Bank of Japan shifts ground – just a little but there is no sign of a major adjustment any time soon
It's Wednesday and I use this space to write about any number of issues or…
There was a story in The Australian newspaper today entitled RED schemes are good written by a former minister in the Whitlam government in the early 1970s. He was extolling the virtues of the old Regional Employment Development scheme, which was a public works direct job creation scheme. He was suggesting such schemes may again find favour as the recession deepens. The RED scheme was a less generous version of the Job Guarantee and suffered as a result of its modesty. It was never based on any fundamental understanding of a modern monetary economy as as such was always a “defensive” program. Defending itself continually from the conservative, soon-to-be, neo-liberal critics. That made me recall my favourite conservative “put down” term – boondoggling and raking – which is used whenever direct public job creation is mentioned as a possibility. Then I recalled a letter that was written by the previous Federal Employment Minister explaining in 2004 why my Job Guarantee proposal was a crock. One thing followed another …
Barry Cohen, the author of the RED scheme story makes a telling point in relation to public perceptions of direct job creation.
The media finds billion-dollar national infrastructure projects – roads, rail, ports – perfectly acceptable but become agitated by projects that improve the lives of ordinary citizens. The big projects get the tick with the barest scrutiny while community halls, youth centres, sports facilities and libraries are ridiculed as outrageous examples of pork-barrelling.
He also says that the major weaknesses of the scheme was that it was rushed in to cope with the rapid rise in unemployment in 2004-05. The best time to bring in a Job Guarantee scheme is when the labour market is strong to bed down all the operational issues. Unfortunately, for reasons you will learn below, the previous Government failed to do that.
Cohen outlines some of the often forgotten legacies that accompany public works programs. In relation to his own NSW Central Coast region he says that the RED programs there:
… provided the wherewithal to have the area properly drained. As well, kerbing, guttering, paving and footpaths were advanced 20 years while the National Sewerage Backlog Program ended the region’s reputation as the most “effluent” region in NSW … When you add the provision of youth centres, playing fields, swimming pools, senior citizens centres and surf life saving clubs that were either built or refurbished by the RED scheme you can understand why the phrase “feel-good” was apposite … All of the above were simple but essential facilities that had been neglected for decades by state and federal governments. Commuters who spent hours journeying to and from work were finally able to enjoy a lifestyle available to those in elite inner-city suburbs. The critics saw it as a waste of taxpayers’ money.
He concludes that “local job creation schemes are as necessary now as they were when an OPEC cartel forced a massive surge in oil prices leading to the worst recession in 30 years.” Well I agree with that. Given the spatial clustering of job loss local job initiatives are the only way that you can ensure your expansionary packages are actually hitting the right target – local job loss!
However, critics of these schemes usually try to escape by accusing them of being just boondoggling and leaf-raking!. The terms “boondoggling”, “make-work” and “leaf-raking” are all synonomous and are meant to imply that nothing good comes from this type of program.
Boondoggling and leaf-raking
This led me to recall an interesting interchange from the archives that I remembered reading a while ago. In 1958, the US experienced a sharp recession and with the unemployment rate in February 1958 rising to 6.4 per cent (and worse to come) the debate sharpened on what should be done. The Time Magazine on Monday, February 24, 1958 carried a story where the Republican Vice President, the crooked Richard Nixon said that “There is nothing wrong with our economy that a good dose of confidence won’t cure.” He was attacking Democrat proposals to introduce widespread job creation programs. Nixon went on:
The battle cry of the Administration’s opponents is obviously going to be ‘Depression is just around the corner.’ Some are urging us to go back to the multibillion-dollar leaf-raking boondoggling which failed so miserably in the 1930s … [if the Democrats are] … betting on depression … [the Republicans are] … betting on prosperity.
The story reports that key Democratic state Governors had sent a “telegram” to President Eisenhower requesting that he introduce a “practical program to combat the growing national recession.” The Democrat majority leader in the US Senate, one Lyndon Baines Johnson said the Democrats were drafting a ten-point antirecession program, which would concentrate on widespread public works, and suggested a return to the Works Progress Administration (WPA) programs that were introduced under the New Deal during the Great Depression. In extolling the seriousness of the recession, a senior Democrat said:
The question is just as much spuds as Sputniks.
