CASH AND CARE

                                                      (GOOD ECONOMICS FOR HARD TIMES)

            CHAPTER 9

                                                     CASH AND CARE

MANY VISITORS to the northern Indian city of Lucknow visit a gigantic eighteenth-century 

Indo-Islamic monument in the middle of the old city called the Bada Imambara. It is unusual among 

buildings from that period, being neither a fort nor a palace, nor a mosque nor a mausoleum. Guides 

tell many stories about it inflected, no doubt, to suit the tastes of the audience—Abhijit was told 

it was a part of the kingdom’s defense against the encroaching British Raj, despite not looking 

remotely like a fort. In fact, it was built by the king of Awadh, Asaf-ud-Daula, in 1784 to provide 

jobs to his starving subjects because crops had failed.

There is one story about this project that stuck in Abhijit’s memory. It is claimed the project 

took much longer than it should have because what the workers built during the day, the elites 

destroyed at night. The idea was to give the elites, who also lived off agriculture and were 

therefore starving like the rest, a way to earn enough to survive. Being aristocrats, they would 

rather die than let it be known to the public that they had fallen into such dire straits, hence 

the artifice of the nightly effort.

Whatever one makes of the wanton snobbery that made this necessary, and indeed whether or not it 

actually happened, the story makes an important point. It is easy to forget, especially in a 

crisis, the need to protect as far as possible the dignity of those being helped. Asaf-ud-Daula, to 

his credit, did not. Or at least that’s how history remembers him.

We will argue that this 

tension between cash and care should be one of the central concerns in the 

design of social policy. 

TWO APPROACHES

(1) 1n the current debate, at one extreme there are those who believe the best 

we can do for people who have not flourished in the market economy is to hand them some cash and walk away, leaving them to  find their own way in the world.

(2)  At the other extreme stand those who have little faith in the  ability of the poor to take care of themselves, and as a result either want to abandon them to  their fate or intrude heavily into their lives, restricting their choices, punishing those who do  not fall in line.

 One side acts as if the self-esteem of the beneficiaries of public programs is  not an issue; the other side either does not care or believes it is the price they need to pay if  they want public help. And yet the desire to be respected is often a reason why support for social  interventions is lacking even among those who need them, and also a reason why these policies fail. 

In this chapter we explore the implications of this particular perspective on the design of social 

policies.

DESIGNER SOCIAL PROGRAMS

UBI: A GLOBAL PERSPECTIV E

1.There is nothing more designer these days, at least among social programs, than universal basic  income (UBI). 

2.Elegant in its simplicity, it is the midcentury  modern  of  welfare,  popular  among   Silicon  Valley entrepreneurs, media mavens, certain kinds of philosophers and economists, and the  odd politician. 

3.UBI imagines the government paying everyone a substantial guaranteed basic income  (the amount of $1000 a month has been floated for the United States), irrespective of their needs.  This amount would be small change for Bill Gates, but quite a bit of money for someone out of a  job, allowing them, if it comes to that, to go through their entire life without paid employment.  Silicon Valley likes it because they worry their innovations may cause lots of dislocations. Benoit  Hamon, the socialist candidate to replace François Hollande as the president of France, tried to  use it to revive his doomed campaign; Hillary Clinton mentioned it occasionally (she lost too);  there was a referendum about it in Switzerland (but only a quarter of the voters voted for it); in  India, it recently showed up in an official finance ministry document, and both parties competing  in the election had some version of an unconditional cash transfer in their platforms, although in  neither case was it universal.

4.Many economists, going back at least to Milton Friedman, approve of  UBI’s hands-off attitude. As we discussed, many of them are acculturated to assume people know best  what is good for themselves, and see no reason to believe a government bureaucrat would know  better. For them, handing over cash to welfare recipients is obviously the right thing to do; the  person knows what best to do with it. If buying food makes sense, they will buy food; but if  clothes are more useful, they should have the right to decide. 

      CONDITIONAL PROGRAMS

                            Programs like SNAP in the United  States, which can only be spent on food, are overreaching. Likewise, doling the money out as a  reward for some kind of “good behavior” as the conditional cash transfer programs, like the Progresa/Oportunidades/Prospera  program  in  Mexico  and  its  many imitators do, is just making  people jump through hoops for no reason. If it is truly good behavior they would do it in any case and if they disagree, people are more likely to be right than the government. 

    CONDITIONAL VS UNIVERSAL PRORAMS IMPACT OF PTOCEDURAL HASSELS

                          When the left-  leaning Mexican government announced its intention to replace Prospera with an unconditional  transfer in 2019, it cited that the “health seminars, medical checks (and other obligations) were a  burden on women.”¹ There is also the very real attraction of a program that is universal and does not try to target  and monitor people. 

                         Most social programs come with complicated screening and monitoring rules to  make sure benefits are going to the right people. Making sure the conditions of educating children and getting their health checkups are met is not cheap: in Mexico, it costs about ten pesos to transfer a hundred pesos to a household. Of those ten pesos, 34 percent pays for the cost of  identifying beneficiaries, and another 25 percent is used for ensuring compliance with the  conditions for getting the conditional cash transfer.²

                        The proliferation of rules also makes it hard to sign up and, possibly as a result, take-up among  the intended beneficiaries is much less than universal. In Morocco, Esther studied a program  entitling households to a subsidized loan to get their homes connected to the water mains.³ When  she first visited the neighborhoods where the program was offered, the French company whose program  they were evaluating, Veolia, proudly showed off the “Veolia bus” that went from neighborhood to neighborhood to provide information on the new program. Strangely, there was no one on the bus  itself, and when Esther went from house to house, it was clear people often had a vague idea about  the program but did not know what it would take to apply. The procedure, as it turns out, was not  that simple. It could not be done on the bus. Potential customers had to go to the city hall with a number of papers certifying  their residence and their right to the property. They had to fill out an application and come back  some weeks later to see if it was approved. Esther and her colleagues offered a simple service: a  field officer would come to your house, take photocopies of the relevant documents, fill out the  application, and deliver it to the city hall. This was extremely effective; the sign-up rate  increased by a factor of seven. To make matters worse, those especially intimidated by the complexity of the sign-up process are  often the neediest.

                               In Delhi, widows and divorced women living in poverty are entitled to a monthly pension of Rs 1,500 (or $85 PPP, adjusting for the cost of living), a substantial amount for these women, but take-up is  low: a World Bank survey found that two-thirds of eligible women were not enrolled in the program.⁴  One reason may be the application process, which involves a complex set of rules most people would  not understand or be able to navigate.

HASSELS AND CONSEQUENCES

To understand the extent to which knowledge of the rules, or the rules themselves, prevent take-up, a study randomly divided a group of twelve hundred eligible Indian women into four groups.⁵ One  group was the control group; one group received information about the program; one group received information and some assistance with the process of signing up;  and  the  last  group  got  information,  assistance,  and  was  also accompanied by the local representative of the NGO to the office to sign up. Providing information increased the number of women who began the application  process, but did not significantly increase the number of women who actually completed it. In contrast, helping them with the process resulted  in  more  applications.  Women  who  received  help  were  six percentage points more likely to complete all the steps, and those taken to the  office were eleven percentage points more likely to apply, almost double the base rate. 

Importantly, the most vulnerable women (illiterate, politically unconnected) benefitted the most 

from the intervention, consistent with the view they were the ones most likely to be excluded by 

the existing process. 

LACK OF FAITH IN GOVERNMENTS

   INDIA                               But even with the help, the take-up was only 26 percent for what was mostly free money, likely because the women had little faith in the government’s ability to deliver, and thus did not see the value of jumping through the hoops.

IMPACT OF LABELLING AS POOR: QUESTION OF DIGNITY 

    USA                               The same goes for the United States. Between 2008 and 2014, millions of additional children got access to free lunch at school after it was decided that any children of  parents who were obviously poor—those already covered by other anti-poverty programs—would be automatically enrolled. In fact, they had been eligible for free lunch ever since the rules were changed in 2004,   but then it was up to the parents to claim the benefit, and that did not happen.⁶

Or take SNAP. Out of thirty thousand elderly people not enrolled in SNAP but who looked like they  would be eligible, a randomly chosen group was told about their likely eligibility, and a random subgroup of those were actually helped to sign up. After nine months, only 6 percent of the control group signed up, but information increased the rate to 11 percent, and when help was added, it went up to 18 percent.⁷ It does not help that being identified as poor comes with a certain stigma in the US, a product of  the continuing faith in the idea that anyone can succeed, very much in the face of the evidence, as  we already discussed. Many people therefore resist having to admit to themselves or others that  they are poor enough to deserve help. We encountered an interesting instance of this in our work  with low-income workers in California. The label “food stamps,” as one might imagine, comes from  the fact that historically workers were paid in stamps. These days, “stamp recipients” receive  government-issued electronic benefit transfer (EBT) cards that are swiped like a debit card in the  checkout line, which avoids the stigma of handing over the stamps. But not everyone eligible for  SNAP knows that. The experiment was carried out in the offices of H&R Block, a tax preparer. Most  people who go to these offices in January are low-income workers who expect a tax refund. In some  of these offices, chosen by lot, those likely to be eligible for SNAP received a pamphlet designed  by a PR firm describing the local EBT card as the “Golden State Advantage Card.” It was described  as the way to “get more at the grocery shop” and the emphasis was on the fact that working families might be eligible. Members of the control group were asked instead whether they wanted to be  screened for “food stamps” benefits and were given a pamphlet designed to reflect the more familiar  language of the program. Banners in the office reinforced the messages in both cases. We found that  clients were significantly more likely to be interested in SNAP if the label “food stamps” was not  used.⁸ Conversely, belief that they will be unfairly excluded from a program can discourage those who need it the most from applying. 

UNIVERSALITY IS REQUIRED TO MITIGATE THE ADVERSE IMPACTS OF FACTORS LIKE  DISCUSSED ABOVE

This is why organizations that work with 

the extreme poor strongly affirm the need for universality of services. When Thierry Rauch, then a 

homeless person in France, heard the French government was going to help 30 percent of the poor to 

escape poverty, his reaction was “What is clear is that me and my family, we won’t be in that 

number.” He continued, “If the support is not for everyone, I am sure I will get thrown out.” After 

a lifetime of being “thrown out,” he had given up on trying to get selected.⁹

The same counterproductive pessimism was found at work in Morocco. Esther and her colleagues 

compared the performance of a program called Tayssir,  a  traditional  conditional  cash  transfer  

that  requires  school attendance, with an unconditional cash transfer plan that claimed to help 

parents educate their children but did not actually require regular school attendance. During the 

fieldwork for the project, Esther visited a family that was not enrolled in the conditional cash 

transfer program. She asked why. They had three children of the right age, all enrolled in school. 

The father explained that he often worked as a daily laborer outside the village for the whole day, 

or even days on end, and therefore he could not make sure his children were attending regularly. He 

worried they would be absent too often and he would end up forfeiting the transfer, and looking 

like a bad parent.

