How to solve our employment crisis and end the 'working poor'

The Congress is about to consider the 'card check' bill that would allow unions to bypass a secret ballot and force open ballots on whether a workplace would unionize; the universal belief is that this would result in the unionization of more workplaces, and undermine the 'right to work' states that guarantee industries are not forced to hire union workers.

Democratic politicians are largely supportive of this legislation, and not just because unions are large campaign contributors. In addition, the moral argument is made that a lack of unionization in many industries (along with a relatively low minimum wage, compared to the cost of living) leads to the phenomenon of the 'working poor' - those who work full-time yet still cannot make ends meet, and struggle to afford necessities like food, shelter, health care and education for their children. The economic recession/ depression simply exacerbates the problem; the involuntary unemployment rate continues to rise, and as a result wages, particularly low-end wages, continue to fall, as do other benefits (such as health insurance) that employers use as remuneration. As a result, various kind of employment protections are also being discussed or are already in force, including a different sense of the 'right to work' - the right to keep your job once one is hired - i.e., the right not to be fired. The argument is that, especially in economically perilous times, one's job is a benefit that needs state protection against arbitrary and unjust removal; and so gaining in popularity are 'due process' laws that demand 'just cause' be shown before one can be fired, and the burden of proof is on the employer to be able to document in court why one was let go.

But economists often note that both unions and the 'right to work' as the right not to be fired entrench economic inefficiency, as less efficient workers are protected in their jobs and businesses cannot easily replace them with more capable employees. Hence, the question continues to be debated over whether the social benefits of the protections of unions and due process protections against termination are worth their costs to the overall economy.

This dilemma can be solved. But it would require a massive legal and social change, that in our current climate may be more attainable than ever before, but would still require great political skill and courageous leadership. As a bonus, my solution would also help solve other seemingly intractable social problems, such as the immigration of illegal workers from Latin America and the broken state of our health care funding. I believe a nation that adopts my solution would be more economically competitive, with less to fear from globalization, and with far greater social justice and better incentives to productive work, versus perverse incentives to collect funds for doing little to nothing at all. So here I propose my solution; it will be presented in various stages, but most of them are interdependent, not independent - if most or all of them are not adopted, it would undermine the value of the others.

First, we scrap the payroll tax and social security tax and capital gains tax and all the others, and have a single flat tax on all income (from whatever source). It would be automatically withheld from paychecks, or by trading banks on capital gains, or so forth. Direct deposit and other electronic forms of fund transfers would make this simple; the IRS would then focus its attention on large cash transfers, with a happy side benefit of making drug dealing, prostitution, and other illegal cash-driven transactions more difficult. The exact rate is negotiable, but 26% as a guesstimate seems reasonable; depending on the next two suggestions, it could be even lower, perhaps substantially lower.

Second, we make the estate ('death') tax 100%. Taxes should ideally be voluntary, or on activities we wish to discourage; or at the least, on those who will not object to the tax. The dead certainly qualify on the last point. The heirs of the rich certainly will object (and family businesses/ farmers), but I would have the government offer the designated heirs the first opportunity to repurchase the estate (at fair market value), using the life insurance that would no doubt be purchased for this reason, if the heirs actually care. (The life insurance industry would no doubt boom given my proposal; politically, that will help make up for the health insurance bust to come with my later proposals). Economists note that inheritances usually portend an extremely inefficient use of resources, being unrelated to productive labor; and the moral argument against them is even stronger - why should I, who had no choice as to my parents (and obviously could do nothing to deserve them), be unjustly benefitted from having wealthy ones (or unjustly burdened by poor ones)? The 'genetic lottery' is already a major source of unmerited inequality within a generation; to allow it to distort successive generations, indefinitely, violates the tenets of morality, whether they be consequentialist, deontological, or virtue.

Third, we would nationalize all lottery and other gambling companies of over a certain value, and have a national lottery/ casino industry. The main business of Las Vegas would not cease to exist (or even dramatically change); it would simply become a government industry town, like, say, Minot, N. Dakota. The long and sordid history of the connection between gambling and organized crime (and the ever-present risk of fraud) in any case cries out for greater regulation of this industry; better yet to allow the government to run it, and keep the proceeds for itself. (Sorry, Indian tribes! Reparations may be a legitimate issue; but gambling is a lousy substitute, just as affirmative action is a lousy substitute for the descendants of slaves). State-sponsored gambling/ lotteries are sometimes termed a 'tax on stupidity' by economists, but they have the considerable virtue of being entirely voluntary.

(I also support the legalization and nationalization of prostitution and most drug dealing, within 'red light districts' that are heavily regulated (not least for safety) and taxed, but that is a largely independent issue from my other proposals).