Just as now, the conservatives wanted tax cuts while the Democrats wanted direct job creation programs. Tricky Dick Nixon was quoted as saying in this regard:
If the choice is between a boondoggling public program on a massive scale and a tax cut, I for one would be for a tax cut. It would give an immediate impetus to the economy.
So not much changes really. But isn’t that expression boondoggling and leaf-raking just the best! It is one of my favourite terms and has been with me for as long as I have been advocating wide-scale, regionally targetted direct public sector job creation programs to combat unemployment. It has been thrown (spat) in my face so often by politicians, business leaders and other conservatives that it is indelibly etched in my memory.
Boondoggling and leaf-raking – it is the term that invokes the ultimate put down by the conservatives who laud the virtues of the private sector as they create hundreds of thousands of low-skill, low-paid, precarious and mind-numbing jobs but hate, with an irrational passion, the idea that the public sector could employ workers that the private sector doesn’t want and get them to work on community development projects at a minimum wage. And to put a finer point on it … on projects that can leave massive positive legacies to all that follow.
The debate was very fierce during the Great Depression. In the US, President Roosevelt’s New Deal was in part informed by the overwhelming sentiment expressed by the American Federation of Labor (AFL) that workers wanted jobs not the dole! The Congress, fresh from an election win, saw the urgency of the situation and there was a proliferation of pro-worker legislation – large-scale public works programs being to the forefront.
The logic was that if the private sector was in full-scale retreat from job creation, then the only remaining source of job creation was the public sector. Then and now! There is debate about whether the programs were successful, with the conservatives spinning every angle possible to deny their significance. But my understanding of the historical data is that the initiatives were extremely important in building infrastructure and protecting families and their communities.
The facts are clear. The Public Works Administration (PWA) created hundreds of thousands of jobs and the work helped restore ageing public infrastructure (such as, roads, dams and bridges). Many new buildings were constructed during this period (schools, recreational spaces, libraries, hospitals) and have delivered benefits to the generations that followed.
Harry Kelber writes that between 1935 and 1941, the Works Progress Administration (WPA) program employed around 8 million workers on “construction and conservation projects”. Most of the workers were low and semi-skilled, the hardest hit by the Depression. The projects included “building athletic stadiums, making books for the blind, stuffing rare birds and improving airplane landing fields and army camps.”
The WPA engaged “Thousands of unemployed writers, actors, musicians and painters were given an opportunity to earn a modest livelihood from their artistic talents … and to enrich the lives of countless culturally-deprived citizens. The productions of the WPA Theater Project, for example, entertained a phenomenal audience totaling 60 million people, a great many who had never before seen a play.”
Further, targetted programs to engage American teenagers were organised under the Civilian Conservation Corps (CCC) which employed around 2.7 million jobless male teenagers. Kelber reports that they worked to “reclaim government-owned land and forests through irrigation, soil enrichment, pest control, tree planting, fire prevention and other conservation projects.”
There are huge reminders of the legacy of this era of public intervention by way of direct job creation. The Tennessee Valley Authority was a huge hydro-electricity project which brought electricity and prosperity to some of the poorest rural areas of the US. At the time, Kelber notes that the private electricity providers stridently opposed the challenge to their monopoly control. The upshot was that the project forced them to reduce their power charges. In general, the dynamism of the public sector at that time caused huge outcries from the capitalists who didn’t want challenges to their cosy profit making industries from public sector enterprise.
Similarly, in Australia, countless public works projects during the Great Depression, decried by the conservatives as “boondoggling and leaf-raking” left us with such gems as the road to the summit of Tasmania’s Mount Wellington and Victoria’s Great Ocean Road which were built as public works projects designed to give returned soldiers and unemployed people work.
And a recent Commonwealth Hansard entry reminds us that:
Anyone who has ever driven across the Sydney Harbour Bridge or along the Great Ocean Road, both public works projects funded during the very tough economic circumstances of the thirties, will know that tough economic times are not incompatible with public works of lasting value. The Hoover Dam in the USA is another example of a national infrastructure icon which was completed during the Great Depression of the 1930s.
