Oren M. Levin-Waldman discusses his most recent article: “Under a Veil of Ignorance We Would Choose More Labor Market Institutions” on Wednesday, July 18, 2018th at 10am EDT on the Westchester On the Level radio broadcast. Listen “Live” or “On Demand”. Use the following hyperlink — http://tobtr.com/s/10882601 to listen to this segment from 10:00-11am. To participate, simply call 347-205-9201. Please note that the hyperlink code is only activated within 5 minutes prior to the start of the day’s broadcast.
Under a Veil of Ignorance We Would Choose More Labor Market Institutions By Oren M. Levin-Waldman
With the march of technology, wages of those at the bottom—those without skills are falling— while the wages of those at the top have—those with specific skills— have been rising. The standard refrain from the neoclassical model is that wage inequality is due largely to an oversupply of low-skilled workers. For the neoclassical model, the answer is clear: education and training will enable low skilled workers to obtain the necessary skills to command higher wages in the next tier of jobs.
For institutional economists who see nothing natural about the standard supply and demand curve, but view the employee and employer relationship as one of asymmetrical power, the answer is also clear: strengthen labor market institutions like unions and the minimum wage that have traditionally bolstered wages. Of course, one could plug the institutional model into the standard model. Instead of skills being that which raise wages, it is now power.
All of this raises an interesting question: If there really is nothing natural about market forces, then why not allow citizens to choose the economic principles by which they would like to live by? In his magisterial work, A Theory of Justice, John Rawls asked us to consider life under a veil of ignorance. Under this veil, we are ignorant of our resources and our natural endowments. That is, we don’t know what talents and abilities we have, nor do we know what talents and abilities others have.
Under this veil of ignorance we also don’t know whether we might be born into disadvantaged circumstances or into great comfort in which case we will have great wealth. Applied to the marketplace, we don’t know whether we have the ability to be a rocket scientist or whether we might only wind up as a low skilled worker. Now all of a sudden the neoclassical retort of getting more training and education does not sound so good. After all, we don’t know that we are capable of learning the necessary skills to command higher wages. Of course, we also don’t know that the employers that we would bargain as equals with, as the neoclassical model suggests, would actually bargain in good faith.
What we do know, however, is that there is great inequality and that labor market institutions can make the difference between liveable and starvation wages. Might one under the veil choose a set of economic arrangements that could be said to be fair? Note, we are not saying that individuals would necessarily choose a set of arrangements that would redistribute property and make us all equal along the lines of some Marxist utopia.
As a matter of fairness, individuals in the absence of knowing whether they could wind up at the very top of the distribution or the bottom, would be inclined to choose a set of arrangements that ensure fairness in society. Therefore, if labor market institutions, while not ensuring full equality, will ensure a slightly more equitable income distribution, they might opt for them. In other words, the neoclassical model in principle sounds good if you can be reasonably sure that you are likely to be among those at the top of the distribution. But if you don’t know, choosing that model could harm your interests, which under the veil you are still unaware of.
What, then, is the point of this veil of ignorance? To imagine ourselves in the circumstances in which we are not accustomed to. Consider that most of us do not see ourselves living the lives of low-skilled workers who are powerless in today’s global economy. Rawls argues that under the veil of ignorance we would naturally choose principles of justice that result in the priority of the right over the good and justice as fairness. By priority of right he means a set of procedures that ensure our rights will not be subject to the whims of the masses. Already this might suggest a blueprint for limited government. But this is tempered by the justice as fairness principle.
What, then, is Rawls saying? Among the principles he puts forth, which clearly plays into justice as fairness, is the idea that government can infringe on one’s liberty or regulate if it is for the benefit of the least advantaged members of society. Or it is to make the least advantaged members better off. This would even suggest that the wealthy could be overtaxed in order to pay for programs to assist those who are the least advantaged members of society.
Now we can take this application a bit further. The neoclassical model in is assumption that workers are the equals of their employers when it comes to bargaining and negotiation, is certainly one that affords both greater liberty. But the disadvantage the worker in the real world is at only threatens her freedom. Labor market institutions that empower workers and enable them to receive liveable wages would certainly be an example of measures intended to assist the least advantaged members of the labor market, who are our poorly paid and unskilled workers.
If we are selecting principles of economic justice, then this could be taken further. To assist the least fortunate members of the labor market, there is a need to beef up labor protections and afford workers more rights. The real power to bargain would come if workers didn’t have to worry about health insurance. Universal insurance along the lines of a single-payer system would also be consistent with justice as fairness because it would eliminate a key avenue for the employer exercising control over his workers. Rawls would have argued for more expenditures for education and training, as they too could benefit the least advantaged members of the community.
The problem with this is that these are limited if individuals possess unequal natural endowments. We have to assume that were we as a society to imagine ourselves under a veil of ignorance we would choose a set of principles that ensured that all those wanting to work could earn liveable wages. That means they would want a set of institutions that address the asymmetrical power imbalance between workers and their employers. They would not choose a set of arrangements that gave employers unfettered property rights masquerading as personal liberty.
In their desire to have a more fair economy, they would opt for arrangements that would slow down rising income inequality because that would be key to maintaining the middle class. As rising income inequality signifies the disappearance of the middle class, measures, such as a more equitable income distribution due to strengthened labor market institutions would go a long way to preserving the middle. Or perhaps we could state this in Rawlsian terms: under a veil of ignorance, not knowing where they could end up individuals would opt for a set of arrangements that make it more likely they will be in the middle.
Restoring the Middle Class through Wage / Oren M. Levin-Waldman / Palgrave MacMillan
This book makes the case for minimum wage as a way to improve well-being of middle-income workers, reduce income inequality, and enhance democracy….
Minimum Wage: A Reference Handbook / ABC – CLIO
The Minimum Wage: A Reference Handbook By Oren M. Levin-Waldman. As of 2014, the minimum wage in Seattle is $15 an hour — double the federal minimum wage.
“Wage Policy, Income Distribution, and Democratic Theory” By Oren M. Levin-Waldman
Oren M. Levin-Waldman, 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 email@example.com