There is a consistent undercurrent against Modern Monetary Theory (MMT) that centres on whether we…
The Job Guarantee would enhance the private sector
There are still those who criticise the concept of a Job Guarantee. I have received a lot of E-mail’s lately about a claim that the introduction of a Job Guarantee would be de-stabilising in a growth phase unless there is some time limit put on the jobs or the wage is flexible. Apparently, in a growing economy, the stimulus provided in the form of Job Guarantee wages (relative to what occurs when unemployment buffer stocks are deployed) will drive the economy into an inflationary spiral, which will then necessitate harsher than otherwise fiscal and monetary policy contraction. Further, the Job Guarantee is claimed to limit the size of the private sector relative to a system of unemployed buffer stocks and this distorts resource allocation and would undermine our overall material standards of living. The criticisms have been dealt with before – there appears to be a cyclical sort of pattern where newcomers seize on past criticisms and recycle them, without bothering to read the original literature on employment buffer stocks, which includes my work and several other authors. That literature considered all these possible issues – 15-20 years ago.
As I understand the arguments presented in the E-mail torrents, the mechanism, whereby the Job Guarantee undermines the private sector is claimed to be something like this.
If there is strong demand for labour from the private sector, the Job Guarantee ‘demand for labour’ will drive overall labour demand into excess.
Excess is relative to the available supply of workers. The claim is that the Job Guarantee introduces an unnatural scarcity for labour, beyond which the private market would generate itself in a growing environment.
In any excess demand situation, the price has to rise as competition for the scarce labour intensifies. Private firms would then be involved in a bidding war which will either discourage new entries or generate accelerating inflation.
These claims seem to invent a new version of excess demand relative to the agreed terms by economists of all persuasions.
Excess demand is calibrated in terms of available supply and is associated with price bids at going prices. The Job Guarantee only employs workers at a fixed price which becomes the effective minimum wage in the economy.
It absorbs workers who have a zero market bid for their services. It therefore does not compete for labour at market prices and therefore cannot introduce an ‘excess demand’ for labour.
The fixed price bid is invariant in a cyclical sense, although the minimum wage would be increased over time in recognition of productivity growth and other considerations.
The non-Job Guarantee employers will always be able to bid the workers away from the Job Guarantee pool if they are prepared to offer more attractive conditions, which generated a satisfactory target rate of profit (or in the case of a public sector employer – a satisfactory social return).
Obviously, firms that cannot profitably produce anything that the ‘market’ desires at the minimum wage will be forced out of business.
No apologies there.
The minimum wage as a statement of how sophisticated you consider your nation to be or aspire to be. Minimum wages define the lowest material standard of wage income that you want to tolerate.
In any country it should be the lowest wage you consider acceptable for business to operate at. Capacity to pay considerations then have to be conditioned by these social objectives.
If small businesses or any businesses for that matter consider they do not have the ‘capacity to pay’ that wage, then a sophisticated society will say that these businesses are not suitable to operate in their economy.
Such firms would have to restructure by investment to raise their productivity levels sufficient to have the capacity to pay or disappear.
This approach establishes a dynamic efficiency whereby the economy is continually pushing productivity growth forward and in that context material standards of living rise.
I consider that no worker should be paid below what is considered the lowest tolerable material standard of living just because low wage-low productivity operator wants to produce in a country.
I don’t consider that the private ‘market’ is an arbiter of the values that a society should aspire to or maintain. That is where I differ significantly from my profession.
The employers always want the wages system to be totally deregulated so that the ‘market can work’ without fetters. This will apparently tell us what workers are ‘worth’.
So some small business operator that can spin a profit by selling some item using below poverty line labour is just acting in accordance with the market
But the problem is that the so-called ‘market” in its pure conceptual form is an amoral, ahistorical construct and cannot project the societal values that bind communities and peoples to higher order considerations.
The minimum wage is a values-based concept and should not be determined by a market.
All of that is in addition to the usual disclaimers that the pure ‘competitive market, cannot exist for labour given the imbalances between workers and employers and the fact that the use value of the labour power is derived within the transaction (that is, the worker has to be forced to work). This is unlike other exchanges where the parties make the deal and go their separate ways to enjoy the fruits of their trade.
The Job Guarantee thus would embody the social values that we aspire to and the ‘economy’ would be moulded to suit those values and private profit making would have to adjust accordingly, rather than set the agenda that the human and physical environment has to succumb to.
What about the expanding economy argument?
Suppose we characterize an economy with two labor markets: A (primary) and B (secondary) broadly corresponding to the dual labor market depictions.
Prices are set according to markups on unit costs in each sector.
Wage setting in A is contractual and responds in an inverse and lagged fashion to relative wage growth (A/B) and to the wait unemployment level (displaced Sector A workers who think they will be reemployed soon in Sector A).
A government stimulus to this economy increases output and employment in both sectors immediately.
