Crossposted at The Seminal at FDL.
I was very excited to see some discussion last week regarding the notion of providing a universal Job Guarantee to every American willing and able to work. As a Kansas City area native, it has been fun seeing a couple of prominent individuals there currently receiving a lot of attention. Bill Black, the former S&L regulator (among many things), teaches at the University of Missouri - Kansas City. You might have seen him in the infamous Bill Moyers interview or perhaps in Michael Moore's Capitalism: A Love Story. Meanwhile, Thomas Hoenig, President of the Federal Reserve Bank of Kansas City, has been one of the saner voices from the Fed system. As in, willing to say publicly what we all know:
“With too big to fail, capitalism is compromised and equity of opportunity is sacrificed to expediency.”
New Deal 2.0 is in the midst of a series looking at 'Navigating the Jobs Crisis'. This I think is the most important thing: talking about these issues. We have to talk about the scandal of our times, the lack of action in preventing widespread, unnecessary suffering. I'm less concerned about the particular pathways to action, because we've reached a point where pursuing just about any reasonable idea is better than sitting around with our collective heads in the sand. Or as Nouriel Roubini states (or sensationalizes, depending upon your perspective) The Worst is yet to Come: Unemployed Americans Should Hunker Down for More Job Losses.
One of the difficulties in addressing an area as complex as labor markets is the sheer size and scope of the problems, so it is helpful to break things down into more manageable components, even if the distinction is somewhat arbitrary. To me, one specific segmentation that is helpful involves the distinction between trying to prevent job losses versus dealing with unemployment once it happens. In other words, if we can share work among employees, that is amenable to laying off employees, because transitions are costly. This is true both for employers and employees. Dean Baker addresses this angle nicely in the post on November 16th. After all, one of the core failures in our labor market is that many employees are overworked. Mandatory holidays, mandatory paid time off, lowering the number of weekly hours which lead to overtime, raising the minimum salary required to qualify for an exemption to wage and hour laws, and so forth, would all have the net effect of reducing the number of hours employees end up working. That would, in turn, mean that more workers would be employed in order to deliver the same number of worked hours. Then when times are particularly bad, we can add additional incentives, like tax credits, to encourage employers to reduce hours broadly rather than firing a few staff.
No matter what we do, though, even in the best of times, there will always be some Americans out of work, ie, unemployed, at any given time. That's not a bad thing, by the way. Dynamic systems require redundancy to keep from breaking down spectacularly. If there was no turnover, no froth, in the labor markets, it would be extremely difficult for the entrepreneurship at the heart of our system to accomplish anything.
Unemployment becomes a bad thing when the amount of unemployment grows dramatically and/or when we as a society leave the unemployed to fend for themselves. It is precisely because transitions are costly that we must have mechanisms in place to support people in times of transition. This is not just an argument about fairness or justice or running a civilized society, although those perspectives are also vital. This is, at its core, an argument in defense of capitalism. People cannot take entrepreneurial risks when they are desperate and destitute. That's the surest way to stifle innovation, competitiveness, and creativity. In effect, a weak safety net for the unemployed is a public policy choice to favor large, mature firms and industries over newer, smaller entrants and ideas. There are countless ways that dynamism goes stale because employees can't take the chance of joining a small business doing something new due to the consequences of failure should it occur.
For example, you may hate your cubicle and your boss, and an old colleague may have gone off to start a promising new venture and she wants you to be her new Finance Director, but you can't leave, because at least ACME Amalgamated, Inc., covers your family's health insurance and you're eligible for unemployment benefits should you get laid off. If you join Upstart Enterprises, and the new business goes bust, you're outta luck. And not just you, remember, your whole family; everything from the mortgage to the meds is now up in the air as you hope to land a new gig before burning through all your savings (assuming you have any meaningful savings).
Toward that end, L. Randall Wray, research director of the Center for Full Employment and Price Stability at the University of Missouri - Kansas City, has been developing the notion of a universal Job Guarantee program (JG for short). To summarize the idea (please read the post for a more complete exploration):
The federal government would ensure a job offer to anyone ready and willing to work, at the established program compensation level (including wages and a healthy benefits package). To keep it simple, the program wage could be set at the current federal minimum wage ($7.25 an hour), and then adjusted periodically as that is raised. The usual benefits would be provided, including vacation and sick leave, and contributions to Social Security.
