Neoliberal Redistributive Policy: The US Net Social Wage in the Early Twenty-First Century

Abstract

This paper estimates the net social wage—the difference between labor benefits and labor taxation—from 1959 to 2012 in the United States using two different methodologies. During this period the average NSW₁/GDP and NSW₂/GDP ratio are 1.3 and −3.8 percent, respectively. This paper finds a deviation in the net social wage data starting in 2002, suggesting greater redistribution to US workers in the early twenty-first century than in the twentieth century. This paper argues that the increase in the US net social wage in the early twenty-first century is being caused by a combination of cyclical, structural, and secular factors. US redistributive policy should be understood as stabilizing and subsidizing the social reproduction of labor.

JEL Classification: H5, E62, B5

Keywords

net social wage US welfare state social spending taxation tax expenditures

1. Introduction

The net social wage method, developed by Shaikh and Tonak (1987) and employed by numerous scholars, uses macroeconomic data to construct aggregate estimates of the redistributive effect of fiscal policy on social classes.¹ Shaikh and Tonak (2000) found that between 1952 and 1997, the average US net social wage was approximately zero (256).² This paper presents and interprets updated US net social wage data that shows a sizable deviation starting in 2002, despite no structural break with the ideological tenets or policy aims of neoliberalism.

The data presented in this paper supports empirical findings that, counter-intuitively, the US net social wage appears to be rising in the twenty-first century (Blank 2014; Fazeli and Fazeli 2012). It also further elaborates the observation of Harman (2008) that the net social wage data provided in Shaikh (2003) does not support “the widespread belief that neoliberalism involves a retreat of the state” (Harman 2008: 9).³ Furthermore, this research connects the net social wage literature with other social science literature on the persistence of US social spending despite ongoing attacks on the welfare state in the neoliberal era (Gautié and Schmitt 2010; Hacker 2004; Pierson 1996; Steinmo 2010).

Previous net social wage studies have not considered the individual components that make up the broad categories of “expenditures” and “taxation.” This paper adds to the existing net social wage literature by performing a growth accounting exercise and looking “under the hood” of the net social wage. Fiscal redistribution is affected by countercyclical tendencies as well as structural and secular changes, such as demographic shifts, rising healthcare costs, and increased tax expenditures.

Fiscal policy can stabilize contradictions in capitalism via contributing to the process of the social reproduction of labor-power.⁴ While Miller (1989) and Harman (2008) discuss the net social wage from the perspective of subsidizing the reproduction of labor-power, most of the net social wage literature emphasizes the direct or indirect effects on capital accumulation and profitability.⁵ In the capitalist context, capital accumulation cannot occur without social reproduction, and vice versa. By bringing in an explicit interest in the social reproduction of labor-power, this work bridges a conceptual divide between institutionalist and orthodox Marxian traditions with feminist-Marxian economic analysis, in particular social reproduction theory (SRT).⁶

This paper is structured as follows. First, we review two distinct net social wage methodologies. Second, we present the updated data in more detail. Third, we discuss the results of a growth accounting exercise. Fourth, we look at cyclical features of the net social wage, in particular the effect of prolonged unemployment during and after the Great Recession. Fifth, we consider the effect of structural and secular changes in the US economy, in particular spending on income support, healthcare, and tax expenditures. Sixth, we interpret these findings from the perspective of a Marxian theory of economic policy inspired by the work of Suzanne de Brunhoff (1978). The final section offers some conclusions regarding policy implications.

2. Net Social Wage Methodology

The net social wage is calculated by adding up all of the fiscal transfers that workers have received from public expenditures, then subtracting what they pay in taxes:

Net Social Wage = Total Labor Benefits - Total Labor Taxes

(1)

The first type of public expenditure, E1, includes direct payments and transfers, such as Social Security, Medicare, Medicaid, public assistance, and public housing that are assumed to benefit workers entirely. The second category of expenditures, E2, include goods and services that are considered to benefit both labor and capital, such as education, funding for hospitals and clinics, recreation, natural resources, energy, and transportation. Shaikh and Tonak (2000) multiply E2 by the labor share, LS, as a way to approximate the share that can be attributed to workers.⁷

To calculate the total incidence of labor taxation, Shaikh and Tonak (1987; 2000) look at two main categories of taxation. The first category, T1, consists of employee and employer contributions to social insurance that are considered part of the cost of hiring workers. The second category, T2, includes federal, state, and local income taxes, personal property taxes, motor vehicle taxes, and miscellaneous taxes and fines. We multiply category T2 by the labor share to estimate workers’ contributions:

{NSW}_{1} = E 1 + E 2 * LS - T 1 - T 2 * LS

(2)

As discussed in Shaikh and Tonak (1987) and Tonak (1987), administrative spending, police, and other expenditures are treated as the cost of state reproduction, not part of the social wage for workers. Military benefits, such as veterans’ pensions and health insurance, are treated as a cost of war, not as social benefits for labor.

2.1 Indirect taxes and the net social wage

There is a controversy in the net social wage literature over the treatment of indirect taxes. Shaikh and Tonak (1987; 2000) do not include indirect taxes in their estimates. However, other authors, such as Miller (1986; 1989), Freeman (1991), Sepehri and Chernomas (1992), Maniatis (2012, 2014), and Blank (2014), include T3, which consists of indirect taxes. To impute how much of the indirect taxes should be allocated to labor, T3 is multiplied by the labor share. This alternative measure of the net social wage can be described as:

{NSW}_{2} = E 1 + E 2 * LS - T 1 - T 2 * LS - T 3 * LS

(3)

Maniatis (2014) found that some authors made cross-country comparisons of the net social wage without realizing that the data had been created using different methods. Comparing estimates of NSW₁ and NSW₂ is inappropriate, as subtracting a third category of taxes from the net social wage will always lead to a lower result. These comparisons led to the erroneous conclusion that the United States has a more generous welfare state than Canada, the United Kingdom, and New Zealand.⁸

The question of whether or not indirect taxes should be attributed to labor, and therefore included in estimates of the net social wage, touches on an important distinction between tax imposition and tax incidence. The question of tax imposition, or “on whom is the tax imposed,” can be answered by looking at business income statements and National Income and Product Account (NIPA) accounts. The question of tax incidence, or “who bears the tax,” is a long-standing debate in the public finance literature and requires a model based on a particular theoretical framework and set of assumptions.