Wages are relatively flexible upwards in Sector B and respond immediately. The compression of the A/B relativity stimulates wage growth in Sector A after a time. Wait unemployment falls due to the rising employment in A but also rises due to the increased probability of getting a job in A.
The net effect is unclear. The total unemployment rate falls after participation effects are absorbed.
The wage growth in both sectors may force firms to increase prices, although this will be attenuated somewhat by rising productivity as utilisation increases.
A combination of wage-wage (wage demands by one group of workers to restore their relativities viz another group), and wage-price (workers defending real wages and firms defending real profit margins) mechanisms in a bouyant product market (where goods and services are sold) can then drive inflation.
This is a classic Phillips curve world where unemployment is inversely related to price inflation and there is a trade-off between the two.
To stop inflation, the government has to repress demand. The higher unemployment brings the real income expectations of workers and firms into line with the available real income and the inflation stabilizes – a typical NAIRU story.
Please read my blog – The dreaded NAIRU is still about! – for more discussion on this point.
What would be the impact of the introduction of a Job Guarantee into this type of economy?
Introducing the Job Guarantee policy into the depressed economy puts pressure on Sector B employers to restructure their jobs in order to maintain a workforce.
The Job Guarantee wage sets a floor in the economy’s cost structure for given productivity levels. The dynamics of the economy certainly change significantly.
The elimination of all but Wait unemployment in Sector A and frictional unemployment does not distort the relative wage structure so that the wage-wage pressures that were prominent previously are now reduced.
There is no wage competition from Job Guarantee workers in an expansion – the fixed price anchor (their wage) remains unchanged.
But the rising spending (as Job Guarantee workers now have an income rather than the dole or worse) stimulates sales and the demand for labor rises in Sector A.
Importantly, there are no new problem faced by employers who wish to hire labor to meet the higher sales levels.
They must pay the going rate, which is still preferable, to appropriately skilled workers, than the Job Guarantee wage level.
The rising demand per se does not invoke inflationary pressures as firms increase capacity utilisation to meet the higher sales volumes and productivity rises (as the fixed labour resources such as administrative and overhead staff are spread over higher output levels).
What about the behaviour of workers in Sector A?
The allegation is that workers would also allegedly use the fact that the presence of a Job Guarantee as a bargaining weapon to push for higher wage demands.
This would drive the private sector wage levels up. Firms would have to pay well in excess of the the minimum wage would already be at a socially-acceptable level.
The suggestion then is that the non-inflationary space for expansion would be reduced.
One E-mail I received claimed that this would place a limit on the size of the private sector and thus suppress innovation because one the inflationary ceiling was reached, the government would deploy fiscal constraint to redistribute workers back into the fixed price Job Guarantee pool.
This would, in turn, so the story goes, inhibit new firms from entering because they would not want to be crushed by contractionary fiscal policy, once this alleged private ‘limit’ was reached.
Wendell Gordon (1997, Page 833) said:
If there is a job guarantee program, the employees can simply quit an obnoxious employer with assurance that they can find alternative employment.
[Reference: Gordon, W. (1997) ‘Job Assurance — The Job Guarantee Revisited’, Journal of Economic Issues, 21(3), September), 817-825].
It is true that with the Job Guarantee policy, wage bargaining is freed from the general threat of unemployment.
However, it is unclear whether this freedom will lead to higher wage demands than otherwise.
In professional occupational markets, it is likely that some Wait unemployment will remain. Skilled workers who are laid off are likely to receive payouts that forestall their need to get immediate work.
They have a disincentive to immediately take a Job Guarantee job, which is a low-wage and possibly stigmatised option.
Wait unemployment disciplines wage demands in Sector A.
However, the demand pressures may eventually exhaust this stock, and wage-price pressures may develop.
At first blush, it might appear that the Job Guarantee pool of workers would have to be greater than the unemployment pool for an equivalent amount of inflation control.
This is one of the classic arguments that were raised by economists in the 1990s when I gave presentations about the Job Guarantee proposal.
I recall one presentation I gave in New York in 1998 when this question was raised by an economist.
It is clear that the Job Guarantee workers will have higher incomes and so a switch to this policy would see demand levels higher than under an unemployed buffer stock world.
That is the nub of the claims by these critics about restricting the non-inflationary growth space.
But the reality is that the Job Guarantee would provide better inflation proofing than a unemployed buffer stock approach because the Job Guarantee workers represent a more credible threat to the current private sector employees
In other words, the Job Guarantee pool is a more effective excess supply of labour than the unemployment pool, given the varying duration categories (short- to long-term unemployment).
The buffer stock employees would be more attractive than when they were unemployed, not the least because they will have basic work skills, like punctuality, intact.
This reduces the hiring costs for firms in tight labor markets who previously would have lowered hiring standards and provided on-the-job training.
They can thus pay higher wages to attract workers or accept the lower costs that would ease the wage-price pressures.