I think it is useful to compare and contrast this approach with another idea to address the same failure of our present system: universal unemployment insurance. One way of doing that would be to add another trust fund to the Social Security system of OASI (old age and survivors insurance) and DI (disability insurance) called UEI (unemployment insurance). This would allow for streamlining of taxes, benefits, and eligibility criteria nationwide while removing an expense from state budgets that tends to be greatest right when state tax revenues are in the worst shape.
Both JG and UEI would replace the very convoluted, and underexplored, system of how support for the unemployed works right now. Essentially, we have a byzantine maze of state systems funded not quite adequately by employers who thus have an incentive to try to prevent their workers from claiming benefits because that will raise their own taxes down the road. The uncertainty of whether one is eligible combined with the adversarial nature of the determination of eligibility results in a significant amount of inefficiency that need not exist. In addition, many millions of Americans simply are not eligible at all (although, that doesn't prevent them from swamping state unemployment offices with applications for benefits). In short, both JG and UEI are serious improvements that would make our labor markets more efficient and more equitable.
Having said that explicitly, I am going to examine a few areas that I think demonstrate the preference of universal unemployment insurance over a universal job guarantee.
The first point of observation relies on the desire, all other things being equal, of noninterference in markets. To use a sports metaphor, referees are there to make and enforce rules, not design specific plays. The point of providing assistance to the unemployed is to support their living expenses until new employment is found without otherwise altering the nature of the employment that employers wish to provide. UEI does this by only being a safety net that transfers resources. JG, by contrast, doesn't transfer resources directly to the unemployed. Rather, it sets up partnerships with employers to create jobs that are only sustainable through federal dollars. If these are valuable jobs, then those organizations involved should be setting up those jobs anyway. If they are not valuable jobs, then it suggests that a better outcome would be for those unemployed workers to spend their time looking for a job that produces something of value for society.
That can sound somewhat esoteric. Let's look at a specific example.
The first will probably consist mostly of public services (care of the aged, playground supervision) while the second could include public infrastructure construction and repair.
Take playground supervision. It very well might be the case that we want to pay workers to supervise playgrounds. If that's the case, then that should be included directly in the normal personnel budgets for school districts, parks and recreation departments, and other organizations that have playgrounds. Or, conversely, if that's not possible (not politically feasible, for example), then we should have a federal corps of playground supervisors who are part of the normal federal civil service bureaucracy. It could be a division of the National Park Service, or run out of the Department of Education, or it could be an extension of the President's Council on Physical Fitness, or any other number of areas you think might be the best home for our new division of Playground Leaders And Youth (P.L.A.Y.).
The second contrast I would draw deals with the administration of the program. UEI will certainly require some staff. The Social Security Administration definitely has staffing needs. But SSA is a great example of how a governmental organization can deal very efficiently with large numbers of people when the rules for the insurance benefits are clear and universal. I think JG would be a more difficult monster to tame in practice. Consider this snippet of the description:
Project proposals would be submitted to regional councils and, if approved, would be evaluated by state councils and then by a federal council. Wages and benefits would be paid directly to workers (using Social Security numbers and direct bank deposits) to minimize fraud. Organizations submitting proposals would be prevented from replacing paid workers with JG workers. For-profit business would be excluded, because the temptation to substitute would be too great.
This involves a number of different levels of coordination. First, employers have to develop the idea. Then, employers have to submit their idea. Then, multiple levels of politically-aware government officials add their say. Once employers are awarded a grant, they would then have to recruit, orient, and train just like any other new hire, except, they would expect their new hires to be actively looking for another job from day one. Nonprofit organizations do not have excess administrative capacity sitting around to do something like that. But more to the point, it raises the very thorny question of why the movers and shakers in the local, regional, and state communities aren't already focusing on these areas. What value is added by the layers between the nonprofit employer and the federal agency cutting the check? I think the fact that CCC and WPA style programs employed workers directly by the federal government is a key insight into their success.
