A quote from Martin Luther King. You’d be hard pressed to find someone in politics who disagrees with it, mostly because it reflects a commonly held truth. That is why the GOP often points out with concern the marked drop in the percentage of Americans in the labor force; honest work provides individuals with dignity. And this past weekend, Speaker Paul Ryan echoed Dr. King in his weekly radio address, speaking about giving people a hand up, not a hand out. That includes getting people back into the workforce, rather than sitting idly by in economic malaise.
President Obama must have heard Republican calls, as he used his radio address to pitch an idea tweaking the unemployment system. The goal would be to incentivize people into taking jobs paying less than their prior ones.
That may be a worthwhile objective. After all, everyone claims they do not want government programs to disincentivize working. But the White House’s proposal does not go far enough. Our unemployment system, like Social Security, the tax code, and numerous other programs, is built for an early 20th-century industrial society. That is not the economy we live in today; it is time to do things better.
We are in the midst of an entrepreneurship infatuation boom. From Shark Tank to Greenlight Maine, capital competitions are popular entertainment. We celebrate local success stories, like WEX, IDEXX, and others. But smaller businesses are hot and growing as well. Yet, especially in the so-called “creative” industries, many of the people working in those businesses are not employees, but contractors. They don’t get coverage from unemployment. Neither are they subject to the new minimum wage in Portland nor are they receiving employer-provided health insurance under the Affordable Care Act.
Meanwhile, we are seeing a concurrent rise in the “gig” economy. Take Uber. Drivers choose when to work and provide their own vehicles; the app connects them to their customers for a fee. In many ways, they mirror Maine lobstermen, who own their vessels and have dealers who bring their product to market. We could consider their sternmen, who are not employees under federal law but rather classified as self-employed. Or others, such as farmers and loggers, who work the land as a profession and live off whatever earnings they make.
Very few of these contractors, self-employed business owners, and entrepreneurs would be helped by the tweaks the president proposes, nor are they helped by the unemployment system as presently constituted. It creates disincentives, where those out of work avoid participating in the new economy — gig work — to protect a government benefit. And that is to say nothing of those unethical people who work for cash and underreport their income to skate on taxes or collect welfare benefits.
In many ways, the existing system provides the worst of both worlds. Employees are pushed toward traditional employment relationships because government programs have artificially changed the risk calculus — the “unemployment” safety net gets pulled away if you dare do something different. Meanwhile, the businesses that are supposed to create the traditional jobs are continually whacked with countless regulations, from the ACA to innumerable licensing and permitting requirements. It becomes a continual challenge to grow, reward personnel, and provide value to customers. Perversely, this gives the vilified “big business” an advantage, as larger organizations have the scale to absorb the increased regulatory burdens.
There are two ways to correct this. First would be to eliminate government-run unemployment insurance, making it a private insurance policy like life insurance or short-term disability. That certainly is a market-driven ideal, with as much likelihood of occurring as Trump getting Mexico to pay for a wall or Sanders passing his too-good-to-be-true health plan and having it work as promised.
The second is reform of the unemployment program. But to do it correctly, it should be done comprehensively. That would require reconsidering several sacred political cows — Social Security, capital gains tax rates, unemployment, among others — in a thorough overhaul of social programs and the tax code. The lodestar of this reform should be incentivizing work agnostically, treating self-employment, entrepreneurship, or work as a traditional employee equally. It could consolidate countless cash-distributing programs while eliminating double-taxation and marriage penalties.
The third option is to do nothing. And that will take us all the way to the scene of the crash. The gordian knot of benefit programs, an incoherent tax code, and convoluted regulatory system will remain tied until someone provides the leadership to cut it. Hopefully someone will step forward to do so — maybe it’s Paul Ryan, maybe it is someone else.
But whoever it is, let’s hope they come forward soon and help get people back to work. After all, in the words of President Reagan, sharing the sentiment of Dr. King, “the best social program is a job.”