Elizabeth Anderson asks “how likely is it?” that competitive labor markets will provide low-wage workers with a range of decent options that help ensure the value of their exit rights. I believe the answer is “very likely,” and I think I could mount a strong empirical case.
However, at this point, I simply want to flag that the question is indeed an empirical one. The thrust of my initial argument was that we need to take more seriously the questions of which policies and institutions actually help the poor, and to recognize that what helps may have nothing to do with inequality. Anderson seems to concede my main point, that income inequality is orthogonal to the issue of low-wage workers’ bargaining power and the value of their exit rights. Her fall-back position seems to be that whatever secures the worth of these rights will also reduce income inequality. If true, this would suggest that, while inequality is not quite the real issue, it’s somehow inextricably related to the real issue. This is possible, but I think there’s little reason to believe it. Anderson writes:
A generous welfare state (or rather, social democracy) is one way to provide poor with reasonable alternatives, but, as I’ve noted, a rational funding mechanism for this will reduce economic inequality. Alternatively, Poor’s bargaining power can be increased by raising Rich’s cost of exit — say, by unionizing the workforce of Rich’s company, or the workforce as a whole. This will also tend to reduce inequality between Poor and Rich.
I’m afraid all this just begs the relevant questions. A “generous welfare state” could apply to an indefinite number of schemes, any one of which might make the problem either better or worse. And, because the issues are completely logically unrelated, whether a well-functioning redistributive scheme also reduces income inequality is an open question. It is certainly possible that a better-designed set of programs could do more good for less money. And large increases in the generosity of redistributive programs aimed at improving the conditions of the poor could be financed through changes in the overall level and composition of government spending, leaving tax rates and inequality entirely unaffected. (Just imagine what could be done with a third of Navy’s budget!) The effects of unionization, again, depend on the details. Unions indeed improve the bargaining power of some workers. But this often comes at the expense of other workers who may then find it harder get work and face higher prices as consumers. And a higher unemployment rate and higher consumer prices tend to increase income inequality, not decrease it.
If it is wanted, I can bring forth evidence that poorly designed welfare programs have increased economic inequality in the United States by negatively affecting labor-market participation among low-skill workers. And I’d be happy to point to evidence on the typical effects of unionization. Indeed, I’d rather have this kind of evidence-based debate. What really helps? What really works? My argument has been that simply assuming that inequality is the problem does not help. I have not argued against redistribution. What I am arguing is that the demand for more generous progressive redistribution is often little more than a reflex, and that the design, not the generosity, of our redistributive policies is generally the pertinent issue.
I’d like to apologize to Prof. Anderson for dithering on my promised reply to her argument about the effects of inequality on democracy. I’ll come through tomorrow.