Home > Uncategorized > Out of the shadow of Speenhamland

Out of the shadow of Speenhamland

From David Ruccio

In the midst of continuing massive unemployment (while ending supplementary unemployment insurance benefits) and poverty (while cutting the food-stamps program), there seems to be a new consensus emerging: that higher minimum wages and Earned Income Tax Credits are complementary programs to help the working poor.*

But wait: isn’t it the case that the EITC program—in contrast to a higher minimum wage—actually offers a giant subsidy to employers and has the effect of lowering workers’ wages, in addition to compelling poor people to work in order to receive any kind of relief at all?

For anyone who’s read Karl Polanyi’s Great Transformation, the current debate conjures up the image of Speenhamland and the perverse effects of a set of locally administered guaranteed minimum income schemes that lasted from 1795 to 1834. (Or, alternatively, anyone familiar with chapter 24 of volume 1 of Capital might remember Marx’s description: “At the end of the 18th and during the first ten years of the 19th century, the English farmers and landlords enforced the absolute minimum of wage, by paying the agricultural labourers less than the minimum in the form of wages, and the remainder in the shape of parochial relief.”) Much more recently, Fred Block and Margaret Somers [pdf] did a terrific job describing the history of the Speenhamland story (including its role in Richard Nixon’s exploration of a Family Assistance Plan), challenging the perversity myth (the decline in rural incomes had much more to do with England’s decision to restore the prewar value of the pound in relation to gold than the patchwork of poor relief), and drawing the contemporary lesson:

it is time to reject the ideological claim that the best way to fight poverty is by imposing increasingly stringent conditions on ever shrinking transfer payments to poor households.

As it turns out, the EITC may turn out to be a much better fit for the perversity story than Speenhamland. Jesse Rothstein [pdf], for example, has argued that the EITC program induces an increase in labor supply that may drive wages down, shifting the intended transfer toward employers.

In all of the scenarios that I consider, a substantial portion of the intended transfer to low income single mothers is captured by employers through reduced wages. The transfer to employers is borne in part by low skill workers who are not themselves eligible for the EITC and are therefore made strictly worse off by its existence.

Given the ability of employers to capture “a substantial portion of the intended transfer,” perhaps it is no wonder that attention is being directed toward EITC and thus away from programs that would directly help the working poor: a higher minimum wage and a universal guaranteed annual income.

*This is the view shared by, among others, Arindrajit Dube, Laura Tyson, Jared Bernstein, and David Neumark.

  1. chdwr
    December 14, 2013 at 5:16 pm

    Economics and the money system both need to be fully integrated with humanity and with the internal goals, intentions and needs of humanity which include individual freedom. This cannot be accomplished without having a Distributive paradigm for the money system which reflects the actual level of wealth of a country. This would guarantee a mentally satisfactory level of purchasing power…without the necessity to work for pay…at all. This would prevent wage extortion/minimalization by businesses and hence the Speenhamland effect. Having such a Distributive character to the money system would in no way prevent profit, free enterprise, private property etc. or the erosion of purchasing power for individuals and profit for businesses …..if it also included a price discounting mechanism which guaranteed the rebating of such discounts back to participating merchants. Then the level of consumption would be fully in the self determined control of the individual, and with the increasing acceleration of innovation/technological efficiency, we could and would be completely both individually and commercially free to progress toward virtual economic freedom.

    Finance is a perfectly normal business model, but it cannot be allowed to dominate or dictate policy…as now. The Distributive financial/monetary paradigm is hence essential.

  2. December 14, 2013 at 6:00 pm

    With the continual advances in technology the need for relatively low skilled well paid labor is diminished. If the only way for most people to earn an income is by way of selling their labor,
    an ever increasing number will have to accept less pay in order to stay competitive with machines.
    This is an unacceptable paradigm in a humane society and there has to be a paradigm shift towards the idea that every person is a shareholder in collective societal wealth and therefore has a right to a shareholder’s dividend. This would establish a universal guaranteed
    annual income.
    For more ideas along these lines, google “Social Credit”

  3. henry1941
    December 14, 2013 at 7:24 pm

    One should be very careful of referring to subsidies to employers when PAYE and NI kick in at such a low threshold. The incidence of labour related taxes is on the employer, in the first instance. Employer subsidies simply compensate for the tax paid.

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