Shaikh and Tonak argue that the question of indirect taxes and the net social wage should be thought of in terms of tax imposition. In the modern US context, part of variable capital—the cost to business of hiring workers for their labor-power—is divided into withheld taxes as well as employee and employer contributions to social insurance. The remaining amount of variable capital, less taxes, becomes disposable labor income. On the firm side, value added is divided into indirect business taxes (including sales taxes) and disposable profits (profits after taxes on profit, payments for rent, interest, dividends, and retained earnings).⁹

To answer the counterfactual of tax incidence, Shaikh and Tonak argue that one must consider the effect of an indirect tax on workers’ real wages. Based on the classical price theory advocated by Shaikh and Tonak, it should not be assumed that indirect taxes necessarily affect the price level, although they may affect relative prices. If an indirect tax is imposed by the state, workers’ real wages do not necessarily diminish. Instead, indirect business taxes are paid out of gross operating surplus and ultimately reduce surplus value. Reductions in surplus value may ultimately affect output, employment, and workers’ income. However, Shaikh and Tonak do not assume that the initial tax is passed on to consumers in higher prices or to workers as lower wages.¹⁰

Deciding upon an appropriate macroeconomic or microeconomic model to estimate tax incidence would change the approach of the net social wage method. The net social wage is an accounting exercise based in Marxian analytical categories, but does not include a formal model of the economy. While there is no federal consumption tax in the United States, indirect taxes contribute substantially to public revenue at the state and local level. This paper estimates both the NSW₁, based on Shaikh and Tonak’s original method, and the NSW₂, the net social wage, which includes indirect taxes, as used by Maniatis (2014), Blank (2014), and others.

2.2. Extended net social wage data series

Figure 1 shows that the NSW₁ follows the same pattern in Shaikh and Tonak’s series and the data presented in this paper (Tables 1 –3). The NSW₁ series presented in this paper differs slightly from Shaikh and Tonak’s series in the overlap years (1959–97).¹¹ The variation in the series is assumed to be the result of several revisions to the NIPA tables since Shaikh and Tonak’s data were constructed, including a comprehensive revision in 1999.¹²

Figure 1.

Comparison of the NSW₁/GDP and NSW_2/GDP, 1959–2012.

Table 1.

Comparison of summary statistics of US NSW/GDP Data, 1959–97.

Authors	Min.	Median	Mean	Max.
Shaikh and Tonak, NSW₁	−0.020	−0.002	−0.000	0.029
Moos, NSW₁	−0.020	0.005	0.004	0.032
Moos, NSW₂	−0.080	−0.044	−0.049	−0.023

Table 2.

Summary statistics of US NSW₁ data, 1959–2012.

Variable	Min.	Median	Mean	Max.
NSW₁	−28.99	29.77	168.3	1,198
Real NSW₁ (2010 dollars)	−119.3	68.02	186.7	1,198
NSW₁/GDP	−0.020	0.008	0.013	0.080
NSW₁/EC	−0.035	0.015	0.024	0.150

Table 3.

Summary statistics of US NSW₂ data, 1959–2012.

Variable	Min.	Median	Mean	Max.
NSW₂	−509.7	−115.1	−112.0	516.8
Real NSW₂ (2010 dollars)	−645.8	−322.7	−277.8	516.0
NSW₂/GDP	−0.080	−0.042	−0.038	0.034
NSW₂/EC	−0.140	−0.075	−0.068	0.064

Between 1959 and 2012, the average NSW₁/GDP and NSW₂/GDP ratio is 1.3 and −3.8 percent, respectively. After 2001, the NSW₁/GDP ratio is positive and at a high level for over a decade. The NSW₂ data follow the same pattern as the NSW₁ data, however it is significantly lower (between 4 percent and 5 percent of GDP) for every year of the series. While the NSW₂/GDP ratio produces lower results overall, the increase in the twenty-first century follows the same pattern.

To check for robustness, we re-estimate the net social wage using an alternative estimate of the labor share. As demonstrated by Atkinson, Piketty, and Saez (2011), since the 1970s, top earners in the United States have been earning a greater share of overall income. The labor share—which contains the earned incomes of the “working rich” as part of aggregate employee compensation—may no longer be appropriate for imputation. We reconstructed the net social wage using the “income share” created by Mohun (2016) which subtracts the wages of high-income earners and those who have supervisory roles from the aggregate income of the “working class.”¹³ This robustness check demonstrates that an alternative estimate of the share of total compensation going to workers does not change our observations about a major deviation in the net social wage data in this time period. (See Appendix 2 for results and analysis.)

Figure 2 shows that until 1990 total benefits (E1 + E2*LS) and total taxes (T1 + T2*LS) attributed to labor in the NSW₁ series were approximately equal, with only slight differences that added to minor positive or negative net social wage. During the early and mid-1990s, benefits were greater than taxes, although this gap was closed between 1998 and 2000. After 2001, the benefit of total labor benefits continued to rise, but the level of taxes attributed to labor fell. Figure 3 shows that from 1959 to 2008, total taxes attributed to labor (T1+T2*LS+T3*LS) using the NSW₂ method are greater than total labor benefits. In 2009 taxes dipped below benefit levels.

Figure 2.

Benefits and taxes in NSW₁ (current dollars).

Figure 3.

Benefits and taxes in NSW₂ (current dollars).

The differences in the NSW₁ and NSW₂ series can be understood by examining how the three categories of taxation have evolved over time (Figure 4). T1 shows greater variation after 2000, especially during recessionary periods. T2 and T3 show some variation but overall a steady stream of revenues.¹⁴

Figure 4.

Real revenue in billions (2010 dollars) by taxation type.

A positive net social wage does not necessarily imply redistribution from capital to labor, because the US government can run a budget deficit. Figure 5 shows the relationship between the Deficit/GDP, the NSW₁/GDP, and the NSW₂/GDP ratios. Between 1970 and 1997, the United States consistently ran a budget deficit. Only in 1960, 1968, 1969, and between 1998 and 2001 did the United States have a balanced budget or a surplus. This does not imply a causal relationship between social spending and the budget deficit. Costly wars have played a major role in US deficit spending. Furthermore, Social Security, the largest social spending program, is financed by employer and employee taxes and does not contribute to the budget deficit.

Figure 5.

Deficit/GDP and NSW₁/GDP and NSW₂/GDP, 1959–2012.