There are countless examples of productive infrastucture that was developed by so-called “make work” programs. I am sure that the benefits to society arising from the Great Ocean Road are significantly higher than those attributable to the consumption of greasy burgers from some multinational fast food chain using minimum wage labour.
Jump to 2004 …
Why I digressed into this brief historical foray was to remind myself of the sort of criticisms that are levelled at public sector job creation programs. The simple “boondoggling and leaf-raking” retort is used to decry projects that have clearly added extremely valuable capacity to our nation that the private sector would never undertake in pursuit of profit.
So why does the current Government just do it! Well, I was then reminded of a relatively recent interchange the Job Guarantee had with the previous Federal Employment Minister in 2004. Here is that story.
In 2003, CofFEE got the Newcastle City Council to unanimously endorse my Job Guarantee proposal as city policy and proceeded to promote the idea at higher levels of government. First, the Hunter Region of Councils endorsed the plan. Then the Job Guarantee plan was endorsed by the Australian Local Government Association. The ALGA endorsed a introductory JG which we called the Community Development Job Guarantee and involved guarantees to the long-term unemployed and a Youth Guarantee providing education, training and employment for young unemployed people. We wanted to test the political water and saw this as a transition to a full unconditional Job Guarantee for anyone who didn’t have work and wanted it.
At the time the ALGA carried the following Resolution:
The National General Assembly of Local Government authorise the Local Government Association (LGA) to enter into discussions with the Minister for Employment, Mr Abbott and his counterpart in the Federal Opposition, concerning proposals developed by the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, for a Community Job Guarantee (CD-JG) which proposes a Job Guarantee for all long-term unemployed people and a Youth Guarantee providing education, training and employment for young unemployed people.
ALGA has written to Minister Andrews and Ms Macklin seeking their positions in relation to this proposition.
On July 16, 2004 the ALGA did write to the then Federal government. They received a reply from the Federal Minister for Employment and Workplace Relations Kevin Andrews on August 13, 2004 outlining why the Government rejected the Job Guarantee. You can download this stunningly ignorant document HERE. The then Opposition Employment spokesperson, Jenny Macklin did not respond to ALGA which was hardly a surprise given the lack of policy development within the Labor Party in this area.
If you read the Minister’s response, you will see that his Government was actually scared of letting market forces work when it comes to providing advantages and opportunities to the most disadvantaged workers in our communities. They preferred to keep them suspended in a void of joblessness and cycle them through clearly irrelevant training programs. They seemed to distrust the ability of the private sector to structure interesting and attractive jobs to lure workers away from Job Guarantee positions.
Most worrying, this seems to be the approach of the current Federal government too.
Remember, that the Job Guarantee provides buffer stock employment to anyone who wants such a job at any time at any fraction of a working week. It is an unconditional fixed wage offer to anyone by the Government. That is a very powerful aspect of the proposal as it means the Government ‘hires off the bottom’ rather than the top and can never be a source of inflationary pressure.
The Job Guarantee also fits perfectly into the framework set by the United Nations Declaration of Human Rights which was carried on September 24, 1948 and to which the Australia government is a signatory. A relevant part of that Declaration says that “Everyone has a right to work, to free choice of employment, to just and favorable conditions of work and to protection against unemployment.” That means that if the private sector cannot provide enough jobs the Government has to ensure that the human right to employment is provided for by public sector employment. It is clear that successive Australian governments including the current regime are in violation of this Declaration given that they have allowed the unemployment rate to persist and high levels and are watching it rise again in the current period.
Some workers are difficult to employ
The criticisms raised by the then Employment Minister capture the basic hostility towards public sector job creation that goes back into our dark capitalist history. First, he said:
However, there are some difficulties with such a proposal both in terms of its costs, its impact on individuals in relation to incentives and needs and from a macro-economic perspective … It is important to recognise that the long-term unemployed are not a homogenous group. Many of them face personal or family challenges ranging from alcohol or drug use, health problems, domestic violence to learning disabilities and/or low basic skills. They therefore need programmes that can be tailored to suit their varied needs (as Job Network does). Providing a guaranteed job itself may not be the best option for them.
