Dworkin on undercompensation

Notes for Thursday, October 9, 2014

Main points

When we talked about the Tea Party article, we identified two polar cases: those who work deserve rewards and those who intentionally manipulate the system to get rewards without working do not. In the middle were three classes of people who do not work and so do not deserve rewards in the way that workers do but who are also not appropriately classed with the cheaters: children, people with serious health problems, and the involuntarily unemployed.

Our friend Dworkin seeks to address the involuntarily unemployed or, as I have learned to say, involuntarily undercompensated. (A word that my dictionary does not recognize.) Ah, but what makes someone involuntarily undercompensated? Isn’t that just a way of saying you’re not willing to work at the prevailing wage? Dworkin has an answer for that question too.

Undercompensation insurance

Dworkin’s solution to this problem is another hypothetical insurance market. The question here is: what insurance would people buy against being undercompensated, that is, not being able to make as much as they want through work?

He argues that no one would buy insurance against failing to have the very highest paying jobs. Instead, they would seek to insure against failing to have a modestly paying job. If they genuinely cannot find adequate work, they receive a payout from the insurance plan to pick up the difference between what they can earn and what they wanted to earn. And if they can do better, they pay their premiums to the state as taxes.

He tries to draw the line between people who are genuinely undercompensated and those who are trying to game the system in the way that all insurance plans do: with deductibles and co-pays. The trick is to set the insurance payout low enough so that no one will be tempted to avoid work just in order to collect insurance. The idea is that almost everyone who does collect would be genuinely needy. This will be difficult to do in practice, but it is the sort of thing that insurance companies do all the time. So it is not an insuperable problem, Dworkin maintains.

This page was written by Michael Green for Freedom, Markets, and Well-being, PPE 160, Fall 2014. It was posted October 14, 2014.
Freedom, Markets, and Well-being