Tuesday, May 26, 2015

The economics of democratic communism: employer of last resort

As I recall, Brad DeLong guesses* that about 30 percent of total labor is required to produce the necessities of life for all individuals in the United States: food, clothing, shelter, clean water, electricity, communications and media, basic medical care, transportation, etc. These are things that few ordinary people would choose to forego. We'll double that to include public goods. Assuming a 40 hour full time work week (which is, in most cases, the most efficient amount of time a person can work), that means that everyone must work 60 percent of 40 hours, or 24 hours per week.

*On his blog somewhere.
**People can forego some of these necessities, and we should probably find ways to accommodate such people, but I want to deal here with the ordinary case.

The fundamental basis of labor in democratic communism is that the government acts as the employer of last resort (EoLR, also employment of last resort). The government will hire everyone who asks for a job, at a guaranteed wage. We take the price level of necessities for an individual for a week, divide by 12 (30 percent of 40 hours required to produce his or her necessities), and that's the hourly wage. We take 50% for income taxes, so each person* must work for 24 hours per week to support him- or herself. A person is thus required to work at least 24 hours per week, and is entitled to work up to 40 hours per week. Thus an individual may present him- or herself to the government, and the government will give them between 24 and 40 hours of work every week, at the individual's choice.

*Other than the retired and completely disabled.

EoLR sets an effective minimum wage. Worker-owned private cooperatives are free to pay less than this minimum wage, if they can, but an individual can always get a job at this wage.

The government can use its EoLR to staff pure government spending on public goods, or on government businesses that produce no profit (collect no capital tax). Although EoLR employees are required to unionize (as are all government employees) EoLR wages are fixed systematically.

Note that EoLR wages are implicitly indexed to inflation. This indexing runs the risk of creating an inflationary wage-price spiral. However, EoLR should be a relatively small part of the total economy, and cooperative wages should be considerably higher than EoLR wages, so small increases in EoLR wages caused by inflation shouldn't put too much pressure on private wages. Also, because savings are deprecated (I'll write on this topic soon), a democratic communist society can tolerate an inflation rate higher than tolerable in a capitalist society.

To keep the majority of society from exploiting the minority of EoLR workers, the minimum number of hours are constitutionally fixed to 70 percent of the optimum work week, i.e. 28 hours per week. If our society can't get by on everyone working at least 28 hours per week, then we have bigger problems than communism by itself can solve.

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