I agree. But there have always been “difficult to employ” workers yet we still achieved full employment between 1945 and 1975 because the public sector in a multitude of areas that have now been abandoned provided accessible, low skill employment at the basic wage (equivalent to the Federal Minimum Wage (FMW)). I would also add that many of the social pathologies that the Minister noted as defining the heterogeneity of the long-term unemployed have been caused by sustained unemployment. While transition back into paid employment does require accompanying strategies of training, support and mentoring the overwhelming evidence is that we have failed do that in Australia for years. The Job Network categorically failed in this regard. The fact that the current Federal Government is persisting with it (in its so-called improved structure) is testimony of their unwillingness to really tackle the unemployment problem head-on.
The most pressing need for the unemployed is to create accessible employment in areas where they live adding value to the community. The Job Guarantee is the only way that can be achieved in the short run.
The workers might like the Job Guarantee
The Minister then went on to claim that the workers might never want to leave the Job Guarantee despite the fact that the private sector has complete scope to hire out of the Job Guarantee workforce by simply offering attractive employment conditions. To think that the workers would never be lured out of the Job Guarantee is to display a staggering lack of confidence in market forces.
This is what he said:
Offering guaranteed jobs at the FMW can also have perverse impacts on incentives. Although you suggest that CD-JG jobs would not substitute private sector jobs, once on a Government funded guaranteed job for unlimited duration that pays the FMW, a person may not see the advantage in seeking or taking up a private sector job. Furthermore, although both the Government subsidised workers would earning wages similar to some private sector workers, it is unlikely that they would have the same attendance and work performance requirements as in a mainstream job. A CD-JG type job guarantee may also act as a disincentive for some short-term unemployed people (eg those unemployed for 9-12 months) to take up mainstream minimum wage jobs because of the guarantee of a job if they remain unemployed for a short while longer.
In terms of the full Job Guarantee, the final point is not applicable. Recall, the Minister was commenting on the reduced plan to provide a Job Guarantee to 15-19 year olds and all the long-term unemployed (above 12 months). However, even in the reduced plan the comment is somewhat surprising. Those who have been unemployed for between 9-12 (statistically, short-term) still occupy an extremely disadvantaged position in the labour market. Why would they turn down a legitimate job offer from a private employer paying FMW or above?
More telling is the Government’s attitude towards the unemployed exposed in their argument. So the workers who have been unable to find work because the economy has failed as a result of ill-conceived macroeconomic policy to produce enough jobs might actually enjoy working for the safety net wage. Wouldn’t that be something to regret! It is better to keep them unemployed doing nothing and feeling the various social stigmas that are continually placed on them by Government and the media than to give them a job that is adding value to our communities and get them off the welfare rolls! Why is it better? Because they might like the jobs! But it is more sinister than that.
There are two types of competition in the labour market. When there is excess supply (unemployment), the demand side (employers) have the power and can pick and choose at will (and are under no pressure to offer structured training with each paid employment offer). Unemployed workers, facing low probabilities of successfully gaining a job are then forced into costly search processes which demoralise them not the least because they are generally futile. Alternatively, when there is true full employment (and excess demand – vacancies above the unemployed – as was the case in the 1950s, 1960s and early 1970s), employers have to compete among each other for workers. Anyone who is unemployed has a strong chance of immediately finding another job.
Employers are also motivated to provide on-the-job training with each paid employment offer to ensure that the skill base of the workforce coincides with current production requirements. Employers do not have the luxury of engaging in discrimination or prejudice to influence their hiring decisions. If they start “selectively sorting” the available labour for too long their competitors will soon take the labour from them. This is a very dynamic environment where firms are forced to seek ways to enhance productivity and maintain the skill levels of their workforces.