The Job Guarantee policy thus reduces the ‘hysteretic inertia’ embodied in the long-term unemployed and allows for a smoother private sector expansion because growth bottlenecks are reduced.
That is, skill levels deteriorate less in a Job Guarantee economy than in an unemployment buffer stock economy.
The Job Guarantee wage provides a floor that prevents serious deflation from occurring and defines the private sector wage structure.
However, if the private labor market is tight, the non-buffer stock wage will rise relative to the Job Guarantee wage, and the buffer stock pool drains.
This is no different to a non-Job Guarantee economy. Wages rise as the excess supply of labour declines.
The smaller the Job Guarantee pool, the less influence the Job Guarantee wage will have on wage patterning.
Unless the government stifles demand, the economy will then enter an inflationary episode, depending on the behavior of labor and capital in the bargaining environment.
In the face of wage-price pressures, the Job Guarantee approach maintains inflation control by choking aggregate demand and inducing slack in the non-buffer stock sector. The slack does not reveal itself as unemployment, and in that sense the Job Guarantee may be referred to as a ‘loose’ full employment.
As the Job Guarantee pool rises, due to an increase in interest rates and/or a fiscal tightening, resources are transferred from the inflating non-buffer stock sector into the buffer stock sector at the fixed buffer stock wage.
This is the vehicle for inflation discipline.
The disciplinary role of the unemployed buffer stock system, 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. The only requirement is that the buffer stock wage be a floor and that the rate of growth in buffer stock wages be equal or less than the private sector wages growth.
Does that restrict the scope for expansion? The scope for private expansion is never unlimited.
When we talk about restricting the ‘size’ of the private sector, there is nothing particular about the Job Guarantee in this regard.
What are we talking about here? Number of firms? Size of firms? Total non-Job Guarantee spending?
Where is the role for productivity growth in this vision?
There is already a ‘limit’ in non-government spending without a Job Guarantee. Even an unemployment buffer stock approach to price stability imposes a spending limit for given productivity growth that the economy cannot go beyond before inflation becomes a problem.
Would a Job Guarantee make that limit lower?
It would actually expand the scope for private expansion because hiring costs are lower and the productivity boost would be higher.
Think about agricultural buffer stock systems, which motivated me in the late 1970s, while still a student, to write up the Job Guarantee idea.
The logic of the Job Guarantee policy came to me during a series of lectures in Agricultural Economics within the Honours program at the University of Melbourne.
The focus of the lectures was the Wool Floor Price Stabilisation Scheme introduced by the Commonwealth Government of Australia in November 1970.
The scheme was relatively simple and worked by the Government establishing a floor price for wool after hearing submissions from the Wool Council of Australia and the Australian Wool Corporation (AWC).
The Government then guaranteed that the price would not fall below that level. There was a lot of lobbying to get the floor price as high above the implied market price, given that the aim of the scheme was to stabilise farm incomes.
The price was maintained by the AWC purchasing stocks of wool in the auction markets. The financing of the purchases came from a Market Support Fund (MSF) accumulated by a small contribution from growers based on the value of its clip. Fund shortages were made up with Government-guaranteed loans.
The major controversy for economists of the day was that it interfered with the market price mechanism.
Note the similarity in the criticism of the Job Guarantee I have outlined above.
There was an issue as to whether it was price stabilisation or price maintenance. This was not unimportant in a time when prices were in sectoral decline and a minimum guaranteed floor price implied ever-increasing AWC stocks.
Other problems included the problems of substitutability from synthetic fibres and the maintenance of production levels, which would by themselves continue to depress prices.
By applying reverse logic one could utilise the concept without encountering the problems of price tinkering. In effect, the Wool Floor Price Scheme generated “full employment” for wool production.
Clearly, there was an issue in the wool situation of what constituted a reasonable level of output in a time of declining demand. The argument is not relevant when applied to available labour.
Full employment is the state where there was no involuntary unemployment and that is ensured by a sufficient number of jobs to be available in relation to the supply of labour at the current money wage rates.
This amounts to a rejection of the notion that all unemployment is voluntary and that full employment can be defined by market relations – the intersection of the labour demand and supply curves at some ‘equilibrium price’.
Accordingly, mass unemployment is construed as a macroeconomic problem related to deficient demand, which in turn reflects a deficient fiscal deficit.
The reverse logic implies that if there is a price guarantee below the ‘prevailing market price’ and a buffer stock of working hours constructed to absorb the excess supply at the current market price, then we can generate full employment without encountering the problems of price tinkering. That idea was the seed of the Job Guarantee model as I have expounded it over many years.
The work of Benjamin Graham (1937) is also instructive. He discusses the idea of stabilising prices and standards of living by surplus storage. He documents the ways in which the government might deal with surplus production in the economy.
