The state's response to the crisis of neoliberalism: a comparison of the net social wage in China and the United States, 1992-2017

ABSTRACT

We compare the welfare states and taxation regimes of the two largest economies in the world, China and the United States, from 1992 to 2017. We begin with a comparison of each country’s net social wage – that is, the difference between total benefits received by and taxes paid by labor – using two established methods. While the net social wage in the two countries exhibited similar trends, the increasing net social wage has distinctly different implications in the two countries due to their specific historical trajectories in the neoliberal era. In the US, the increasing net social wage reflects an ambivalent and reluctant response to workers’ social reproduction. In China, it reflects institutional changes in the welfare state, which we interpret as the Chinese state’s attempt to resolve the social-reproduction crisis caused by neoliberal reforms of the 1990s.

KEYWORDS:

• China
• United States
• welfare state
• taxation
• social wage

JEL CLASSIFICATION:

• H5 National Government Expenditures and Related Policies
• P520 Comparative Studies of Particular Economies
• B5 Current Heterodox Approaches

Acknowledgements

The authors would like to thank Anamary Maqueira Linares for research assistance and Kevin L. Young for helpful feedback. Comments from two anonymous referees were extremely valuable. The usual disclaimer applies.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Liu and Liu (2019) compared net social wages in China and OECD countries from 1999 to 2015 in the Chinese journal, China Review of Political Economy.

2. The NTA is based on an accounting identity in which the ‘lifecycle deficit’ is equal to the net flows of public and private transfers and reallocations (Mason and Lee 2011, 11). Based on age-specific labor income and consumption data, the NTA can be used to construct ‘economic support ratios’ and ‘fiscal support ratios’.

3. Lee and Mason (2011) Table A.2 and table A.3.

4. See Moos (2019) for a full literature review on the net social wage.

5. Bowles and Gintis (1982) support their claims by arguing that social welfare expenditures as a fraction of total workers’ consumption grew from .12 in 1948 to .27 in 1977. Bowles and Gintis (1982) find that from 1948 to 1977, consumption financed from returns to labor was declining (from .58 to .51) and social welfare expenditures rising from .08 to .19. Workers consumption rose from .66 to .70, but only due to the rise in social expenditures.

6. It is true that without the profits of state-owned firms the state has to reduce the expenditures on labor or look for other sources to finance the same expenditures. Thus, state-owned firms play a supportive role in maintaining and enlarging those expenditures. However, this supportive role has no impact on the calculation of the NSW.

7. The differences between the rural and urban NSW are largely driven by different expenditures and taxes. These differences are not sensitive to the measurement of LS_R.

8. Medicare is a federally-funded health insurance program for people aged 65 and older. Medicaid is a federal- and state-funded health insurance program for low income people. Program eligibility for Medicaid varies by state.

9. Moos (2019) conducts a robustness check of the US NSW to determine if healthcare inflation is a cause of the rising NSW in the 21st century. When healthcare costs are deflated using the personal consumption expenditures (PCE), which indexes healthcare inflation, the real NSW is lower. However, the pattern of an increasing NSW in the 21st century does not disappear (597).

10. Baumol’s cost disease – rising costs in sectors such as healthcare that experience rising labor costs despite a lack of productivity gains – has been found to contribute to rising costs of US healthcare (Bates and Santerre 2013; cited in Moos 2019, 596).

11. No Republicans in the House of Representatives and only three Republican senators voted in favor of the ARRA.

12. PRWORA replaced Aid to Families with Dependent Children (AFDC) with the more restrictive and less generous Temporary Aid to Needy Families (TANF).

13. The question remains why certain socially reproductive needs are accommodated and others are not.

14. For example, the expansion of prescription drug access in 2006 certainly benefited Medicare recipients in need of medication, but it was also a boon for the pharmaceutical industry.