A Utopian Thought Experiment

"If there is a sense for reality, there must be a sense for possibility"
Robert Musil, TheMan Without Qualities

In Eu, a country with 5 million able-bodied adult citizens there are only 4 million jobs. For 20% of those fit for jobs, there is no work, and they have to live with an income paid by those who work. Yet, no one is dissatisfied, at least not in the sense of knowing someone else with whom an exchange of position would be preferred. The reason for this surprising satisfaction is the way in which the transfer incomes arise: every beginning of the year, a `Labour Bank' issues 20 million `Labour Rights', and distributes them freely and equally over all able-bodied adult citizens (so, everyone of them gets 4 Labour Rights). The Labour Bank has the power to determine how many Labour Rights you need to have the right to occupy a job, and decides on 5.

At the moment you receive your 4 Labour Rights, you have no full right to occupy a job (for simplicity, my Eu has only full-time jobs). If, however, you could find someone willing to sell one of his 4 Labour Rights to you for a reasonable price, you would have such a full right. The price you would be willing to offer for such an additional Labour Right, depends on your expected wage (out of which you pay for it, after all), and on the value you attach to working. If you experience the supply price of the Labour Right as high, you can consider the alternative: sell your own 4 Labour Rights, and live from their yield this year (you just said the price was high!) without a job.

If you lived in Eu, you would have to consider these alternatives every year. And Eu is quite a normal country, for the rest, so all the people differ, and all people change their minds while ageing.

There are those who had a job last year and want to keep it (their employer must agree, of course). They just buy (again) the additional Labour Right needed. There are those who opted for unemployment last year, and wish to do so again. They again sell their Labour Rights. The same is done by those who wish to stop working. Those who wish to quit unemployment, apply for jobs that are left over, and, if they are hired, they buy their full right to it by buying an additional Labour Right.

It makes no sense to own Labour Rights in amounts differing from either 5 (if you have a job) or 0 (if you don't). So, early January, in Eu, shortly after the Labour Rights are submitted to the law of supply and demand on a free market, we find them in the hands of 4 million able-bodied adult citizens occupying the 4 million jobs you have in Eu. The other 1 million Eunians must have been satisfied by the Labour Right-price that arose on the free market, and must have decided freely to accept an income for the coming year of four times the Labour Right-price, at least they must have preferred this to occupying a job and enjoying its wage after deduction of the cost of one Labour Right. They realize it will be legally forbidden for them to occupy a job this year (unless, somewhere in the year, they can buy 5 Labour Rights for some rest-value). They don't like that, but they accept it at the prevailing rate of the Labour Right price. They have been `bought out' for a year, freely deciding to agree with the price.

The other 4 million able-bodied adult citizens will work, but have no reason to feel mistreated or jealous because 1 million others have income without needing to work. You see, if you wish you can opt for `unemployment' by selling your Labour Rights. This way you would hand over your right to occupy a job to someone who attaches more value to it, while you yourself apparently consider unemployment to be preferable at the prevailing Labour Right-price that arose out of market-equilibrium. Quite a sensible exchange!

The economist's habit of analysing price formation on the free market works quite well in Eu. There are two main factors that determine whether you will be at the supply or demand side of this market. The most obvious one, from the perspective of customary thought on Labour, is the ratio between your annual income (after deduction of the cost of the additional Labour Right you need) if you opt for work, and your annual income resulting from selling your 4 Labour Rights. Let me use terms we are familiar with and call this the wage/unemployment benefit-ratio in Eu. A higher Labour Right-price implies a lower wage unemployment benefit-ratio: if such a lower equilibrium price comes into being, the employed are apparently satisfied with a relatively lower income. The second factor determining whether you will be on the supply side or the demand side of this market is at least as important: it is the value you attach to working (mind you! only for yourself! no morals!). How deeply do you desire to occupy a wage-earning job, irrespective of its income? Very deeply? Then you will be ready to pay a high price for the additional Labour Right you need, so you will be in the hard kernel of the demand side. Not too much? Then you will be ready to sell your Labour Rights even at a relatively low equilibrium market price, and you will be at the supply side, among the forces that drag down the price.

On the free market for Labour Rights only one single price will be formed, because all Labour Rights look exactly the same. The equilibrium price will be determined by the average labour preference, that is the average value that 5 million able-bodied adult citizens attach to work as supplied in jobs offered in Eu. The Labour Right-price fixes the wage/unemployment benefit-ratio and you will look at the wage/unemployment benefit-ratio to see whether you prefer to work or not this year.

Now let us think. We can have different expectations concerning labour preference in Eu. For the Eunians I hope individual labour preferences are very diverse (high standard deviation). Then there will be a lot of people with high labour preferences, willing to pay a high price for the Labour Rights, but also a lot of people with low labour preferences, willing to be statisfied with a low price for their Labour Rights. The Labour Right-price will be somewhere in the broad range between the critical values that supply siders and demand siders have set for themselves, and for both parties the equilibrium price is much more than they were ready to accept (there will be employment rent in the sense of Van Parijs. If Eunians are more conformist in their labour preferences, small changes in the Labour Right-price can pull lots of them over the border separating those opting of jobs and those opting for unemployment. It yields high Labour Right-price elasticity, and results in many people watching EuTV every night to see where the rates are going. But nothing can prevent the formation of an equilibrium market price for the Labour Right: if the price is too high, there will be suppliers of 4 Labour Rights on the market (potentially unemployed) unable to find buyers. As long as they don't find any, they will have neither income nor work. And the same holds for the hesitating potential buyers. The prices will go down quickly. If the Labour Right-price is too low, candidates for jobs are waiting for Labour Right-sellers that do not appear. They can be called up only by bidding higher, so the Labour Right-price goes up quickly.

The beneficial effects of large differences between the individual Eunian's Labour preferences may be somewhat surprising, but the role of the average labour preference is quite familiar to us. Many of us tend to think that man is lazy by nature, and see in social security a means for too many to realize their preferred state. Many others tend to think Labour is Man's Essence, and argue in favour of state guaranteed employment. These two visions are both reflected in Eu's market laws: if the average labour preference is low, many people are ready to sell Labour Rights at a low price. Those willing to work will have to pay little and be relatively rich. If the average labour preference is high, people are willing to pay a high price for the additional Labour Right they need. The unemployed will be relatively rich, and all Eunians consider this to be fair, because in this case also the unemployed have a high labour preference, and it is a big sacrifice for them to refrain from working this year. Money is only a small consolation, and if it is to serve as compensation, it must be a lot. In Eu, "people's endowment is not exhaustively described by their wealth and their skills: the holding of a job constitutes a third type of resource".