Freedom, Markets, and Well-being Fall 2017

Dworkin on Labor Markets


Last time, we went through the first two steps that, according to Dworkin, a society must take in order to satisfy the envy test.

  1. An initial distribution of resources in an auction.
  2. Hypothetical insurance policies that cover shortfalls due to brute bad luck, such as having been born with a handicap.

Then Dworkin turns to labor markets. He argues that the bundles of resources that we are comparing in the envy test should include work and leisure as well as things like money, claret, and plover’s eggs. We don’t want to say that the envy test is not met if A wants the money that B earns even though A would not be willing to do the work that B does in order to earn it, after all.

Even after taking those two steps and putting work and leisure into the bundles we are comparing, however, a society could still fail to meet the envy test. This would happen if one person would prefer someone else’s bundle consisting of her job, leisure, earnings, and other resources over his own similar bundle. Say, for instance, that there is a major recession and there just is not much demand for labor. Some people will have jobs and others won’t even though they are equally enthusiastic about working.

Today’s class was about how Dworkin deals with this problem.

Our Discussion

Our discussion was mostly taken up with a way of dealing with this problem that Dworkin rejects. This involves putting people’s time into the auction. After all, the auction is supposed to cover all the resources on the island, whether they are going to be used to produce things or consumed. One of the chief productive resources is human labor. John Locke was right about that! So why shouldn’t that be included in the auction?

Dworkin rejects this approach because it would make people slaves to their talents.

Suppose people’s time were part of the auction. Then people would bid on the time of the people who are capable of doing the most productive jobs. Those people would either have their time owned by others or they would have to bid on their time themselves. When the auction was over, either they would be owned by other people who would make them work at the most productive jobs to maximize their investments. Or they would have to work at the most productive jobs in order to pay off the bids they made on their own time. (Remember, those bids have to reflect the opportunity cost to others of not owning the productive people’s time. So they will be expensive.)

In a nutshell, the talented will not have any choice about what jobs to take. But that makes their share of resources insensitive to their tastes and ambitions. What if someone who could work as a highly productive computer programmer would rather be a philosopher? (This is not me, incidentally; I’m pretty much at my peak contribution to society, sad to say.)

Matthew said that Dworkin was assuming something like Locke did: a natural right to govern one’s own life.

Professor Brown wondered whether this position is consistent with Dworkin’s view that people are responsible for their expensive tastes. I have to pay a high price in order to live in the most desirable neighborhood. The price reflects the cost of my having the apartment in the desirable neighborhood to others who also want it. So why shouldn’t I also have to pay a high price in order to pursue a career that is costly to others, in the sense that it adds less to society than the one I could pursue would?

Professor Brown thought the answer had to rely on the fact that you can only enjoy your own leisure time and not someone else’s. I followed the point at the time, but to be honest with you, it has completely flown my mind right now. It was a good one, though!

Undercompensation Insurance

Dworkin’s preferred solution to the problem is another hypothetical insurance market.

Insurance is provided against failing to have an opportunity to earn whatever level of income, within the projected structure, the policy holder names, in which case the insurance company will pay the policy holder the difference between that coverage level and the income he does in fact have an opportunity to earn. (Dworkin 1981, 317)

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.

Professor Brown thought Dworkin was mistaken in thinking he had given an argument for a progressive income tax, where the tax rates go up with higher levels of income. Dworkin pointed out that people would choose to pay a higher premium if they were wealthier due to the declining marginal utility of money. But that would be so even if tax rates were a flat percentage that applied to all income levels or even if tax rates declined for wealthier people. In either case, the wealthy would (or could) still pay more. Of course, they would pay more with a progressive schedule of income tax rates too. The point is just that the argument does not single out a progressive income tax scheme over a flat or even a mildly regressive one.

Aaron said that a universal basic income could solve some of the incentive problems. We talked about the problems with an insurance plan that pays $30,000 to anyone who cannot find a job that pays that much. Taking a job that pays $31,000 would mean losing the socially guaranteed $30,000, so all that you would get for working full time would be $1,000. This is the kind of problem for all means-tested welfare programs. Aaron’s point was that if everyone got $30,000, the person who takes the $31,000 job would get to keep the $30,000 as well as the $31,000 from the job. So the monetary benefit from taking the job would be $31,000 rather than $1,000.


Dworkin, Ronald. 1981. “What Is Equality? Part 2: Equality of Resources.” Philosophy & Public Affairs 10 (4): 283–345.