It was only a matter of time I suppose but the IMF is now focusing…
Youth Guarantee has to be a Youth Job Guarantee
Last week, Eurostat released the latest – Retail Sales – data for the EU. It formalised what has been obvious for some time – private spending in the European economy is going backwards. But didn’t leading economists, including Nobel Prize winners, tell us a few years ago that if governments imposed austerity, the private sector would lose their worries about future tax hikes and start spending? Didn’t the current British Government say the same thing as a justification for the ficsal austerity that now looks like pushing the UK into a triple-dip recession (almost unheard of)? The answer is that these economists and politicians tried to convince us that there was such a thing as a fiscal contraction expansion. Fancy words like Ricardian Equivalence were dragged from the sordid annals of mainstream macroeconomics to give this notion some “authority” (because they knew hardly anyone understood what it was anyway). The wash up is they were wrong. And millions more are unemployed and moving towards or into poverty as a consequence. There is a wholesale failure of government at present in most advanced nations. A current proposal in Europe is to introduce a Youth Guarantee. However, for it to be effective it has to include a Job Guarantee component as its centrepiece. More supply-side activation is part of the problem and cannot be part of the solution.
In September 2012, retail turnover fell by 2.9 per cent in Greece, 1.6 per cent in Austria, 4.7 per cent in Spain, 4.4 per cent in Portugal, 4.1 per cent in Slovenia,. In October 2012, things turned even worse.
In Denmark, -2.8 per cent, Estonia -1.7 per cent, Germany -2.8 per cent, Spain -1.2 per cent, Latvia -1.4 per cent, Austria -0.2 per cent, Poland -0.6 per cent, Portugal -4.5 per cent, Romania -2.1 per cent, Slovenia -1.7 per cent, Finland -3.0 per cent, Sweden -1.2 per cent, United Kingdom -0.8 per cent.
Overall, the EU27 and the Eurozone has seen three months of (accelerating) declines in retail sales. The Eurozone is down 3.6 per cent on the year to October 2012 and the EU27 is down 2.4 per cent.
While the peripheral nations are behaving as they have been for some time (Spain -11.5 per cent over the year; Greece -12.1 per cent (to September); and Portugal -6.7 per cent), the more robust economies are down over the 12 months to October 2012 (Germany -3.8 per cent; Austria -1.9 per cent; and Finland -1.5 per cent). Other nations such as France (-0.7 per cent) are barely moving.
It is hard to draw any positive nuances from the data.
Retail turnover in the Eurozone and the EU27 is now well below the trough that occured in October 2009 at the height of the GFC. In fact, retail trade for the Eurozone is below the 2005 base year value of 100 – currently at 98.1 index points.
The following graph is taken from the Eurostat bulletin (released December 2005) and shows real total retail turnover (seasonally-adjusted) for the Eurozone and the EU27. It is a stark picture of policy failure.
A day earlier (December 4, 2012), Eurostat released the – At risk of poverty – data, which showed that in 2011, 119.6 million people (24.2 per cent of the EU27 population) were at risk of poverty. This proportion is rising in the EU27.
Further, 9 per cent of the population were estimated to be “severely materially deprived”. Poster-child nation Latvia had 30.9 per cent of its population in this category. Austerity has seen Latvia’s overall At risk proportion rise from 33.8 per cent (2008) to 40.1 per cent of the total population in 2011.
According to the European Commission’s – Europe 2020 strategy:
The reduction of the number of persons at risk of poverty or social exclusion in the EU is one of the key targets of the Europe 2020 strategy.
I suppose the targets were arrived at after some very well catered for lunches with plenty of wine and food and travel allowances paid to bureaucrats who had to travel to Brussels for the talkfests. While that was going on another room in the EC buildings in Brussels was plotting austerity.
Anyway, there were no surprises when the third of the big Eurostat data releases for the week came out on Thursday (December 6, 2012) – Second National Accounts estimates for the third quarter.
That data showed since the fourth-quarter 2011, the Eurozone has been in recession again: -0.4 per cent December 2011; 0.0 per cent March-quarter 2012; -0.2 per cent June-quarter 2012; and -0.1 per cent September-quarter 2012. On an annualised basis, real GDP has been negative since the March-quarter 2012.
On Friday (December 7, 2012), the Deutsche Bundesbank published a special press release – New Bundesbank projection: temporary economic slowdown – which said:
The cyclical outlook for the German economy has dimmed. Enterprises are cutting back their investment and hiring fewer new staff. The main drags are not only the adjustment recessions in some euro-area countries but also the slowing of the global economy … However, given the difficult economic situation in some euro-area countries and widespread uncertainty, economic growth will be lower than previously assumed.
The rot is spreading to the core.
While Eurostat showed Germany grew by a modest 0.2 per cent in the September quarter, the trajectory was downward. The Bundesbank is now forecasting a real GDP growth rate of 0.4 per cent in calendar year 2013.