The data suggest this family was not an exception. Some families where children were most at risk 

of dropping out of school opted out of the conditional cash transfer because they were not sure 

they would be able to meet the requirements. It seems they did not want the shame of being excluded 

for poor performance and preferred to exclude themselves instead. As a result, a nonconditional 

transfer presented as a way to help families educate their children, rather than a condition, was 

more effective in increasing education for those fragile families (and just as effective for 

everyone else).¹⁰

WHERE’S THE MONEY? MONEY IS A PROBLEM FOR IMPLIMENTING UBI

Given the downsides of existing transfer programs, where does the 

resistance to UBI come from? Why are there so few cash transfer programs, anywhere in the world, 

that are universal and come without strings attached?

One simple reason is money. Universal programs in which no one is excluded are expensive. The 

proposal to pay $1,000 a month for every American would cost $3.9 trillion a year. That’s about 

$1.3 trillion more than all existing welfare programs, roughly the equivalent of the entire federal 

budget, or 20 percent of the US economy.¹¹ To finance it without cutting back all the traditional 

functions of government (defense, public education, etc.) would require eliminating all exiting 

welfare programs and raising the US tax level to the level of Denmark’s. That is why even the 

enthusiastic supporters of UBI talk about a design where the transfer would be lower as people got 

richer, and would be zero above a certain income. So not, in fact, universal. If UBI were paid only 

to the poorer half of Americans it would cost a much more affordable $1.95 trillion. But that would 

require targeting, with all its pitfalls.

MIDDLE-CLASS MORALITY

Abhijit at the age of twelve, like many of his friends, was in love with Audrey Hepburn. He 

discovered her as Eliza Doolittle in the movie version of the Lerner and Loewe musical My Fair 

Lady, based on the play Pygmalion by George Bernard Shaw (a radical left-winger in his time). In 

the play her father, Alfred, makes this truly wonderful little philosophical speech (before more or 

less offering to sell his daughter for five pounds even):

I ask you, what am I? I’m one of the undeserving poor: that’s what I am. Think of what that means 

to a man. It means that he’s up against middle class morality all the time. If there’s anything 

going, and I put in for a bit of it, it’s always the same story: “You’re undeserving; so you can’t 

have it.” But my needs is as great as the most deserving widow’s that ever got money out of six 

different charities in one week for the death of the same husband. I don’t need less than a

deserving man: I need more. I don’t eat less hearty than him; and I drink a lot more. I want a bit 

of amusement, cause I’m a thinking man. I want cheerfulness and a song and a band when I feel low. 

Well, they charge me just the same for everything as they charge the deserving. What is middle 

class morality? Just an excuse for never giving me anything.¹²

It was hard being poor in Victorian England where the play is set. To be deserving of charity one 

had to be abstemious, thrifty, churchgoing, and above all hard working. If not, it was off to the 

poorhouse where work was enforced and husbands and wives were kept apart, unless you happened to be 

in debt, in which case it was to debtor’s prison or an enforced trip Down Under. An 1898 “map 

descriptive of London Poverty” classified some areas as “lowest class, vicious, semi-criminal.”¹³

We are not very far from this today. Mention welfare in a well-heeled crowd in the United States, 

India, or Europe and there will always be a few shaking heads, worried that welfare turns the poor 

into “good for nothings,” to use a Victorian expression still popular among a certain class of 

Indians. Give them cash and they will stop working or drink it up. Somewhere behind this is the 

suspicion the poor are poor because they lack the will to achieve; give them any excuse and they 

will check out.

In the United States, the economic catastrophe of the Depression during the 1930s temporarily gave 

poverty a more benign face because it was so ubiquitous. Everyone knew someone who suffered from 

sudden poverty. John Steinbeck’s brave Okies fleeing the Dust Bowl are a staple of high school 

classes. 

Franklin D. Roosevelt’s New Deal marked the beginning of an era where poverty was seen as 

something society could fight, and beat, with government intervention. This continued until the 

1960s, culminating in Lyndon B. Johnson’s “war on poverty.” 

But when growth slowed and resources 

were tight, the war on poverty turned into war on the poor. Ronald Reagan would return time and 

again to the image of the so-called welfare queen, who was black, lazy, female, and fraudulent. The 

model for this was Linda Taylor, a woman from Chicago who had four aliases and was convicted of 

$8,000 in fraud, for which she spent several years in prison. This was one and a half years longer 

than onetime billionaire

capitalist hero Charles Keating, the central figure in the most famous corruption scandal of the 

Reagan era (the Keating Five scandal), and the related savings and loans crisis that was to cost 

taxpayers over $500 billion in bailout money.

ARGUMENTS AGAINST WELFARISM IN NEO LIBERAL ERA

In a new twist, the moral turpitude of the poor was now presented as the consequence of welfare 

itself. In 1986, Reagan famously declared the war on poverty lost. It was welfare that made us lose 

the war, by discouraging work and encouraging dependency, which led to the “crisis of family 

breakdowns, especially among the welfare poor, both black and white.”¹⁴ In a radio address to the 

nation on February 15, 1986, Reagan declared:

USA          We’re in danger of creating a permanent culture of poverty as inescapable as any chain or bond; a 

second and separate America, an America of lost dreams and stunted lives. The irony is that 

misguided welfare programs instituted in the name of compassion have actually helped turn a 

shrinking problem into a national tragedy. From the 1950’s on, poverty in America was declining. 

American society, an opportunity society, was doing its wonders. Economic growth was providing a 

ladder for millions to climb up out of poverty and into prosperity. In 1964 the famous War on 

Poverty was declared and a funny thing happened. Poverty, as measured by dependency, stopped 

shrinking and then actually began to grow worse. I guess you could say, poverty won the war. 

Poverty won in part because instead of helping the poor, government programs ruptured the bonds 

holding poor families together.

Perhaps the most insidious effect of welfare is its usurpation of the role of provider. In States 

where payments are highest, for instance, public assistance for a single mother can amount to much 

more than the usable income of a minimum wage job. In other words, it can pay for her to quit work. 

Many families are eligible for substantially higher benefits when the father is not present. What 

must it do to a man to know that his own children will be better off if he is never legally 

recognized as their father? Under existing welfare rules, a teenage girl who becomes pregnant can 

make herself eligible for welfare benefits that will set her up in an apartment of her own,

provide medical care, and feed and clothe her. She only has to fulfill one condition—not marry or 

identify the father… The welfare tragedy has gone on too long. It’s time to reshape our welfare 

system so  that  it  can  be  judged  by  how  many  Americans  it  makes independent of welfare.¹⁵

In the United States, this spirit turned into action in 1996 when President Clinton passed, with 

bipartisan support, the Personal Responsibility and Work Opportunity Reconciliation Act. It 

replaced the Aid to Families with Dependent Children (AFDC) program with Temporary Assistance for 

Needy Families (TANF), which imposed new work requirements on the beneficiaries. Clinton also 

expanded the earned income tax credit (EITC), which  supplements  earnings  for  poor  workers  

(making  government assistance conditional on already having some work). In 2018, President Trump’s 

Council of Economic Advisers issued a report advocating a work requirement as a condition of 

eligibility for the three major noncash assistance  programs:  Medicaid,  SNAP  (food  stamps),  

and  rental assistance.¹⁸ In June of 2018, Arkansas became the first state to implement

a work requirement for Medicaid adults. Interestingly, the Council of Economic Advisers’ main 

argument was no longer that the war on poverty had failed but, on the contrary, that “our war on 

poverty is largely over and a success.” The report argued that “the safety net—including government 

tax and [both cash and non-cash] transfer policies—has contributed to a dramatic reduction in 

poverty [correctly measured] in the United States. However, the policies have been accompanied by a 

decline in self- sufficiency [in terms of receipt of welfare benefits] among non-disabled 

working-age  adults.  Expanding  work  requirements  in  these  non-cash welfare  programs  would  

improve  self-sufficiency,  with  little  risk  of substantially reversing progress in addressing 

material hardship.” In other words, people had to be made to work for their supper, so they were 

not cheated of “the American work ethic, the motivation that drives Americans to work longer hours 

each week and more weeks each year than any of our economic  peers  [which]  is  a  long-standing  

contributor  to  America’s success.” Sure, it might cause some pain, but it was worth it to prevent 

a large number of poor people from succumbing to sloth, one of the seven deadly sins. The Puritans 

would have applauded.

These ominous claims do not withstand scrutiny. One could line many long bookshelves with studies 

on the impact of welfare on fertility and family structure. The overwhelming conclusion of this 

literature is that those effects, if they are there at all, are very small.¹⁶ Reagan’s fears were 

unfounded.

But despite this overwhelming evidence, the idea that welfare causes poverty, and the tropes of 

“dependency,” “welfare cultures,” “crisis of family values,” and the implicit association with race 

or ethnicity, is pervasive across different times and places

FRANCE   . In June 2018, French president 

Emmanuel Macron taped himself preparing for a speech on his proposed reforms of the anti-poverty 

programs. The tape was made public by the administration as a candid “behind the curtains” view of 

the president, a window into his real style and unvarnished opinions. We see him, despite all the 

differences between the two, adopting very much a Reagan-like tone, repeating over and over that 

the current system is failing, and managing to talk about the need to make the poor more 

responsible six times in the space of a few minutes.¹⁷

GIVE US THIS DAY OUR DAILY BREAD

FOOD GRAIN SUPPLY  (PDS) OR DBT?

The Puritans would have also agreed with the reluctance to hand over cash, a reticence historically 

shared by the left and the right. In India, one of the more successful recent efforts by the left 

was the demand for a national food security act. Passed in 2013, it promises five kilos of 

subsidized food- grains every month to almost two-thirds of Indians, over seven hundred million 

people.¹⁹ In Egypt, the food subsidy program cost 85 billion Egyptian pounds in 2017-2018 ($4.95 

billion, or 2 percent of GDP).²⁰ Indonesia has Rastra (formerly called Raskin), which distributes 

subsidized rice to over thirty-three million households.²¹

ARGUMENTS AGAINST FOOD GRAIN SUPPLY

Distributing grains is complicated and costly. The government has to buy the grains, store them, 

and transport them, often across many hundreds of miles. In India, the estimate is that transport 

and storage add 30 percent to the cost of the program. Moreover, there is the challenge of making 

sure the intended recipient gets the grains at the intended price. In 2012, eligible households received 

only a third of the amount they were due under the Indonesian Raskin program, and paid 40 percent 

more than the official price.²²

ARGUMENT IN FAVOUR OF DBT

In India, the government is now considering moving to what it calls direct benefit transfers, 

sending money to people’s bank accounts rather than giving them food (or other material benefits), 

on the grounds that it would be much cheaper and less subject to corruption.

