The Collective Valuation of Unpaid and Underpaid Work^‡

Keith Rankin is a political economist and economic historian.

Much, perhaps most, unpaid work is not directly consumed as subsistence product by the unpaid worker. Rather, unpaid labour is gifted with an expectation of eventually sharing in the benefits made possible by such gifts. This is particularly true of the unpaid labour of underpaid workers. Such workers may agree to work for low wages if that leads to investment rather than consumption, creating economic growth, a larger tax base, a larger social wage, and a larger retirement income. This paper focuses not on quantifying unpaid work but on its resourcing and on payments such as pensions and social dividends that serve as a collective means of supporting unpaid contributions.

Non­subsistence unpaid work includes the entire voluntary sector. It also includes "relatives assisting" a family business or an employed family member. And it includes direct contributions to the public domain, be it via cultural activity, writing, political activism, or contributing to the Internet. Also, unpaid work includes preparation for paid work, such as participation in education and training, time spent seeking employment, and even time served as part of an unemployed "reserve army of labour". In the latter case, one's social contribution is to participate in the labour market, keeping wages incrementally lower than they otherwise would be.

Underpaid work includes three main types: working hard for low wages, working overtime for no pay (as many salaried workers do), and the self­exploitation that is often characteristic of self­employment. In the former case, low wages are exploitative when they contribute to "super­normal" profits for employers or consumer surpluses for the well­paid.

Exploitation arises from particular socio­economic environments. For example, the environment created by the 1991 Employment Contracts Act has led to many instances of people working harder than before for no more pay than before. Another exploitative environment was that of "Tomorrow's Schools" - the term used for the education reforms of the late 1980s. The reforms required the unpaid contributions of Boards of Trustees, as well as significant unpaid overtime on the part of school principals. In general, any worker in an occupation characterised by surplus labour will receive an exploitative market wage; will be an underpaid worker.

A final form of unfunded contribution is represented by social benefits that economists call "external economies". Economic activity generates a variety of social or external benefits as well as social or external costs. External economies are both intended and unintended by­products of funded activities. Social byproduct from paid activities is not essentially different from the social product of the voluntary sector. Both can be subjected to social audit. Some economic environments create many social benefits and few social costs; eg high trust environments. Some other environments have the opposite tendency. Environments that value unpaid contributions tend to be environments characterised by beneficial external economies. Firms in such environments are socially responsible, seeking to behave in socially optimal ways in addition to being profitable.

The market economy is an interaction of two domains; private and public (Heilbroner and Milberg 1995, pp.106­108). Private activity is located within public environments, consuming public domain inputs and producing public domain outputs. Public domain inputs are valued through general taxation. Public domain outputs should be valued so that they can be shared equitably and transparently. They can be regarded as an economic return on unpaid contributions (unpaid and underpaid work) past and present.

Various forms of social accounting value the public domain. I have advocated a system of "social wage accounting" (Rankin 1996, 1997) which treats income tax as a production tax, and attributes a social wage to each tax resident "citizen" of a country. The social wage is simply an equal division of the "social wage fund"; a concept close to that of "public revenue". Following this approach, we can say that all public expenditure is social wage funded. That means public spending is equally funded by all of us, and is not appropriated as personal taxes from paid workers. Figure 1 shows the idea of the social wage as a large subset of GDP.

The treatment of income tax as a production tax is important in two ways. It serves as a collective means of charging producers for the use of otherwise free public domain inputs, and it suggests that the public share of GDP is larger than it appears to be under present public accounting conventions.

Other useful accounting concepts are those of "social auditing" (eg Pearce 1996) whereby any enterprise, but especially enterprises fully or partly in the voluntary sector, seek to explicitly account for their social outputs. Social outputs are the primary achievements of voluntary enterprises, and important by­products of market­sector firms. They result from unfunded or partially funded work. Social auditing is a useful means of adding texture to the public domain which is treated in broad macroeconomic terms by social wage accounting.

Another useful valuing concept is that of "trust accounting". Tim Hazledine (see Ansley 1997) uses the useful metaphor of a table to represent the public domain. The pure market model assumes that people will grab for themselves anything that is on the table ("free­riding") unless stopped from doing so by an infrastructure of managers, monitors and police. And the pure market model assumes that we will not put anything on the table unless we are paid to do so. This market model is seen by sociological economists as a misrepresentation of human nature¹. For them, the social domain is central to the reality of capitalist economies. An undervaluation of unpaid contributions and of the social wage that derives from them paints a stunted economistic vision of capitalism.