[Reference: Graham, B. (1937) Storage and Stability, McGraw Hill, New York]
Graham (1937, Page 18) wrote:
The State may deal with actual or threatened surplus in one of four ways: (a) by preventing it; (b) by destroying it; (c) by ‘dumping’ it; or (d) by conserving it.
In the context of an excess supply of labour, governments had at this time and now adopted the “dumping” strategy via the use of unemployment buffer stocks. It made much better sense to use the conservation approach.
Graham (1937, Page 34) noted:
The first conclusion is that wherever surplus has been conserved primarily for future use the plan has been sensible and successful, unless marred by glaring errors of administration. The second conclusion is that when the surplus has been acquired and held primarily for future sale the plan has been vulnerable to adverse developments …
The distinction is important in the Job Guarantee model development. The Wool Floor Price Scheme was an example of storage for future sale and was not motivated to help the consumer of wool but the producer.
The Job Guarantee policy is an example of storage for use where the “reserve is established to meet a future need which experience has taught us is likely to develop” (Graham, 1937, Page 35).
Benjamin Graham also analysed and proposed a solution to the problem of interfering with the relative price structure when the government built up the surplus.
In the context of the Job Guarantee policy, this means setting a buffer stock wage below the private market wage structure, unless strategic policy in addition to the meagre elimination of the surplus was being pursued.
For example, the government may wish to combine the Job Guarantee policy with an industry policy designed to raise productivity.
In that sense, it may buy surplus labour at a wage above the current private market minimum.
In the first instance, the basic Job Guarantee model with a wage floor below the private wage structure shows how full employment and price stability can be attained. While this is an eminently better outcome in terms resource use and social equity, it is just the beginning of the matter.
Graham (1937, Page 42) considered that the surplus should “not be pressed for sale until an effective demand develops for it.”
In the context of the Job Guarantee policy, this translates into the provision of a government job for all labour, which is surplus to private demand until such time as private demand increases.
It is true that some workers might wish to remain in the Job Guarantee forever which would reduce the available resources for the private sector.
Is that a problem? Not at all. We should celebrate the fact that a worker is content with the wage and hours of work.
The private firms that would likely be impacted in this case would be those who offer inadequate hours of work and/or pay and conditions.
These ‘high’ cost firms would be forced to restructure or leave. That is a good thing for long-term material living standards.
When I get E-mails telling me that the Job Guarantee would replace the buffer stock of unemployed with a buffer stock of failed small businesses I wonder whether the sender has really understood the dynamics involved.
There is no logical evidence that small, high productivity businesses would not function profitably in a Job Guarantee world.
If we are saying that we need to suppress real wages growth below national productivity growth to ensure high cost firms survive then I disagree.
Prosperity is associated with a chase to the top not a race to the bottom.
But the Job Guarantee would introduce no new issues.
Governments have to tighten fiscal and monetary policy to curb an inflationary spiral that is accelerating out of control. The weaker firms always suffer in that case.
There is a dynamic that replaces these high-cost firms at the bottom of the cycle with newer, lower cost firms that deploy newer techniques and capital. That sort of attrition always happens over the economic cycle.
Small businesses have very high failure rates anyway. Usually this is because of a lack of capital and/or management skill. Small business always struggle to access bank finance. The introduction of a Job Guarantee would not change that.
Further, at the top of the cycle, the Job Guarantee pool would be very small if negligible. Only a small number of workers who were unable to get jobs in the private sector through discrimination would likely remain – those with disabilities, the very low skilled, etc.
It is hard then to claim that spending emanating from the Job Guarantee wage bill will be huge as the economy approaches full capacity.
Which means that the policy contraction required to stem the inflationary spiral at full capacity will be not significantly different to that which would be required if the alternative was that the displaced workers become unemployed.
If it turns out that a lot of workers wish to remain productively employed in the Job Guarantee then the real resource scope for private expansion is indeed reduced relative to what it might be if more workers were bid out of the pool.
But what is the problem with that? The aim is to advance societal well-being not create a whole lot of profit-making private firms who serve narrower interests.
If the ‘market’ is such – and the shrinkage of the Job Guarantee pool would be ‘market determined’ – that a lot of workers prefer to work in Job Guarantee jobs then the pattern of economic activity will reflect that.
Why would those who support ‘market’ outcomes be opposed to such an allocation pattern? Answer: only if they wanted the ‘market’ outcomes artificially biased towards private profit-making activities.
The society would judge the system each election and if the outputs of the economy were not deemed to be satisfying social needs then we would vote accordingly.
Conclusion
Enough said.
That is enough for today!
(c) Copyright 2015 William Mitchell. All Rights Reserved.
A JG worker would have more income to spend than someone that is unemployed.
Last time I checked small business benefited from people spending.
Hence, I don’t see any problem.
Someone who is worried his private enterprise will have trouble outbidding “inefficient” government for labor clearly isn’t running a business under current conditions of austerity.
Let’s face it. Some of the people who object to the Job Guarantee want to see people in penury so that they can feel relatively more wealthy.
