Courtesy Reuters

Inequality and the Safety Net

By Almaz Zelleke

In “The Next Safety Net” (July/ August 2015), Nicolas Colin and Bruno Palier correctly identify the increasing incompatibility between twentieth-century social welfare systems and twenty-first-century employment patterns. They predict a future in which the majority of workers will have precarious, short-term, low-paying jobs and in which social benefits tied to an outdated occupational model will fail to meet their needs.

As a solution, they favor Danish-style “flexicurity”—comprehensive social provisions decoupled from employment, together with labor-market deregulation. Flexicurity allows firms to make business-driven hiring and firing decisions against a background of government-financed benefits and worker retraining programs. In the new economy, flexicurity would have obvious advantages. But Colin and Palier fail to subject flexicurity to the same criteria by which they dismiss other types of safety nets, such as a guaranteed basic income, an option that they should take more seriously.

They write, for example, that a basic income is “extremely expensive and insufficient” and that governments are ill equipped to compete with the private sector in job creation. That may be the case, but flexicurity is not cheap or entirely reliant on private-sector job creation, either. The tax burden in Denmark is the highest among the countries of the Organization for Economic Cooperation and Development, at almost 50 percent of GDP. And its public-sector employment accounts for a third of its labor force, compared with the OECD average of under 20 percent. None of this should come as a surprise: governments must provide social services directly or pay for them indirectly if they are guaranteed to all citizens, and that is expensive.

The real challenge of building a welfare state for the twenty-first century will be developing a collective commitment to the provision of economic security. The mid-twentieth century, for example, featured a commitment to the redistribution of market gains through progressive tax regimes, the social welfare state, and strong labor-market protections. Yet that commitment began to falter in the 1970s.

If it were once again possible to commit to a redistributive tax regime, however, different states would likely experiment with a range of social safety nets tailored to their cultures and economies. If some states, such as Denmark, are willing to redistribute 50 percent of their GDP for flexicurity, others might well choose to devote the same level of funding to establishing a basic income. Economic security can take the form of subsidies for basic services, or in cash, or as a mixture of both. Whatever the approach, however, it would require increasing taxes on the wealthy to be sustainable.

The idea of a basic income thus lays bare the redistribution that will have to be at the heart of any reckoning with rising economic inequality and insecurity.

ALMAZ ZELLEKE Visiting Assistant Professor, NYU Shanghai