A public pension serves to value past contributions to the public domain. Income taxes represent employers' payments for public domain resources, not employees' public domain contributions. After­tax wages represent remuneration for paid workers' private contributions. The social wage represents a return on all workers' public contributions, whether those contributions are made by persons not in the labour force, by underpaid persons in the labour force, or by well­paid persons producing a social byproduct in addition to the work they are paid for. A system of public pensions thus becomes a means by which part of each person's social wage today is saved by being spent by the government on the social investment goods that generate productivity growth, and on pensions for today's retired. We can think of health­care for the elderly in exactly the same way, as a product of social investment.

Income taxes represent payments by firms for the use of public domain resources. So it does not follow that well­paid work which generates high taxes should be additionally rewarded through a contributory pension system. In the environment created by the 1991 Employment Contracts Act, perhaps a majority of paid workers are working harder than in the past, but for lower real wages. The incidence of underpaid work has increased since 1991. Conversely, those executives and shareholders who have benefited from lower real product wages can be said to be increasingly overpaid. As a generalisation, it seems that, in the 1990s, the social contribution of the well­paid has fallen as their gross incomes have risen, while the social contribution of the poorly­paid has risen as their gross incomes have fallen. If this is so, then there is a clear basis for poorly­paid persons to receive higher public pensions on retirement than well­paid persons. A public pension, considered as a recognition of past public contributions, should be generous but not fully universal.

So far, I have allocated the social wage fund to social investment, to public pensions, and to the health care of the elderly. The largest areas of allocation, however, are those public goods that benefit the entire population (eg health care, defence, conservation) and a cash safety net. These allocations should be universal, equal for all except where children as legally dependent minors must be treated differently. We would expect children's social wages to focus more on social investment, and less on cash benefits.

The best kind of income support safety net takes effect automatically - ie without bureaucratic gatekeeping - and without discouraging public or private contributions to the economy. Such a system is called, among other names, a universal basic income (UBI) system. A UBI system is both a universal payment, the UBI, and a guaranteed minimum income (GMI). The GMI represents a UBI plus a supplementary basic income (SBI), as is shown in Figure 1.

The UBI is a social dividend that can be regarded as the most direct form of personal income generated by the public domain; an income that can be expressed as an exact share of each adult's social wage. Social dividends are paid at present, but they are hidden within the tax scales, as tax concessions. The 1998 tax cuts, which involve a reduction of one of the concessionary rates of income tax, bring about a growth dividend of nearly $1,200 (Rankin 1997) for all persons grossing $38,000 or more²; and a lesser growth dividend to persons grossing less. A growth dividend is simply an addition to a social dividend.

Properly specified, a UBI is the same for all adults, rich or poor. We can create a UBI by bringing all social dividend entitlements up to the level presently received by the well­paid. The principle is that of "horizontal equity"; treating equals equally. As citizens, we are equal. We get one vote each when elections are held. Equalising social dividends - ie creating a universal basic income - is the economic equivalent of removing the plural voting privileges that existed in the nineteenth century.

Figure 2 shows total benefits in a simple UBI system. A simple UBI sufficiently high to make the SBI redundant is called a "full UBI". In this example of a simple UBI system, a UBI of $8,000 per annum is funded by a flat rate income tax (ie a production tax) of 40%.

The 40% tax represents 40% of "GDP at factor cost". In New Zealand at present, GDP at factor cost is about $85 billion. 40% of that is $34 billion. Adding other sources of public revenue such as GST gives a social wage fund in of about $50 billion, which is half of New Zealand's total GDP ("GDP at market prices"). The cost of the UBI comes to $22 billion, about 43% of the social wage fund. All other social wage expenditure, including pensions and social investment, comes from the remainder of the social wage fund. The social wage attributed to each New Zealander - adult and child - comes to $14,000. Thus a UBI of $8,000 represents 57% of each adult's social wage.

Figure 3 represents the alternative form of UBI system; a form that uses the principle of "vertical equity" to underpin supplementary basic incomes. Vertical equity means treating unequals unequally. This means that caregivers, sole­parents, unemployed persons, disabled persons, retired persons, students - for example - are regarded as having different needs from each other. In this form of UBI system, such persons would receive a means­tested SBI in addition to their UBI. The amount paid would vary with persons' circumstances; for example a disabled retired sole parent would receive a high SBI. SBI entitlements would abate at a constant non­punitive rate as private incomes rise. Means­tested public pensions would come under the SBI rubric.

Variations are possible. There is no reason why means­tested supplementary payments cannot exist alongside universal supplementary benefits. Thus, a universal public pension - an "age dividend" - could be treated as a top­up to the UBI instead of as a form of SBI. And we could return to a universal family benefit, whereby part of each child's social wage would be paid as a top­up to their caregiver's UBI. This would be, in effect, a child's UBI, albeit set at a lower amount than the adult UBI.