OPPOSITION OF DBT ARGUMENTS IN FAVOUR OF PDS

 However, there is 

considerable opposition, led mostly by left-wing intellectuals. One of them interviewed  twelve  

hundred  households  throughout  India  about  their preferences for cash versus food. Overall 

two-thirds of the households preferred food transfers to cash. In states where the food 

distribution system worked well (mainly in South India), this preference was even stronger. When 

asked why, 13 percent of households mentioned transaction costs (the bank and market are far, so 

it’s hard to turn cash into food). But one-third of the households who prefer food argued that 

getting foodstuff protects them against the temptation to misuse cash. In Dharmapuri in Tamil Nadu, 

one respondent said, “Food is much safer. Money gets spent easily.” Another said, “Even if you give 

ten times the amount I will prefer the ration shop since the goods cannot be frittered away.”²³

And yet there is nothing in the data to suggest they are right to be so worried.

As of 2014, 119  developing countries had implemented some kind of unconditional cash assistance program and 52 

countries had conditional cash transfer programs for poor households. Together, one billion people 

in developing countries participated in at least one of these.²⁴ The initial phase of many of these 

programs was implemented as an experiment. What is very clear from all these experiments is that 

there is no support in the data for the view that the poor just blow the money on desires rather 

than needs. If anything, those who get these transfers raise the share of their total expenses that 

go to food (i.e., it is not just that they spend more on food when they have more money, but they 

might even spend so much more that the fraction of food spending goes up); nutrition improves and so does expenditure on schooling and 

health.²⁵ There is also no evidence that cash transfers lead to greater spending on tobacco and 

alcohol.²⁶ And cash transfers generally increase food expenditures as much as food rations.²⁷

Even men do not seem to waste the money; when the transfers are given at random to either a man or 

a woman, there is no difference in how much is spent on food versus, say, alcohol or tobacco.²⁸ We 

are still in favor of giving the money to the woman, because it restores a little of the balance of 

power within the family and might allow her to do what she deems important (including working 

outside of the home²⁹), but not so much because we think that the man will drink it up.

AVOIDING THE SNAKE PIT

FREE /SUBSIDISED FOOD SUPPLY OR DBT INCREASES THE EFFICIENCY AND PRODUCTIVITY

There  is  no  evidence  that  cash  transfers  make  people  work  less.³⁰

why would you work if you did not need the money to survive? What about the temptation  of sloth, for which the biblical punishment is being thrown in a snake pit in hell?

                          \

EXAMPLES

1.In Ghana, Abhijit and his colleagues carried 

out an experiment. Beneficiaries were offered a chance to make bags, which the experimenters then 

bought from them at very generous prices. Some of the women workers (chosen at random) were also 

part of a program that gave them a productive asset, most often goats, along with some training in 

how to make best use of the asset and some confidence boosting (these were very poor women, who did 

not necessarily believe they could be successful at anything). Despite the fact that tending the 

goats added to their workload (and also gave them some income, so that they were less desperately 

in need of extra cash), the women who got into the program produced more bags and earned more from 

them than those who were not included in the asset giveaway. Most interestingly, the big difference 

between those with and without an asset became evident when a bag had a

complex design. Asset beneficiaries worked faster, yet met the necessary quality standards. 

          1. It seems plausible that many (perhaps most) people genuinely aspire to do something with their  lives, but the exigencies of surviving on very little paralyze them. Perhaps getting the extra cash  encourages them to work harder and/or try new things.

           2. The   most plausible explanation is that getting the gift of the asset freed them up from worries of  survival, giving them the bandwidth and the energy to focus on their work.³¹

          2.It is also true that the typical poor person in the developing world cannot get a loan (or can only get one at some astronomical interest rate) and has no one to bail them out if their venture fails.

Both these conditions make it much harder for them to start the business of their dreams. A cash 

transfer that goes on for some years both provides some extra finance and backstops consumption if 

the enterprise fails. Perhaps a guaranteed income would make the poor willing to go somewhere else 

to look for a better job, to learn a new skill, or to start a new business.

But maybe all of this applies only in developing countries, where the poor are very poor indeed and 

the cash actually enables them to work. 

THE USA -NEGATIVE INCOME TAX------

A key concern at the time was that beneficiaries would work less as a result of the program, 

and thus the government would end up paying people who would otherwise have earned their own 

living.

 Overall, the official conclusion of the study was that the income maintenance program  did not have large effects on the propensity for people, particularly the prime earners in the family, to work.³⁷

Perhaps in the United States things are very different 

since everyone, however poor, is usually able to find work. Is it possible that the sloth effect 

dominates there? As it turns out, there is also evidence, going back to the 1960s, suggesting that 

sloth should not be a major concern in the US. In fact, the first-ever large-scale randomized 

experiment in the social sciences, the New Jersey Income Maintenance Experiment, was devised 

precisely to determine the impact of the “negative income tax.” A negative income tax (NIT) 

implements the idea that the system of income taxation should be designed so everyone is guaranteed 

to receive at least a minimum income. The poor should pay negative taxes so they get paid more than 

they earn, but as they get richer they will get less in transfers until at some point they start 

paying into the system.

This is different from a UBI, because for people near the tipping point between being takers from 

and payers into the system, there is potentially a strong disincentive to work. In other words, in 

addition to the income effect (I do not need to work if I have enough money to survive on already) 

that most policy makers worry about, such schemes can have a substitution effect (working is less 

valuable since what I make in extra income is taken out as reduced welfare payments).

Many scholars and policy makers, in both political parties, were in favor of a negative income tax. 

On the left, the US Office of Economic Opportunity under Democrat president Lyndon Johnson heralded 

the idea and set forth a plan for replacing traditional welfare with an NIT. On the right, Milton Friedman 

advocated replacing most existing transfer programs with a single NIT. Republican president Richard 

Nixon proposed it in 1971 as part of his package of welfare reform, but Congress did not approve 

it. A key concern at the time was that beneficiaries would work less as a result of the program, 

and thus the government would end up paying people who would otherwise have earned their own 

living.

It was then that Heather Ross, a PhD student in economics at MIT, came up, arguably for the first 

time in economics, with the idea of an experiment to settle this issue. Ross was frustrated that 

politicians used anecdotes to justify economic policy, and that there was no factual basis to 

establish whether low-income people would stop working if they received help from this kind of 

program. In 1967, she submitted a proposal to the US Office of Economic Opportunity for an RCT. 

This was ultimately funded and, as Ross put it, she ended up with a “$5 million thesis.”³²

The outcome of this inspired proposal would be not just a New Jersey NIT experiment, but also a 

series of others. In the early 1970s, Donald Rumsfeld  (yes,  the  same  one)  steered  the  NIT  

away  from  full implementation and toward a series of experiments. The first experiment took place 

in urban areas in New Jersey and Pennsylvania (1968-1972), with subsequent experiments in rural 

areas of Iowa and North Carolina (1969-1973), in Gary, Indiana (1971-1974), and the largest one, 

the Seattle-Denver   Income   Maintenance   Experiment   (SIME/DIME) experiment, in Seattle, 

Washington, and Denver, Colorado (1971-1982, covering forty-eight hundred households).³³

The  NIT  experiments  convincingly  established  the  feasibility  and usefulness of running RCTs 

for policy making. It would be decades before comparably intellectually ambitious projects would 

take center stage again in social policy. That said, these being the first experiments in the 

social sciences, it is not surprising their design and implementation were far from perfect. 

Participants were lost, samples were too small to get precise results, and, most worryingly, data 

collection was contaminated.³⁴ Moreover, because the experiment was short lived and small scale, it 

was also not easy to extrapolate what would happen in response to a more permanent and more 

universal program.

Nevertheless, taken together, the results suggest the NIT program did

reduce labor supply a bit, but not nearly as much as was feared. On average, the reduction in time 

worked was only between two and four weeks of full- time employment over a year.³⁵ In the largest 

experiment (SIME/DIME), husbands who received the NIT reduced their hours of work by only 9 percent 

compared to those who did not, although wives who received the NIT reduced their hours by 20 

percent.³⁶ Overall, the official conclusion of the study was that the income maintenance program 

did not have large effects on the propensity for people, particularly the prime earners in the 

family, to work.³⁷

There are also examples of local unconditional transfer programs, from various parts of the United 

States. The Alaska Permanent Fund has distributed, since 1982, a yearly dividend of $2,000 per 

person per year. It seems to have no adverse impact on employment.³⁸ Of course, the Alaska 

Permanent Fund, while universal and permanent (as its name indicates), is also quite small compared 

to the proposed UBI. If it had been sufficient to live off, people might have stopped working. A 

more UBI-like program is the payment of casino dividends on Cherokee lands to the members of the 

tribe. The transfers, about $4,000 per adult per year, represent a large boost in income, since the 

per capita household income for Native Americans is about $8,000. Comparing eligible and ineligible 

families in the Smoky Mountains before and after the payments, one study found no effect on work in 

the family, but large positive impacts on the education of the adolescents.³⁹

UUBI (UNIVERSAL ULTRA BASIC INCOME)

So, there is no evidence that unconditional cash transfers lead to a life of dissolution. What does 

that tell us about the design of welfare policy?

1.  In developing countries, where lots of people are at risk of finding themselves destitute from time 

to time, and where the safety nets, however imperfect, that exist in rich countries (emergency 

rooms, shelters, food banks) are missing, the value of having an assured fallback option like UBI 

could be enormous, both in dealing with bad luck and in making it easier to try something new.

UBI-LAND OWNERSHIP- INDUSTRIALIZATION

One of the most common ways in which people safeguard themselves against income risk in many parts 

of the developing world is by holding on to land. We discussed the reluctance to migrate in chapter 

2, and one reason is that those who migrate risk losing their land rights. Interestingly, for 

example, these days most rural land-owning households in India get a majority of their income from 

something other than agriculture. But land ownership is still valuable because it comes with the 

assurance that if all else fails, they can grow their own living.

This has the consequence that areas with a large fraction of small- holders tend to find it 

difficult to industrialize. This is partly due to the design of land reform; when the poor are 

given land rights, it is often inheritable but not saleable. But there is also a strong resistance 

to sell among the farmers themselves. In the Indian state of West Bengal, when the communists came 

to power after winning the 1977 elections, their first priority was to give the tenant farmers 

permanent rights on the land they tilled. The right could be inherited, but not sold. Thirty years 

later, the same communist government, conscious of the lack of industrial development in the state, 

tried to buy out the farmers (including the tenant farmers). That met  with  such  furious  

resistance  that  the  plans  were  shelved.  The communists ended up getting booted out of power 

after massive protests against the land expulsions, and the bloody repression they were met with.

The one thing the farmers in West Bengal wanted in compensation for giving up their land was the 

promise of a job, a stable source of income. Perhaps if there had been some kind of UBI to provide 

this income, the resistance might have been much less and it might have been easier to move arable 

land into industrial use. In chapter 5, we mentioned poor use of land is a major source of 

misallocation in India, probably responsible for a significant loss of economic growth. If UBI 

alleviated the need to stick to your land at all costs, it would reduce this misallocation. It 

might also reduce labor misallocation by making it more palatable for the landed to sell their land 

and move where there are better labor market opportunities.