3. Growth Accounting and the Net Social Wage in the Early Twenty-First Century

We applied the growth accounting tool to the NSW₁ equation to decompose the contribution of each factor to the growth rate of the net social wage.¹⁵ Growth accounting is widely applied to macroeconomic issues, particularly in the economic growth literature.¹⁶ As a mathematical decomposition, growth accounting is a useful tool for understanding the growth of the net social wage.¹⁷

There are a number of limitations to the growth accounting method and its interpretation. First, the method does not inform us on the underlying processes behind the growth of each element, but rather reveals which components contribute to the growth rate (Romer 2012). This is a purely descriptive analysis that does not tell us about causality, the nature of the growth, the underlying mechanisms, or whether the growth of a particular variable is due to cyclical or structural changes. Second, we urge caution with our interpretation, based on year by year variation. Other analyses over long periods of time require average growth rate computations. Finally, the interpretation is made more complicated, as the net social wage identity includes both adding and subtracting terms in the equation. Applying a growth rate framework to the NSW₁ equation, we have:

\frac{N S W_{t} - N S W_{t - 1}}{N S W_{t - 1}} = [(\frac{E_{t} - E_{t - 1}}{E_{t - 1}}) * \frac{E_{t - 1}}{N S W_{t - 1}}] - [(\frac{T_{t} - T_{t - 1}}{T_{t - 1}}) * \frac{T_{t - 1}}{N S W_{t - 1}}]

(4)

In Equation (5) we disaggregated the NSW₁ by each component of E and T:

\begin{array}{l} \frac{N S W_{t} - N S W_{t - 1}}{N S W_{t - 1}} = [(\frac{E 1_{t} - E 1_{t - 1}}{E 1_{t - 1}}) * \frac{E 1_{t - 1}}{N S W_{t - 1}}] + [(\frac{E 2 L S_{t} - E 2 L S_{t - 1}}{E 2 L S_{t - 1}}) * \frac{E 2 L S_{t - 1}}{N S W_{t - 1}}] - \\ [(\frac{T 1_{t} - T 1_{t - 1}}{T 1_{t - 1}}) * \frac{T 1_{t - 1}}{N S W_{t - 1}}] - [(\frac{T 2 L S_{t} - T 2 L S_{t - 1}}{T 2 L S_{t - 1}}) * \frac{T 2 L S_{t - 1}}{N S W_{t - 1}}] \end{array}

(5)

In Equation (6) we computed the growth rates for components of the E1 that are of particular political and economic interest:

\frac{E 1_{t} - E 1_{t - 1}}{E 1_{t - 1}} = \sum_{i = 1}^{9} [(\frac{E 1 . i_{t} - E 1 . i_{t - 1}}{E 1 . i_{t - 1}}) * \frac{E 1 . i_{t - 1}}{E 1_{t - 1}}]

(6)

where E.1.1 to E.1.9 are Social Security; Medicare; Medicaid and CHIP; Supplemental Security Income; Unemployment Insurance; Food Programs; Refundable Tax Credits; Family, General, Energy Assistance; and “Other Programs,” respectively.

For the interpretation of the NSW₁ growth accounting exercise Equations (4) and (5), we have to consider not just the growth rates of the components but the weight they have on the total function.¹⁸ The multiplication of the weight and the growth rate of each term gives a proportional change in the function.

The last two columns in Table 4 show whether expenditures or taxation had a greater proportional contribution to the growth rate of NSW₁.¹⁹ The final column shows which component, E or T, is leading the growth rate of NSW₁. In seven of the years, occurring between 2001–4 and 2007–10, a change in expenditures proportionally contributed more to the growth of the NSW₁. In three of the years, 2004–5, 2010–11, and 2011–12, a change in taxes proportionally contributed more to the growth in the NSW₁. For one year, 2005–6, both E and T growth rates proportionally contributed nearly the same.

Table 4.

Growth accounting of NSW1 by main components, 2001–12.

Shares and Growth Rates of E and T on NSW₁								Component leading the NSW₁ growth rate
Year	E share	E growth rate	T share	T growth rate	E share*E growth rate (%)	T share*T growth rate (%)	Growth rate of NSW₁ (%)	Component leading the NSW₁ growth rate
2001	20.74		19.74
2002	5.91	0.08	4.91	−0.06	168	−111	280	E
2003	4.80	0.05	3.80	0.00	30	1	29	E
2004	4.77	0.06	3.77	0.05	27	21	6	E
2005	5.47	0.06	4.47	0.09	28	36	−8	T
2006	5.75	0.06	4.75	0.07	34	33	1	E
2007	5.94	0.06	4.94	0.07	36	33	3	E
2008	4.31	0.07	3.31	−0.01	44	−4	48	E
2009	2.75	0.09	1.75	−0.10	40	−32	72	E
2010	2.64	0.05	1.64	0.02	12	4	9	E
2011	2.78	0.00	1.78	0.03	−1	4	−5	T
2012	2.94	0.02	1.94	0.05	5	9	−4	T

During an economic recession, the growth of the net social wage is affected by both the increase in income support going to workers, E1, and reduced revenue from federal, state, and local taxes, T2. In 2001–2, growth in expenditures and a reduction in taxes were nearly equal. Similarly, in 2008–9, there was a sizeable growth in E1, as well as a significant decrease in T2*LS. (See Appendix 3 for results of the growth accounting exercise to Equation 5 presented in a table.)

In half of the years in our series, E1 is the component that proportionally contributed the most to the growth rate of NSW₁ (Table 5 and Figure 6).²⁰ In 2002, the 9.38 percent growth rate of E1 largely comprised spending on Social Security, Medicare, Medicaid, and Unemployment Insurance (UI), whereas growth in spending on food programs, refundable tax credits, and other public assistance programs contributed relatively little. In 2003, 2004, and 2005, increased spending on Social Security, Medicare, and Medicaid were the largest contributors to the E1 growth rate. In 2004, there was also a reduction in UI claims. In 2006, there was greater growth in Medicare spending than other programs, and a small decrease in the growth of spending on Medicaid. This is likely the result of changes to Medicare Part D.²¹ In 2007, we see the greatest growth rates in Social Security and Medicare spending. In 2008, we see the largest growth in spending on food programs for low-income people, which implies that these programs responded to increased economic hardship at the beginning of the financial crisis. In 2009, we see the largest growth in UI, but also significant growth in spending on Social Security. Large-scale unemployment caused many workers to claim UI, and may have also prompted older workers to claim Social Security benefits before reaching the full retirement age. In 2010, growth in refundable tax credits is the largest contributor to the growth rate, which implies that there were more workers claiming tax credits associated with low-wage jobs. Growth in 2011 and 2012 of Social Security and Medicare can be attributed to the fact that the eldest Baby Boomers (those born in 1945) were eligible to claim benefits. Reduction in UI (a negative growth rate of this component) in 2011 and 2012 could be caused either by workers getting jobs or by “running out” of UI benefits.

Table 5.

Contribution of E1 components to NSW₁ growth rate, 2001–12.