Clearly, in this neo-liberal period, we have allowed our national Governments to choose the former approach – maintain a pool of unemployed, manage them to ensure they are being churned through a relentless set of relatively meaningless and unproductive so-called training programs, and then allow the employers to pick and choose at will and evade their own responsibilities to provide training to those who might have obsolete or depreciated skill levels. This is a low wage, low productivity approach which produces an underclass of disadvantaged workers and ultimately, stagnant productivity growth and economic growth.
Successive governments have maintained this excess supply of labour for around 34 years now, and the employers, who previously had to structure jobs to attract workers who were in short supply, now seem to have forgotten that period. They have had the upper-hand for so long that competing for workers and providing them with suitable training it is now a cultural artifact – something of a bygone era. The results are obvious. But the Government clearly does not want the private sector to have to be in a position where it has to offer wage and conditions packages to workers to attract them to their workplaces. What a shock that would be to them! This is why the previous conservative Government said the Job Guarantee would be bad for the private sector.
It is also clear that they thought that the private sector to be so incapable of structuring their job offers so that they would be attractive to a Job Guarantee worker on a FMW that they needed ‘protection’. As many researchers have shown – the persistent unemployment that successive Australian Governments have forced workers to endure amounts to some sort of “protection scheme” for lazy employers who are content to offer low pay unattractive jobs and do not want to invest in technology to create high productivity, high wage and challenging jobs. The sharp rise in underemployment over the last few decades is testimony to that.
Any decent private sector employer should realise that a strategy of wallowing in a low wage, low productivity segment of the market is ultimately doomed by the forces of international trade. So Government are really not doing the private sector any favours by protecting them in this way. It would be far better to introduce the Job Guarantee at the FMW and then the private sector has a pool to hire out of which is already working and maintaining essential labour market skills (punctuality, teamwork, etc). The private sector only needs to offer marginally more attractive conditions and most of the Job Guarantee workers will move into those jobs. For those who choose to stay in the Job Guarantee positions then we should be happy that they are making a productive contribution to society and are no longer welfare dependent and have found some sense of satisfaction with their working lives. What is so wrong with that?
As to attendance and performance standards … is the current public service operating with poor attendance and performance? Why would the Job Guarantee workers not be expected to perform up to the required standard and attend their work place like anyone else? The Job Guarantee is not a proposal to put on a party and break out the drinks!. Under CofFEE’s plan, the Job Guarantee would provide productive jobs in the community and workers would be expected to work according to normal standards operating throughout the economy. Nothing more, nothing less!
The impact on 15-19 year olds
The former Employment Minister then made some unbelievable claims about the damage a Job Guarantee would do for teenagers. He said:
The guarantee of a job at FMW could also act as a disincentive for some young people to pursues education and training and enhance their skills. Young people, especially teenagers, generally have better long-term outcomes and are more likely to be in stable employment if they pursue post secondary education or training to enhance their skills and employability, rather than join the labour force when they are just 15-19 years old.
To remind everyone, the previous government did not provide many opportunities for the 15-19 year olds in the near 11 years it was in power. The Howard Government was elected in March 1996. They inherited (using February 1996 ABS Labour Force data) an appalling youth (15-19 year olds) labour market. Throughout 1996, the male 15-19 year old unemployment rate was 21.4 per cent and the female rate was 19.6 per cent. The data in the first table provides as summary of the main ABS Labour Force survey aggregates at various times since 1996. By the end of that government’s tenure and in the midst of the longest boom in several decades (including recording primary commodity prices), the best they could do was to get the male teenage unemployment rate down to 14.1 per cent and the female rate down to 13.5 per cent (average of 2007). And the labour market was hardly providing quality opportunities for this cohort.
You can also see from the Table how quickly the youth labour market has deteriorated in the last 12 months. The male employment rate has plummetted as the male unemployment rate has sky rocketed upwards. The situation is only slightly less grim for teenage females.
But back to the Minister’s statements which at the outset I agree with. It is better to ensure that youth receive as much education and training as they desire. I support people being given the chance to achieve as higher levels of educational attainment as they can because investment in people is the only real durable investment society can make. But I also would argue that we have to provide paid-employment opportunities for those who do not want to continue their formal education or require special attention – such as youth with psychosis. The Government has failed badly to provide opportunities for our youth who are neither working or participating in education or who are being forced to stay in education because of a lack of job opportunities.