ALTERNATIVE TO UBI--EXAMPLE MNREGA

1. India, however, does not have anything like UBI right now. The current scheme proposed by the 

government applies only to farmers and is nowhere near a living.  

2. The minimum income guarantee 

proposed by the opposition is more akin to the negative income tax credit. The plan is that it 

should be targeted to the poor and progressively taxed away as incomes grow. 

3. In fact,

very few countries have anything like a UBI, which is guaranteed to everyone and is not taxed away. 

If they have anything, they have transfers targeted to the poor that can be conditional or 

unconditional. But targeting the right people in the developing world tends to be especially 

difficult because most people work in agriculture or on tiny firms. It is almost impossible for the 

government to know how much they earn, making it very hard to isolate the poor and target them with 

the extra income.⁴⁰

4. The alternative to targeting is self-targeting. India’s National Rural Employment Guarantee Act 

(NREGA) is the largest of these self-targeted programs (and perhaps some sort of model for the 

federal job guarantee proposed in the United States). Every rural family is entitled to a hundred 

days of work per year at the official minimum wage, which is higher in most places than the actual 

wage. There is no official screening, but there is the requirement to work, usually on construction 

sites, which screens out anybody with something better to do than stand in the sun for eight hours 

a day.

ADVANTAGE The program is popular with the poor. So popular that the Modi government decided

 not to fight with 

it head-on after winning India’s 2014 election,  despite  having  campaigned  against  it. 

 One   advantage  of  a workfare program like NREGA is that it substitutes, at least partly, for a

 minimum  wage in places where minimum wage cannot be enforced. Workers  can  use  the  NREGA 

 wage  to   bargain  with  private-sector employers, and there is evidence they do.⁴¹ Moreover, one study

 found  that private employment actually went up, even though salaries went up. By colluding to pay

 too  little, employers were actually reducing the number of jobs, perhaps because some people were 

 unable or unwilling to work for very little money.

PROBLEMS WITH MNREGA

1. The main sticking point with any workfare program is that someone has to create millions of jobs. 

In India, this is meant to be the responsibility of the village governments (the panchayats). But 

there is a lot of mistrust between the central authorities and the village governments, with each 

side, often with some reason, accusing the other of corruption. The result is the kind of red tape 

and inefficiency that often arises when there is a lot of emphasis on fighting corruption. 

Approving a project proposal and getting work going takes several months and quite some effort by 

the head of the panchayat. This means the program is unable to respond effectively to

sudden changes in need, say, an unexpected drought. It also means that if you happen to live in a 

village where the panchayat leadership has decided these projects are too much trouble, you are out 

of luck. In Bihar, India’s poorest state, less than half of those who want work through NREGA get 

it.⁴²

2. The program ends up being rather prone to corruption because the very people involved in monitoring 

the program can use their power to block payments and extract bribes. Cutting the number of layers 

of bureaucrats involved in the monitoring of the program reduced the wealth of the median NREGA 

functionaries by 14 percent.⁴³ And even when people get work, it often takes months to get paid.

AND SO UBI........

All of this suggests there are many very good reasons to consider moving to a UBI in many 

developing countries. The problem of course is money. Most developing countries need to tax more, 

but that won’t change quickly. Initially, most of the money will have to come from shutting down 

other programs, including some of the big and popular ones such as power subsidies. Cutting the 

number of programs potentially has the added advantage of concentrating the limited government 

capacity on just a few things. The government of India has hundreds of programs on its books. Many 

of these have essentially no funding, but they have an office dedicated to them and some staff who 

accomplish very little. Manish Sisodia, the deputy chief minister in the Delhi government, once 

joked that when he came to power there was a line item in the budget for opium purchases. He 

discovered this was the remnant of a long-defunct program to help opium-addicted refugees from 

Afghanistan who had settled in Delhi.

Any universal income that governments of poor countries can afford will be ultra basic. Hence UUBI. 

The Economic Survey of India proposed something like that in 2017. It estimated that an annual 

transfer of Rs 7,620 ($430 at PPP) to 75 percent of India’s population would push all but India’s 

absolute poorest above the 2011-2012 poverty line. Rs 7,620 is very little even by Indian standards 

(less than what several economists have proposed for an Indian UBI), but perhaps enough to survive 

on. The survey puts the cost of such a scheme at 4.9 percent of India’s GDP. In 2014-2015, India’s 

major fertilizer, petroleum, and food subsidies cost 2.07 percent of GDP, while the ten largest 

central welfare schemes cost 1.38 percent, so cutting these existing programs entirely would pay 

for about two-thirds of the UUBI.⁴⁴

This proposal assumes it would be fairly easy to exclude 25 percent of people from the program. It 

may indeed be possible to introduce a mild form of self-selection. Requiring each beneficiary to 

visit an ATM every week and put their biometric ID into the system, whether or not they take out 

the money, would have the dual advantage of eliminating ghost claimants and making it too much of a 

hassle for the wealthy to want to claim the benefit. There should be fallback options that allow 

the disabled to get their money, or in case the technology malfunctions (as it often does, 

particularly for manual workers whose fingerprints get erased by working). But with the right 

framing (“come and get some extra money when you need it”), a mild requirement like having to visit 

an ATM once a week could potentially discourage at least 25 percent of the population to draw the 

transfer at any given time, while making sure those who really need it still get it.

While we are in favor of a UUBI based on what we know so far, there is no data yet on its long-term 

impact. Most of our evidence is from relatively short-lived interventions. We cannot be sure how 

people will react to being assured a basic income forever. When the novelty of the extra income 

wears off, will they go back to being discouraged and work less, or aspire higher and try harder? 

What will be the long-term impact on their families of being assured an income? This is what a 

large-scale RCT of a UBI in Kenya Abhijit is involved in will hopefully find out. In forty-four 

villages, every adult has been guaranteed $0.75 per day for twelve years. In eighty villages, every 

adult will receive the transfer for two years. In seventy-one villages, every adult will receive 

one onetime payment of $500 per adult. Finally, in a hundred more villages, no one is guaranteed 

any income, but data will be regularly  collected.  In  total,  almost  fifteen  thousand  

households  are involved in the experiment. We will start seeing results in early 2020.

We can, however, already see long-term evidence from the conditional cash transfers that have been 

in place for many years in several countries. These programs started in the 1990s, and those who 

were children at the time are now young adults. There seems to be an enduring positive effect on 

their  welfare.  For  example,  in  Indonesia,  in  2007,  the  government introduced PKH, a 

conditional cash transfer program in 438 subdistricts across Indonesia (randomly selected from a 

pool of 736 subdistricts) to a

total of about 700,000 households. The program had the standard features of most conditional cash 

transfer programs: households received a monthly transfer if they sent their children to school and 

obtained preventive care. Villages enrolled into the program in 2007 continue to receive the 

benefits even today, but due to bureaucratic inertia, the government never expanded the program to 

the control villages. Comparing treated and control villages shows some large persistent gains on 

health and education; there is a dramatic increase in births attended by a health professional and 

a halving of the number of children not in school. Over time, the program also affected the stock 

of human capital; there has been a reduction of 23 percent in the number of stunted children, and 

school completion increased. However, despite these gains in human capital and the transfers 

themselves, households are not measurably richer. This is an important warning about the long-term 

effects of purely financial transfers. It may be the case that the sums of money the governments 

can afford are too small to make a real difference to incomes (and the cost of large transfers is 

too much for the system to bear).⁴⁵

Given all this, the best combination may be a UUBI everyone can access when they need it and larger  transfers targeted to the very poor and linked to preventive care and children’s education. The  conditions for receiving transfers do not need to be very strictly enforced. 

In Morocco, we saw 

that a “labeled cash transfer,” which merely encouraged the use of money to help with education 

costs but without enforcement, seems to have been just as effective at changing behavior as a 

traditional conditional cash transfer program.⁴⁶ Similarly, the PKH program in Indonesia did not 

strictly enforce conditionalities. In this sense, it also was a “labeled cash transfer.” This 

lowers administrative costs and avoids excluding the most fragile families. Targeting can also be 

done relatively cheaply, by focusing on poor regions and relying on some identification by 

community leaders and readily available data. There will be errors. But as long as we are willing 

to be liberal in the application of the tests (so that those who need help don’t get thrown out, 

even at the cost of giving it to some people who do not need it), and as long as the UUBI is there 

to provide a minimum, we might get the best of both worlds.

                                                        UBI FOR THE USA?

Welfare policy in the United States (and in most other rich countries) also needs a reset. There 

are too many angry people who feel that for too long things have not been going their way. And 

there is no immediate sign things will sort themselves out. So is UBI the answer for the United 

States?

If voters are persuaded government is on the right track, they may be less resistant to paying the 

increase in taxes necessary to fund it. According to a Pew Research Center study,⁴⁷ 61 percent of 

Americans are in favor of a government policy offering all Americans a guaranteed income that would 

meet their basic needs in case robots become capable of doing most human jobs. Among Democrats, 77 

percent are in favor. Among Republicans, 38 percent are in favor. Sixty-five percent of Democrats 

(but only 30 percent of Republicans) say the government has a responsibility to help displaced 

workers, even if it involves raising taxes. Given this level of support and the fact that the 

United States is undertaxed by global standards, one can imagine taxes going up from 26 percent to 

31.2 percent of GDP. This would allow every American to get $3,000 per year.⁴⁸ For a family of 

four, this would be $12,000 per year, half the poverty line. It is not a fortune, but is a 

significant amount of money for anyone in the poorest third. If it is financed by a tax on capital, 

and the share of capital in the economy grows because of automation, UBI could become more generous 

over time. In Europe, there is less space for taxes to be raised, but a whole range of social 

transfers (housing, income support, etc.) could be collapsed into a single payment with few 

restrictions on how it could be spent. This is in effect what was tried out in Finland in 2017 and 

2018, where 2,000 unemployed workers were randomized to get a UBI replacing all traditional 

assistance programs (housing, employment assistance, etc.). The remaining 173,222 formed the 

control group. Early results suggest UBI recipients are happier. There is no difference in earnings 

between the two groups, perhaps consistent with everything we have seen until now.⁴⁹

But would a UBI really make the left-behind people feel that much less angry? Many proponents of 

UBI, but not the poor, seem to see it as a way to buy off those who will be made unproductive by 

the new economy and won’t be able to find work. If they had the UBI, they would be content to

stop looking for work and do something else instead. But everything we know so far seems to say 

this is very unlikely. We asked those who responded to our survey this question: “Do you think that 

if there was a universal basic income of $13,000 a year (with no strings attached) you would stop 

working or stop looking for work?” Eighty-seven percent said they would not.⁵⁰ All the evidence 

scattered through this book suggests most people actually want to work, not just because they need 

the money; work brings with it a sense of purpose, belonging, and dignity.