And, I haven’t forgotten that on November 30, 2012, Eurostat released the latest – Labour Force Estimates, October – which showed:
The euro area1 (EA17) seasonally-adjusted unemployment rate was 11.7% in October 2012, up from 11.6% in September. The EU27 unemployment rate was 10.7% in October 2012, up from 10.6% in September. In both zones, rates have risen markedly compared with October 2011, when they were 10.4% and 9.9% respectively …
In October 2012, the youth unemployment rate was 23.4% in the EU27 and 23.9% in the euro area, compared with 21.9% and 21.2% respectively in October 2011.
The official unemployment rate in Greece is now 25.4 per cent in August and rising (youth 57 per cent in August and will be higher now). In Spain 26.2 and rising (youth 55.9 per cent and rising); Portugal 16.3 per cent and rising (youth 39.1 per cent and rising).
There can be no sense that we can conclude the current policy framework is moving the European economy in the right direction.
The EC Commissioner for Employment, Social Affairs and Inclusion responded to these disastrous unemployment statistics for youth in a press release (December 5, 2012) – Youth employment: Commission proposes package of measures.
The EC announced their intention to introduce a Youth Guarantee scheme. In the press release from the relevant EC Commissioner László Andor we read:
High youth unemployment has dramatic consequences for our economies, our societies and above all for young people. This is why we have to invest in Europe’s young people now … This Package would help Member States to ensure young people’s successful transition into work. The costs of not doing so would be catastrophic.
The costs “would be catastrophic”, which indicates to me – as a native English speaker – that this is a situation of the highest emergency and requires a response that would be commensurate with such an impending catastrophe.
Eurofound (European Foundation for the Improvement of Living and Working Conditions), was established in 1975 as “a European Union body … to contribute to the planning and design of better living and working conditions in Europe” – published a report (October 22, 2012) – Young people not in employment, education or training: Characteristics, costs and policy responses in Europe – which, in part, tried to estimate the costs of not integrating the NEETs (youth that are not in employment, education or training).
The Report found aimed to estimate “the monetary cost of the NEET group” not because it wanted to “commodify young people”, that is, “put a price tag on a young person’s life”, but rather to broaden “understanding of the benefits accruing from re-engaging young people in employment and education” and stimulate “governments and social partners to prevent the disengagement of young people from the labour market and education”.
Over the course of my career – which has been characterised by a constant call for full employment – I have found policy makers, business interests and the wider population – to be ignorant of how much persistently high unemployment actually costs society in daily lost income generation – not to mention the broader personal and social costs.
I will leave it to the interested reader to more fully investigate the way Eurofound came up with estimates of these costs.
In summary, the Eurofound Report provided estimates of “(direct) public finance costs and (indirect) resource costs”. The former relate to welfare support (“all transfers and benefits from public benefits schemes received by a young person in the NEET group and which are in excess of what a non- NEET counterpart would receive”), while the latter refers to losses “to the economy due to the lack of labour market participation of NEETs”.
The Report concluded that:
Despite being conservative, the estimated loss due to the labour market disengagement of young people is substantial. In 2008, the 26 Member States lost almost €120 billion, corresponding to almost 1% of European GDP. When the recent economic crisis and the increase in the NEET population between 2008 and 2011 is taken into account, it is likely that this loss has been even greater … It was estimated to be €153 billion, corresponding to more than 1.2% of GDP in Europe. While this cost varies a great deal between Member States, a considerable deterioration of the situation was observed in Bulgaria, Cyprus, Greece, Hungary, Ireland, Italy, Latvia and Poland. In all these countries, the loss in 2011 due to the disengagement of young people from the labour market was equal to 2% or more of each country’s GDP.
For example, for Greece the estimated losses are €7,065,609,793 or 3.28 per cent of GDP in 2011 (1.74 per cent of GDP in 2008).
The Report assumes that there would not be sufficient “job vacancies … [to] … cater for all NEETs … [and so] … Europe will not be able to save the entire cost of €153 billion” but that substantial savings are still possible if Europe was “to reintegrate 10% of NEETs into the labour market”.
The conservatism of the organisation and the environment that it is operating in is very evident. Why couldn’t Europe create the job vacancies necessary? No reason is given other than the implied lack of private sector demand.
Dream a little bit. Why shouldn’t this become a public sector responsibility? Then the so-called “fiscal costs” would be transferred from welfare support to wage income and employment.
But despite telling us that the catastrophic youth unemployment is creating a “sense of urgency” that “is amplified by the fact that the consequences of a lost generation are not merely economic but are also societal, with the risk of young people opting out of democratic participation in society”, there is very little “dreaming” contained in the Eurofound approach.
The point is that there are now massive costs being incurred by the Europeans on a daily basis. These are what economists call “deadweight” losses, which means that they are permanent. They are also intergenerational – in the sense, that not only is the current losses of income huge, but the future productivity of the workforce is being undermined.
The high adult unemployment incidence means that many children are now growing up in jobless households. The research evidence is clear. This cohort inherits the disadvantages that beset their parents and have poorer outcomes in their own adult lives – higher job instability, higher unemployment, lower wages, poor family outcomes etc.