Much better, in their eyes, to have the biggest mud hut on the Savannah than to have a moderately nicer Leah Jet in an airport full of (environmentally neutral obviously) Leah Jets.
The Job Guarantee approach to economic stabilisation improves the *absolute* wealth of society and leads to a greater *equality* of wealth. The unemployment approach does the opposite – it leads to millions and millions of hours of output potential to be needlessly wasted and vastly increase inequality.
Given the environmental challenges we face as humanity, we can’t afford that lost output. There is too much to sort out in not a lot of time.
Bill says “The Job Guarantee only employs workers at a fixed price which becomes the effective minimum wage in the economy.” And he suggests that therefor JG does not compete for labour with existing employers. Well if I create jobs paying £X/wk, that poses competition for other employers paying £X/wk doesn’t it? And if my jobs are more pleasant, then that’s SERIOUS competition for other employers.
Next: “It absorbs workers who have a zero market bid for their services.” Well same goes when bidding for ABSOLUTELY ANYTHING! E.g. it is quite likely when Joe Bloggs puts in a bid for a house for there to be no other bidders in that particular week. But that doesn’t mean that Bloggs’s bid has no effect. The seller takes note of that that bid and concludes that there’s a more healthy market for the house than if Bloggs had not put in a bid. And that tends to up the market price for the house.
Next: “In any country it should be the lowest wage you consider acceptable for business to operate at.” I see nothing wrong with a public or private sector employer employing labour at near zero cost to the employer if there is no better alternative for the employee. Assuming there is no better alternative, then there is no opportunity cost: GDP will in consequence be higher than it otherwise would be.
And what about interns? They’re paid nothing!!!! Shock horror. But there’s not necessarily anything wrong with that, as long as they’re gaining experience. Moreover ALL JOBS involve gaining experience: “experience gaining” is UNAVOIDABLE.
I’ve only read the first half of the above article. May have time for the 2nd half or I may not.
Neil,
You suggest that JG leads to great equality. In that case JG people must be getting paid more than on when they’re on benefits. That in turn means their incentive to seek regular jobs is reduced relative to where they’re on benefits. And if JG is structured that way, then JG poses serious competition for labour: i.e. labour is attracted away from regular employers: something which Bill rightly says should be avoided. Sigh.
“There is no logical evidence that small, high productivity businesses would not function profitably in a Job Guarantee world.”
Logic suggests that small ,highly productive businesses get bought out by large inefficient businesses.
Size matters.
Top post from monsieur Bill again. Rock on!
Ralph Musgrave writes:
Next: “In any country it should be the lowest wage you consider acceptable for business to operate at.” I see nothing wrong with a public or private sector employer employing labour at near zero cost to the employer if there is no better alternative for the employee. Assuming there is no better alternative, then there is no opportunity cost: GDP will in consequence be higher than it otherwise would be.
Awesome Ralph, in NeoLib terms a perfectly cogent argument in favour of slavery.
And we know the wealthiest can afford the best experiences of all the experiences that do not offer pay.
Ralphwrote:
“You suggest that JG leads to great equality. In that case JG people must be getting paid more than on when they’re on benefits. That in turn means their incentive to seek regular jobs is reduced relative to where they’re on benefits. And if JG is structured that way, then JG poses serious competition for labour: i.e. labour is attracted away from regular employers: something which Bill rightly says should be avoided. Sigh.”
Rubbish Ralph, you fail to see that JG people will have their *ability* to seek regular jobs increased from near zero to significant. And this is a clear benefit for regular employers who will find more people able to perform the work they are looking for.
Dear Bill
As I see it, the biggest problem with JG is to find work for the participants. Normally, the government decides that some service should be provided to the public, and then it hires people to provided that service. With JG, it is the other way around. First the government hires people, and then it decides what labor they should perform. If a country already has an extensive public sector, then it may be hard to find useful tasks for the JG participants. In that case, JG become disguised unemployment.
JG is also likely to increase imports. Suppose that some good producers in a country pay wages well below 15 dollars and that the wage offered by JG is 15. Some of these producers will have to stop producing, and as a result, the goods that they formerly produced now will be imported. A country that has a high minimum wage may still consume goods produced by people who work for a pittance, except that the workers receiving the pittance will live abroad.
In my opinion, a JG should be combined with an immigration stop, or at least a refusal to accept low-skilled immigrants. If a country has a JG and also a very loose immigration policy, the JG will become a magnet for immigrants. Suppose that the US had a JG and at the same time a policy of letting Mexicans enter the US freely, then a lot of Mexicans would end up on the American JG. It is the old story: if you want a generous welfare state and an egalitarian society, then you have to advocate stringent immigration control. The left refuses to see that. Of course, there could also be a rule that only people who have lived in the country legally for at least 10 years can enter the JG. It is a fact of life that in Europe, immigrants are overrepresented among the beneficiaries of the welfare state. For instance, in the Netherlands, only 40% of Turkish immigrants between the age of 45 and 65 are in the labor force.
