BEYOND FLEXICURITY

If UBI won’t solve the disruption caused by our current economic model, what will? Economists and many policy makers like the Danish model of “flexicurity.” It allows for full labor market flexibility, meaning people can be laid off quite easily whenever they aren’t needed anymore, but the laid off are subsidized so they do not suffer much of an economic loss, and there is a concerted effort by the government to get the worker back into employment (perhaps after meaningful retraining).

This is consistent with the economist’s basic reflex: we should let the market do its job and insure people who end up holding the short end of the stick. In the long run, preventing reallocation of labor from shrinking sectors to growing ones is both impractical and costly. For many people in the economy, particularly the younger worker, any help to seriously retrain is valuable. We saw earlier that the TAA program worked.

Nonetheless, we don’t think that flexicurity is the entire answer. This is because of what we already discussed; job loss is clearly much more than income loss. It is all too often about being yanked from a settled life plan and a particular vision of the good life. In particular, older people and those who have worked in a particular location or for a particular firm for many years probably find it more difficult to switch to another career.

This is why at the end of chapter 3 we proposed the somewhat radical idea that some workers should be subsidized to stay in place. When a whole sector is disrupted by trade or by technology, the wages of the older workers could be partly or fully subsidized. Such a policy should only be triggered when a particular industry in an area is in decline, and reserved for older employees (above fifty or fifty-five) with at least ten (or eight or twelve) years of experience in a comparable position.

Economists are instinctively critical of opening up such a large space for governmental discretion. How will the government know what the declining industries are?

We don’t doubt there will be some errors and some abuse. However, this has been the excuse for not intervening all these years when trade has been robbing people of their livings while claiming to make everyone better off. If we want to claim trade is good for everyone, we need to design mechanisms to make it actually so, and those will involve identifying losers and compensating them. In fact, trade economists (including those in government) have the numbers to know where imports are growing fast and where outsourcing is growing apace; the round of tariffs imposed by the United States in 2018 were computed from this data. A trade war risks hurting a lot of other people in the economy, whereas a much more targeted subsidy would protect the most vulnerable groups without creating new forms of disruption. A similar policy for identifying sectors and locations where automation is happening fastest, and intervening, could also be put together.

Prominent urban economists, like Moretti, are suspicious of place-based policies because they worry the policy will just end up redistributing activity from one region to the other, and possibly away from the most productive regions to less productive regions.

In a sense, this is what Europe has done with its Common Agricultural Policy. Economists hate it, because a dwindling number of European farmers have gotten a great deal as a result of subsidies at the expense of everyone else. But they forget that by preventing many of the farms from shutting down, it has kept the countryside in many European countries much more verdant and vibrant. In the past, since farmers were paid more to produce more, they had a tendency to intensify agriculture, giving rise to large ugly fields. But since 2005–2006, the amount of assistance given to farmers has not been linked to production. It is based instead on environmental protection and animal welfare. The result is that small artisanal farms are able to survive, and from them we get high-quality produce and pretty landscapes. This is something most Europeans probably think is worth preserving and certainly contributes to the quality of their lives and the sense of what it is to be a European. Would French GDP be higher if agricultural production were more concentrated and farmhouses were replaced by warehouses? Possibly. Would welfare be higher? Probably not.

The analogy between protecting manufacturing employment in the United States and protecting nature in France may seem strange. But pretty countrysides attract tourists and keep young people around to take care of their aging parents. Similarly, the company town can ensure there is a high school, some sports teams, a main street with a few shops, and a sense of belonging somewhere. This is also the environment, something we all enjoy, and society should be ready to pay for it, just as it is willing to pay for trees.