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Monday, July 18, 2005

THE HIGH COST OF PROFIT

The perils of Second Life capitalism in the European Union...

I'd been wondering why the massively talented scripter hadn't gone pro yet, contracting out to Residents who'd pay top Linden Dollar for someone with his skills. I just wasn't expecting the answer to involve the unemployment crisis in Europe and how the EU's social programs are currently architected.

I'd known this scripter for quite awhile, and no matter what the hour, he'd almost inevitably be in-world, offering a cheerful greeting the moment I logged in. Since he's based in Europe, this was understandable when I came on in the afternoon (early evening in the EU). But then you'd pop in late night, and he'd be there, too.

Curiosity finally got the better of me, and I asked him why.

"I'm currently looking for a job," he told me, frowning. "The job market isn't too well at the moment here. So I will have a lot of time the next few months."

To keep his national identity secret, I'll refrain from using his Second Life name. Just to be a smartass, I'll call him "Jacques Schroeder."

By then, Jacques had enthusiastically shown me his many in-world projects, uniformly polished and professional, developed with clever hacks of the Linden Script Language, and I knew for a fact there were many Residents with similar skillsets already using them to make part or all of their real world income.

I suggest that to Jacques, and he chuckles bitterly.

"I have a few products lined up. Then any money I earn here would go directly to social security. At least for the next year or so until they change the regulations."

"How would your government know you're making money in here?"

"Well... I could use my secondary account to store any proceeds," Schroeder speculates. "However, should they find out, then I'm out cold."

The trouble, as he tells, is not that his government is monitoring the Second Life transactions of its citizens. The trouble is what happens when he tries to convert Linden Dollars into cash, via a third party site.

"That would require me using my credit cards," he says.

"And then the government would find out?"

"Not really. However, they can request my account bills for the last several months."

"And if the government requests those and finds out you're making money, then you lose your social security benefits?"

"Of course not," Jacques Schroeder tells me, astounded at the suggestion. "They get slashed by 30%. Or 50%."

"How much per month do you get?"

"Rent plus 330 Euros. However," he adds, "energy costs are high."

For the region he's in, that must be as much as $1800 a month. I say that seems like a lot.

"Well, we believe in social security here," Jacques Schroeder tells me. "I have to say it comes in handy. However, the current regulations are thus: if I have any job, say minimum wage earning 330 Euros a month, I need to use that instead of social security. That gives people no incentive to get busy on their own."

"Can you lie, and say the extra money coming into your [credit account] is just a gift from family or something?"

"Um, gifts and stuff count too. If I, say, would have a second house or a [retirement account], I would need to sell/cancel that to use the money up. My problem is that I have been a student and not long enough employed by anyone to get extra benefits."

I point out that some Residents have been able to make a real world income in excess of 100,000 Euros. "If you thought you could make money like that," I press, "would you do it and give up your benefit payments?"

"Yes, of course," Jacques Schroeder replies easily. "If only to hear my family go: 'You work WHERE?'" But then again, doing that would mean risking almost $2000 in nearly gauranteed monthly income.

Anshe Chung is one of the Residents who famously made that leap, and she also happens to live in the European Union, so I ask her for her own take, on coping with the EU's unemployment system.

"I believe any person who lives on support, such as unemployment money, should be happy and thrilled by the prospect of earning money himself instead of having other people finance him," Anshe tells me. "So making Second Life income instead of receiving unemployment benefits should be very rewarding and boosting self-confidence." For herself, Ms. Chung's Dreamland continent continues to expand, with a new Gay/Lesbian/Bisexual/Transgender-themed region (Stonewall Emporium mini mall included), some Asian-themed simulators, and a Mature-rated Sandbox, all presently available to her tenants.

"Central Park also looks nice now," she adds. She owns a region named after the New York City landmark. "That is public area... Finished it for July 4th celebration. We had big party there. Was fantastic... summer night party with fireworks, etc."

"Another American project outsourced to the EU!"

Anshe Chung giggles. "I even had red-white-blue outfit."

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Comments

Do you have welfare in the US? Isn't that means tested too?

All social security is means tested as far as I know. Britain is no different either.

Posted by: Roberta Dalek at Jul 19, 2005 7:13:10 AM


Do we have welfare in the United States?

Yes, we do, but it is a patchwork of federal, state, county, municipal and township programs. The only national welfare programs that are not means-tested are two benefits to that accrue mostly to the elderly: Social Security (cash payments every month) and Medicare (a limited health insurance program). Since recipients paid into the Social Security fund or were married to people who did, they tend to resent it being called "welfare".

The recently unemployed often receive a fraction of their income for six months up to a limit; the fraction and limit vary between states though Indiana's 60% to about $400/week is typical.

For the indigent, the federal government provides food stamps (food voucher cards), Temporary Assistance to Needy Families (through the states) and Supplemental Security Income to the severely disabled. A housing subsidy (formerly known as Section 8) is available. Medical insurance is offered through Medicaid. States, counties and municipalities may supplement these with programs of their own. The federal programs above are all means-tested, and the test may be severe (a car if required for work MAY be permitted; the asset limit for programs varies from $1000-$3000.) To this add laws such as those that forbid hospitals to deny emergency care to any patient regardless of ability to pay.

The thought of paying out US$2300 in cash for welfare would strike most Americans as shocking. In practice, American benefits for the indigent are about as generous as European benefits -- between food stamps (up to US$499 for family of four), TANF (US$346 in Indiana, family of four) housing vouchers (Rent - 30% of AGI -- about $350 in my market) and health insurance (easily $600 for a family of four), and you get $1800/month in benefits, plus whatever the state/county/township/municipality kicks in. The rest of the gap is covered by America's inability or unwillingness to tax the benefits mentioned above. Jacque Schroeder, on the other hand, would get his 2000 euro check with tax withheld.

While we seem to spend as much as European countries, the money is not always well-spent (that is, spent in pursuit of the stated goal of encouraging work and family stability). Roughly speaking, a dollar earned by work results in a benefit loss of $1.05 or $1.10. Two-parent families, while not as severely penalized as 20 years ago, get fewer benefits than they would if one parent left the family and went on welfare himself. One solution has been to limit TANF eligibility to two years.

The complexity of the system simultaneously lends itself to fraud and underservice. Fraud is made easier by the patchwork nature of services and the different levels of government involved. People (including families) made homeless by mental illness or domestic abuse, on the other hand, often find the application process impossible and wind up receiving nothing -- and veterans make up a large portion of this group.

Posted by: Warren Eckels at Jul 20, 2005 12:52:32 AM