Regards. James
Danny A,
Your “slavery” jib is the bog standard bleeding heart leftie response to any sort of short term subsidised employment. A slave (look it up in the dictionary) is someone who first has no choice as to where they work – they’re arrested if they try to escape or work somewhere else. That doesn’t apply to JG people.
Second, a slave normally gets no pay, apart from board and lodging. In contrast, JG peoples’ take home pay is similar to what they get on benefits. And if you want to call that a “slave wage” or something, then the same goes for unemployment benefit.
Next, you say “you fail to see that JG people will have their *ability* to seek regular jobs increased from near zero to significant.” Go back and re-read my above comment: you’ll notice that I SPECIFICALLY MENTION that there’s an element of gaining experience in JG work.
As for the idea that JG increases peoples’ employability from “near zero to significant”, that’s optimistic. Prior to doing a JG job, most people will have spent at least ten years in formal education learning to read, write, do basic maths, and will probably have some minimum job realted skills or experience. The idea that a couple of months on JG will hugely increase that stock of skills is unrealistic. But (to repeat) there is certainly an element of experience gaining on JG work.
From what I can see, there are jobs that should exist and don’t despite labor being abundantly available because of nairu. Yes this is heresy, however; not every task that could benefit society neatly fits into the model that gains something from the type of “efficiency” capitalist exploitation fosters. This is just one more reason to support a JG.
There is an unstated class based politics that is cleverly masked by the language of neo-liberalism which neo-classical economics enables. This frees any party to claim to speak for the many while only supporting the few without arousing much suspicion. It’s dishonest at best . The introduction of the type of JG Bill advocates for requires the abandonment of that little game by way of requiring an admission of the realities MMT brings to light.
Money is clearly a tool owned by the people but don’t expect to see it used that way before some major reform occurs.
“That in turn means their incentive to seek regular jobs is reduced relative to where they’re on benefits”
Did you read the bit in the middle of Bill’s piece?
“If small businesses or any businesses for that matter consider they do not have the ‘capacity to pay’ that wage, then a sophisticated society will say that these businesses are not suitable to operate in their economy.
Such firms would have to restructure by investment to raise their productivity levels sufficient to have the capacity to pay or disappear.
This approach establishes a dynamic efficiency whereby the economy is continually pushing productivity growth forward and in that context material standards of living rise.”
In other words ‘competition’.
Up your game or die. That’s the law of the jungle.
“As I see it, the biggest problem with JG is to find work for the participants.”
Society already does that. If people are convicted of a crime then they are often sentenced to community service where they have to provide a public service for nothing as restitution and rehabilitation for their crimes.
That requires the probation service to take somebody who is probably unwilling, find them something to do that is within their skill level and that also is demonstrably of public benefit, then get them to do that work.
So if we can do that for criminals working for nothing, it will be a doddle to do it for the merely disadvantage who are being paid the living wage. Particularly as the range of available work options on a JG will be much wider and more varied.
Many coming off community service describe how valuable the experience has been and how it has shown them the benefit of working and learning work skills.
Yes there are challenges of scaling the process to JG size, but the process of locating work for people who turn up is already in place.
All we have to do is join the dots.
Neil,
Re your 23:41 comment, you’ve confused JG employees’ take home pay with the price (if any) paid by employers for JG employees. My “incentive to seek” point has to do with take home pay. In contrast, your “capacity to pay” point has to do with the price employers pay for JG labour and hence output that employers have to get from JG employees.
Agree with Bill re Job Guarantee. It seems to be missed in the whole argument, however, that humans seek out work based on their interests….and the higher the education, the more options available to the individual. That is, the person who wishes to become a physician, would still become a physician, and so on-the competition for labor is over-stated.
In the U.S. the position of neo-liberalism, our Republicans, is that if someone loses their job as a PhD, for instance, then they should flip burgers at McDonalds, or better yet, become an entrepreneur and start a lawn mower business…anything so they do not become a “burden on society” [the real agenda, so the 1% don’t have to pay more in taxes]….and irrespective of the loss of this person’s contribution to the larger society. Their whole argument is absurd….
The driving force behind policy-making in the U.S. [and I suspect elsewhere in the OECD], since WW II, has been: “Fix the market, and this will fix unemployment” and hundreds of billions of U.S. tax dollars have been spent in the implementation of this policy-but I would assert, this is 180 degrees off course-the policy we should be following is: “Fix Unemployment, And This Will Fix The Market” [which I think Bill is also saying in his title] and have expanded on this point in a book by the same name on Amazon [trust me, I am not selling a book-but rather an idea-the book can be obtained free]….but, this is my two-cents worth….
Jim Green, Democrat candidate for Congress, 2000
the crux of the problem is in a globalized economy will the private sector
be able to compete with the public sector particularly as the scheme is introduced?