But the youth cohort that is also enduring very high rates of unemployment and rising underemployment (if they are lucky enough to be working at all) are now cementing that disadvantage. They are being denied the opportunities to acquire essential workforce experience and skill development. They are being denied a range of other social skills that productive workers require.
The result will be that the huge costs that are being incurred now will be amplified in the coming decades. It is policy insanity not to place this problem at the top of priorities.
On a conceptual level, the term “fiscal cost” is unique to monetary systems that are defined by governments using a foreign currency – as in the Eurozone. For a fully sovereign nation – such as the United Kingdom – the budget outlays on, say an employment creation program for youth – are just numbers on a bit of paper.
The only relevant “cost” that has to be considered in delivering such a program are the extra real resources that are consumed as a result of the initiative – including, if there are competing demands for those resources – the opportunity cost (what they might have otherwise been used for).
The opportunity costs are low when unemployment is high. It is obvious that the “private market” has no use for the idle resources when unemployment is high. So the real costs are the extra food that the workers might consume, the extra capital that is required to supplement the employment creation and the like.
Most economists fail to understand this point and focus on dollars and cents in the budget allocation, which is an irrelevant measure.
However, for nations in the Eurozone, the situation is somewhat different because they surrendered their currency sovereignty and have to seek the Euros necessary to create such employment from taxes and bond issues. It would be far more sensible for the European Central Bank to ensure there are sufficient funds to allow large-scale employment programs to be introduced without the need to access the private bond markets.
In a sense, the ECB is playing that role via its various secondary bond market purchasing programs. But it is doing so at a massive cost to the particular nations involved – by insisting that austerity is a pre-condition for support. That stance makes zero sense. It is destructive and guaranteed to fail.
The point is that these nations – by dint of the fact that they have elected to use a foreign currency – face additional issues when thinking about introducing employment programs. The answer is simple – they should restore their currency sovereignty. But in lieu of that sensible option, any program has to be justified on a cost and benefit nature.
So the exercise in showing how large these costs are in monetary terms is an important way to demonstrate why the Eurozone governments should seek funds to eliminate those costs.
Please read my blog – The costs of unemployment – again – for more discussion on the massive wastage that persistent unemployment guarantees.
As a response to the “catastrophic” youth unemployment the EC has announced a “Youth Employment Package” which:
… includes a proposed Recommendation to Member States on introducing the Youth Guarantee to ensure that all young people up to age 25 receive a quality offer of a job, continued education, an apprenticeship or a traineeship within four months of leaving formal education or becoming unemployed.
The EC provided this page – Youth employment: Commission proposes package of measures – frequently asked questions – to provide further detail about the proposal.
Note it is a proposal at the moment not a policy and so will have to wind its way through the torturous EU processes that ensure that “solutions” are always enacted years after they are required and are usually the wrong approach anyway after all the compromises are included.
But in terms of what is publicly-available, the idea of a Youth Guarantee sounds appealing. I love it when governments seek to guarantee things.
The EC provided a list of the measures “that can be supported by the ESF” (European Social Fund). In the official document, there were a series of dot points, which described the examples of activities that would operate under each “measure”. I have summarised the intent of the dot points in the descriptor after each measure (that is, the non-quoted annotations). I have tried to remain positive.
The list of “measures” (and my annotations) is as follows:
- “Outreach strategies and focal points” – promotion of policy initiatives, training, information
- “Provide individual action planning” – training
- “Offer early school leavers and low-skilled young people routes to re-enter education and training or second-chance education programmes, address skills mismatches and improve digital skills” – training.
- “Encourage schools and employment services to promote and provide continued guidance on entrepreneurship and self-employment for young people” – training, entrepreneurship orientation.
- “Use targeted and well-designed wage and recruitment subsidies to encourage employers to provide young people with an apprenticeship or a job placement, and particularly for those furthest from the labour market” – wage subsidies.
- “Promote employment/labour mobility by making young people aware of job offers, traineeships and apprenticeships and available support in different areas and provide adequate support for those who have moved” – training and information.
- “Ensure greater availability of start-up support services” – training, information and self-employment support
- “Enhance mechanisms for supporting young people who drop out from activation schemes and no longer access benefits” – information and mentoring
- “Monitor and evaluate all actions and programmes contributing towards a Youth Guarantee, so that more evidence-based policies and interventions can be developed on the basis of what works, where and why” – evaluation
- “Promote mutual learning activities at national, regional and local level between all parties fighting youth unemployment in order to improve design and delivery of future Youth Guarantee schemes” – talk fests.
- “Strengthen the capacities of all stakeholders, including the relevant employment services, involved in designing, implementing and evaluating Youth Guarantee schemes, in order to eliminate any internal and external obstacles related to policy and to the way these schemes are developed” – training and talk fest
So what do we conclude? On the face of it – and I will be happy to be informed otherwise – the Youth Guarantee continues the bias towards supply-side measures.
