What Does Inequality or Redistribution Have to Do with Strengthening the Hand of Low-Wage Workers?

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.

Also from This Issue

Lead Essay

  • Economic Inequality and the Mirage of Injustice by Will Wilkinson

    In his lead essay, Will Wilkinson observes what he believes is a poor chain of reasoning: Income inequality is rising; it is also a measure of injustice. To fix this injustice, we should redistribute incomes. Wilkinson attacks this reasoning on several fronts: Income inequality is less important than consumption inequality, and consumption inequality is probably lessening. But if income inequality is a problem, it is so only as a symptom of a different problem: substandard schools, perhaps, or our high incarceration rate, or CEOs who conspire to overpay one another. Rather than redistributing income, we should identify the underlying problem and fix it directly. This may well lessen income inequality, and it will also fix an undoubtedly serious problem somewhere else in our society.

Response Essays

  • Is Consumption the Grail for Inequality Skeptics? by Lane Kenworthy

    Lane Kenworthy argues that income inequality is indeed important, and that we should not be misled by the relatively reassuring data on consumption. Unconsumed income also adds to the quality of life enjoyed by the rich, even if that increase is still hard to measure. A more egalitarian society need not entail a radical social leveling, but it should entail better public services for the poor and the middle class.

  • Why Things Will Feel Worse As They Get Better: The Downside of Growing Consumption Equality by John V. C. Nye

    John Nye adds several considerations to the mix: First, positional goods may make us feel more unequal – there are only so many “top ten” schools for our kids, only so many “best” views or neighborhoods. Yet, with rising incomes, more of us feel that we should be able to afford them, even as they slip further from our grasp. As we become more equal, we feel less equal. Second, one other effect of relative equality has been to erode the security formerly enjoyed at the very top of the economic pyramid. This security itself was a form of compensation, and executive salaries may be rising in recent years in part because executive security has fallen. And third, much of human inequality is not directly measurable in money at all. Differences in appearance, intelligence, ability, and the like are all real and may translate into economic inequality as well. Consideration of these elements is curiously absent from many discussions on inequality.

  • What Should Egalitarians Want? by Elizabeth Anderson

    Elizabeth Anderson agrees with Wilkinson that the root causes of inequality are more troubling than inequality taken alone. But economic inequality is still a problem for two reasons: First, economic inequality of the sort we have today is not making the poor better off in absolute terms, but rather it is making them worse off. And second, economic inequality translates directly into inequality of political power, which in turn reinforces economic inequality. This is an unacceptable state of affairs.

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