Professor Phelps in chapter 7 provides strong and eloquent arguments supporting market intervention on behalf of low-wage workers. By encouraging the employment of low-income workers at higher wages, a wage subsidy would offset incentives to engage in negative social behaviour and would strengthen positive social values, the work ethic and respect for private property. A low-wage subsidy is needed to offset the recent rise in income inequality, whatever its source. Finally, a wage subsidy would reduce wasteful unemployment induced by imperfections associated with bargaining, rationing, and incentive wage policies.

The specifics of design that are discussed in chapter 7 seem to be sensible and useful. Phelps' efforts directed at proposing a programme that would minimise abuse by employers are of obvious practical importance. After restricting the subsidy to full-time workers only and then graduating it to reduce the incentive for fraud, Phelps uses US data for 1990 to obtain a cost estimate of $110 billion to bring hourly earnings up to $7 per hour for the lowest paid. However laudable and even though small relative to a $6 trillion economy, as he points out, this number is large in the current US political environment. Frankly, it would be difficult to imagine that such a programme would form a plank in either party's platform in the near future. However, if the US earnings distribution continues to widen and/or low-wage unemployment attains European levels, income redistribution of this form may well be on the agenda of the twenty-first century.