Since the 1970s, a gulf has opened between the pay of low-paid workers and the pay of the middle class. No longer able to earn a decent wage in respectable work, many have left the labor force, and the job attachment of those remaining has weakened, alsoreducing employment. For Edmund Phelps, this is a failure of political economy whose ill effects have spread widely and are undermining the free-enterprise system itself. His solution is a graduated schedule of tax subsidies to enterprises for every low-wage worker they hire. As firms hire more of these workers, the labor market would tighten, driving up their pay levels as well as their employment.

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