In 2015, the Rand Corporation conducted an in-depth survey of the working conditions of about three 

thousand Americans.⁵¹ Those surveyed were asked how often their work provides them with the 

following: “satisfaction of work well done,” “feeling of doing useful work,” “sense of personal  

accomplishment,”  “opportunity  to  make  positive  impact  on community/society,” “opportunities 

to fully use talents,” and “goals to aspire to.” They found four out of five US workers reported 

their job provides at least one of these sources of meaning always or most of the time.

Around the same time, the Pew Research Center collected data on Americans’ satisfaction with their 

job and asked respondents whether they felt their job gave them a sense of identity.⁵² About half 

(51 percent) of employed Americans said they got a sense of identity from their job, while the 

other half (47 percent) said their job is just what they do for a living.

It is not entirely clear how the numbers from these two studies fit together, but there is no 

question many people care about having a job in a way that goes beyond just getting paid. However, 

it is the workers with more education and those who earn more who tend to see their job as part of 

their identity; only 37 percent of those who make $30,000 per year or less report getting a sense 

of identity from their job. There are also some significant differences by industry. For example, 

62 percent of adults working in the healthcare industry and 70 percent of those working in 

education say they get a sense of identity from their job, compared with 42 percent of people 

working in hospitality and 36 percent in retail or wholesale trade.

People think in terms of good jobs and bad jobs, or at least meaningful jobs and less meaningful 

jobs. Better-paid jobs are on average better jobs, but what you do matters as well. People may 

resist having to move from the

job they love to a job they perceive as worthless, even if their income would be more or less 

unchanged. And, in fact, people do not really land on their feet when they lose a job they have had 

for many years. Many studies have found that, on average, displaced workers never fully recover in 

terms of earnings after a mass layoff. On average, the jobs they find are less well paid, less 

stable, and do not have the same benefits.⁵³

This is probably partly related to the fact, which we discussed in chapter 2, that labor markets 

are a lot about finding the right match between employers and employees; finding an employer who 

trusts and values you and whom you trust and value is a matter of luck. Once you find one, it is 

natural to try to stay, leading to a more stable and rewarding career, both economically and 

otherwise. Once you lose that connection, it is hard to reestablish it, especially if you are older 

and set in your ways.

This explains something rather remarkable and frightening. A study found that when workers with 

long tenure get fired during mass layoffs, they are more likely to die in the years immediately 

afterward.⁵⁴ Losing a job seems to literally give people heart attacks. The estimated impact of job 

displacement on the mortality rate goes down over time but does not go back to zero, as more 

long-run problems like alcoholism, depression, pain, and addiction set in. Overall, the study found 

that workers displaced in middle age lost between one and one and a half years of life expectancy.

Transitions are costly in ways most economic analysis ignores. As economists, we worry about the 

income loss and the time and effort involved in finding a new job, but the cost of losing the job 

itself appears nowhere in our models. It is probably no surprise that UBI, an idea economists 

instinctively gravitate toward, also ignores it. It imagines a world in which laid-off workers see 

themselves as freed from the obligation of working. Young retirees living off UBI find new meaning 

in their lives, working at home, volunteering in their communities, taking up crafts, or exploring 

the world. Unfortunately, evidence suggests that it is actually difficult for people to find 

meaning outside the structure of their work. Since the start of the American Time Use Survey (ATUS) 

in the 1960s, time spent on leisure activities has increased quite a bit, both for men and women.⁵⁵ 

For young men, a sizeable part of this time, since 2004, has been devoted to video games.⁵⁶ For all 

the other groups, the bulk of this time has been absorbed by watching television. In 2017, men 

spent on average 

and a half hours per day on leisure activities (including browsing the internet, watching TV, 

socializing, and volunteering), and women five hours. Watching TV was the leisure activity 

occupying the most time (2.8 hours per day). Socializing outside the home came a distant second at 

thirty-eight minutes.⁵⁷ During the Great Recession, when time spent on work outside the home 

declined, television and sleep took up half the slack.⁵⁸

But apparently watching television and sleeping do not necessarily make us happy. Daniel Kahneman 

and Alan Krueger showed, using surveys where they asked people to reconstruct their day and how 

they felt about each moment, that among leisure activities, watching TV, using the computer, and 

napping gave the least immediate pleasure and the least sense  of  achievement.  Socializing  is  

one  of  the  most  pleasurable activities.⁵⁹

It seems that it is very hard for people to individually figure out how to build meaning into their 

lives. Most of us need the discipline provided by a structured  work  environment,  to  which  we  

then  add  significance  or meaning. This is something that comes up when individuals worry about 

automation. In the Pew Research Center survey, 64 percent of respondents said they expect people 

will have a hard time finding things to do with their lives if forced to compete with advanced 

robots and computers for jobs.⁶⁰ Indeed,  people  who  have  more  time  on  their  hands  

(retirees,  the unemployed, those outside the labor force) are if anything less likely to volunteer 

than those employed full time.⁶¹ Volunteering is something we do on top of our regular activities, 

not instead of them.

In other words, if we are right that the real crisis in rich countries is that many people who used 

to think of themselves as the middle class have lost the sense of self-worth they used to derive 

from their jobs, UBI is not the answer. The reason we have different answers to the question in 

rich and poor countries is twofold. First, UBI is easy, and many poor countries lack the governance 

capacity to run more complicated programs. This is not true of the United States, and even less 

true of France or Japan.

Second, in most developing countries, the average person would also certainly like a stable job 

with a good income and benefits, but it is not what they think they are entitled to. A very large 

proportion of the world’s poor and near-poor, who essentially all live in the developing world, are

self-employed. They don’t like being self-employed, but they are used to it. They know they might 

have to switch from one occupation to a very different one within the space of a month or even a 

day, depending on what opportunities are available. They sell snacks in the morning and work as 

seamstresses in the afternoon. Or work as farmers during the monsoon and as brick makers during the 

dry season.

Partly for that reason, they do not build their lives around their work; they  are  careful  to  

maintain  connections  with  their  neighbors,  their relatives, their caste and religious groups, 

their formal and informal associations. In Abhijit’s native West Bengal, the club (or in Bangla 

pronunciation, the klaab) is a key institution; most villages and urban neighborhoods have at least 

one. The members are men between the ages of sixteen and thirty-five; they meet nearly every day to 

play cricket or soccer or cards or the uniquely South Asian tabletop sport carrom. They often 

describe themselves as social workers, and when, say, there is a death in some family, they show up 

and help. But they also practice a mild form of extortion in the name of “social work” or religious 

observances, and this, along with contributions from local politicians who use them as foot 

soldiers, pays for the club and its occasional celebrations. Mostly, however, it serves as a way to 

keep the local bloods from getting into more trouble, in a setting where most of them are either 

not working or working at a job they don’t enjoy. It provides a modicum of meaning.

BEYOND FLEXICURITY

WHAT IS FLEXICURITY

If UBI won’t solve the disruption caused by our current economic model, what will? Economists and  many policy makers like the Danish model of “flexicurity.” It allows for full labor market  flexibility, meaning people can be laid off quite easily whenever they aren’t needed anymore, but  the laid off are subsidized so they do not suffer much of an economic loss, and there is a  concerted effort by the government to get the worker back into employment (perhaps after meaningful retraining).

           Compared to a system where workers are essentially on their own (like in the United States), flexicurity is meant to ensure job loss is not a tragedy, but a normal phase of life. Compared to a system that makes it difficult to fire workers on permanent contracts (like in France), flexicurity makes it possible for employers to adjust to changes in circumstances, and avoids the conflict between the “insiders,” those lucky enough to have strongly protected jobs, and the “outsiders,” who have no jobs at all.

This is consistent with the economist’s basic reflex: we should let the market do its job and insure people who end up holding the short end of the stick. In the long run, preventing reallocation of labor from shrinking sectors to growing ones is both impractical and costly. For many people in the economy, particularly the younger worker, any help to seriously retrain is  valuable. We saw earlier that the TAA program worked.

                             Nonetheless, we don’t think that flexicurity is the entire answer. This is because of what we  already discussed; 

JOB LOSS MAKE UP job loss is clearly much more than income loss. It is all too often about being  yanked from a settled life plan and a particular vision of the good life. In particular, older  people and those who have worked in a particular location or for a particular firm for many years probably find it more difficult to switch to another career. Retraining them is costly, given they have relatively few years of work life left. They have a lot to lose and little to gain from moving to another career (and even more to another place). The only relatively easy transition would be to move to another role in the same area and in a similar position.

This is why at the end of chapter 3 we proposed the somewhat radical idea that some workers should be subsidized to stay in place. When a whole sector is disrupted by trade or by technology, the wages of the older workers could be partly or fully subsidized. Such a policy should only be triggered when a particular industry in an area is in decline, and reserved for older employees (above fifty or fifty-five) with at least ten (or eight or twelve) years of experience in a comparable position.

Economists are instinctively critical of opening up such a large space for governmental  discretion.  How  will  the  government  know  what  the declining industries are?

GOVERNMENTAL INTERVENTIONS

We don’t doubt there will be some errors and some abuse. However, this has been the excuse for not intervening all these years when trade has been robbing people of their livings while claiming to make everyone better off. If we want to claim trade is good for everyone, we need to design mechanisms to make it actually so, and those will involve identifying losers and compensating them. In fact, trade economists (including those in government) have the numbers  to know where imports are growing fast and where outsourcing is growing apace; the round of tariffs  imposed by the United States in 2018 were computed from this data. 

1. A trade war risks hurting a lot of other people in the economy, whereas a much more targeted subsidy would protect the most  vulnerable groups without creating new forms of disruption.

2.  A similar policy for identifying sectors and locations where automation is happening fastest, and intervening, could also be put together.

                                     Prominent urban economists, like Moretti, are suspicious of place-based policies because they worry the policy will just end up redistributing activity from one region to the other, and possibly away  from the most productive regions to less productive regions. But if people over a certain age  cannot or will not move, then it is not clear what choice we have. Today, large pockets of left-behind people are dotted across the US landscape, with hundreds of towns blighted by anger and  substance abuse, where everyone who can afford it has either left or is contemplating leaving. It  will be very difficult to help people in these places. The goal of social policy, therefore, should be to help the distressed places that exist, but perhaps more importantly avoid ending up with many more.

                                      In a sense, this is what Europe has done with its Common Agricultural Policy. Economists hate it, because a dwindling number of European farmers have gotten a great deal as a result of subsidies at the expense of everyone else. But they forget that by preventing many of the farms from shutting down, it has kept the countryside in many European countries much more verdant and vibrant. In the past, since farmers were paid more to produce more, they had a tendency to intensify agriculture, giving rise to large ugly fields. But since 2005-2006, the amount of assistance given to farmers  has  not  been  linked  to  production.  It  is  based  instead  on environmental protection and animal welfare. The result is that small artisanal farms are able to survive, and from them we get high-quality produce and pretty landscapes. This is something most Europeans probably think is worth preserving and certainly contributes to the quality of their lives and the sense of what it is to be a European. Would French GDP be higher if agricultural production were more concentrated and farmhouses were replaced by warehouses? Possibly. Would welfare be higher? Probably not.