This “activation” emphasis has defined OECD policy since the release of the Jobs Study in 1994. The OECD advocated extensive supply-side reform with a particular focus on the labour market, because supply side rigidities were alleged to inhibit the capacity of economies to adjust, innovate and be creative. The proposed reform agenda was variously adopted by many governments.
It was introduced as monetary authorities increasingly adopted inflation targeting (formal and informal) which their policy on price level targets and used unemployment as the instrument to achieve these targets.
It also was accompanied by growing fiscal conservatism, which in Europe has been expressed in the Maastricht Criteria and the Stability and Growth Pact.
The topic is covered in great detail in our 2008 book – Full Employment Abandoned.
The Jobs Study sought to promote the idea that there is a formal link between unemployment persistence, on one hand and so-called “negative dependence duration” and long-term unemployment, on the other hand.
Although negative dependence duration (which suggests that the long-term unemployed exhibit a lower re-employment probability than short-term jobless) is frequently asserted as an explanation for persistently high levels of unemployment, no formal link that is credible has ever been established.
The OECD constantly pressured governments to abandon the hard-won labour protections which provide job security and fair pay and working conditions for citizens.
Their solution? Cut benefits, toughen activity tests, eliminate trade union influence, abandon minimum wages and reduce any subsidies that prolong the search propensity by workers.
The result? Even before the crisis, unemployment remained well above the full employment levels in most nations; real GDP growth was muted relative to the past; real wages growth has been suppressed relative to productivity growth – leading to a massive redistribution of real income to profits; private gross capital formation has been lower than in the past.
Most economies failed to provide enough employment relative to the preferences of the labour force and persistent demand-deficient unemployment was accompanied by rising underemployment in many countries.
Assessment: the deregulation agenda was a failure.
Some 15 years after the OECD Jobs Study was released, the OECD economies still generated high unemployment rates and broader forms of labour underutilisation have increased. The trend to part-time and casualised employment which fails to provide enough hours of work to match the preferences of the workforce is widespread throughout OECD countries.
Now we are back in recession, it is difficult to see what has been achieved by the supply-side labour market policies other than to punish the most disadvantaged workers in our communities.
The solution is not more of the same.
Among the proposed “Youth Guarantee” measures I see:
1. More training which is ineffective if it is outside the paid-work environment.
2. More information to be provided about jobs yet it is hard to provide information about jobs that are not there!
3. Proposals to address poor signalling which amounts to making one’s CV look better for jobs that are not there!).
4. Wage subsidies to address slow job growth barriers: of all the measures proposed this is the only one that seems to focus on the demand-side of the labour market.
That is, directly address the shortage of jobs. Wage subsidies have a long record of failure and operate on the flawed assumption that mass unemployment is the result of excessive wages.
There is no consistent evidence that supports the idea that private firms will provide millions of jobs to the European youth as a result of wage subsidies (100 per cent or otherwise).
If firms cannot sell the extra output they will not hire extra workers. They may hire youth and sack adults and pocket the cost differential if productivity considerations allowed.
The overwhelming problem that I see with the Youth Guarantee proposal is that it seems to skirt around the main issue – a lack of jobs. It seems to be about full employability rather than full employment.
What is needed in Europe is a large-scale job creation program for those who are not in formal education or formal apprenticeship programs. Within that job creation program, various training ladders can be included where appropriate and where the participant desires lie.
But the essential starting point in resolving the catastrophic youth unemployment crisis in Europe is not more “supply-side” activation. The problem is overwhelmingly a demand-side one – a lack of jobs. That is where the bulk of the policy intervention should be focused and now.
Conclusion
I sense that the neo-liberal supply-side bias dominates even in the liberal areas of policy discussion in Europe. What could be more simple than the EC announcing a Job Guarantee for its Youth?
There are millions of things that the idle workers can do that is productive and provision of jobs would rather quickly reduce the massive costs that are being incurred now and into the future. It would give the policy makers time to work out more effective policies to keep young people in formal education and training programs.
The current approach is driven by the policy approach that has been part of the problem. It cannot also be part of the solution.
That is enough for today!
(c) Copyright 2012 Bill Mitchell. All Rights Reserved.
http://www.cso.ie/en/media/csoie/releasespublications/documents/agriculture/2012/oiiadv_2012.pdf
Intermediate consumption is a monetary problem if you have spare people to transfer stuff from trucks to rail……
But forklift drivers are too “expensive” to employ in this monetary envoirment………….
Retarded.
Trucks simply export hard currency out of the country until they burn through all the capital…….
Then trucking companies go bankrupt.
http://www.rte.ie/radio1/todaywithpatkenny/
listen to Farming friday 7 th december
Alan Aherne , talks about how the economy is affecting the farming industry………..
You would get the impression we had a sov currency or something,………
Quite extraordinary interview.
It is kind of sad that the message remains “we guarantee to train you for jobs we refuse to guarantee”. As you have noted before though, this is simply part of the victim blaming that neoliberals indulge in because people like it. The man in the street, if newspaper comments, letters to the editor and phoneins are anything to go by, think the unemployed refuse to work and require punishment. I think reinforcing this idea is a greater influence on employment policy than any genuine belief that somehow jobs will magically appear if we only train people enough. And the idea that teens with no capital and no means to get any can simply become “entrepreneurs” is so stupid I refuse to believe that anyone thinks it so.