There are an enormous amount of onerous minimum wage jobs out there.
In most richer nations now minimum wage jobs have to be topped up by
in work welfare.
The level of the minimum wage may represent a societies level of sophistication.
It may be sophisticated societies have a very small private sector and a
practically non existent small and local private sector .Sophisticated societies
governments may have an enormous logistical problem of putting millions of
workers to work and getting hold of the resources necessary for public purpose.
Such sophistication is definitely preferable to what we have now but an alternative
use of state monetary power a citizen’s universal wage combined with a targeted
expansion of the state into well rewarded work which most serve the public purpose
might be a more efficient route to improving the well being of the majority that all
progressives crave.
Cheap labor reduces the incentive for business to increase productivity. Greater productivity increases the living standard of a nation.
MMT teaches that one purpose of taxes is to create unemployment (too lengthy of an explanation but Bill and Warren have covered this). Since the govt is creating the unemployment, is the govt not obligated to hire all those that are unemployed due to taxing above what is needed for the current level of spending?
I would have thought a job guarantee would work well in a growth phase.
Introducing it 50 years ago would have been far less problematic.
A living wage with dignity in today’s employment market would be very
welcome for very very many people.
Every political system has an enemy it deserves. The essence of the modern approach to extracting more labour from people is that workers should be motivated by fear of losing a job and living in poverty. Another is religious obsession with optimisation of everything, fuelling the so-called “progress” and “growth” based on competition and profit maximisation. Competition requires the presence of losers – and losing must hurt – otherwise there will be no “incentive”. As stated above in one of the comments: “JG people must be getting paid more than on when they’re on benefits. That in turn means their incentive to seek regular jobs is reduced relative to where they’re on benefits. And if JG is structured that way, then JG poses serious competition for labour: i.e. labour is attracted away from regular employers”.
So bad I am going to cry… serious competition for labour.
But some people fail to appreciate that the “incentive” mentioned above is the cornerstone of the modern capitalism and There Is No Alternative. First of all they choose an easy option of migrating – they move around the world instead of unleashing their own entrepreneurship in the country with 20% unemployment (as in Poland in 2003). Actually, 10% of unemployment (in 2015) is enough (not to mention 25% in Greece). This is from a Polish news source Wirtualna Polska: “w 2015 roku chce opuścić Polskę 1,275 mln obywateli” (1.275 mln citizens are planning leaving Poland in 2015). 642000 are already living in the UK.The total number of migrants may exceed 3 million. Not no mention the migration across the Mediterranean which is actually a major humanitarian disaster.
But what will happen to these people who do not succeed after immigrating and fail to assimilate? Again the main factor is lack of jobs.
Here is the answer. There is an alternative to the modern capitalism for unemployed children of migrants from the Middle East and it is called IS. It is based on total rejection of capitalism, consumerism and neoliberal ideology associated with the modern statehood. As I mentioned, every system has an enemy it deserves.
This is from SMH:
The Islamic State terror group and similar violent jihadist movements are an even greater threat to world order than communism was during the Cold War, Foreign Minister Julie Bishop has said.
In a speech to the Sydney Institute on Monday night, Ms Bishop said the so-called Islamic State and the ideology behind it tore up the rules of nation-states that had helped moderate international conflicts for centuries.
Ms Bishop suggested the ideology of the Islamic State – also known as ISIL and Da’esh – was the worst the world had seen since the Nazis. She said the virulent new form of international terrorism that the group represented posed a “real threat to the … system of the nation-state”.
It was “the most significant threat to the global, rules-based order to emerge in the past 70 years”, she said, adding that this included “the rise of communism and the Cold War”.
“Over the past two years we have seen the emergence of a terrorist organisation backed by an ideology the likes of which we have not seen since World War II,” she said.
This borderless group was building “increasingly sophisticated transnational networks that would rival a multinational corporation” and used the most modern technology and weapons while also using social media and the internet with “all the dexterity and understanding of an enterprising entrepreneur”.
Oh yeah Ms Bishop. Who created this monster? Just take a ride to South-Western suburbs of Sydney and ask how business is going. Then ask your mate Hockey about how much money is allocated for direct jobs creation in this area in the new budget.
In the years to come, the neoliberals and their “fellow travellers” whoever they are will have to embrace again the policy of full employment – or risk losing a war for human souls with the radical Islamists poisoning the minds of young people with medieval rubbish – and offering them a false sense of life. The worst enemy is the enemy within – the Islamist monster created by the neoliberals. You cannot take away hope of decent living from young people. Pushing harder won’t make them entrepreneurs. It will make them literally explode with hatred – directed against the West and the Western civilisation as a whole. One cannot defeat poisonous ideology by dropping more and more bombs on Syria, Iraq, Yemen, Afghanistan, Libya etc. Dropping bombs makes the ideology of hatred only stronger. The only way to defeat IS is to restore hope to people here – including the South-Western suburbs of Sydney.