Year	Social Security (%)	Medicare (%)	Medicaid and CHIP (%)	Supplemental Security Income (%)	Unemployment Insurance (%)	Food Programs (%)	Refundable tax credits (%)	Family, Gen., Energy Assistance (%)	Other (%)	Growth rate of E1 (%)
2002	1.79	1.36	1.96	0.12	1.77	0.24	0.51	0.07	1.57	9.38
2003	1.24	1.31	1.16	0.07	−0.02	0.19	0.42	0.18	0.83	5.39
2004	1.56	1.97	1.86	0.10	−1.19	0.57	0.25	0.12	0.65	5.88
2005	1.83	1.87	1.01	0.08	−0.31	−0.06	0.49	0.32	1.01	6.24
2006	1.98	4.23	−0.25	0.10	−0.09	0.01	0.15	0.00	1.18	7.31
2007	1.86	1.76	1.51	0.14	0.14	0.09	0.18	0.12	−0.08	5.71
2008	1.66	1.89	0.83	0.11	1.03	2.09	0.15	0.19	0.64	8.58
2009	3.03	1.63	1.63	0.18	4.11	0.36	0.53	0.22	1.09	12.78
2010	1.17	0.87	1.24	0.07	0.35	−0.03	1.30	0.11	0.87	5.95
2011	0.99	1.00	0.36	0.05	−1.34	−0.56	0.11	−0.04	−0.02	0.56
2012	2.09	1.02	0.49	0.09	−1.00	−0.07	−0.67	0.00	0.06	2.00

Figure 6.

Growth rates proportional to NSW₁ by components of expenditures Type 1.

4. The Net Social Wage and the Business Cycle

Figure 7 demonstrates that the inflation adjusted net social wage (2010 constant dollars) was relatively stable from 1959 to 1990, with increases during recessionary periods (National Bureau of Economic Research (NBER) recessions marked by shaded areas). Despite expansions in the welfare state during the Great Society years of the late 1960s and 1970s, the net social wage did not increase significantly until the recession following the 1973 oil shock. The 1980s mark a downward trajectory for the net social wage, which then rises steadily during the short recession that lasted from July 1990 through March 1991. The early and mid-1990s experienced a sustained higher level of the net social wage, which then decreased after 1996. The recession in 2001 increased the net social wage to a hitherto unseen level. The upward trend of the net social wage became much more extreme at the beginning of the crisis in 2007. While the net social wage appears to be on a slight downward trajectory from its peak in 2010, it was at an historically high level by 2012.

Figure 7.

US real NSW₁ and real NSW₂ (2010 dollars), 1959–2012.

The net social wage is a countercyclical variable, as spending on automatic stabilizers increases and tax revenues decrease during and after an economic crisis. However, the high levels of NSW₁ in the twenty-first century were truly unprecedented. It is particularly interesting that the net social wage did not go back down during 2002–6, as it had following other recessions. The US economy has experienced a number of recessionary periods that did not result in such a prolonged deviation between spending and taxation.

One plausible explanation for the major deviation starting in 2008 is that the Great Recession was unlike other periods of economic crisis in the data series. The severity of the Great Recession, in terms of the decline in investment and employment and the long duration of the crisis, may help explain why the net social wage increased substantially during this era.

Examining the NSW₁/GDP ratio in the context of the unemployment rate illuminates the relationship between a contraction in economic activity and the increase in the net social wage in the early twenty-first century. Shaikh and Tonak observed that during the period 1952–97, net social wage “variations are substantially driven by variations in the rate of unemployment” (Shaikh and Tonak 2000: 255). Blank (2014) came to a similar conclusion, that the increase in the NSW₂ in the twenty-first century was the result of the 2001 recession and the 2008 financial crisis (35). There is certainly a close relationship between the net social wage and the unemployment rate. However, as we can see from Figure 8, this relationship is not consistent throughout the period of study. In 1983 and 2010, the unemployment level reached a high of 9.6 percent, however, the same unemployment rate was accompanied by NSW₁/GDP ratios of 1.7 percent and 8 percent, respectively. This snapshot suggests that the net social wage is not driven solely by the unemployment level, as Shaikh and Tonak (2000) and Blank (2014) suggest.

Figure 8.

Unemployment rate and NSW₁/GDP, 1959–2012.

Shaikh (2013) constructed a measure of “unemployment intensity” to capture the effect of unemployment on the long-term unemployed.²² Unemployment intensity is the product of the unemployment rate and an index of unemployment duration (Shaikh 2013: 14). Such a measure can help us understand the cyclical nature of the net social wage. Figure 9 plots the rate of unemployment intensity and the traditional unemployment rate. During the Great Recession, there was an unprecedented level of unemployment intensity. In 1983 and 2010, the official unemployment rate was 9.6 percent, but there was a much higher net social wage in 2010. This may be because in 1983 the level of unemployment intensity was 18.95 percent, whereas in 2010 it was 31.46 percent (see Table 6).

Figure 9.

Unemployment rate and unemployment intensity rate, 1959–2012.

Table 6.

Unemployment rates and intensity: comparison of 1983 and 2010.

Year	1983	2010
Official unemployment rate	9.6	9.6
Unemployment intensity	18.95	31.46
Deficit/GDP	5.7	8.6
NSW₁/GDP	1.7	8.0
NSW₂/GDP	−3.1	3.4

The American Recovery and Reinvestment Act of 2009 (ARRA) amounted to $831 billion in spending and tax cuts that expanded social programs for low- and middle-income Americans, as well as creating new government spending and jobs (Congressional Budget Office 2012). The ARRA included increases in transfer programs such as UI, SNAP/Food Stamps, Temporary Aid to Needy Families, tax cuts and refundable tax credits, infrastructure projects, and fiscal transfers to state and local governments (Thompson and Smeeding 2013: 4). We certainly observe the effects of ARRA deficit spending in the growth of the net social wage after 2010.

Expansionary fiscal and monetary policy helped the economy recover. By July 2009, the NBER declared the Great Recession over (Papadimitriou, Hannsgen, and Zezza 2011: 4). However, the expansion of output growth without correspondingly high rates of employment has led to a “jobless recovery” (Schmitt-Grohé and Uribe 2017; Papadimitriou, Hannsgen, and Zezza 2011). In December 2010, employment still lagged below trend by 19 million jobs, or 8 percent. Furthermore, the Bureau of Labor Statistics found that approximately 1 million people had become discouraged from looking for a job even though they still wanted to work, and another 5 percent of the workforce was involuntarily working part-time while searching for full-time employment (Papadimitriou, Hannsgen, and Zezza 2011: 5–6). Even after the Great Recession was considered to be over, millions of people were still unable to find jobs (Thompson and Smeeding 2013: 2). The fact that the Great Recession “ended” without satisfactory job growth affected the net social wage in 2011 and 2012.

5. Structural and Secular Changes in US Social Spending and Taxation

The results of the growth accounting exercise in Section 3 suggest that for many years in the twenty-first century, E1, income support programs that are allocated entirely to labor, was a major driver of the growth rate in the net social wage.