                                       The analogy between protecting manufacturing employment in the United States and protecting nature in France may seem strange. But pretty countrysides attract tourists and keep young people around to take care of their aging parents. Similarly, the company town can ensure there is a high school, some sports teams, a main street with a few shops, and a sense of belonging somewhere. This is also the environment, something we all enjoy, and society should be ready to pay for it, just as it is willing to pay for trees.

SMART KEYNESIANISM: SUBSIDIZING THE COMMON GOOD

WHERE SHOULD BE MONEY SPENT FOR EMPLOYMENT GENERATION

In 2018, a very different approach based on subsidizing work is gaining ground in the US Democratic 

party. In 2019, presidential candidates Cory Booker, Kamala Harris, Bernie Sanders, and Elizabeth 

Warren have all proposed some kind of federal guarantee, whereby any American who wanted to work 

would be entitled to a good job ($15 an hour with retirement  and  health  benefits  on  par  with  

other  federal  employees, childcare assistance, and twelve weeks of paid family leave) in 

community service, home care, park maintenance, etc. The Green New Deal proposed by Democratic 

members of Congress includes a federal job guarantee. The idea is of course not new; the Indian 

National Rural Employment Guarantee Act works along the same lines, as did the original New Deal.

Such a program is not easy to run well if the experience in India is any guide. Creating and 

organizing enough jobs would probably be even harder in the United States, given that very few 

people want to dig ditches or build roads, which is what they are asked to do in India. Also, the 

jobs would need to be useful. If they were transparently some form of make-work, they would not 

boost the employees’ self-esteem. Between pretending to work and going on disability, they might 

still choose the latter. Finally, given the required scale of the program, it would have to be 

implemented by private companies bidding on government contracts, known for delivering low quality 

at a high price.

A more realistic strategy may be for the government to increase the

demand for labor-intensive public services by increasing the budget for those services without 

necessarily providing them directly. An important consideration, especially in the developing 

world, is to not create jobs where people are underworked and overpaid. As we already saw, the 

presence of such jobs freezes up the labor market, because everyone queues up to get them. This has 

the result that overall employment may actually go down. The jobs need to be useful and 

compensation needs to be fair. There are many possibilities. Elder care, education, and childcare 

are all sectors where the productivity gains from automation are, at least for the moment, limited. 

Indeed, it seems likely that robots will never be completely able to replace the human touch in 

caring for the very young or the very old, though they may well complement it effectively.

Another reason why humans will be very hard to replace in schools and preschools is that if robots 

take over all the jobs requiring narrow technical skills (from screwing in bolts to accounting), 

people will be increasingly valued for flexibility and natural empathy. Indeed, research shows 

social skills have become more valued in the labor market in the last decade compared to cognitive 

skills.⁶² There is very little research on how social skills can be taught, but it seems common 

sense that human beings will retain some comparative advantage over software in teaching social 

skills. Indeed, an experiment conducted in Peru shows boarding-school students who were randomly 

assigned beds near highly sociable students gained social skills themselves. In contrast, being 

assigned a neighboring student with good test scores did not help them get better grades.⁶³

The comparative advantage of humans in care and teaching means the relative productivity of these 

sectors will increasingly lag behind as machines gain hold elsewhere, and they may also attract 

less private investment than sectors where more rapid productivity gains can be achieved. At the 

same time, the care of the elderly is definitely a worthwhile  social  goal  that  is  currently  

underserved,  and  there  are enormous potential gains for society from investing in better 

education and early-childhood care. This will cost money; these two sectors alone could probably 

absorb as much money as a government would be willing to spend. But if this is money spent paying 

people well for stable, well- respected jobs, it will achieve two important goals: producing 

something useful for society and providing a large number of meaningful occupations.

HEAD STARTS

NEIGHBOURHOOD IMPACT- IMPACT OF BETTER PRE-SCHOOLING AND SCHOOLING 

The  intergenerational  mobility  of  children  is  tightly  linked  to  the neighborhoods in which 

they grow up. A child born in the bottom half of the income distribution in the United States will 

on average reach the forty- sixth percentile of income if he grew up in Salt Lake City, Utah, but 

only the thirty-sixth percentile if he happened to be from Charlotte, North Carolina. These spatial 

differences emerge well before an individual starts working: children in the low-mobility zones are 

less likely to attend college and are more likely to have children of their own early.⁶⁴

In 1994, the US department of Housing and Urban Development launched a program called Moving to 

Opportunity (MTO) that offered public housing residents the opportunity to participate in a lottery 

giving them the chance to move from high-poverty housing projects to lower- poverty neighborhoods. 

About half of the families who won the vouchers took advantage of it, and those who did ended up in 

much less poor neighborhoods.

A team of researchers was able to follow winners and losers of the voucher lottery to see if 

anything changed as a result. The early results for children were somewhat disappointing: while 

girls were in a better mental state and did better in school, the same was not true of boys.⁶⁵ 

However, in the longer term, some twenty-odd years after the initial lottery, large differences in 

their life outcomes were evident. Young adults whose parents won the vouchers earned $1,624 more 

per year than those whose parents did not. They were more likely to have gone to college, they 

lived in better neighborhoods, and the girls were less likely to be single mothers. Some of these 

effects will therefore likely transmit to the next generation as well.⁶⁶

What explains why some neighborhoods are “better” than others for mobility? Researchers are far 

from settling this, but there are clearly features of the environment that seem to be correlated 

with higher mobility, including most importantly the quality of schools. The map of social 

mobility, it turns out, is closely related to the map of performance in standardized education 

tests.⁶⁷

Thanks to decades of research on education, we know a fair amount about what can be done to improve 

learning outcomes. In 2017, a study

summarized 196 randomized studies conducted in developed economies on interventions  (both  in  

schools  and  with  parents)  to  improve  school achievement.⁶⁸ While there was a wide variation 

in how effective these interventions were, a good preschool education and intensive tutoring in 

schools for disadvantaged children seemed to work best. Some children have a higher chance of 

falling behind grade level and then getting totally lost; preparing them ahead of time in 

preschool, and then being ready to identify and address any major gaps in their learning before 

they become too large, stops it from happening. This is entirely consistent with what we have found 

in our own work in developing countries.⁶⁹

There is also evidence that short-term gains in school outcomes translate into long-term 

differences in opportunities. For example, an RCT in Tennessee that cut class sizes from 20-25 to 

12-17 led to an increase in test scores in the short run and a higher chance of going to college 

later on. Students assigned to small classes had better lives later on, as measured by home 

ownership, their savings, their marital status, and the neighborhood they lived in.⁷⁰ High-dosage 

tutoring and small class sizes require staff, which would provide employment as well as helping 

kids throughout their school career.

The constraint in the United States comes from the local funding of education. This has the 

consequence that the places in the most desperate need of good public education have the least 

money to pay for it. A substantial financial effort could make a big difference. More generally, 

one consequence of the low levels of government funding in the US is that pre- kindergarten 

education is not federally subsidized, and as a result only 28 percent of children attend some sort 

of subsidized pre-K program in the United States,⁷¹ in contrast with France, say, where pre-K is 

subsidized, attendance has been near universal for years,⁷² and it was recently made mandatory.

The original evidence in support of pre-K programs came from some early randomized controlled 

trials that found large effects of high-quality preschool interventions both in the short and long 

term, leading Nobel Prize-winner James Heckman to advertise them as the best solution to reduce 

inequality.⁷³ However, some of these experiments were tiny, making it possible to ensure the 

programs were run exactly as they should be.

Two larger RCTs evaluating more realistic “at scale” pre-K programs

(the national Head Start program and the Tennessee pre-K experiment) have been more disappointing; 

both of them found effects in the short run, but the effects on test scores faded or were even 

reversed after a few years.⁷⁴ This has led many to conclude pre-K programs are overrated.

But in fact a key finding of the national Head Start study is that the effectiveness of Head Start 

seems to vary tremendously with the quality of the program. In particular, programs that run for 

the full day are more effective than half-day programs, and those that include home visits and 

other forms of engagement with parents are also more effective. There is also separate evidence 

from RCTs in both the United States and other countries of the effectiveness of home visits, during 

which preschool teachers or social workers work with parents to show them how to play with their 

children.⁷⁵

The general takeaway right now is that there needs to be more research so we know exactly what 

works in early childhood. But what we do know suggests resources matter; when Head Start was scaled 

up, many centers tried  to  reduce  costs  by  cutting  services,  making  them  ineffective. 

Maintaining quality is crucial and has the added advantage of offering a massive expansion of what 

would surely be attractive jobs for many people, especially  if  they  were  adequately  paid.  

These  jobs  would  be  both rewarding and impossible to robotize (one cannot really imagine a 

robot visiting parents at home).

Equally importantly, it seems possible to train someone to be an effective pre-K teacher cheaply 

and fairly quickly, as long as there are the necessary materials to support them. In India, we 

worked with Elizabeth Spelke, a psychology professor at Harvard, to create a preschool math 

curriculum involving games that build on the intuitive knowledge of mathematics to prepare those 

who have not yet learned to read or write or even count for primary school. This was evaluated in 

an RCT in several hundred preschools in the slums of Delhi.⁷⁶ Liz was initially horrified by the 

conditions in Delhi—the tiny porches overcrowded with students of various ages and the teachers’ 

low level of training, many of whom had barely completed high school. It was a far cry from the 

conditions in her lab at Harvard. But it turns out those teachers, with one week’s worth of 

training and good materials, were able to sustain the slum children’s attention, who played math 

games for several weeks, progressing through

the games fast and with gusto, learning a good deal of math in the process.

Inadequate  access  to  childcare  is  also  one  of  the  most  severe disadvantages faced by both 

married and single low-income women in the United States. The lack of subsidized high-quality 

full-day care means they either do not work (since childcare often costs almost as much as they 

would make) or have to take the best available job close to family (close to their mothers, in 

particular) to get help with childcare.  Even in progressive Denmark, while there is almost no difference

 in the  earnings of men and women before childbirth, the arrival of a child creates a gender gap in 

earnings of around 20 percent in the long run. Women start falling behind men in terms of their 

occupational rank and their probability of becoming managers right after the birth of their first 

child. Moreover, new mothers switch jobs to join companies that are more “family friendly,” as 

measured by the share of women with young children in the firm’s workforce. About 13 percent 

permanently drop out of the labor force.⁷⁸ Expanding highly subsidized quality whole-day care is 

one very effective way to raise incomes among low-income women by, quite simply, making work pay.

Elder care is another area with tremendous scope for expansion, since the United States has very 

little in-home care of the elderly and very few publicly funded old-people’s homes. Denmark and 

Sweden, in contrast, spend 2 percent of GDP on elder care.⁷⁹ A centralized e-health database where 

patient records are stored electronically helps hospitals and local authorities collaborate. All 

eighty-year-olds (not just the poor) are entitled to home visits and home help, and all widowed 

over-sixty-fives are monitored to see if they need help. Older people also get money for necessary 

improvements to make their homes safer. Those who need continuous care usually end up in publicly 

run nursing homes, paid for out of the public pension they are entitled to.

