Deaths of despair -- a possible way forward
Economic Principals discusses the phenomenon of “deaths of despair”. Following the links, it seems that this phenomenon is unique to the United States, despite that working-class people (men especially) have been hard-hit by globalization in all the advanced countries.
During the tedium of the Coronavirus-19 pandemic is a terrible time to publish a book on suicides, drug overdoses, and alcohol abuse among middle-aged white Americans. It may or may not be a great time to read one. See Atul Gawande’s superb review of Deaths of Despair and the Future of Capitalism, by Anne Case and Angus Deaton in The New Yorker, and decide what you think.
(A side note that blacks in the US are reported to have been largely spared this phenomenon. But if you’re black, it’s easy to be optimistic, because racism has been receding for decades, and you can imagine that the future will be better. And surveys bear this out.)
The referenced works dig into the problem, and it seems that the proximate cause is that there’s a big slice of the middle-aged population that has dropped out of the work force, and they are the prime candidates for “deaths of despair”. Or as one article said, “deaths of pointlessness”.
They go on to point out the characteristic of the US medical system that is the root of so many complaints, despite that very few articulate it correctly: Each person pays for their own medical insurance. In other advanced countries, even if they don’t have a “single-payer” system, payment is a tax on wages, and so is redistributive. In the US, even under Romneycare, payment is redistributed from the healthy to the chronically sick, but not from the affluent to the poor, and so is highly regressive. And if you’re a middle-aged man and your future employment prospects are dim, our culture doesn’t value you and there’s no reason not to take up drinking as a lifestyle.
The next cause behind that seems to be that given that most jobs include medical insurance as non-cash pay, the visible incentive to work is much blunted unless you can command a good wage:
“As they show, the premiums that employers pay amount to a perverse tax on hiring lower-skilled workers. According to the Kaiser Family Foundation, in 2019 the average family policy cost twenty-one thousand dollars, of which employers typically paid seventy per cent. “For a well-paid employee earning a salary of $150,000, the average family policy adds less than 10 percent to the cost of employing the worker,” Case and Deaton write. “For a low-wage worker on half the median wage, it is 60 percent.” Even as workers’ wages have stagnated or declined, then, the cost to their employers has risen sharply. One recent study shows that, between 1970 and 2016, the earnings that laborers received fell twenty-one per cent. But their total compensation, taken to include the cost of their benefits (in particular, health care), rose sixty-eight per cent. Increases in health-care costs have devoured take-home pay for those below the median income. At the same time, the system practically begs employers to reduce the number of less skilled workers they hire, by outsourcing or automating their positions.”
One way to improve things would be to change how medical insurance is paid for, from each person paying their own (mostly) to (essentially) a wage-based tax. Right now, there’s a big “cliff” when someone goes from being “on welfare” to employed, because the government stops paying around $10,000 per year for their medical coverage. Typically the official minimum wage, what the employee gets, is around $7/hour but the compensation cost, what the employer pays, is around $12/hour. Changing this would drastically improve the employment prospects of low-skilled Americans.
One problem is how to achieve that. We probably politically can't revamp such a large part of our economy as a wage-based tax. But there is one opening -- part of the 1990's welfare reform was elminating the infamous "welfare cliff" -- you lose all your benefits as soon as you earn a single dollar -- with the consent of Republicans, under the banner of "Making Work Pay". Republicans can be sold on the idea that the government has screwed something up in a way that disincentivizes work, and are even willing to spend government money to fix it.
In this case, there's a "Medicaid cliff" -- as soon as you get a "real job", you lose $10,000 a year in medical insurance, and your employer picks up the entire bill. (Or at least, a larg chunk of fit; I can't figure out whether there's an ACA subsidy or not.) We could arrange that the employer's insurance premium is largely paid for by the government for the lowest-wage workers. Depending on how the labor market shakes out, that would either substantially increase the incentive for people to take jobs, or substantially increase the incentive for businesses to hire people, or both. And we just might be able to get it through Congress, if we pitch it as a way to get poor people to work rather than as a way to deliver medical care to poor people.
