In my last diary, I touched upon the idea of a guaranteed government work program, and a commenter suggested I write a full diary.
Here is what I wrote:
Guaranteed government work programs for anyone who wants one. One of the arguments people use to disparage people on welfare or unemployed is that they are lazy and that the jobs are there, it's just that these people would rather not work for a living. Well, why not put their money where their mouth is, and provide jobs to whoever comes to the government and asks? The programs we have now are mostly temporary, and far from guaranteed. What kind of unemployment rate would we have if anyone can be employed if they truly have the choice?
After doing some digging, it seems the idea unsurprisingly has already been
developed.
The JG is based on a buffer stock principle whereby the public sector offers a fixed wage job to anyone willing and able to work thereby establishing and maintaining a buffer stock of employed workers. This buffer stock expands when private sector activity declines, and declines when private sector activity expands, much like today's unemployed buffer stocks.
There is evidence that a guaranteed work program would work. Since Argentina implemented a JG program in 2001, its unemployment fell from a high of about 24% in 2002 to its current rate of just 7%. Source:
tradingeconomics.com
These are the pros of a guaranteed work program (obviously, these are still hypothetical, as the guaranteed program has yet to be implemented):
It controls both unemployment and inflation.
The JG thus fulfils an absorption function to minimise the real costs associated with the flux of the private sector. When private sector employment declines, public sector employment will automatically react and increase its payrolls. So in a recession, the increase in public employment will increase net government spending, and stimulate aggregate demand and the economy. Conversely, in a boom, the decline of public sector employment and spending caused by workers leaving their JG jobs for higher paid private sector employment will lessen stimulation, so the JG functions as an automatic stabilizer controlling inflation.
Besides these direct effects, it addresses many of the indirect costs associated with unemployment. For example, One of the bad things about unemployment that is gaining more exposure is the fact that people who have been unemployed for long stretches of time have a harder time getting employment. In a depressed economy such as ours with high unemployment, this system causes a vicious feedback loop. A guaranteed work program would reduce this factor.
Another example is that it essentially replaces and eliminates the need for unemployment benefits/insurance.
Additionally, the program would allow for the elimination of many existing government welfare payments for anyone not specifically targeted for exemption and would command greater political legitimacy, as society places a high value on work as the means through which individuals earn a livelihood.
Another benefit is that it eliminates the issue of a mininum wage. The floor would be the wages of the JG jobs; the markets would ultimately dictate that the private sector would have to offer employees wages or benefits that amount to more than what's offered through JG.
While it may seem counter-intuitive, a JG system actually leads to a stronger private sector.
Private firms would still be required to train new workers in job-specific skills in the same way they would in a non-JG economy. However, JG workers are far more likely to have retained higher levels of skill than those who are forced to succumb to lengthy spells of unemployment. This changes the bargaining environment rather significantly because firms now have reduced hiring costs. Previously, the same firms would have lowered their hiring standards and provided on-the-job training and vestibule training in tight labour markets. The JG policy thus reduces the "hysteretic inertia" embodied in the long-term unemployed and allows for a smoother private sector expansion.
Finally, the social impact of eliminating or reducing unemployment cannot be overstated.
The aim would be to replace unemployment and underemployment with paid employment, so that those who are at any point in time surplus to the requirements of the private sector (and mainstream public sector) can earn a reasonable living rather than suffer the indignity and insecurity of underemployment, poverty, and social exclusion. Thus, this increase in public-sector employment would contribute to the reduction in the adverse social pathologies normally associated with long-term unemployment (family breakdown, higher incidences of disease, higher rates of crime), while also mitigating the negative externalities that tend to increase with rising levels of production by increasing the share of final output that is associated with green, public-sector employment.
So, what are the arguments against a JG program, are they valid, and how can we mitigate the effects of these cons?
Wouldn't JG cost more during economic slumps?
It seems fine and dandy when the economy is strong; a strong private sector means plenty of government revenue and less people relying on JG. But wouldn't the reverse be true; when the economy is weak, would we be able to afford a system with more people in the JG, while paying less revenue?
The costs associated with having JG during an economic slump are still less than the costs of not having JG. Having a bunch of unemployed people means less purchasing power, and where is the recovery supposed to come from then? On the other hand, having people employed, means they are still getting wages, wages that need to be spent, meaning the economy will keep chugging along until the private sector has a chance to recover. The debts incurred during the slump can then gradually be paid off once the recovery is complete.
Would JG be unable to solve the problem of demand mismatch?