Fourth, we guarantee to US citizens a third sense of the 'right to work' - the right to a job for which one is qualified (or perhaps overqualified). That is, we put an end to involuntary unemployment. In practice, this means the state becomes the 'employer of last resort' - if one cannot find a job in the private sector, the government will gainfully employ you, whether it be as a card dealer or teacher or social worker or street paver or ditch digger or garbage collector. Or even as a bureaucrat! This is sometimes termed 'workfare' as opposed to welfare; welfare benefits would end (except for the disabled). But if one wishes to have an income, the state guarantees that one can find work. This may be thought of as FDR's WPA writ large, except that I think that government should also be more involved in higher-value industries than the ditch digging of the Great Depression. Which leads me to:

Fifth, the government should change the nature of bankruptcy and antitrust legislation and set up firms that compete with private businesses. China is not a role model in many ways, but their form of capitalism has some lessons for us. In particular, the free market idealizations of economists depend on many factors often missing from reality, and perfect competition is perhaps foremost among them. In the real world, private businesses relentlessly attempt to reduce the amount of competition they engage in; monopolies, price-fixing and collusion are merely among the most obvious of those attempts. China's attempt to control its economy ironically has hit on a way of increasing competition, by making private and state-owned firms in the same industry compete against each other, and often blurring the distinction between private and state ownersip itself. Interestingly, the US does this as well, but only in a few industries: the US is widely seen as having the best higher education system in the world, and vigorous competition between private and public universities is taken for granted. Elementary and secondary schools in the US have far less direct competition (as charter school and voucher proponents are all too aware) and accordingly are less efficient and productive. The current crisis in the financial sector and the confusion over the 'nationalization' of banks and other financial firms makes this all the more clear. I propose that when a private firm declares bankruptcy, this immediately means its stockholders have lost their equity, but the firm itself at least temporarily continues, now as a government-run and administered business, with employees earning government salaries. If other bureaucrats decide to disband the business entirely, that becomes a government decision; also possible is the recovery of the business while state-owned and its eventual re-privitization. In addition, when the government determines that antitrust issues have come into play and a business threatens a monopoly or other unjust restraint on competition, the usual response will not be to allow lawyers and judges to partition the company; instead, the government will form at least one new company with adequate capitalization to compete with the monopolist. Thus, the government can enforce competition by creating it directly when needed. Medical care is one obvious area in which having a state-guaranteed health care system (beyond ERs!) compete with private health-care providers is likely to be a boon to us all.

Sixth, we eliminate the idea of 'just cause' firing and the right to keep one's job; businesses will be free to hire and fire as they wish; but they will have to document the reason for firing employees, and that documentation will be a matter of public record. Employees will not be allowed to sue for unjust cause for termination, but they can sue for defamation or slander/ libel if the employer lies about the reason they were terminated. This reliability of this information will be crucial in helping other private or public employers decide on their next job, inasmuch as they have a right to some job (point four, above). In addition, I would support the dramatic lowering of the minimum wage (to, say, a dollar an hour). While not strictly necessary, this will turn out to enhance the efficiency of business hiring and firing without causing undue harm to employees. And that will help be assured by my final proposal:

Seventh, health insurance is guaranteed by the state (and no longer dependent upon one's employer, unless voluntarily chosen), as is a minimal income for all workers. How? By combining the flat tax above with a guaranteed refund for all US citizens. To assure the correct incentives, one's refund would depend upon one's job classification: for full-time entry level jobs, one would be guaranteed a refund of $26,000 a year. For full-time jobs requiring a college education, the refund would increase to, say, $36,000. And for jobs requiring advanced degrees - scientists, lawyers, doctors, professors - the refund would be $46,000. (Part-time work would garner refunds directly proportional to the percentage of full-time worked - so a half-time nanny would get a $13,000 refund, a half-time professor a $23,000 refund). That refund, of course, assumes one paid the 26% withholding on all income; if some income did not have the 26% withholding taken out, then one's refund would decrease. Again, the exact numbers are negotiable, but the principle remains: even if one works as a ditch digger for $1 an hour, full time - 40 hours a week, 50 weeks a year (2 weeks vacation) - then one will make a gross salary of $2000, withholding taxes of $520, so a net salary of $1480, but a yearly income of $27,480. No longer would any citizen work full time and remain desperately poor. But the incentives to move on to higher-value jobs (which are also better for the society as a whole) is built into the tax system. And immigrants would have every reason to attempt a path to citizenship: those legally employed here would still pay the flat tax but would not receive the refund. If combined with a decrease in the legal minimum wage, the incentives of Latin Americans and others to illegally immigrate would also dissipate, as American workers would know that any job guarantees them at least a living wage with the refund.

As a professor of business ethics, I believe the above proposals (and more that I have - but this post is already long enough) would offer solutions for many of the most pressing problems of our current economic system. Now, if only someone would put them into action....