The second Table shows educational participation over the same period to see whether there is any correspondence. First, overall, there was a modest rise in 15-19 year olds in full-time education between 1996 and 2007 but nothing stunning – 35.2 per cent against 31.2 per cent. There were slightly higher percentages in school and in full-time tertiary education. So for a government who claimed they did not intervene in the labour market to create jobs, in part, because they wanted to promote educational participation the figures do not show a substantial improvement.
Second, there are now more youth in the labour force as a percentage of their civilian population but the labour force participation of those not involved in education has remained unchanged. Tertiary students are now increasing their labour force participation as their costs rise (which has had the detrimental side-effect of reducing the vitality of campus life). School children have also increased their labour force participation as the growth of the service sector has provided increasingly more jobs. Almost all of this increased labour force activity by those who are mixing work and education is in the part-time employment sphere.
Third, full-time employment rates feel for both male and female teenagers while part-time employment became more dominant. Increasingly, youth who have left the education system are relying on part-time work. Some argue that part-time work (of which about 60 per cent is casual) provides the path to full-time work and higher wages in the future for the 15-19 year olds. But the evidence is clear that this only applies to those who combine work and education and the full-time, better paying job is just a consequence of the completion of tertiary education rather than having anything to do with the ‘skills’ they learnt flipping (lentil) burgers! An increasing proportion of that part-time work was in the form of underemployment.
Fourth, there has been a chronic pool of youth who are disengaged from the labour market and who successive governments have done little to provide opportunities. Successive governments have tolerated tens of thousands of unemployed 15-19 year olds not being engaged in education. The problem is worse because some of the additional unemployed youth who also participate in education are doing so because there have been too few job opportunities for them in the labour market. It makes little sense to push people to remain in education as a result of lack of job opportunities. They would be better developing skills in a paid employment environment.
In the past, there were three paths a young person could take: (a) continue formal education to some natural completion; (b) enter an apprenticeship and enter the labour market as a skilled tradesperson. The public sector played a dominant role in the provision of skilled apprentices to the private sector. That role was abandoned by successive governments who claimed it could no longer “afford” to provide these opportunities. There was also an ideological claim that the private sector would do it better (privatisation in part led to the abandonment of infrastructure that provided skills development to youth); and (c) enter the labour market immediately and work, learning skills on the job – usually in factory production or retailing. Most of these opportunities are gone now and increasingly the youth who are not still in education have to compete for lowly paid, casual work with those who are combining some labour market participation with educational studies.
If the government was truly committed to providing opportunities for Australia’s youth to learn and develop durable job skills why did it leave so many (hundreds of thousands) outside of an effective policy framework? Why are there so many youth unemployed who could be performing useful roles in the community in public sector jobs? Why didn’t that government see it as imperative to provide public sector jobs to these kids to provide them with incomes and contact with the employed society that they are growing up into?
The same questions are applicable to the current Government and I urge journalists who probe the politicians daily to find out some answers on our behalf and report back!
It is in this context that the proposal to introduce a Job Guarantee for anyone who cannot find employment elsewhere is important. The previous Minister’s claim that it would provide a disincentive to youth to participate in the education system is ludicrous when you consider the actual data provided above. Australia already excludes thousands from educational attainment. A Job Guarantee would provide the basic entry point to these kids to participate in paid employment. It could be structured in such a way that it encourages and provides skill development which may lead onto participation in formal education later in life. The important point is that there are thousands of kids out there being left behind. The Job Guarantee is one of a suite of policies (which includes paid employment provision, structured support for youth with mental and physcial disabilities, mentoring, and training) which we argue is essential to provide the youth with a secure environment to develop into adults with good labour market chances.
We cannot afford to provide enough jobs
The Minister’s next argument was the old furphy about costs. He said:
A CD-JG would significantly increase outlays for long-term unemployed people, and the returns for that investment are not certain. The guaranteed jobs would need to be financed through increases in revenue (higher taxes) or funding cuts in other Government programmes.