Bill rules out private sector subsidised work and then claims that “There are millions of things that the idle workers can do…” (presumably in the public sector).
Interestingly he doesn’t cite any examples of “things that idle workers can do”.
Here’s an old favourite: helping old people with whatever: decorating their houses, or shopping. Problem there is that some truly dreadful examples of mistreatment of the elderly by supposedly qualified or vetted staff have been uncovered in the UK. God knows what would happen if any old bod from the ranks of the unemployed was put onto that sort of work.
How about construction type work? Problem there is that 95% of the unemployed don’t have the right skills.
Next problem: public sector type work tends to require more skills than private sector type work. To illustrate, I just don’t see unemployed youths being much use for medical or educational type work, nor do I see them being of much use to the income tax authorities.
The problems go on and one.
And finally let’s not get away with the idea that JG or public sector type work for the unemployed is a new idea. Pericles in Ancient Athens implemented the idea 2,500 years ago. If anyone knows of any progress made with this idea since then, I’m all ears.
“Interestingly he doesn’t cite any examples of “things that idle workers can do”.”
Ralph,
You really need to try the Buzan ‘how many uses are there for a paper clip’ mental exercise. You are clearly suffering from what is known in psychological circles as ‘Functional Fixedness’.
If workers are no use to the public sector, then they can be of no use to the private sector either.
And, importantly, vice versa.
Neil,
“If workers are no use to the public sector, then they can be of no use to the private sector either.”
I suggest you go back and re-read my comment above. As I point out there, the public sector uses relatively skilled labour. Thus JG type employees are likely to be of MORE USE to the private than public sector.
Moreover, the evidence from various studies done around Europe is that those who have done subsidised work in the PRIVATE SECTOR are more likely to be employed a year or two later than those who have had subsidised jobs in the PUBLIC SECTOR.
Next time you issue insults of the “‘how many uses are there for a paper clip” type, you want to make sure you are 100% right first, else you just make a fool of yourself.
“Thus JG type employees are likely to be of MORE USE to the private than public sector.”
I suggest you go back and read the comment I made. There is no difference between the public and private sector in the way they engage people to do tasks.
Equivalent sized organisations operates in pretty much the same way.
“the evidence from various studies done around Europe”
‘Evidence’ that is ideologically tainted and has been continual debunked by MMT economists. Yet you still keep carping on about it, as you do about marginal employment theory. Those are rejected arguments. They are no more solid that the BoE’s argument for the ‘success’ of QE.
“you want to make sure you are 100% right”
I think the response pretty much proves my point – regrettably.
Neil,
“Equivalent sized organisations operates in pretty much the same way.”????? Completely irrelevant.
A firm of lawyers that employs say 50 people may have SOME organisational similarities to a taxi firm that employs the same number of people. However I think the average six year old will be aware that the level of skill required for the average employee in both firms will be very different.
As for the idea that the various labour market studies done round Europe to which I referred are “ideologically tainted” where in Earth is the evidence for that? You’re just making it up as you go along. But if you do have ACTUAL EVIDENCE to back up that very serious accusation, then I’m all ears.
You’ll find a list of the studies I had in mind here:
http://ralphanomics.blogspot.co.uk/2012/01/effect-of-temporary-subsidised.html
Perhaps you’d like to contact the dozen or so Swiss, Swedish, German and British economists involved and tell them why their work is “ideologically tainted”.
Ralph,
“Interestingly he doesn’t cite any examples of “things that idle workers can do”.”
Here’s some examples of job titles for jobs created during the short life of the Future Jobs Fund in Bradford:
Accounts Assistant
General Maintenance Assistant
Data Input Clerk
Receptionist
Trainee Czech Advice Worker
HR Administrator
Broadcast Support Worker – Technical
Cafe Worker
Bar Person
IT Support Officer
Website Developer
Neighbourhood Warden
Immigration Advice Worker
Fundraiser
Health Support Worker
Vehicle Maintenance Worker
Didn’t discern a shortage of useful work to be done in the non-profit sector in Bradford.
Ralph and others,
please go to
http://e1.newcastle.edu.au/coffee/publications.cfm
and under the Reports tag you will see a document
2008 – Creating effective local labour markets: a new framework for regional employment policy
you can download. In Part 3 Local Government Survey you will find various tables etc showing the types of jobs that were required and could be done in many local governments in Australia at the time.
best wishes
Graham Wrightson
What if unemployment and social assistance payments were funded exclusively with business taxes?
Would the private sector have an incentive to hire more people to reduce these taxes?
The Irish Post office normally took in extra workers for Christmas……
They got off the Dole and got tax free wages (tax back) for a few weeks..
But they stopped that back in 2010.
The permanent workers now get a few extra euros for the hard work while the part timers atrophy…..as they sit on their hole.