Working with the elderly can be challenging, and in the United States these jobs pay very little; 

in other words, they are not very attractive. But that again could change. We need to provide the 

money to hire enough people, train them adequately, ensure they have enough time to spend with each 

person, and pay them well enough to make them proud of the work they do.

HELP MOVING

RETRAINING

Given the important role neighborhoods play, both for finding good jobs and for raising children, 

helping people to move is another important policy. In the United States, scaling up Moving to 

Opportunity for the entire nation (making it possible for everyone to move to a good neighborhood) 

is not really possible, but supporting workers to change regions or jobs should be. There are 

actually several programs aimed at this, but many of them do little more than point workers to jobs 

and help them with the application process. The experience with these “active labor market” 

policies is fairly disappointing, both in Europe and the US. Their effects are positive but small, 

and they come largely at the expense of similar workers who are not

helped.⁸⁰

A more ambitious (and expensive) program would give displaced workers automatic access to a much 

longer period of unemployment insurance. They would have time to train and look for good jobs, and 

therefore not need to accept the first available low-paid job or go on disability. Such a program 

would give them access not just to short-term training options, but also to more advanced programs, 

perhaps in colleges or community colleges, with full scholarships. We need to start thinking of the 

challenge as not just of finding a job but rather of finding a career. An RCT in the United States 

recently evaluated three programs that tried to do just this. The core idea was to extend the 

training of unemployed workers to several months, to develop specialized skills in sectors where 

workers were in short supply (such as healthcare and computer maintenance), then match the workers 

with sectors that needed them. The results after two years are very promising. During the second 

year of the evaluation, after they had completed their training, participants were more likely to 

be employed, and when employed, in better jobs than comparable workers who did not participate in 

the programs. Overall, participants earned 29 percent more than nonparticipants.⁸¹

Importantly,  these  programs  also  helped  with  relocation.  For

disadvantaged job seekers and workers, they provided help with childcare or transportation or a 

referral for housing or legal services, either during training or at the beginning of the new job. 

Such help could be expanded to provide short-term housing, and finding schools and daycare for the 

children. Housing vouchers, smaller than those provided by Moving to Opportunity, could help make 

good neighborhoods more affordable.

It may also be important to help companies that need workers to look outside the immediate 

neighborhood and local referral networks. Most programs seeking to help facilitate the process of 

pairing workers and jobs focus on the workers. But for an employer the process of finding the right 

worker  is  also  time  consuming  and  costly.  A  survey  suggests  that recruitment costs 

(vacancy posting, screening, and training new workers) range between 1.5 percent and 11 percent of 

the yearly wage of a worker. Large companies often have a human resources department, but for small 

businesses those recruitment costs could be a real barrier. A recent study in France showed 

recruiting costs are big enough to slow down hiring. Researchers teamed up with the national 

unemployment agency to offer recruiting assistance to firms. They posted vacancies on behalf of the 

firm and generated and screened promising job applications; they found that companies offered these 

services posted more vacancies and hired 9 percent more permanent workers than those that were 

not.⁸² Services like this could allow employers to move beyond the purely informal referral channel 

to an expanded pool of candidates.

Programs like these might pay for themselves—new skills and better matching between workers and 

employers are valuable to any economy— but even if they don’t, the gains in terms of reducing 

anxiety and restoring dignity in our society would be profound. For it is not just the unemployed 

workers who would be touched by such a program, but all those who think their jobs may one day be 

at risk, or those who know someone who has been affected. Equally importantly, by shifting the 

narrative of such programs from “you are being bailed out” to “sorry this happened to you, but by 

acquiring new skills and/or moving you are helping the economy stay robust” we might alter the 

sense many blue-collar workers have that they are victims of a war waged by the rest of us against 

them.

For example, the Obama administration’s supposed “war on coal” was seen as a war against the coal 

workers. It may be that coal workers are

particularly proud of their specific line of work and believe nothing could replace it, but it is 

worth remembering that until relatively recently coal workers fought against their employers, not 

alongside them as they do today. They have precisely the kind of physically dangerous and hazardous 

jobs most Americans think should be done by machines. The same goes for steelworkers; it must be 

possible to conceive of jobs less dangerous that carry the same level of pride.

Despite that, when, in March of 2016, Hillary Clinton icily announced that “we are going to put a 

lot of coal miners and coal companies out of business,” coal workers perhaps not unreasonably felt 

this was callously undercutting their way of life without ever feeling the need to apologize or 

compensate them for the loss. Clinton immediately followed by talking about the need to take care 

of the miners, but the “we” opening this sentence clearly framed the debate as an “us” versus 

“them” issue. That sentence was aired in political ads for months afterward.

In fact, each and every transition can and should be a chance for government to signal its empathy 

for the workers who have to suffer it. Changing careers and moving are both difficult, but they are 

also an opportunity for the economy and for individuals to find the best match between talent and 

occupation. Everyone should be able, just as four out of five Americans do, to find meaning in 

their jobs. A program for better job transitions would be a universal right. But unlike UBI, which 

is just a universal right to an income, the program would link to what seems to be an integral part 

of social identity. We each should have a universal right to a productive life within society.

Many European countries invest much more in their job transition programs than the United States. 

For the 2 percent of GDP Denmark spends on active labor market policies (training, job finding 

assistance, etc.), it gets high job-to-job mobility (going straight from one job to another) as 

well as lots of transitions in and out of employment. The rate of involuntary displacement is 

similar to that in other OECD countries, but the rate at which displaced workers find a job is much 

more rapid: three in four displaced workers find a new job within one year. Importantly, the Danish 

model survived the 2008 crisis and recession, with no large increase in involuntary unemployment at 

that time. Germany spends 1.45 percent of its GDP on active labor market policies, and this went up 

to 2.45 percent

during the crisis, when unemployment was much higher than usual.⁸³ In France, on the other hand, 

notwithstanding claims about how it wants to do more for the unemployed, expenditure on active 

labor market policies has been stuck at 1 percent of GDP for more than a decade. The corresponding 

measure for the United States is just 0.11 percent.⁸⁴

In fact, the United States also has its own model it could follow. The Trade Adjustment Assistance 

program, discussed in chapter 3, provides workers at approved firms money to pay for training and 

extended unemployment insurance while they get the training. This program is quite effective, and 

furthermore it did exactly what a program of this type should do: it helped workers in the most 

disadvantaged places move. Its effect on future earnings was twice as large for workers whose 

original employer was located in a distressed region. And workers who received TAA assistance were 

also much more likely to change region and industry.⁸⁵ But instead of becoming a template of what 

could be done to help workers manage various kinds of difficult transitions, the TAA has remained 

tiny. How could that make sense?

TOGETHER IN DIGNITY

The reluctance to make use of available government programs, even when they work well, may be 

related to the fact that a majority of Republicans and a substantial fraction of Democrats are 

against the government starting a universal income program or a national job program to support 

those who lose their jobs to automation, even though many more are in favor of limiting the right 

of companies to replace people with robots.⁸⁶ Behind this is partly suspicion about the 

government’s motives (they only want to help “those people”) and partly exaggerated skepticism 

about the government’s ability to deliver. But there is also something else that even people and 

organizations on the left share: a suspicion of handouts, of charity without empathy or 

understanding. In other words, they don’t want to be patronized by the government.

When Abhijit was serving on a UN Panel of Eminent Persons to come up with what were to be new 

millennium development goals, he was often

subjected to low-key lobbying by prominent international NGOs with views on what some of those 

goals should be. This was often a very pleasant way to learn about interesting initiatives, and 

Abhijit enjoyed the encounters. But the one meeting he remembers most vividly was with an 

organization called ATD Fourth World.

When he walked into the cavernous room in the EU headquarters where the meeting was held, he 

immediately noticed it was a very different crowd. No suits, no ties, no high heels; lined faces, 

scruffy winter jackets, and also an eagerness he associated with college freshmen in their first 

week. These were people, he was told, who had experienced extreme poverty and were still very poor. 

They wanted to participate in a conversation about what the poor wanted.

It turned out to be nothing like anything he had ever encountered before. People quickly intervened 

and talked about their lives and about the nature of poverty and the failings of policy, drawing on 

their own experiences. Abhijit tried to respond, trying at first to be as delicate as possible when 

he disagreed. He soon realized he was being patronizing; they were in no way less sophisticated or 

less able to argue back than he was.

He  left  with  enormous  respect  for  ATD  Fourth  World,  and  an understanding of why its 

slogan is “All Together in Dignity to Overcome Poverty.” It was an organization that put dignity 

first, if necessary even before basic needs. It had built an internal culture where everyone was 

taken seriously as a thinking human being, which is what gave the members the confidence Abhijit 

had not expected.

Travailler et Apprendre Ensemble (“Work and Learn Together”), or TAE, is a small business started 

by ATD Fourth World to provide people in extreme poverty with permanent jobs. One winter morning, 

we went to Noisy-le-Grand in the east of Paris to observe one of their team meetings. When we 

arrived, the group was preparing the schedule for the workweek across their different activities, 

assigning people to tasks and drawing up their plan on a whiteboard. When they were done with 

scheduling the work, they started discussing a company event. The atmosphere was relaxed but 

engaged, problems were discussed with seriousness, and everyone then went off to start their tasks. 

It could have been the weekly meeting of a small start-up in Silicon Valley.

What was different was the activities they were scheduling (cleaning

services, construction, and computer maintenance) and the people around the table. After the 

meeting, we continued talking to Chantal, Gilles, and Jean-François. Chantal had been a nurse, but 

after an accident found herself seriously disabled. Unable to work for many years, she ended up 

homeless. This is when she reached out to ATD for help. ATD gave her housing and directed her to 

TAE when she was ready to work. She had been working there for ten years when we met her, first on 

the cleaning team and then on the software team, and had become a leader. She was now contemplating 

leaving to start a small NGO to help disabled people find work.

Gilles had also worked at TAE for ten years. After a period of severe depression,  he  found  

himself  incapable  of  working  in  a  stressful environment. TAE allowed him to work at his own 

rhythm and he progressively got better.

Jean-François and his wife had lost custody of their son, Florian, who suffered from ADHD, and 

Jean-Francois himself, who had temper issues, was placed under administrative custody of the state. 

They reached out to ATD, which was allowed to take Florian on a supervised basis in one of their 

centers, where he learned about TAE.

The CEO, Didier, had been the CEO of a “traditional” firm before joining TAE. Pierre-Antoine, his 

aide, had been a social worker in a job placement office. Pierre-Antoine explained the limits of 

the traditional job- placement model. When people have one difficulty, it is possible to help. When 

people accumulate problems, they don’t conform to what regular jobs expect from them, and they 

often quickly give up or get rejected. What is different at TAE is that the business is designed 

around them.

