UK labour market – when “stabilising” means outright deterioration

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1. Grayling is an idiot. No mea culpa from the Tories, it is never their fault always someone else’s but the UK Labour party advocate more or less the same policies. We are reduced to shouting at the tele day after day…after day. Would you (anyone) believe the Tories have a lead in the polls? I guess that when it’s a choice between idiots it doesn’t really matter who you vote for.
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   The Tories went about systematically destroying mining communities in the UK in the 80s (they succeeded) and they are systematically destroying the aspriations of our young people (they are succeeding). While I appreciate your blog is about economics and I truly believe the widespread adoption of the policies you advocate would solve many of the problems we face, political patronage is everything. Black labour (whose efforts are presumably sanctioned at the highest level of the Labour party) are clearly unable to grasp the fact that the policies they are proposing are the exact same ones that are failing right now.
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2. Bill,
   One of the reasons for the increase in the labour force might be the dramatic decline in families emmigrating to foreign countries. This apparently has show up as a suddenrise in net immigration. If this flow of emmigration is significantly reduced, whilst the flow of immigration remains constant, then I would imagine the labour force would have to increase.

   Re the self-employment – one of the reasons both Tory and Labour want this to increase (and something missing from the DETINI document) is because self-employed people who have no current work are not allowed to receive JSA! This is truly a scandal, and presumably would not be the case under Job Guarantee.

3. Bill,
   A further point to note about public sector job losses starting before the election, is that all these jobs were lost in 2010 under Labour plans, not the coallition. Clearely revealing their neo-liberal bias! If I remember correctly, Labour had forced local authorities to make 3% cuts in real terms to their spending every year from 2008 onwards. The Tories just took that to the next level.

4. Dr. Mitchell: Your comments on the value to children of seeing their parents go off to work each morning reminded me of the comments by one of the US republican candidates, Mr. Gingrich. He proposed a jobs plan for the children of unemployed workers to clean bathrooms and floors in their schools. Apparently no such plan is contemplated for the unemployed parents. This is what passes for innovative new thinking in the last days of empire. Thank you for your work. Regards, Jim

5. I should point out that ‘self-employment’ is the standard approach in the UK of getting around the minimum wage legislation.

   There has been a big increase in ‘party plan’, ‘franchises’ and ‘self-employed collectors/delivery’. Not to mention post-office subpostmasters, and practically anything sold on the open market as a supposed ‘business’. Very few pass what I call the ‘McDonalds test’ – where you would be better off getting a job at McDs. (However at the moment even they are spoiled for choice in the UK).

   Of course we now have ‘internship’ where people work for extended periods of time for nothing on the off-chance somebody might eventually give them a job on the pretence of ‘work-experience’.

   None of these scams would exist if we had the Job Guarantee. And moreover the genuine self-employed professional wouldn’t be persecuted as a ‘disguised employee’ either.

6. Neil, Re your claim that “None of these scams would exist if we had the Job Guarantee”, there is not actually a big difference between internships and JG. At least both can, at a stretch, be characterised as “temporary subsidised employment”.

   There is of course the difference that interns get no pay (as I understand it). But suppose that defect was rectified, i.e. suppose interns got min wage. Would there then be anything wrong with internship, and more important, would internship result in a net rise in employment? Put another way, would each intern simply displace a normal “fully waged” employee, and if not why not?

7. Ralph,
   My argument for/against your idea that JG would crow-out regular work:
   Given Bill’s assumtions about trade unions, it would be those same trade unions which would police JG to make sure such crowding-out is minimal IN NORMAL TIMES. Though it would also be true to say that in times of recession or contraction (to avoid infation) – workers may have to accept moving to lower wages (or minimum wage, on JG) rather than becoming unemployed.

8. How does the ex-UBS banker now a “strategy adviser” expect to see another German “Wirtschaftswunder,” or economic miracle without the massive rebuild of the economy via a “Marshall Plan”?

   He should read Tony Judt, Postwar History of Europe

9. Ralph: All employment is temporary subsidized employment. Nobody lives forever = temporary. All employers ultimately get the money they pay their workers with from the state = subsidized. The JG just cuts out the middleman.

   How much interns/ JGers would displace “regular” “normal” “fully waged” employees depends on the JG wage. If it is high enough, practically everyone is a JGer, and taxes or prices for state-produced goods might have to be raised in our Soviet Republic against inflation. With a living wage JG, there could be some displacement, probably not much. Some displacement of low wage jobs could be a socially beneficial aim of the program, a feature, not a bug.

   Unless the economy were at damn full employment, the JG would of course result in a net rise in employment because the huge army of the un(der)employed would disappear. Full employment & a democratic JG would be the best friend labor unions ever had, not an opponent. That’s why it was really important for the survival of oligarchy in the USA for the WPA to be destroyed in WWII – and the oligarchs back then knew very well that they had to do it when they could.

   Of couse it all depends on the wage & the program design, which Bill of course assumes will be sane & democratic. The ultimate aim and result of the oligarchical principle though is to have full employment. I forget which Nobeloid economist characterized as universal, natural and laudable the desire to be the last oligarch standing, the dictator who runs a JG program of everyone else being his slaves.