This line of argument fundamentally misunderstands the options open to a fiat currency issuing national government, such as the Federal Government of Australia. The only real cost of the introduction of the Job Guarantee for all would be the extra goods and services that the previously unemployed persons consumed with their extra incomes. That is the true cost of the policy change. The extra budget outlays are “costless” in the sense that the Federal government is not financially constrained. If the Job Guarantee was confined to long-term unemployed persons only, then the real costs are miniscule. If the scheme was generalised to all unemployed then the Job Guarantee would be marginally more costly but still rather small.
The first question to ask is: where are the unemployed now? Answer: in the public sector! That is, in the sense that we currently support large and would not facilitate major increases in consumption of real goods and services which is the true cost (in resources) of the policy change. Next, you should ask, what are the unemployed doing now? Answer: crudely, nothing much. But it is more complex than this. Their joblessness, however, actually means that they are doing a lot of things. They are running down any assets they might have accumulated in the past. They are increasing their chances of being involved in family breakdown, in mental health problems, in crime, in alcohol and substance abuse, in social exclusion, in poverty, or all of the above. That is, they are ‘doing a lot’ of things that add costs to the individuals involved and society in general. Society carries a huge cost when unemployment is high as it is now. But moreover, they are not contributing positively to output. The daily losses in national output of having someone unemployed are huge and seem to be forgotten by the all those who oppose direct job creation schemes.
Further, the claim that the the Job Guarantee would need to be financed through increases in taxes or spending cuts in other Government programs is spurious. The Federal Government is not financially constrained and can increase net spending if it desires without first seeking any extra revenue.
Given the huge national and individual costs of on-going unemployment, it is impossible to argue a case that the introduction of the Job Guarantee would not provide significant returns to the Australian economy. One has to conclude that arguments against introducing the Job Guarantee are not motivated by ‘cost’ factors at all. One suspects that any Government who fails to introduce large-scale job creation programs is getting very poor advice from its Departments, who either have some ideological barrow to push or who just fail to understand the options facing a fiat currency issuing federal government.
Whatever is the motivation, the current Government’s inaction is costing hundreds of thousands of Australians the chance to make a living independent of welfare and is also preventing all of us from enjoying the extra GDP, the extra community services that would flow from Job Guarantee output, and the reductions in crime, family and mental breakdowns and the rest of the social pathologies that accompany the unemployment tyranny.
Instantaneous inflation would just explode from the skies!
The previous Employment Minister also had to rehearse the hackneyed inflation argument. He said:
The CD-JG could also affect the private sector wage structure by putting a floor on wages, leading workers in the private sector to try to increase the differential between wages for ‘real jobs’ and CD-JG jobs, particularly if CD-JG workers are assumed by others to have lower productivity. This in turn may lead to wage increases in job guarantee schemes and subsequent impact on overall wages.
First, it was consistent with that government’s view that there should be virtually no floor on wages? If it had have been returned to power and the then Treasurer had have taken over as PM, then they would have tried to take the evil WorkChoices further and get rid of all safety net conditions. Anyway, at the time this letter was written (2004), there was already a floor on money (nominal) wages – the judicially determined Safety Net wage now under the control of the Fair Pay Commission.
Second, there is no presumption that workers employed in Job Guarantee jobs would be significantly less productive than those currently employed in the private sector at minimum wages. We never blink when the private sector adds more minimum wage unskilled employment and claim that the new workers employed are less productive than the existing minimum wage workforce. The Job Guarantee workers would be the same pool of workers! Further, productivity in a modern economy is not an individual attribute unlike the erroneous depiction presented by neoclassical marginal productivity theory. Productivity depends on the type of capital used in conjunction with labour, the organisation of the workplace, the team-dynamics within the workplace and more. It would not be surprising that some workers in Job Guarantee jobs, realising that their labour was contributing to enhancements of community well-being, would actually be highly productive within the limits set by the capital used.