The key, according to what Bruno Tardieu, an ATD leader who accompanied us to the meeting, told us, 

is that “all their lives people have given them things. No one has even asked them to contribute.” 

In TAE, they are asked to contribute. They make decisions together, train each other, eat together 

every day, and take care of each other. When someone is missing, they are checked on. When someone 

needs time to deal with a personal crisis, they receive help getting it.

The spirit of TAE reflects well that of its mother organization. ATD Fourth World was founded by 

Joseph Wresinski, a Catholic priest, in France in the 1950s, out of the conviction that extreme 

poverty is not the result of the inferiority or inadequacy of a group of people, but of systematic

exclusion. Exclusion and misunderstanding build on each other. The extreme poor are robbed of their 

dignity and their agency. They are made to understand that they should be grateful for help, even 

when they don’t particularly want it. Robbed of their dignity, they easily become suspicious, and 

this suspicion is taken for ingratitude and obstinacy, which further deepens the trap in which they 

are stuck.⁸⁷

What does a small business in France, employing less than a dozen ultra poor people and struggling 

to get by, teach us about social policy more generally?

First, given the right conditions, everyone can hold a job and be productive. This faith gave rise 

to a French experiment trying to create “zero long-term unemployed territories” where the 

government and civil society organizations commit to finding a job for everyone within a short 

period of time. To get there, the government is offering a subsidy of up to

€18,000 per employee to any organization that agrees to hire any long-term unemployed who wants a 

job. At the same time, NGOs are being engaged to find the long-term unemployed (including those who 

face multiple difficulties: mental or physical handicaps, prior convictions, etc.), match them to 

jobs, and offer them the assistance they need to be able to take the jobs.

Second, work is not necessarily what follows after all the other problems have been solved and 

people are “ready,” but is part of the recovery process itself. Jean-François was able to take back 

custody of his son after he found a job and is inspired by the pride his son takes in him now that 

he is working.

Very far from Noisy-le-Grand, in Bangladesh, the enormous NGO BRAC arrived at the same conclusion. 

They noticed that the poorest of the poor in the villages where they worked were excluded (or 

self-excluded) from many of their programs. To solve this problem, they came up with the idea of 

the “graduation approach.” After identifying the poorest people in the village with the help of the 

community, BRAC workers provided them with a productive asset (such as a pair of cows or a few 

goats) and for eighteen months, supported them emotionally, socially, and financially, and trained 

them to make best use of their assets. RCTs of this program in seven countries found a large 

impact.⁸⁸ In India, we have been able to follow the evaluation sample for ten years. Despite 

economic progress in the area,

which  lifted  all  households,  we  still  find  very  large  and  persistent differences in how 

the beneficiaries live compared to the comparison group that did not get the program. They consume 

more, have more assets, and are healthier and happier; they have “graduated” from being the 

outliers to being the “normal poor.”⁸⁹ This is quite different from the long-term follow-ups of 

pure cash transfer programs, which have so far been disappointing.⁹⁰ Putting these families 

squarely on track toward productive work required more than money. It required treating them as 

human beings with a respect they were not used to, recognizing both their potential and the damage 

done to them by years of deprivation.

The deep disregard for the human dignity of the poor is endemic in the social protection system. A 

particularly heart-wrenching instance is what happened to Chantal, one of the TAE employees we met. 

When Chantal and her husband, who are both disabled, asked for assistance at home with their four 

children, two of whom are also disabled, they were offered temporary placement for their children 

in foster care. This “temporary” solution ended up lasting ten years, during which they were only 

allowed to see their children for one weekly supervised visit. The suspicion that poor parents are 

incapable of taking care of their children is widespread. Until the 1980s, tens of thousands of 

poor Swiss children were removed from their families and placed on farms. In 2012, the government 

of Switzerland formally apologized for the separations. This discrimination is in effect a form of 

racism against the poor, a reminder of the policy in Canada where scores of indigenous children 

were sent to boarding school and forbidden to speak their language, to ease their “assimilation” in 

mainstream Canadian culture.

A  social  protection  system  that  treats  anyone  with  this  kind  of callousness becomes 

punitive, and people will go to great lengths to avoid having anything to do with it. Make no 

mistake. This does not just affect some small sliver of the extreme poor that’s very different from 

the rest of us. When part of the social system conveys punishment and humiliation, it is the entire 

society that recoils from it. The last thing a worker wants when he has just lost his job is to be 

treated like “those people.”

STARTING FROM RESPECT

A different model is possible. We once drove to the mission locale office in the city of Sénart 

near Paris to observe a meeting of “young creators.” The mission locale is a one-stop shop to serve 

all the needs (medical, social, employment) of disadvantaged youth. This program of young creators 

is for any young man or woman who is currently unemployed and wants to start a small business. 

Sitting around the table, the young people explained what they wanted to do. We heard about plans 

to start a gym, a beauty parlor, and an organic beauty products shop. We then asked them why they 

wanted to have their own businesses. Strikingly, none of them spoke about money. One after the 

other, they spoke about dignity, self-respect, and autonomy.

The approach of the young creators program is very different from the typical approach in 

unemployment agencies. In the traditional approach, the goal of the counselor is to quickly 

identify something the youths, mostly high school dropouts or vocational school graduates, could 

do, usually some sort of training program, and direct them there. The presumption is that the 

counselor knows what is good for each person (the fashion these days is to do it with the help of 

some machine-learning algorithm). The youths then have to conform or lose their benefits.

Didier Dugast, who conceived the creators program, told us that more often than not, the 

traditional approach fails entirely. The young people who arrive have been told, all their lives, 

what to do. They have also been told, in school and perhaps at home, that they are not good enough. 

They arrive bruised and wounded, with extremely low self-esteem (we verified this in our  

quantitative  survey⁹¹),  which  often  translates  into  an  instinctive suspicion  of  everything 

 offered  to  them,  and  a  tendency  to  resist suggestions.

The idea behind the young creators program is to start with the project the young man or woman 

proposes, and to take it very seriously. The first interview invites them to explain what they want 

to do, why they want to do it, and where it fits into their personal life and plans. We sat in on 

three interviews: a young woman who wanted to start a pharmacy for Chinese medicine, a young man 

who wanted to sell his graphic designs through an online shop, and a young woman who wanted to set 

up a home care business for elderly people. In all cases, these first interviews were long (about 

an hour each) and the caseworker took time to understand the project,  without  ever  obviously  

judging  it.  More  in-depth  interviews

followed, as well as a few group workshops. In the course of these conversations, the caseworker 

started to focus on convincing the youths that they were in control of their destinies and had what 

it took to succeed. At the same time, it was also made clear there was more than one way to 

succeed; perhaps the aspiring Chinese pharmacist could start training to become a nurse or a 

paramedic.

We were involved in the RCT of this project. Nine hundred young people who had applied for the 

program were assigned either to this program or to the regular services. We found that those in the 

program were more likely to be employed and earned more. The effects were much larger for those who 

were the most disadvantaged to start with. What was extremely surprising at first glance was that 

the program actually reduces the probability of being self-employed, even though it begins with the 

applicant’s idea for starting a business. The main value of the program (and its explicit 

philosophy) is that the self-employment project is a starting point, but not necessarily the end. 

The program is essentially a form of therapy aimed at restoring confidence. What matters is finding 

stable, rewarding occupations within six months to a year. In contrast, a competing program we also 

evaluated that simply cherry-picked the most promising candidates for a self-employment program and 

then focused on bringing their initial project idea to fruition had no effect whatsoever, mostly 

because it selected the type of people likely to succeed regardless of the help they got.⁹²

In our view, the deep respect for the dignity of the young people is what made the Sénart young 

creators initiative work. Many of these young people had never experienced being taken seriously by 

anyone in an official position (teachers, bureaucrats, law enforcement officials). As we saw 

earlier, research in education shows that children quickly internalize their place in the pecking 

order, and teachers reinforce it. Teachers told that some children are smarter than others (even 

though they were simply chosen randomly) treat them differently, so that these children in fact do 

better.⁹³ In France,  there  was  a  randomized  evaluation  of  an  Énergie  Jeunes intervention 

inspired by Angela Duckworth’s idea of “grit.”⁹⁴ It showed inspirational videos to students, to 

encourage them to think of themselves as strong  and  powerful,  and  this  had  positive  effects  

on  their  regular attendance in school, their attitudes in class, and even their grades. The

effect did not seem to be rooted in children’s perceptions of their own grit or seriousness (if 

anything, children gave themselves low scores on those). It was more that the students became much 

more optimistic about the chances of success for someone like themselves.⁹⁵ ATD Fourth World, in 

collaboration  with  l’Institut  Supérieur  Maria  Montessori  in  Paris,  is attempting to break 

this vicious cycle of low expectations as early as possible. In the emergency housing projects it 

runs, ATD runs high-quality Montessori  schools  as  shiny  and  well  operated  as  the  few  

private Montessori schools catering to upper classes in the center of Paris.

The same shift in attitude, from patronizing to respectful, was built into the program Becoming a 

Man, in inner-city Chicago. The program seeks to temper violence among young people. But instead of 

telling them it is wrong  to  be  violent,  it  starts  with  recognizing  that  for  teens  in 

disadvantaged  neighborhoods  violence  may  be  the  norm,  so  being aggressive or even fighting 

may be necessary to avoid developing a reputation as a victim. Someone in this sort of neighborhood 

environment could develop a tendency to reflexively push back with violence whenever challenged. So 

instead of telling participants it was not the right thing to do, or punishing them when they did 

so, Becoming a Man asked kids from poor neighborhoods to participate in a series of activities, 

inspired by cognitive behavioral therapy, to help them identify when fighting was the appropriate 

reaction and when it might not be. Essentially, they were taught to just take a minute to gauge the 

environment and assess the proper course of action. Participation in the program reduced the total 

number of arrests during the intervention period by about a third, reduced violent crime arrests by 

half, and increased graduation rates by around 15 percent.⁹⁶

What is common among a drought-affected farmer in India, a youth in Chicago’s South Side, and a 

fifty-something white man who was just laid off? While they may have problems, they are not the 

problem. They are entitled to be seen for who they are and to not be defined by the difficulties 

besieging them. Time and again, we have seen in our travels in developing countries that hope is 

the fuel that makes people go. Defining people by their problems is turning circumstance into 

essence. It denies hope. A natural response is then to wrap oneself into this identity, with 

treacherous consequences for society at large.

The goal of social policy, in these times of change and anxiety, is to help

people absorb the shocks that affect them without allowing those shocks to affect their sense of 

themselves. Unfortunately, this is not the system we have inherited. Our social protection still 

has its Victorian overlay, and all too many politicians do not try to hide their contempt for the 

poor and disadvantaged. Even with a shift in attitude, social protection will require a profound 

rethinking and an injection of lots of imagination. We have given some clues in this chapter on how 

to get there, but we clearly don’t have all the solutions, and suspect nobody else does either. We 

have much more to learn. But as long as we understand what the goal is, we can win.