5.1 Income support for older and low-income households

In the United States, workers’ incomes are not supported universally. The most significant sources of income support go to seniors, low-income households, and people with disabilities.

Figure 10 shows that spending on Social Security and Medicare as a percentage of GDP has risen over this time period. As the two largest social programs in the United States, spending on Social Security and Medicare are significant benefits to workers, particularly as they age. Importantly, spending on Social Security as a percentage of GDP has stabilized in recent decades, while spending on Medicare has continued to grow.

Figure 10.

Social Security/GDP and Medicare/GDP.

As life expectancy increases, the older population grows, and so will spending for older populations. In 2011, the eldest of the Baby Boomer cohort reached retirement age. However, it is not clear that the positive net social wage can be wholly attributed to demographic factors, as the deviation that we are trying to explain began nearly a decade before the Baby Boomer cohort became eligible for Social Security or Medicare.

Figure 11 shows that the three major sources of income support for low-income households—the Supplemental Nutrition Assistance Program (SNAP, formerly known as Food Stamps), refundable tax credits (includes the Earned Income Tax Credit (EITC) and the refundable Child Tax Credit), and Medicaid—have steadily increased as a share of GDP since the mid-1960s and 1970s when the programs were created, expanded, and modernized.

Figure 11.

Major low-income programs/GDP.

The most dramatic growth in social spending on income support occurred between 1990 and 1995, when spending for the three largest income support programs went from 1.5 percent of GDP to nearly 2.5 percent of GDP. This was due to the expansions of refundable tax credits and Medicaid spending during that period. Figure 11 shows that the growth of refundable tax credits and SNAP are dwarfed in comparison to the growth of Medicaid spending. The establishment of the Children’s Health Insurance Program (CHIP) in 1997 expanded federal funds to states for low-income children’s health insurance coverage.

5.2 Tax expenditures

Redistribution through tax expenditures became increasingly popular in the neoliberal era. Tax expenditures, which include exclusions, exemptions, deductions, credits, and deferrals, play an important role in welfare provision and redistributive policy in the United States. As discussed by Howard (1997), indirect financing through tax expenditures contributes significantly to public spending in the United States. Steinmo (2010) emphasizes that, contrary to how they are treated by the government or understood by recipients, tax expenditures are social spending and contribute to “an extensive and expensive” welfare state in the United States (159).

While the Economic Growth and Tax Relief and Reconciliation Act of 2001 (EGTRRA) is often associated with its reductions in capital gains, estate, and gift taxes for the wealthy, it also reduced income taxes for nearly all wage brackets and created tax incentives for savings for retirement and education. It also increased the child tax credit from $500 to $1,000 (Hungerford and Thiess 2013). Together with the Jobs and Growth Tax Relief Reconciliation Act of 2003, EGTRRA lowered marginal tax rates for all income brackets. President Obama’s Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, and the partial extension of the American Taxpayer Relief Act of 2012, continued the vast majority of these tax cuts for high-income and wealthy Americans (Huang 2013: 1). These tax cuts reduced tax revenue for the US government, and contributed to the positive net social wage.

Refundable tax credits are popular with critics of traditional transfer programs for incentivizing work, and with anti-poverty advocates for being a significant source of income support for the working poor. The EITC was expanded first in 1986, and then again in the 1990s, when many other anti-poverty programs were being defunded.

5.3 Healthcare spending

While the United States is an outlier among advanced industrialized countries for not having universal health insurance, the US government continues to be a major provider of health insurance for the US population. In fact, in 2011, Medicare and Medicaid covered 15 percent and 12 percent of the US population, respectively. Furthermore, in 2011, public spending accounted for 48 percent of total health spending (Thomson et al. 2013).

The increase in spending on Medicare and Medicaid is due to rising healthcare costs in the United States. From 2000 to 2010, the increase of total health expenditures was 6.6 percent per year on average, which exceeded annual GDP growth (Holahan et al. 2011: 1). While spending on healthcare overall decreased during the Great Recession, healthcare costs remain high in the United States relative to other countries (Squires and Anderson 2015: 11).

The high cost of American healthcare is due to a number of factors, including the high administrative costs associated with the US healthcare system; the fee-for-service model, which is believed to encourage more tests and treatments; the lack of price transparency; and the fact that the US government fails to regulate prices effectively. The increase in costs for US healthcare is also thought to be due to Baumol’s cost disease, which refers to rising costs as a result of increased labor costs in sectors that have not experienced labor productivity gains. The results in Bates and Santerre (2013), which studies healthcare costs in all fifty states, suggest that Baumol’s cost disease has led to increased costs in US healthcare.

To assess whether or not high healthcare costs, and in particular healthcare inflation, artificially increased the value of the real net social wage, we conducted the following robustness check. We computed healthcare adjusted real net social wage estimates for both NSW₁ and NSW₂. Spending on healthcare consists of payments for Medicare and Medicaid, which are part of E1 and Health (funding for clinics and hospitals) in E2. Rather than deflate all expenditures and taxation with the consumer price index (CPI), as was done for the conventional estimate of the real net social wage, we deflated health spending by the personal consumption expenditures (PCE) price index—an index of healthcare inflation prepared by the Bureau of Economic Analysis—and the rest of the components of both expenditures and taxes using the general CPI (see Appendix 4 for further discussion of methodology).

Figures 12 and 13 show that adjusting for healthcare costs explains some of the increase in the real net social wage. In fact, when healthcare spending is deflated to 1959 prices with the PCE, and all other costs are deflated with the CPI, the healthcare adjusted real net social wage is lower. In the case of the healthcare adjusted real NSW₂, the positive net social wage nearly disappears. However, this exercise does not change the pattern of an increasing net social wage in the twenty-first century.

Figure 12.

Real NSW₁ and health-adjusted real NSW₁ (1959 dollars).

Figure 13.

Real NSW₂ and health-adjusted real NSW₂ (1959 dollars).

Changes to health law in the twenty-first century also played a major role in the increase in public spending for health insurance. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which became effective on January 1, 2006, increased prescription drug coverage for seniors but did not negotiate drug prices. This increased the costs of prescription drugs and increased both private and Medicare spending on medications.

The Patient Protection and American Affordable Care Act (ACA) of 2010 reformed the healthcare system. In addition to the controversial individual mandate, the ACA included numerous other reforms, such as increased spending on primary care for Medicare and Medicaid enrollees, expansions in Medicaid, subsidies for low- and middle-income people purchasing insurance, the establishment of state-based insurance markets or “exchanges,” tax credits for small businesses, and increased federal spending on health centers for low-income and uninsured populations. The ACA also made it illegal to deny coverage based on pre-existing medical conditions (Thomson et al. 2013: 131).