Third, it is true that by design the Job Guarantee wage would represent a wage floor that prevents serious deflation from occurring and defines the private sector wage structure. But as noted above, this is just the role played by the federal minimum wage in Australia. The Job Guarantee wage is thus set at the bottom of the private wage structure and does not disturb the relativities inherent in that structure. That is, the policy represents an unconditional offer from Government to purchase labour at a fixed wage – the government is thus buying off the bottom which can never lead to a bidding war which would drive up labour prices. However, it is also true that as a political decision, the Government could easily introduce the Job Guarantee such that the wage was above the current minimum wage – as an industry policy decision to eliminate inefficient, low productivity private employers. In this situation, the wage structure would realign and some low productivity jobs in the private sector would be eliminated to the benefit of all. But where the Government decides to pitch the Job Guarantee wage is a political decision. The only Job Guarantee specific fact is that the wage that is set for Job Guarantee workers becomes the minimum wage.
Fourth, would this be inflationary? Definitely not! The Job Guarantee wages cannot rise unless the Government decides to increase them. This wage would not react to wage pressures in the private sector. That is the basis of the inbuilt price stability feature of the Job Guarantee. The anti-inflation dynamics are as follows. If the private labor market is tight, the non-Job Guarantee wage will rise relative to the Job Guarantee wage, and the Job Guarantee pool drains. The smaller this pool, the less influence the Job Guarantee wage has on wage patterning. Unless the government stifles demand, the economy may experience an inflationary episode, depending on the behavior of labour and capital in the bargaining environment. In the face of private wage-price pressures, the Job Guarantee maintains inflation control with the assistance of traditional aggregate demand management policies, which will choke aggregate demand and induce slack in the private sector. The difference between this approach and the NAIRU approach is that the slack does not reveal itself as unemployment, and in that sense the Job Guarantee may be referred to as a ‘loose’ full employment. The Job Guarantee policy generates inflation stability because the suppression of private demand asserts the numeraire price — the Job Guarantee wage. This leads to the definition of a new concept, the Non-Accelerating Inflation Buffer Employment Ratio (NAIBER), which, in the Job Guarantee economy, replaces the NAIRU as an inflation control mechanism. The Buffer Employment Ratio (BER) is the ratio of Job Guarantee employment to total employment. The reference to the buffer employment is that the Job Guarantee functions as a buffer stock to absorb the workers who are currently not demanded by the private sector. As the BER rises, due to an increase in interest rates and/or a fiscal tightening, resources are transferred from the inflating private sector into the Job Guarantee at a price set by the government; this price provides the inflation discipline. The disciplinary role of the NAIRU, which forces the inflation adjustment onto the unemployed, is replaced by the compositional shift in sectoral employment, with the major costs of unemployment being avoided. That is a major advantage of the Job Guarantee approach.
Finally, what exactly is a ‘real job’? Is a low wage, low skill, precariously-casual job flipping lentil burgers a real job? Is a real job one that provides the worker with a wage in return for a day’s labour which then underpins aggregate demand in the economy? Does the checkout operator in the local supermarket question each customer as to whether they have a real job or an unreal job, prior to taking their payments for goods? Is a real job only a private sector job – in which case, the Ministerial advisers in the Department of Employment and Workplace Relations do not have real jobs either? We could go on. This is the old boondoggling and raking furphy which is rehearsed everytime public sector job creation is raised as a policy option.
It is a nonsense to distinguish real jobs from unreal jobs. The fact is that the Job Guarantee provides income-earning opportunities to all those who are unable to currently find jobs elswhere. These jobs would be so designed as to be inclusive to all disadvantaged workers. The Job Guarantee is thus superior to the current buffer stock method of controlling inflation – the NAIRU approach whereby the Government deliberately designs macroeconomic policy such that some people are excluded from being able to be welfare-independent because the economy does not provide enough work for all those who desire it. It is simply unhelpful to think of these jobs are being unreal. The Job Guarantee workers would have to get out of bed in the morning, prepare for work, then engage in meaningful value-adding activities, and at the end of the day go home and spend their incomes. Just like the rest of the employed workforce.
The upcoming budget should allocate around $10 billion to fund a national Job Guarantee program for the next 12 months. The program would offer everyone a job who wants one at the federal minimum wage.
And then we can watch the skies fall in around us.
Long blog … that what happens when I start on my favourite topic …