10. Some Guy, Obviously all jobs are temporary in the sense that eventually we all die. In fact all jobs are vastly more temporary than that in that the average job only lasts 5 years or so (I forget the EXACT number). But those are pretty meaningless uses of the word temporary. I.e. what I meant by temporary was “a few months rather than a few years”.

    I am puzzled by your idea that “All employers ultimately get the money they pay their workers from the state.” If that’s the case, how come employers were able to pay their employees prior to roughly 1900 when the “state” was near non-existent: i.e. the state took a minute portion of GDP compared to nowadays?

    I agree that one factor determining the extent to which interns would displace regular workers depends on the intern wage. For that reason it would be nonsense for the intern/JG wage to be above the min wage.

    Another wheeze that would limit the extent to which interns displaced regular workers would be to place a strict limit on how long an intern stays with a given employer. I.e. after two months or so the state could call the employer’s bluff and give the employer the option of either paying the intern a full regular wage, or letting the state transfer the intern to another job where possibly the latter would be more productive. If the employer really thought the intern justified a regular wage, the employer would keep the intern, and save the state the cost of paying the intern.

11. When the state is nearly non-existent, there is usually anarchy & chaos. As Keynes said, Modern Money is 4000 years old (older than that really) – and Modern Money is what Modern Monetary Theory is about. Sure there are subtleties & historical variations – some of which are not relevant anywhere in the world nowadays, or after the middle ages. But fundamentally and originally and nowadays a monetary economy is a kind of command economy, where all the money comes ultimately from the state. All the JG does is cut out the middleman, as I said.

    Only the state can print dollar bills, reserves, Treasuries, NFA. Modern states regulate banking, private credit money that leverages state money. The state is the currency monopolist, as Mosler says. Lerner et al analyzed the “capitalist” & “socialist” (“command”) economies of their day simultaneously, with the same concepts, speaking of the “monetary authority” – making Mosler’s point in other words. I am just saying money is a creature of the state. An employer that does not have a chain of customers & lenders, people from whom it somehow gets ready money, which ultimately reaches back to and ends at state spending, is an employer that is going bankrupt.

    In 19th century laissez-faire, the state might not issue many commands, except the weird one of setting a price for useless commodities like gold or silver in terms of its intrinsically valuable fiat money. But it was still in charge, still essentially had monetary sovereignty. Did pre-1900 employers coin their own money? Did workers usually accept it? No, they paid in dollars or pounds, which were ultimately backed by their acceptability as payments to the state. Yes, there were company towns & their scrip, and private banking (there still is 🙁 ). There was chattel slavery too.

    I’d note that MMT academics are alert to the agency problems involved by having private employers having JG workers – state-imbursed, privately employed interns. In short, the peril of being closer to slavery than a democratically organized, publicly adminstered JG like the WPA, or maybe even “regular” jobs from the capitalist middleman.

12. “If that’s the case, how come employers were able to pay their employees prior to roughly 1900 when the “state” was near non-existent:”

    You’re confusing a stock and a flow again. A small amount of fiat stock is leveraged via the intangible ‘money creation licence’ assets of private banks to provide a larger stock. That stock then turns through the economy at velocity.

    It is from this flow that workers receive their wages and execute their spending.

13. “Another wheeze that would limit the extent to which interns displaced regular workers would be to place a strict limit on how long an intern stays with a given employer”

    That’s an unnecessary complication. If you want the Job Guarantee to apply to the private sector then you go for the universal wage approach – where the Living Wage is nationalised and given to all workers – public, private, voluntary – directly by the state. Their private wage is reduced accordingly and will result in many if not most people literally receiving zero private wage for their efforts.

    Since the private sector wants people to work for zero wage, then one solution is to give them that by redefining zero.

    You then have the voluntary and public sector work available so that the conditions of employment have some competition from a minimum standard. That means that although zero wage is possible,80 hour weeks for the same money are not – as people would just leave for the voluntary sector.

    Or you implement the JG as Bill has envisaged, where people are restricted to working in the public or voluntary ‘non-profit’ sector and the private profit sector has to bid them away from that work. Bill has detailed that system in his writings extensively.

    But messing around in the middle with a bunch of withdrawal and exception rules is silly. It’s all that early withdrawal nonsense that causes tax credits to fail in their purpose. In systems simple is always best as it avoids any problems with unexpected emergent behaviour.

    For me the important function of Job Guarantee is to allow an individual to say no to a job offer. You can’t have a functioning market unless you can say ‘no deal’ and walk away.

14. Some Guy,

    I don’t agree with your claim that because an economy uses the state’s money, therefor the economy is a “command” economy. The phrase “command economy” normally refers to something along the lines of Russia prior to the collapse of communism, or the economies of the US, UK and Germany during WWII. I.e. the phrase refers to the virtual suspension of market forces, with nearly all economic decisions being taken by government.

    The fact of using the state’s money is perfectly compatible with a free market economy.