6. Discussion: Managing the Neoliberal Economy

The data presented in this paper describe the ex post incidence of fiscal policy in the United States. Much of the positive net social wage is being driven by growth in income support spending, particularly on Social Security, healthcare, and tax expenditures. While the effect of the Great Recession and the response of deficit spending are observable following 2008, the upward trend in the net social wage began as early as 2002. How can we explain these observed patterns despite the fact that the United States has not had a structural break from the main ideological tenets of neoliberalism?

We can understand the positive net social wage by better examining the role that the state plays in managing labor in the neoliberal economy. In The State, Capital and Economic Policy, de Brunhoff (1978) argues that in any capitalist system, the state must manage labor as a means of preserving the functioning of the labor market (19). According to de Brunhoff (1978), economic policy is designed to preserve the wage-labor relationship through three distinct yet overlapping aims: work discipline, insecurity of employment, and maintaining a cheap supply of excess labor (13).

Work discipline and insecurity of employment are consistent with policies that undermine labor’s strength relative to capital; however, maintaining a cheap supply of excess labor is more ambiguous. On the one hand, the state is responsible for ensuring that workers depend on wages. But the state is also responsible for making sure that the working class is able to survive as a readily available supply of workers. This means that policy must also ensure that workers are able to socially reproduce themselves in a daily and generational sense. As de Brunhoff writes:

[state policy-making] cannot be based upon the principles of either charity or equality. Whether they function as poor relief or as welfare, these institutions serve to minimise, or relocate, “the specifically proletarian risk”, constituted by the uncertain condition of the commodity labour-power; they are unable to eliminate it. (1978: 19)

We can interpret US redistributive policy as an effort to “minimize or relocate” some of the effects of the neoliberal capitalist labor market on households and workers. The reason we see an increased net social wage in the twenty-first century is that the effects of neoliberalism—economic instability and insecurity for workers—have become more pronounced.

The role of the Great Recession in terms of severe economic hardship felt by millions of Americans, as well as the major fiscal stimulus of Obama’s ARRA, cannot be ignored. The state is responsible for stabilizing class relations and mitigating the effects of an unstable economy. Since the economy has become more volatile in the neoliberal era due to deregulation and financialization, the state has had to shoulder the burden of supporting the unemployed and underemployed. Such social programs will “grow and contract as a function of relations of social power… particularly [in response to] the effects of mass unemployment upon the social order” (de Brunhoff 1978: 27). Due to the structure and design of automatic stabilizers, and the increased political and economic pressure of unemployment and underemployment, the state cannot avoid redistributive or counter-cyclical policies during times of economic recession. A positive net social wage in the twenty-first century suggests that the burden of the recessionary period is being felt more strongly by the underpaid, underemployed, unemployed, and discouraged workers whose collective earnings—and the tax revenue those earnings generate—have fallen behind the pace of growth in social spending and automatic stabilizers.

Another important feature of the US economy in the late 1990s and early twenty-first century is the expansion of low-wage jobs. In this era, the United States departed from European and other advanced capitalist nations with respect to job quality. US neoliberal ideology and policy have worked to promote employment, regardless of how low paying or low quality the jobs may be. Neoliberal fiscal policy is used to incentivize low-wage jobs through the increase of in-work benefits (tax expenditures) and the decrease of cash transfers not tied to work (such as welfare).²³ US fiscal policy incentivizes taking low-wage jobs, as most workers cannot access the social wage without work (Gautié and Schmitt 2010: 170). Refundable tax credits such as the EITC, which contributed to the growth rate of the NSW₁ in 2010, subsidize low-wage jobs for both employee and employer. By design they are supposed to “activate” workers who would be, per neoclassical theory, unwilling to work for a low wage otherwise.²⁴

The expansion of low-wage work and the decrease in labor’s strength relative to capital has led to the stagnation of real wages, which has increased working poverty. This is the result of both social policy and attacks on the welfare state, as well as trade liberalization and deregulation that lead to outsourcing. Low pay has led workers to seek public assistance.²⁵ In terms of social policy, ushering former welfare recipients into paid employment was discussed politically as a means to reduce “dependency” on the state.²⁶ The implicit claim is that as wage earners, workers are self-reliant and do not need the state to take care of them. However, the reality of wage-labor, especially in the context of low-wage work, is more nuanced. As argued by de Brunhoff (1978), by paying wages, capitalists “absolve themselves of responsibility for the upkeep of the workers” (13). The expectation is that workers will use their wages to pay for housing, food, and other needs. However, if wages are inadequate to provide for a household’s consumption, then there is a need for the state to supplement workers’ wages. This is observable in the net social wage data with the increase in spending on food programs in 2008.

It is important to remember that middle-class workers are also major beneficiaries of state redistribution, especially tax expenditures. Just as workers in low-wage jobs require subsidies to make ends meet, the middle class is also reliant on social benefits and reduced taxation to maintain its standard of living in the twenty-first century. This is most obvious when observing credits for childcare, homeownership, or retirement saving. These types of consumption and savings behavior are being subsidized by the state, presumably because there is political will to incentivize these economic activities. But it also raises the question of the extent to which these tax policies are necessary in order to maintain middle-class workers’ standards of living, given the deterioration of real wages and the erosion of employer-based benefits.

Whether policy redistributes income to the poorest workers or to the middle class, wages are being subsidized by the state. In the words of de Brunhoff (1978), “Whatever its form and mode of operation, the main task of the state’s management of labour-power is to assume responsibility for the part of its value which capitalists do not directly remunerate” (19). We can interpret the positive net social wage in the twenty-first century as evidence of the state protecting workers from the true effect of neoliberalism. The state is using fiscal policy to accommodate the low level of wages and employer-based benefits that have resulted from neoliberalism, for low- and middle-income earners alike. This interpretation suggests that the level of degradation of the situation of workers is limited by socially, historically, and politically determined levels of subsistence, as well as by capital’s needs for an employable and productive labor force.

In addition to straining public finances, there are political and economic consequences of neoliberal redistributive policy. The fact that workers on different ends of the income distribution benefit from state redistribution is not always obvious, because much of state spending is “hidden” in the tax code (Howard 1997). Many of the beneficiaries of fiscal policy, in particular middle-income workers, do not realize that they receive the bulk of fiscal transfers as tax benefits. According to Steinmo (2010), the consequences of tax expenditures rather than universal social programs means that “middle-class Americans increasingly feel that government spends money on ‘other people’ even when the majority of public spending goes directly toward benefits for the middle class” (154). There is insufficient public support to stop additional attacks on labor rights and the welfare state. US fiscal policy undermines solidarity among workers, curtailing class-consciousness and labor’s potential to organize across the income distribution.