Third, related to the issue of administration, is the issue of how to prevent JG jobs from trading off with private sector employment. Today, many people have a notion of nonprofits of being a distinct sector of the economy, and a pretty small one at that. But I'm not sure it's so easy to distinguish between for profit and not for profit entities. In fact, I'd wager that the organizations most well positioned to oversee a JG program would be those of some size and stature. In other words, the very organizations that already employ significant numbers of people in the labor market and whose Boards of Directors act as a Who's Who of local (for profit) business leaders.
Again, this can all be kind of esoteric, so let's pursue another thought exercise.
Imagine a nonprofit organization that was formed by several other nonprofit organizations (local universities) to manage real estate to house for profit start-up companies looking to commercialize academic discoveries. These places of incubation or emerging technologies or whatever local lingo is employed are nonprofit; therefore they'd be eligible for the JG program. So, imagine a JG system where they propose library staff, cleaning staff, maintenance staff, and landscaping staff to be eligible for the program. This allows them to charge less rent to the small business start-ups using the facility since it reduces the personnel costs for the nonprofit organization. The parent universities, also nonprofits, love the arrangement, because it makes it even easier for them to assist professors in making a name for themselves by commercially developing uses of their research. The for profit business leaders who will be deciding these things on the regional councils are the same people who serve on the Boards of these institutions. For everybody involved in the above, it's one big happy family.
The people left out of the story are
- those who are working in the same jobs in the area that will get JG status, because they're now effectively competing with imported, federally-subsidized minimum wage labor, as well as
- smaller nonprofit organizations who don't have the clout to land a JG program and smaller for profit businesses that aren't aligned with a significant regional public/private partnership.
I do not think this is a minor or exaggerated concern. Large nonprofit organizations are some of the biggest employers in their region, from healthcare to K-12 education to higher education to charitable arms of religious organizations to even some stand alone, 'traditional' social service agencies. Organizational structures would naturally and incrementally shift to take into account these JG jobs. One morning, we would wake up and find that core staffing needs have been moved to these 'temporary' JG jobs. In short, there is no way that the presence of these jobs would not impact the private sector employment market. Ultimately, that's not in the best interest of the organizations, the community, or the workers.
A final perspective I would add is that infrastructure projects, the other major component of the JG push, are best pursued when the purpose is to earn a positive return for the public, not when the purpose is to put people to work. In other words, I would advocate for keeping the focus on the return on investment, not the transfer of resources to the unemployed. Prioritization should be based upon the status of the infrastructure, not the status of the unemployment rate. With trillions of dollars worth of deferred maintenance backlogs, and trillions more in new investments, it's not like we're going to run out of need any time soon. I just think it's important to tell a clear story politically, and I think universal unemployment insurance is the clearer story. We spend money on infrastructure because what we get out of the project is worth more than what we put in, whether it's a bridge or a sewer system or a train station or a library or whatever. If we reach a situation where we don't have projects that can be justified on ROI grounds, then that's okay. Where we create an unnecessary headache is if policy makers have an additional concern about guaranteeing jobs beyond the cost-benefit analysis of the particular project at hand.
Again, I want to emphasize that this series at New Deal 2.0 should be very good. I particularly appreciate Wray's commentary because it zeros in on a principle I believe is absolutely fundamental: our public policy solution to unemployment has to be universal. It's not enough to just help some people or most people. The definition of a sound safety net is that no one is left behind.
As we are all aware, our current system leaves millions of Americans behind. If you find the economic justification for action insufficient, then perhaps you will at least consider the political ramifications of millions of increasingly desperate, disillusioned people of voting age looking for incumbent politicians to blame.
A couple other notes I want to throw out there related to jobs are Krugman's talking about various options, something the AFL-CIO has been working on, and the President's much anticipated call for a forum on jobs. Finally, a shameless plug for the UMKC blog. There is more information out there in our society than anyone can ever possibly assimilate (although places like Naked Capitalism and Calculated Risk sure try their best to convey as much as possible to the rest of us). I find that state mostly reassuring; our issues are not technical in nature due to some lack of information. Rather, we merely need the political will to act. And just imagine if, say, the folks at New Deal 2.0 were the Treasury Secretary, Fed Chair, Commerce Secretary, head of the National Economic Council, head of the Council of Economic Advisers...
P.S. While I'm at it, might as well mention Kuttner's piece, too. It very helpfully delineates three key areas for action:
- State and Local Fiscal Relief.
- Accelerated Spending on Public Works.
- Wage Subsidies.