Rewarding Work: How to Restore Participation and Self-Support to Free Enterprise.

• Author: Jacobs, Michael
• Position: Review

Rewarding Work: How to Restore Participation and Self-Support to Free Enterprise

Edmund Phelps (Cambridge: Harvard University Press, 1997) 198 pp.

Discussions of world poverty tend to focus on the plight of developing nations and their struggles to generate wealth. It is true, of course, that the most widespread and severe poverty exists in the Third World, where more than a billion people labor for less than one dollar a day. Yet poverty exists in the "developed" world too, mitigated in part by elaborate systems of social welfare, yet no less an affliction for those caught in its trap--not to mention for the societies plagued by its deleterious effects. This poverty, existing amidst extraordinary affluence, is expressed both by high unemployment rates among the poor, and by low wages that keep those among them who do work below or near the poverty line.

The debate over how to approach the riddle of poverty in a rich economy has often broken down along conventional political lines, with the right, implicitly or explicitly, blaming the poor for their poverty (a.k.a., "the culture of poverty"), and the left, to varying degrees, calling for public measures to provide work or cash assistance. In Rewarding Work: How to Restore Participation and Self-Support to Free Enterprise, however, Columbia University economist Edmund Phelps proposes a solution to low-wage work that combines liberal concern for alleviating poverty through mobilizing public resources with a more conservative, neoclassical emphasis on preserving incentives, offering work instead of a "dole," and relying on the private sector. His ideas challenge the traditional distinction between liberals and conservatives, and offer an intriguing approach to improving the lot of low-income workers.

Phelps' recommendation, simply put, is to create a government-sponsored system of progressive wage subsidies, paid to employers instead of to individuals or households. Firms which choose to employ low-wage earners, in other words, would receive tax credits from the government in order to increase the earnings of these workers to more "livable" levels. If employers passed on these subsidies to their employees, workers earning U.S. $4.00 per hour, for example, would receive three dollars extra pay for each hour; those earning five dollars per hour would receive a raise worth $2.29 per hour; and those making six dollars would get $1.65 more for an hour's work. These wage subsidies would continue on...