In the neoliberal era, the state has enabled the erosion of labor incomes, benefits, and worker protections.²⁷ From the point of view of the capitalist class, this fiscal policy mix will reduce the wage bill and increase profitability. On the other hand, capital’s squeeze on labor necessitates state intervention. The net social wage data demonstrate that the neoliberal fiscal policy mix is not less expensive for the state, but actually requires greater redistribution to labor. From the perspective of the fiscal budget, it can be costlier to increase tax subsidies for workers while decreasing subsidies for non-waged social reproduction.

The high price of the neoliberal fiscal policy mix is in many ways analogous to the effect of US healthcare on increasing the positive net social wage. Just as the state has had to redistribute more to workers due to the dynamics of the neoliberal labor market, which it enables through both policy action and inaction, the state has had to bear the consequences of a dysfunctional healthcare system, of which high healthcare costs are a symptom. As a major provider of health insurance in the United States, the US government pays for a significant share of total US healthcare spending. These high costs are largely the result of the US government’s failure to provide a single-payer healthcare system and regulate drug prices to control healthcare costs.

7. Conclusion

This paper has examined the net incidence of fiscal transfers between workers and the state in the United States, from 1959 to 2012. We have found a deviation in the net social wage data which suggests that there may have been more redistribution to workers in the early twenty-first century than in the second half of the twentieth century.

Rather than asking if the state has shifted income from capital to labor, this paper has raised the question of whether the responsibility to provide adequate labor income and benefits has shifted from capital to the state. This contradicts the supposed ideology of the neoliberal era—that workers should support themselves with their earnings rather than rely on subsidies from the state—but reflects the reality that, for many US workers, wages and employer-based benefits are inadequate.

Rather than view the welfare state solely as a distributional benefit to labor at the expense of capital, this paper posits that subsidies to labor are also subsidies to capital. Precisely because the state can have a budget deficit, the welfare state is not a zero-sum game. Furthermore, theorists such as Milton Friedman have influenced neoliberal state policy-making, creating and recreating transfer programs such as the negative income tax as a substitute for good jobs and as a salve for the pain caused by distributional losses in the workplace.²⁸

Earlier net social wage studies of the NSW₁, as well as more recent studies that focus on the NSW₂, take it for granted that the United States has a backward welfare state without meaningful redistribution toward labor. The claim that the US welfare state is a “myth” falsely implies that labor’s social reproduction will occur regardless of how much workers are squeezed by capital (Shaikh and Tonak 1987).

Although there is a broad consensus that US policy has become increasingly hostile to workers, social scientists have grappled with the observation that the neoliberal era did not bring a full retrenchment of the US welfare state (Hacker 2004; Pierson 1996; Steinmo 2010).²⁹ While reforms do not amount to “radical retrenchment,” policy change has contributed to the “increasingly incomplete protection against the key social risks that Americans confront” (Hacker 2004: 243). Nevertheless, the actual reduction in spending on social programs was less extreme than expected (Pierson 1996: 150).

The data presented in this paper help us understand why there would be a change in the net social wage in the twenty-first century. The increase in the net social wage in the twenty-first century should be interpreted as the result of cyclical and structural threats to social reproduction, including prolonged joblessness, high healthcare costs, and degradation in the quality of work. Harman (2008) is correct to argue that:

Capitalism can no more do without the state today than it could in the Keynesian period… Indeed, states have intervened more to deal with crises since the 1970s than in the 1960s and 1950s for the simple reason that the crises have been much more severe. (2008: 10)

While advocates of a strong welfare state might prefer that workers receive more in benefits than they pay in taxes, this paper argues that the existence of a positive US net social wage is evidence of the decline in conditions for the working class, not improvement. While unintuitive, a modest or zero net social wage may actually indicate a better economic and political context for US workers than high net social wage levels.

A political-economic context in which workers are able to secure good jobs and benefits in a stable and prosperous economy, which briefly existed in the United States in the mid-twentieth century, would likely lead to reductions in the level of the net social wage. The return of labor market institutions and state-managed capitalism, which granted some US workers the ability to secure good jobs in the mid-twentieth century, would likely herald the return of a zero or negative net social wage. However, the continued degradation of working standards will create the need for further state redistribution to labor to make up for inadequate incomes and benefits.

The need for a robust US welfare state is as important now as ever. But policy solutions that enable capital to skirt the responsibility of providing adequate income and benefits for labor’s social reproduction are short-term solutions with long-term consequences. As academics and activists consider policy proposals, particularly negative income taxes or income transfer programs favored by technocratic or financial capitalists, we would be wise to view policies as having not just an effect on the distribution of income between capital and labor, but also on the distribution of responsibility for labor’s social reproduction between capital and the state.

Supplemental Material

RRPE-17-0110_RESUBMISSION_APPENDIX1 – Supplemental material for Neoliberal Redistributive Policy: The US Net Social Wage in the Early Twenty-First Century

Supplemental material, RRPE-17-0110_RESUBMISSION_APPENDIX1 for Neoliberal Redistributive Policy: The US Net Social Wage in the Early Twenty-First Century by Katherine A. Moos in Review of Radical Political Economics

Footnotes

Acknowledgements

The author gratefully acknowledges Anamary Maqueira Linares for excellent research assistance, and the UMass Department of Economics and the Political Economy Research Institute (PERI) for funding her research assistantship. Comments from three RRPE referees—Erdogan Bakir, Thanasis Maniatis, and Susan K. Schroeder—were much appreciated. In addition, the author would like to thank Michael Ash, Robin Chang, Duncan Foley, Jerry Friedman, David Kotz, Clara Mattei, Jamee K. Moudud, Hao Qi, Sanjay Ruparelia, Anwar Shaikh, Mark Setterfield, E. Ahmet Tonak, and Noé M. Wiener for helpful feedback. The usual disclaimer applies.

Declaration of Conflicting Interests

The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author received no financial support for the research, authorship, and/or publication of this article.

Supplemental Material

Supplemental material for this article is available online.

1

Many studies that have surveyed the net social wage in the United States and other advanced industrialized countries have found that on average, labor pays for its own benefits, and sometimes pays more in taxes than it receives in benefits (Akram-Lodhi 1996; ; Freeman 1991; Miller 1989; Maniatis 2003; 2012; 2014; Maniatis and Passas 2018; Reveley 2006; Shaikh and Tonak 1987; Sepehri and Chernomas 1992; and Tonak 1987). A number of other papers and theses have employed the net social wage methodology. For PhD dissertations, see Bakker 1986; Fazeli 2012; Maniatis 1992; Moos 2017; Tonak 1984; for an undergraduate honors thesis, see Blank 2014.

2

This leads to the conclusion that, “In effect, workers paid for their own social benefits” (: 542).

