How Social Insurance Narrows the “Opportunity Gap”

The Fiscal Times
Job Crisis Persists As Wage Gap Threatens Economy
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Job Crisis Persists As Wage Gap Threatens Economy

The justification for social insurance programs that protect workers is usually based upon the fact that employment in capitalist economies is subject to substantial variation due to cyclical fluctuations and structural change. Economic systems such as socialism have much less variation in employment since everyone, pretty much, is guaranteed a job. But the growth rate of output in those systems is not as high as it is in capitalist economies, and that leads to a lower average standard of living. 

Why not enjoy the benefits of a capitalist system while minimizing its costs through the use of social insurance programs that insulate workers from harm when they lose their jobs for one of these reasons? After all, it’s not the workers fault that the economy faltered, a new and better product was discovered, or jobs moved to another country, so why should they be forced to pay the costs all by themselves? Shouldn’t the costs of a capitalist system be distributed across all of those who benefit from it, and perhaps even fall most heavily on those who benefit the most? 

Related: How Income Inequality Can Hurt the Economy

We don’t do enough to insulate workers from the fluctuations in employment inherent in capitalist economies. We seem to be afraid that helping the unlucky workers who lose their jobs through no fault of their own will somehow destroy their willingness to work. But there is little evidence that providing adequate assistance undermines the willingness of the unemployed to return to the workforce. 

In deep recessions such as the one we just went through workers may not be able to find employment – the ratio of job seekers to available jobs was as high as 7 to 1 during the recession – and many workers become discouraged and drop out of the labor force after their unemployment benefits end. It might seem as though they are taking the benefits without any intention of actually finding a job. But when decent jobs exist workers are more than willing to take them. 

Doing more to help workers affected by economic downturns and structural change is not the only way in which social insurance could be improved. There other risks, in particular the risk of unequal opportunity, that are baked into capitalist systems. 

One of the biggest sources of inequality of opportunity is inequality in income and wealth. Some degree of inequality is needed in capitalist systems to give people the incentive to work hard, to innovate, and take the risks of entrepreneurship. But income and wealth inequality translates into inequality in opportunity. If someone is born into a family at the lower end of the distribution of income and wealth, the opportunities that child will have in life are much more limited than they are for the children of more affluent households. 

Related: Inequality in Capitalist Systems Is Not Inevitable

Children don’t choose to be born into situations where society limits their chances in life, it’s not their fault. We should do much more to make education accessible to all rather than a source of huge debts for those whose parents cannot afford to pay the high tuition rates that many public colleges now charge. 

We should also do much more to make sure that the health needs of the less fortunate are fully addressed. Poor health, especially for children, can limit the opportunities individuals have in life. It should not be the case that being born poor results in healthcare options that are inferior to the options those with greater means can afford. Obamacare is a start, but much more is needed. 

Lack of adequate social insurance also limits the opportunities for entrepreneurship for those at the middle and bottom of the income distribution. How many more people would leave a job they hate and open their own business if they didn’t have to worry about losing health care coverage when leaving a job, or worry about putting their children’s college education at risk, losing retirement savings, or being unable to feed their families if the business doesn’t work out? 

Related: Brookings Study Downplays Income Inequality Gap 

The wealthy will always have an advantage when it comes to being able to fund a new venture and still have plenty left over in the event the venture fails. But social insurance programs that limit the health, education, retirement and other risks that potential entrepreneurs and their families face would narrow the entrepreneurial opportunity gap. 

Rising inequality appears to be a feature of capitalist systems. We can debate whether rising inequality is an inherent part of capitalist systems, or man-made due to excessive economic and political power that tilts the system in favor of the few at the top. But when governments stand by and do nothing rising income and wealth inequality – and the increase in opportunity inequality that comes with it – appears to be a common feature of capitalist economies around the world. 

Those opposed to using income redistribution to solve the problems associated with inequality often argue that we shouldn’t worry about unequal outcomes so long as the playing field gives everyone an equal opportunity.  But income and wealth inequality go hand in hand with inequality in opportunity, and some degree of redistribution will be required to provide the resources needed to enhance social insurance and address the opportunity gap. 

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