Also in rural areas people must collect mail from the post office and so must burn diesel.
Why not give a young 18 year old lad a push bike and give him a local job ?
But they can’t do this stuff
WHY
BECAUSE THE GOVERNMENT HAS NO MONEY POWER
Which means it is not a government.
Stuff like the above saves real resources
But the banks want you to burn it……..
As they earn a interest income from the waste.
Ralph/Neil: I thought the JG involved a public sector job at minimum wage, so that as the private-employment picture improved people would move into those jobs. How would that work with private-sector subsidies? Also, what is private and public (and the ratio) varies from country to country, so not a rigid distinction in terms of the type of job.
“How would that work with private-sector subsidies?”
It doesn’t really. We have a private sector subsidy now called ‘Tax Credits’, unemployment is still massive and the Work Programme a complete failure.
One of the main benefits of the JG design is that it forces the private sector to shape up because it has to compete with the standard job offer of the JG. And competition sharpens the focus of businesses – even though they complain bitterly about it and do everything they can to eliminate it.
“A firm of lawyers that employs say 50 people may have SOME organisational similarities to a taxi firm that employs the same number of people. ”
The skill level isn’t the issue. The management ability to transform labour hours into labour services tends to deteriorate with the size and age of the organisation at all levels of operation.
I’ve worked in law firms to replace tired and dated methods of operation. Some of the redundant processes were most amusing, and getting rid of them a challenge due to the status issues between fee earners (having a personal secretary made you more important – as did the oak panelling on the walls). And getting decisions out of a partnership board with 35 members is quite a challenge.
In comparison taxi firms are organisationally quite efficient, but then you don’t tend to get very big ones.
Interested readers can refer to Pavlina’s debunking of your evidence here:
http://neweconomicperspectives.org/2012/03/job-guarantee-is-not-workfare.html
“But let’s be very clear, studies of ALMPs which have unambiguous neoliberal design do not serve as evidence against the JG.”
“Didn’t discern a shortage of useful work to be done in the non-profit sector in Bradford.”
And the Citizen’s Advice Bureau can always make use of spare lawyers…
Alex,
From what I can see after a quick bit of Googling, the Future Jobs Fund created subsidised work in both public and private sector – exactly what I advocate. Moreover, to judge by your list jobs, it looks like the subsidised jobs were with EXISTING EMPLOYERS, not on specially set up “job creation schemes” – again, exactly what I advocate. So there is a large measure of agreement between us there.
The only point where I don’t quite agree is that your producing a list of fifteen or so jobs that were created in the public sector does not invalidate my earlier point that the PRIVATE sector is better at creating relative unskilled jobs than the PUBLIC sector.
Graham Wrightson,
I’ll try to have a look at the coffee publication you suggest. But that reminds me of a hilarious coffee publication I once read (and yours might be the one) where coffee researchers interviewed a selection of bureaucrats with a view to showing how many relatively unskilled jobs could be created in the public sector. Unfortunately the bureaucrats didn’t give the answer that the coffee researchers wanted. That is the bureacrates said that very few such jobs could be created. The coffee researchers response was to say the bureaucrats were not imaginative enough.
SteveK9,
Yes, the advocates of JG normally see it as being confined to the public sector. Presumably that’s because they think that no extra demand is required to expand the public sector, therefor there is no inflationary impact. That idea is actually flawed, and for reasons I set out at the link below. And assuming I’m right, then JG type schemes ought to make no distinction between public and private sectors.
http://mpra.ub.uni-muenchen.de/19094/
Neil,
Your claim that “management ability to transform labour hours into labour services tends to deteriorate with the size and age of the organisation” may well be correct. But it has nothing to do with my lawyer versus taxi driver point. To go over it all again, I made the latter point for the following reasons.
You claimed that “If workers are no use to the public sector, then they can be of no use to the private sector either.” My answer to that was that private sector is better at employing relative unskilled labour. Your answer to that was that employers of a given size in both sectors are organisationally little different. My answer to that was that while they might be organisationally little different, there is nevertheless a difference skill requirement wise between a law firm and a taxi firm. The latter will be better at employing relatively unskilled labour than the former.
Re Pavlina’s rubbishing of a whole series of labour market studies by various European labour market researchers by simply calling them “neoliberal” – that’s just absurd.
Re your example of having unemployed lawyers working for the Citizens Advice Bureau, I’m all for that! That just confirms one of the basic points I make in the paper of mine linked to above, namely that the unemployed should be subsidised into vacancies with EXISTING EMPLOYERS, not into work on specially set up job creation schemes.
Clearly a lawyer (even a part qualified one) is vastly better employed doing legal work than in doing the typical job offered on specially set up “job creation” or WPA type schemes. Plus if the relatively unskilled “recently unemployed” are put to work alongside a decent number of skilled employees and a decent chunk of capital equipment (which is what you get with existing employers) you get a better mix of different factors of production than on specially set up schemes. The latter (at worst) consists on one skilled person trying to supervise ten unskilled. Output as a result is hopeless.
