed that there really is growing income inequality. Our Democratic candidates acknowledge growing inequality while at best the Republicans acknowledge stagnant wages. Moreover, there is no reason to assume that any of our candidates read Downs’s classic An Economic Theory of Democracy, from which this theory came.


    The median voter theorem also implies a role for taxation as the mechanism through which government will redistribute income in order to achieve a more equitable distribution. If inequality suggests the need for more redistribution, then taxes on the wealthy will be raised in order to finance programs and policies that benefit those at the bottom. In theory, this will achieve a more equitable distribution. Although it won’t result in an equal society, it may result in a narrowing of the gap between the top and the bottom.


    Even if higher taxes on the wealthy aren’t used to finance programs for those at the bottom, the gap between the top and bottom will be narrowed in terms of after-tax income. If inequality, however, is denied, then there should be no need to redistribute at all. And yet, some questions remain. Would a supply-side tax cut, often advocated by Republicans which effectively redistributes from the poor and middle class then may it be said to represent the median voter theorem in reverse? Or is inequality being addressed simply through a policy that stimulates economic growth on the assumption that those at the top will take their tax cuts and invest and create jobs?


    This assumption, however, assumes that wages will rise with those investments. If wages rise for those at the bottom and the middle, and especially if they do at a higher percentage than they do at the top, then this could narrow the gap between the top and the bottom, thereby reducing inequality. The problem with this assumption is that it assumes that wages will rise because productivity has risen. But the evidence in recent years suggests otherwise. Despite productivity gains following the end of the Great Recession in 2009, wages did not rise.


    Perhaps the way out of this conundrum is to focus on wages. The logic of the median voter theorem and redistribution in the face of inequality could be applied to the minimum wage. Instead of redistributing income through taxes, there should be redistribution from profits to workers in the form of higher wages. Those opposed to minimum wage increases argue that minimum wage increases are nothing more than redistribution because it is taking from employers and giving to workers who offer nothing more in terms of value.


    Early institutional economist John R. Commons acknowledged that institutions like unions and minimum wages represented a form of redistribution, but that since it was coming from the profits that workers’ labor contributed to it, it was indeed preferable. Arguably, since the firms would not be profitable without the labor of their workers, it is difficult to make the case that it is redistribution in the classic sense.

    And yet, with more localities passing $15 an hour minimum wages, especially in localities with higher levels of inequality, it is hard not to see a different application of the median voter theorem. Although it is not being articulated by policymakers and public officials, the new version might be stated as follows: communities where income inequality is high may seek to narrow the gap between the top and the bottom adopting wage policies that not only raise the wages of those at the bottom, but also effectively raise those in the middle through spillovers.


    Politically, this approach has to be preferable to simply overtaxing the wealthy as some advocate. Were Republicans really smart, they would advocate raising wages too, if for no other reason that to distinguish what we will call “good” redistribution from the traditional redistribution which they obviously consider to be “bad” redistribution. Why is this good redistribution? Because at the end of the day it can be justified on the grounds that workers worked for it. Their labor contributed to the profits from which their higher wages are coming.


    Were political figures to argue this point — to actually re-calibrate the median voter theorem — we might actually find ourselves having a serious discussion about what would benefit the middle class. And what benefits the middle class is what benefits the median voter.

    http://www.routledge.com/books/details/9780415779715/#reviews

    Just published: Wage Policy, Income Distribution, and Democratic Theory
    Oren M. Levin-Waldman, Ph.D., is professor at the Graduate School for Public Affairs and Administration at Metropolitan College of New York, Research Scholar at the Binzagr Institute for Sustainable Prosperity, as well as part-time faculty member in the Milano School for International Affairs, Management, and Urban Policy at the New School. Direct email to: olevin-waldman@metropolitan.edu

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