    I also don’t agree with the idea that JG “cuts out the middleman” (i.e. normal employers). MMTers who advocate JG do not envisage JG taking over the roles of the main public sector employers: schools, hospitals,etc. Nor do those (like myself) who advocate private sector JG advocate having JG run supermarkets or car factories. What I do advocate is having JG supply temporary subsidised labour in small quantities to EXISTING employers.

    WPA did involve what you might call “entirely new employers”, but that gave rise to understandable objections from private sector employers in similar lines of business (construction, mainly). In other words, where is the sense in having one lot of contractors who have to EARN the money for their employees’ wages in a competitive free market, and another lot who get the money for employees’ wages for free from the state?

    Neil:

    If the money for all wages was supplied “directly by the state”, there’d be little incentive for employers to make maximum or sensible use of labour. I think quite a big reduction in GDP would ensue.

15. “If the money for all wages was supplied “directly by the state”, there’d be little incentive for employers to make maximum or sensible use of labour. I think quite a big reduction in GDP would ensue.”

    Not all wages – just the ‘living wage’ bit.

    Employers do not make maximum of sensible use of labour now. That’s why there are 4.8 million people in the UK without work with many literally being paid to do nothing.

    That’s a pretty big reduction in GDP already.

    Employers will make maximum and sensible use of labour when demand increases – because by definition there won’t be an unemployed buffer pool for them to draw on. Their only option would be to increase productivity – or put prices up which would invoke a tax response to control inflation.

16. It’s difficult not to be in sympathy with Bill’s passionate diatribes against the (uniformly deleterious) effects of unemployment.

    But one early precursor of his JG proposal was Speenhamland which that icon of the left Karl Polanyi (no irony intended, I’m an admirer) stigmatised as having had the entirely unintended consequence of reducing the economic circumstances of once-independent rural workers to (or below) those of slaves. Amid universal anathema from across the entire political spectrum the system was finally abolished – but not before two or more generations had had their lives blighted by it. Its aim had been to prevent the new factory-owners hoovering-up the rural labour-force and – thereby – to preserve in aspic a way of life and a pattern of rural society which was in any case already changing. In other words: a failed experiment in social engineering.

    Likewise – at least according to the more jaundiced accounts (but not without scholarly supporting evidence) – the WPA. Roosevelt, who was a shrewd (to the point of being unprincipled) political operator, used it quite shamelessly to promote his and his party’s electoral fortunes. Which is not to say that it didn’t have substantial achievements to its credit. Some critics have contended that it actually exacerbated unemployment though (I would expect Bill to dismiss that contention out of hand).

    The point is that all such schemes are always going to have serious flaws, and are a constant delicate balancing-act between opposing tendencies. Inevitably with time they decay. Almost always they produce some consequences that were not foreseeable, some of which may actually be the reverse of those intended. The counter-argument is, I suppose, that nothing could be worse than the socially-corrosive effects of mass-unemployment so why not give it a try. But that fails to convince most people.

    In Britain we already experienced a generation or more of “make-work” employment. Virtually the whole of the workforce was – in obedience to the slogan “full employment” slavishly pursued by governments of both parties, in alliance with all-powerful trade unions – under-employed. For every craftsman there had to be a mate; no craftsman would dream of undertaking work he was perfectly capable of performing but which fell on the other side of a union demarcation-line – so one craftsman interrupted his work and waited, idle, while another (also less than fully-employed) filled the gap: the once world-beating British car industry was destroyed by the combined efforts of incompetent managements and perpetually strike-prone class-warriors applying blackmail to extort ever-higher piece-rates and exercising total control over hiring and firing; Fleet Street and the docks were a standing joke with their armies of “ghost” workers appearing on the payrolls with names like “Mickey Mouse”; and so on. Britain became “the sick man of Europe”, but at least we had “full employment” didn’t we? – except that actually we didn’t. It was illusory and bound to end in tears eventually. Thatcherism was the backlash.

    That kind of experience takes some getting-over.

17. “Britain became “the sick man of Europe”, but at least we had “full employment” didn’t we? – except that actually we didn’t.”

    Don’t confuse correlation with causation. The reasons behind the demarcation system are complex and heavily rooted in the job insecurity of the pre-war and Victorian period. The whole IMF episode was precisely because the politicians wouldn’t deal with supply side reform. And then up popped Thatcher, like Mugabe in Zimbabwe, as an extreme reaction to the failure of the politicians that went before.

    The design of Job Guarantee addresses the issue face on. It is not ‘full employment’ in the old sense of propping up everything just in case somebody lost their job. It specifically expects businesses and jobs to die, and it lets them. The stabilisation is merely to catch people as they fall out of this maelstrom and allow them to live at the minimum acceptable standard while the malinvestment resolves itself.

    Job Guarantee means that the ‘special pleading’ of ‘important employers’ should fall on deaf ears. Businesses should be allowed to smash themselves up on the rock of entropy so that better organisations can arise in their stead. In fact it should be encouraged.

    The current unemployment buffer is too low a standard of living and it doesn’t allow government to ignore employers threatening to lay off people. Job Guarantee is simply a better automatic stabiliser that actually makes the labour market more like a market and less like a monopoly.