Dear Ralph Musgrave (at 2012/12/12 at 19:41)
I was very close to deleting your comment. The grounds – your representation of the CofFEE Report that Graham referred to earlier this morning is dishonest. The Report recognises that conservativeness of the officials interviewed but still identifies more than enough jobs to render a Job Guarantee effective (that is, eliminating demand-deficient unemployment).
Your misleading characterisation of the Report doesn’t do you credit.
The only reason I left the comment in was because you were also engaging in dialogue with others who operate in good faith.
You don’t have to like the Job Guarantee but you should not misrepresent our research.
best wishes
bill
Ralph,
I was responding to your point that it’s difficult to come up with useful jobs in the non-profit sector other than helping the elderly. On the Future Jobs Fund, use of the private sector was actually quite rare, and in my experience, worked less well.
I don’t think MMT’s Job Guarantee is not limited to specially set up ‘job creation schemes’. It could also work with the Government operating as funder, but not creator of the jobs. Job creation could be the role of existing non-profit organisations. I’ve seen this advocated by MMT economists and this is the model I’m familiar with from the Future Jobs Fund and it works well. I’m sure Bill can correct me if I’m wrong on this point.
“The latter will be better at employing relatively unskilled labour than the former.”
Actually that isn’t the case. A law firm uses a ton of unskilled labour because the manpower work in a law firm is largely drudgery involving shuffling paper around and sticking it in envelopes . They are past masters at hiring 16 year olds and firing them when they get too old and minimum wage goes up. 16 year olds aren’t much use to a taxi firm.
Pro-tip: never rent a house to a lawyer. They know how to bend all the rules and will tie you in legal knots.
“namely that the unemployed should be subsidised into vacancies with EXISTING EMPLOYERS, not into work on specially set up job creation schemes.”
Why aren’t existing employers employing them now?
No I’m afraid we’re now into the moral discussion of this point, which is why should private sector profit making entities be subsidised by the public sector – which is argument you actually put forward in your defence of 100% reserve banking.
If the private sector won’t pay the full price to hire people, then they should not get to benefit or profit from people’s labour.
For me that is the line in the sand. The private sector has to fight for the right to use labour so that it values it. Making sure that an individual always has a choice of job is a key design feature of the JG. There should always be the choice to say ‘no deal’ to a bad job offer, and pick a different deal instead.
The labour output paid for with public money should be applied to the public purpose – which would improve the stock of commons available to all. The stock of commons so developed can then be exploited by many private sector entities who are prepared to pay the price for their labour.
For example, it makes no sense to subsidise a data entry firm so that they can create intellectual property available only to them. It is much more sensible to do that data entry as a public matter, and make the intellectual property available to all.
“Clearly a lawyer (even a part qualified one) is vastly better employed doing legal work than in doing the typical job offered on specially set up “job creation” or WPA type schemes.”
And a correctly designed Job Guarantee would provide those openings. Hence my point about the CAB.
I will say again, and I mean this in a kind way, the thought processes repeated here demonstrate a huge amount of rigidity. It is clearly possible to design the JG in a manner other than the one you keep repeating. Job Creation (and destruction) goes on all the time in public and private operations. You get grant applications all the time from people who want to do something. It is not a special process.
Effectively with JG you will be giving grants of manpower to the non-profit sector or public sector, alongside the grants of money. That is what happened with the Future Jobs Fund. New Deal of the Mind placed lots of people with arts foundations – mostly to do the admin in their operations.
The decision as to who gets the manpower is the same as who gets the money. It’s part of the budgeting process and part of the democratic system.
Hi Neil,
In response to my suggestion that JG people be subsidised into employment with EXISTING employers, you ask “Why aren’t existing employers employing them now?” Good question.
Put the question another way, assuming the economy is at the point where a straight rise in demand causes inflation rather than expanding employment, why do employers bid up the price of already employed labour (or give into union demands) rather than take dole queue labour? My answer is that the quality of dole queue labour has declined to the point where it is so unsuitable for vacancies that its output doesn’t cover the minimum / union / going wage.
So the solution is . . . roll of drums . . . to subsidise that labour into work with those existing employers.
Having said that, there are a string of “ifs”, “buts” and qualifications the above argument, but basically the argument sort of holds.
Next you say that “If the private sector won’t pay the full price to hire people” it shouldn’t be allowed to hire them. What do you mean by “full price”? Isn’t that an entirely arbitrary concept? Is full price the union wage (which itself is pretty abritrary – e.g. it depends on the political power of the union amongst other things). Is it the minimum wage: there again, the minimum wage can be set at any rate we choose, so that’s arbitrary as well.
My idea of “full price” is “market price”. That is, I think employers should pay market price for labour. And in the case of the above “unsuitable” labour that’s an extremely low wage: below the min wage probably. But I’m not saying anyone should actually get a sub-min TAKE HOME pay.
That is, the best policy with the above “unsuitable labour” is to have the employer pay market price, and have government make that up to the min wage or whatever. And that pretty much equals the employment subsidy I set out above. Hey Presto.
