Redistribution within one class

A few days ago, Deutsche Bank’s economics department suggested to tax WFH so that essential workers, who needed to be in their workplace, could be paid a proper wage. Bob Hancké takes a closer look at the proposal.

Let’s unpack this for a moment. First, who is talking? Answer: Deutsche, the bank that almost went bankrupt during the euro crisis, supported Donald Trump’s real estate ventures on his own recognizance when everyone was swiftly walking away, and has played close to no role in the provision of essential relief funds to small businesses in Germany during the Covid crisis. Perhaps this recent venture into innovative wage policies is a way of showing that it takes corporate responsibility – we care about more than banking – seriously. It could, of course, concentrate on its core business.

Second, the substance of the idea is what would get one of our students at the LSE C for effort. Working from home (WFH) has several positive side effects, and one of the crucial ones in this day and age is that it dramatically reduces a commuter’s carbon footprint – and probably by a lot, since most of us spend the bulk of our annual ‘CO2 travel budget’ on buses, trains and private vehicles into work. The embedded CO2 footprint of sandwiches, drinks in pubs, etc. is now also much lower. That said. it is quite unclear, to me at least, if heating your home office has higher energy consumption than an office block, divided by the number of occupants; further research needed. What seems obvious is that taxing WFH would simply punish you when you are reducing your carbon footprint.

It would also create a series of perverse incentives to entice staff to come into the office, even if they could reasonably work from home a few times a week. Economics 101 teaches you that demand for a good falls, ceteris paribus, if you raise the price. Adding a tax does precisely that; WFH, being more expensive, will thus become rarer, and with it, beside the lower carbon footprint, the productivity gains and the work-life rebalancing that it seems to have engendered will disappear; ditto for the structural pressures on employers to rethink their workflows and training systems so that WFH can flourish into the high value-added activity that it can be. Perhaps the problem is simply that incentives are not taught anymore in some economics departments these days. That would certainly help explain the mess the finance sector has got us into over the last twenty years.

Finally, such a policy would institute direct ‘redistribution within one class’, i.e. from worker to worker. This is more common than often thought: many social security programmes such as pensions and health care require vast sums to function, and small taxes on many wage earners are easier to organise and sell than one large tax on wealth, corporate profits and capital gains tax, or pollution. But that is the problem with the idea. Not only is it among the more regressive taxes that you could imagine, it smacks of blatant self-interest: tax innocent workers instead of the profits by large corporations that use tax loopholes to reduce their bill. We could of course impose some ‘structural reforms’ on the banking sector, close some gaps in the law (which would bring in a lot more than the rather small $49bn in the US or €20bn in Germany), while paying essential workers the wages that they are due from that windfall or simply by imposing higher (minimum) wages? We call them ‘essential’ for a reason.

I know, we live in bizarre times. But you know something is terribly wrong when banks are offering advice on wage policies.

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