In Figure 3, three­quarters of the budget of Figure 2 is allocated to the UBI, freeing $5.4 billion for supplementary payments. Under such a budget - ie given no increases in taxation or decreases in other public spending - provision for fully universal family benefits and pensions would reduce the amount of negative equity in the system, giving less support to low income households than if all supplementary payments were abated with rising private income.

The final emphasis that social wage accounting brings to the valuing of unpaid work is the explicit recognition of child­raising as a public domain activity. While the family is of course a private institution, families' outputs, in particular children, constitute gifts to society.

As an "investment good" children are a public good, not a private good. This was not always so. In non­welfare societies - ie societies lacking a modern social wage - parents needed their own children to provide for them in old age. Children are a private investment good in societies where the family is seen as the main welfare institution. Such societies have higher fertility rates and, as a result of the absence of a social wage, higher mortality rates.

Children do not contribute to the public domain as children, so we cannot regard a child's social wage as a recognition of their work. I prefer to regard their social wage attribution as an acknowledgment of their citizenship, of their collective rights to our social inheritance, and as an investment in tomorrow's public domain.

Children's social wages should be regarded as social investment, because children are investments. The portion of the social wage fund attributed to children forms a basis for (but not a limit to) all public expenditure in support of children. Such expenditure can include such items as schooling, children's health, pre­school childcare, parental leave to care for infant children, family benefits. Investing in children is a crucial component of the intergenerational social­contract; a contract that makes today's children willing and able to make generous contributions to the public domain of the future, enabling a continuance of social dividends, public pensions, and investment in our children's children.

In summary, our economic system works through the interplay of its private and public domains. As social beings, we have an innate motivation to contribute to the public domain through unpaid work, through accepting wages that do not reflect the full value of our work, and through unfunded social by­products of our paid work. And, as social beings, we have no innate tendency to abuse an economic system in which free public goods play a large part. Our trust dissipates however, when we are not trusted, or when we observe inequitable allocations of public income, especially when those with the greatest private incomes also get the greatest shares of the social wage. A productive capitalist economy requires a vibrant public domain; an economic domain, sensitive to trust, that is built by "social man" not "economic man".

A universal basic income system arises naturally from simple social wage accounting principles. A UBI system is flexible enough to be able to treat citizens both equally as equals and unequally as unequals. It is able to provide generous means­tested pensions, guaranteed minimum incomes to adults and to families, and a basic income that serves as an automatic income safety net. Furthermore, the social wage concept acknowledges socially based payments as earned income rather than as transfers or "hand­outs". Social wages are an entitlement, resulting from our collective ownership of our unpaid contributions, our social inheritance and our natural environment. A UBI system is the most transparent and equitable way of distributing our social wage fund and facilitating our investment in our children.

Notes

¹ One seminal work which emphasises "social man" over "economic man" is Polanyi (1944). [return]

² Seen as "growth dividends" by the NZ Reserve Bank Governor (Brash 1996, p.16) and others. As presently constructed they amount to increased welfare payments targeted to the well-paid. Indications are that the Shipley/Peters government plans to further target the well-paid and the overpaid through further unequal growth dividends. Such targeting of social payments conflicts with the requirements of both horizontal and vertical equity, and implicitly assumes that those who get paid most also make the biggest contributions to the public domain. [return]

References

Ansley, Bruce (1997) "Trust Accounting", NZ Listener, 29 November.

Brash, Donald (1996) New Zealand's Remarkable Reforms; 1996 Hayek Lecture, IEA Occasional Paper 100, London.

Heilbroner, Robert & William Milberg (1995) The Crisis of Vision in Modern Economic Thought, New York: Cambridge University Press.

Pearce, John (1996) Measuring Social Wealth; a Study of Social Audit Practice for Community and Cooperative Enterprises, UK: New Economics Foundation.

Polanyi, Karl (1957 [1944]) The Great Transformation, Boston: Beacon Press.

Rankin, Keith (1996) "The Standard Tax Credit and the Social Wage: existing means to a Universal Basic Income", Policy Discussion Paper 20, Department of Economics, University of Auckland.

Rankin, Keith(1997a) "Social Wage Tax Credits: a path to a Universal Basic Income", paper presented to the Beyond Poverty Conference, Massey University, Albany, 14-16 March 1997; Proceedings published by the Auckland Peoples Centre, PO Box 3813 Auckland, ed. Mike O'Brien and Celia Briar, Massey University.

Rankin, Keith (1997b) "A New Fiscal Contract? Constructing a Universal Basic Income and a Social Wage", Social Policy Journal, 9: 55-65; November 1997.

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