In fact the above so called subsidy is not a subsidy at all. A subsidy by definition causes a movement AWAY FROM market prices. The above so called subsidy actually does the opposite: it enables the re-introduction of market prices.
Re your claim that the private sector should never make use of employment subsidies, there have been dozens of not hundreds of employment subsidies proposed and implemented since WWII in the West: e.g. the plethora of subsidies for high unemployment regions in the UK. In almost every case, private and public sectors are treated equally. So you are out on a limb in claiming that the private sector should not be able to make use of employment subsidies. Not of course that that proves you are wrong.
“That is, I think employers should pay market price for labour.”
Which would be zero ‘at the margins’ if there are more people than jobs.
So you are arguing for free labour for private profit – permanently subsidised by the state.
Which means that private companies can use manpower when they would be better off using a machine – because people are cheap. So we’re back to digging canals out with shovels.
And of course the idea that prices naturally adjust to wage levels just doesn’t work in the real world – as we see every day. So the wage level is not arbitrary at all. You can’t just set it anywhere you want and expect everything to magically adjust.
We want the private sector to relentlessly replace people with machinery and innovation. We want them to destroy unpleasant jobs. You don’t achieve that by giving them free people. You do that by progressively making people more expensive and harder to obtain.
And the best way to make that happen is to introduce some competition to the private sector. Force them to fight for people to make profits. Then they may realise they’d be better off inventing a machine.
And of course as to evidence, the UK work programme is a failure whereas the Future jobs fund was a qualified success. Yet they were similar in design and structure.
The difference? Well the FJF excluded the private sector…
Neil,
Re your objections to private firms using subsidised labour, I have disastrous news for you, which is that about half the entire workforce in the UK is subsidised in that they get tax credits: a form of “in work benefit”. And quite apart from tax credits, there are other forms of in work benefit that bring employees pay up to what you call “the full price”, i.e. the minimum socially acceptable wage.
Since you claim such labour should not be employed in the private sector, you are implying we pretty much dispose of the private sector.
As to your suggestion that my ideas involve going back to digging canals with shovels, that is absurd. JG (in the form I propose it or in the form advocated by others) involves no change whatever to the wage paid or working practices of the vast bulk of the workforce. Thus JG does not involve any sort of generalised return to the technology of the Middle Ages.
Yes, JG (in the form I propose it, or in any other form) does involve some not desperately productive jobs. 99% of those who discuss JG have worked that one out. No one has ever said, far as I know, that JG people will be as productive as brain surgeons, partners in law firms, or even the average employee on average wages.
Next up: your bizarre claim that we should “progressively make people more expensive and harder to obtain”, and that we should “destroy unpleasant jobs”. Well I’m all for that. In fact that’s been place steadily for two centuries as a result of improved technology. But if you ARTIFICIALLY bump up wages and conditions for labour in general or for a particular type of labour beyond that point, employers just won’t hire.
No doubt you’d like to double the minimum wage – a form of artificial interference in the labour market. And doubtless that would make work a more pleasant and better paid – for those in work. Unfortunately that measure would just reduce numbers employed.
People who have never opened a book on economics know that raising the price of apples means people buy fewer apples. Seems some commentators on this site haven’t worked that one out.
However, if you really think it is possible to substantially increase the pay for not desperately skilled work then please please set up a business that actually pays well above the going rate for unskilled labour. You’ll set us all a good example, and perhaps you’ll get a Nobel Prize.
“Since you claim such labour should not be employed in the private sector, you are implying we pretty much dispose of the private sector.”
That’s a really poor excluded middle argument.
We remove the subsidy and let the market price go to where it will go with the private sector competing for the labour it needs.
Those that can’t compete go to the wall. Very simple. Bye Bye. Good riddance.
It makes no sense at all for publicly subsidising hand car wash workers when we have very good machines that do the same thing. It’s not good for the workers and its not good for the machine manufacturers and operators. And it’s certainly not efficient in any sense.
Tax credits devalue labour.
“People who have never opened a book on economics know that raising the price of apples means people buy fewer apples.”
People might, but since we are talking about a buffer stock system here, the correct comparison is with a buffer stock apple system where there is a guaranteed minimum price for apples. Which ensures that all the apples are bought at a particular price.
So certain people may have fewer apples who weren’t prepared to pay the minimum price, but all the apples supplied have been bought. Which means that the producer of the apples knows where they stand and can plan their investment accordingly.
I’ve never seen anybody suggest that under this system those who weren’t prepared to pay the minimum price for apples should then get their apples anyway. That would be a perverse incentive.
So I see it the same with labour. If you’re in the private sector you pay the price for labour or you don’t get any. Otherwise you won’t value it.
“However, if you really think it is possible to substantially increase the pay for not desperately skilled work then please please set up a business that actually pays well above the going rate for unskilled labour. You’ll set us all a good example, and perhaps you’ll get a Nobel Prize.”
I don’t need to do that. Henry Ford already did it and proved the point about a century ago.