3

To explain the increase in expenditures from the 1960s to the 1980s, Harman cites political push-back from workers and labor organizations, political considerations (in particular the desire of politicians to get reelected), and the need to reproduce labor-power (: 25).

4

Social reproduction refers to the process in which labor-power is reproduced and replenished in a daily and generational sense (Bhattacharya 2017). Labor’s social reproduction is made possible by purchasing necessary goods with earned income, employer-based benefits for health insurance and pensions, unwaged household labor or unpaid “care work,” and state spending on human needs including healthcare, education, food, housing, pensions, etc. See Quick (1977, 2004, ) for an analysis on social reproduction, with emphasis on household production, within RRPE.

5

The debate between the “citizen wage” and the “net social wage” is a case in point. Bowles and Ginitis (1982) argue that the accumulation crises in the United States and other advanced industrialized countries were the result of distributional gains made by labor, in particular a rising “citizen wage” that squeezed capitalists’ profits. Rather than being completely vulnerable when unemployed, as the “classical proletariat” was, workers in the United States, they argued, could access the means of subsistence without selling their own labor-power. Their work aims to explain internal contradictions in “liberal democratic capitalism,” drawing on important insights in Marx regarding the primacy of capital accumulation and class struggle over the total product. The net social wage approach shows that it is essential to also consider the effect of labor taxation. The net social wage in the second half of the twentieth century was within narrow bounds of positive or negative 3 percent of GDP. For this reason, argues that because the net social wage was so small relative to the size of the economy, social programs cannot be legitimately blamed for poor growth or other deleterious macroeconomic effects (547).

6

For a recent analysis of SRT and radical political economics, see Cohen (2018). See for a feminist radical political economy analysis of the role of the state in social provisioning and the reproduction and transformation of social relations.

7

The labor share (LS) is employee compensation/total personal income.

8

He finds that Sepehri and Chernomas (1992); Akram-Lodhi (1996); and Reveley (2006) incorrectly claim to be replicating the methodology in .

9

Personal email communication between E. Ahmet Tonak and the author, September 8, 2018. Tonak’s comments relayed earlier communication with Anwar Shaikh, also of September 2018.

10

Personal email communication between E. Ahmet Tonak and the author, September 8, 2018. Tonak’s comments relayed earlier communication with Anwar Shaikh, also of September 2018.

11

Shaikh and Tonak (2000) consider the net social wage/employee compensation ratio (NSW/EC). This paper mainly uses the NSW/GDP ratio, which is constructed using the same methodology and can be found in Shaikh (2003). NSW₁/EC and NSW₂/EC are included in Tables 2 and .

12

See “A Guide to the NIPAs.” .

13

These data, as well as detailed documentation on how the data were constructed, are available on Simon Mohun’s homepage: .

14

contains totals for T2 and T3 (adjusted for inflation), but not multiplied by the labor share.

15

Due to limitations with this method, we looked primarily at the NSW₁ during the twenty-first century. Attempting to find the rate of growth of a negative net social wage poses a number of technical and conceptual problems, because the negative net social wage is the denominator of . Attempts to resolve this difficulty mathematically were unreliable and unsatisfactory. In particular, the mathematical results of an estimated growth rate of a negative net social wage did not have logical or intuitive interpretations. For that reason, we do not include a growth accounting exercise on the NSW₂, nor on years before 2001.

16

The typical objective is to decompose the economic growth rate into contributions of different factors, mainly capital, labor, and productivity. The vast majority of the applications assume a particular production function and estimate the contribution of the different factors ().

17

In a critique of the neoclassical aggregate production function and its estimation, shows that the “well-behaved” aggregate neoclassical production function and its decomposition can work under very restrictive assumptions and conditions (462). Using an identity—as exists in NIPA data—in a growth-accounting exercise does not imply any specification of distribution or production relations.

18

This is because the growth rate of an additive function is a weighted average of the rates of growth of the components of the function.

19

These are not direct contributions because terms are not added to each other, but subtracted.

20

In our analysis of E1 we can interpret the decomposition as contributions to each component to the growth of NSW₁, because E1 contains only additive terms.

21

This policy was changed as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, but was not implemented until 2006. It resulted in increased Medicare drug spending and reduced Medicaid drugs spending (: 19).

22

A number of alternative measures to the official unemployment rate estimate a much higher level of joblessness and underemployment (see ).

23

The expansion of low-wage jobs took place in the same era that the US government cut funding and eliminated programs for low-income households and individuals, including the socially reproductive activities of low-income, single mothers. The proletarianization of women, in particular single mothers, was both a cause and an effect of changes in social spending and the expansion of low-wage work. Older Americans could also be a population that could be further proletarianized by cutting social wages for seniors.

24

In fact, much of the empirical literature on the effect of the EITC is about understanding its effect on labor supply for low-wage jobs. See for a discussion of the post-1986 and later reforms of the EITC and its effect on labor supply.

25

According to Jacobs et al. (2016), 34 percent of frontline manufacturing production workers in the United States live in households accessing at least one social safety net program. They estimate that this amounted to $10.2 billion per year between 2009 and 2013. The cost of public benefits for frontline fast food workers was estimated at nearly $7 billion a year, as 52 percent of fast food workers are enrolled in one or more social safety net programs ().

26

See .

27

Starting in the 1980s, a number of significant legal changes favored business over labor and undermined workers’ wages, protections, collective bargaining, and employer-based benefits. The legal attacks were made on two important levels. One was the disciplining of labor through anti-labor legislation. The second included legal changes to employer-based benefits, such as the 1974 Employee Retirement Income Security Act, which changed pension and health insurance structure. The result was lower rates of employer-based health insurance and pension coverage. Not surprisingly, such anti-labor policies decreased rates of unionization significantly, amounted to “a major privatization of risk,” and lowered real wages (: 253–5).

28

Friedman’s negative income tax inspired the refundable EITC as well as some proposals for a universal basic income.

29

There are several theories as to why welfare state retrenchment was not more severe during this time period. One theory is that interest groups emerged as a result of the targeting of social programs to specific populations that defend their own benefits (Hacker 2004: 245; : 147). Another argument is that instead of cutting programs outright, public policy erodes the welfare state by failing to improve or modernize programs, and local implementation and policies are put in place that undermine program access (Hacker 2004: 256). Another argument is that, despite political rhetoric, the welfare state does not necessarily drive away investment, and therefore completely cutting the social wage is not necessary, nor always helpful, to restoring profitability (Pierson 1996: 149).

Author biography

Katherine A. Moos is Assistant Professor in the Department of Economics at the University of Massachusetts Amherst and an Economist with the Political Economy Research Institute (PERI). Her research interests include feminist political economy and the welfare state.

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