In other words, the core problem of most unemployment is a distribution problem. The distribution of labor did not match the distribution of demand. Increasing aggregate demand would not necessarily decrease unemployment. What is typically required to actually decrease unemployment is relocation and retraining of workers, something which many of the temporary measures intended to ameliorate the effects of unemployment actually interfere with.
...
The jobs created under the Job Guarantee are specifically not supposed to compete with the private sector, which means that they supply goods and services for which there is not a market demand. The total output of the economy might increase, but much of this output is non-productive—that is, it doesn’t actually improve our lives.
The answer to this problem is in the problem itself; why can't JG jobs compete with private sector jobs? Just make it so the JG don't compete
well; if a private company can't compete well, it goes out of business. Bolstered by the government, though, the JG program can compete poorly, still survive, and provide the skills and services that the market demands.
Let's say there's a construction project and they're taking bids from contractors, one of which is the JG program.
In a strong economy, there will be many, say 5 or 6, contractors vying to win the bid. Out of the total bids, the JG bid is always the least enticing to the project, so the chances of the JG taking away from the private contractors is very low. If they don't win the bid, the JG employees can just be put on another project. If demand for these skills is really that high, there will be enough work to go around, and JG would also serve to keep inflation down; the contractors wouldn't be able to bid anything higher than the JG bids.
In a weak economy though, there's the possibility that there aren't enough contractors still in business to bid on the project. So it can't be built, and the economy essentially takes a double whammy. With a JG as an option, though, and the project can still happen.
So have JG jobs that compete with private sector jobs, but it is only when the economy is weak when JG jobs will be viable for both employees and employers.
Are there enough jobs to keep everyone employed?
Carney does not think so. But as has been hinted at earlier, this is not a real problem.
Even if the public sector cannot provide enough jobs, we just need to turn to the private sector and see where demand for workers outpaces the supply. Provide workers through JG to private companies, only force the companies to pay the government more than they would have to pay private employees, some of which can go towards the necessary training. The JG employee still receives the JG level wages. This keeps the private jobs secure for both the employee and employer, and ensures the JG is still not as enticing as a private sector job. And again, since supply is keeping up with demand, prices do not rise as much.
Will there be some people who prefer to work just enough to get by, showing up at the Job Guarantee office every now and then, working for a few weeks, then going back to their personal hobbies?
Here Carney shows some ignorance of what it truly takes to "get by." At current wage levels, the average employee often has to work over fulltime just to get by. This seems like largely a nonexistent problem. There will be people who abuse the system, but that's the case for all systems. Their existence is not enough reason to not implement a policy meant to improve society as a whole.
Do we really know if this will work?
We do not know that this is what would happen. But that’s part of the point. Nothing on this scale has ever been tried before. It is bound to produce unexpected and unintended outcomes. Pretending as if we know the economic and social consequences of this kind of revolution in the way Americans work is a dangerous conceit.
We didn't know what minimum wage would do. We didn't know what unions would do. Just because we don't know or because something has never been done before is not a valid reason for not doing something. If so, we would still be in the Stone Age.
Wouldn't this hurt small businesses?
It could be used to help small businesses. One of the ways small businesses have trouble competing with big business is the costs associated with hiring employees. We could help small businesses by letting them hire through JG at a lower cost than it would take to hire private employees, with JG providing the difference in wages and training. If the small business thrives and grows, it will no longer apply for the JG small business criteria.
If we had another oil man like Bush elected, what would prevent the administration from redirecting the people employed by this to building infrastructure on federal lands to help enable exploitation by fossil fuel industries or something like that?
I think the best way to solve this is to ensure great public oversight and transparency, perhaps a public veto option on what JG programs are allowed. Contribution/financial records for any politician involved in these decision processes. Indeed, safeguards like these should be a part of all of our government programs, in some manner.
Are the risks too great?
On the contrary, In our current economy of slow growth, with fewer jobs being added than we need, with government spending a constant target, I disagree. The risks of not going this route are greater.
So, when it comes down to it, why are people calling for a limited jobs program, only in times when the economy needs stimulus, when what we should really aim for is a guaranteed job system?
Politicians and pundits love to claim to be the true advocates of job creation. How can we take them seriously if they aren't willing to push for the truest job creation of all, a guarantee of a job for everyone?
This excerpt from a very eloquent diary on the same topic resonates strongly with me:
Capitalism is not a very good system, but it is good enough if the sharp edges are padded. Let the rich who have benefited from this system pay for the costs of helping those who have not. We need jobs for all, jobs that pay, jobs that people can be proud of. If capitalists don't like it, they can hire these people away from the Jobs for All program.
We can do this. We often implement work programs in limited scales in response to economic crises.
It's even already been authorized in the US
It's now just a matter of getting on with it.