During the tedium of the Coronavirus-19 pandemic is a terrible time to publish a book on suicides, drug overdoses, and alcohol abuse among middle-aged white Americans. It may or may not be a great time to read one. See Atul Gawande’s superb review of Deaths of Despair and the Future of Capitalism, by Anne Case and Angus Deaton in The New Yorker, and decide what you think.
(A side note that blacks in the US are reported to have been largely spared this phenomenon. But if you’re black, it’s easy to be optimistic, because racism has been receding for decades, and you can imagine that the future will be better. And surveys bear this out.)
The referenced works dig into the problem, and it seems that the proximate cause is that there’s a big slice of the middle-aged population that has dropped out of the work force, and they are the prime candidates for “deaths of despair”. Or as one article said, “deaths of pointlessness”.
They go on to point out the characteristic of the US medical system that is the root of so many complaints, despite that very few articulate it correctly: Each person pays for their own medical insurance. In other advanced countries, even if they don’t have a “single-payer” system, payment is a tax on wages, and so is redistributive. In the US, even under Romneycare, payment is redistributed from the healthy to the chronically sick, but not from the affluent to the poor, and so is highly regressive. And if you’re a middle-aged man and your future employment prospects are dim, our culture doesn’t value you and there’s no reason not to take up drinking as a lifestyle.
The next cause behind that seems to be that given that most jobs include medical insurance as non-cash pay, the visible incentive to work is much blunted unless you can command a good wage:
“As they show, the premiums that employers pay amount to a perverse tax on hiring lower-skilled workers. According to the Kaiser Family Foundation, in 2019 the average family policy cost twenty-one thousand dollars, of which employers typically paid seventy per cent. “For a well-paid employee earning a salary of $150,000, the average family policy adds less than 10 percent to the cost of employing the worker,” Case and Deaton write. “For a low-wage worker on half the median wage, it is 60 percent.” Even as workers’ wages have stagnated or declined, then, the cost to their employers has risen sharply. One recent study shows that, between 1970 and 2016, the earnings that laborers received fell twenty-one per cent. But their total compensation, taken to include the cost of their benefits (in particular, health care), rose sixty-eight per cent. Increases in health-care costs have devoured take-home pay for those below the median income. At the same time, the system practically begs employers to reduce the number of less skilled workers they hire, by outsourcing or automating their positions.”
One way to improve things would be to change how medical insurance is paid for, from each person paying their own (mostly) to (essentially) a wage-based tax. Right now, there’s a big “cliff” when someone goes from being “on welfare” to employed, because the government stops paying around $10,000 per year for their medical coverage. Typically the official minimum wage, what the employee gets, is around $7/hour but the compensation cost, what the employer pays, is around $12/hour. Changing this would drastically improve the employment prospects of low-skilled Americans.
One problem is how to achieve that. We probably politically can't revamp such a large part of our economy as a wage-based tax. But there is one opening -- part of the 1990's welfare reform was elminating the infamous "welfare cliff" -- you lose all your benefits as soon as you earn a single dollar -- with the consent of Republicans, under the banner of "Making Work Pay". Republicans can be sold on the idea that the government has screwed something up in a way that disincentivizes work, and are even willing to spend government money to fix it.
In this case, there's a "Medicaid cliff" -- as soon as you get a "real job", you lose $10,000 a year in medical insurance, and your employer picks up the entire bill. (Or at least, a larg chunk of fit; I can't figure out whether there's an ACA subsidy or not.) We could arrange that the employer's insurance premium is largely paid for by the government for the lowest-wage workers. Depending on how the labor market shakes out, that would either substantially increase the incentive for people to take jobs, or substantially increase the incentive for businesses to hire people, or both. And we just might be able to get it through Congress, if we pitch it as a way to get poor people to work rather than as a way to deliver medical care to poor people.