Ralph, you said “In contrast, JG peoples’ take home pay is similar to what they get on benefits.”
That’s a very broad term of similar, especially considering in a dual-income household the benefit drops to zero if one party is earning $50,000 or more. For a single person the maximum is around $472/fn. The current minimum wage is $640.90 a WEEK.
Also, in the JG they are not on benefits – they are EMPLOYED. Important distinction. They work every day during the working week. The only ones who would remain on benefits are the people UNABLE to work. The people who chose not to work don’t get anything.
Cheap labor does not discincentivise productivity. If anything it would increase productivity as the new laborers would be developing new skills thus enhancing productivity. From there they could also innovate as they learn. To say otherwise is to assume a stasis in skills and static economic production input.
When Randall Wray visited Madrid he made several presentations advocating a job guarantee program. For a country with 5.5 million unemployed (not counting those who have abadoned the market or are underemployed) the JG should be an urgent necessity. Unfortunately the only political parties that hosted him were Izquierda Unida (a dwindling formerly comunist organization) and their replacement, the upcoming Podemos party. The other parties simply ignored him. Podemos have set their hearts on a basic income scheme, but I do not think basic income and JG programs are mutually exclusive. In any event the young leader of IU, Alberto Garzón, announced that his party would propose a JG program.
The problem is that IU do not acknowledge that, within the Euro, the state will not have the resources for a full-fledged program. Randal Wray suggested that the program could be financed by the EU or the ECB. Having seen what the Eurocrats are doing to Greece I am extremely sceptical about their willingness to adopt an idea that would be contrary to their neoliberal souls. So, to make a long story short, I would advocate leaving the Euro and immediately implementing a JG for Spain. IU is in denial saying that public opinion is against leaving the Euro but postulating a JG program for the country. If Podemos and IU were braver they would try to educate public opinion first about the need to be consistent. Tsipras and Varoufakis are being taught a lesson by their European peers. They should have realized that you cannot promise that you are going govern the country as if you had monetary sovereignty when in fact you dont’.
The argument ignores the accelerating impact technology is having on decoupling the cost of human labor from the cost of producing goods and services. To think that society will abandon capitol labor (in the form of intelligent automation, bots, etc.) in favor of human labor is naive.
We’re not simply talking about automation (Industrial Revolution), we’re talking about intelligent machines that can make decisions and execute tasks with a lower degree of error than humans. As long as Moore’s Law is in effect, the capacity technology represents to replace human labor will continue to grow at something approaching an exponential rate.
Simple example… Towns and cities across the U.S. are replacing coin based parking meters with wifi “smart” meters that accept debit/credit cards. The result is that over the next 10 years or so, we will see the number of municipal employees who used to collect coins drop to zero. The next step will be augmenting these smart meters so that they can ‘sense’ when your car enters and exits a parking space and debit your checking account with the appropriate fee. No different than if you have an EZPass device today for thruway travel. Once that happens, the meter readers and parking ticket employees will also go the way of the pony express riders too. No need for funding annual salary, benefits and those unfunded pension liabilities.
Try extrapolating this scenario out 35 years and think of the impact on labor by 2050. Computing power is now progressing more each hour than it did in the first 90 years. Although the limits placed on this growth by the physics of current silicon technology are well known, it’s a good bet that science will find a way around those obstacles allowing exponential advances to continue well past the end of this decade. If we have a breakthrough in molecular or quantum computing the sky’s the limit.
Middle class employment is going the way of the albatross and the profits are moving to the owners of capitol. An inevitable result of the non-linear move toward intelligent automation. This scenario is being played out in virtually every sector of the economy. What good does it do to guarantee jobs when there are fewer and fewer jobs to be done.
Guaranteed income is the way forward.
“Try extrapolating this scenario out 35 years and think of the impact on labor by 2050.”
Look, we have a mostly service based economy. Why not public services?
We can’t extrapolate that far, we just don’t know. I guess we could switch to citizens income but NOW there is tons of work to do and many in poverty. Maybe it is to reduce working hours.
Basic income schemes may be useful in the future but we will deal with that when it comes.
First, we need competition in the labour market through JG and create green jobs. Improve productivity and eliminate poverty.
@Bob
Basic income schemes have almost nothing in common with core national dividend proposals,
The people who generally propose them want to use the tax net rather then new credit.
Basic income Ireland for example is a classic bank propaganda outfit.
The simple goal it seems is to reduce the costs of distribution via reduced dole officers etc etc but social creditors realize that distribution is impossible under the current monetary system.
“From a Social Credit point of view, if the main defect with the economy is that there is a chronic lack of liquidity in the form of consumer incomes, redistribution is not going to solve the problem. You do not make an insufficient flow of income larger by redistributing it. What is needed is an increase in the flow of consumer incomes.”
Oliver Heydorn
“combined with a targeted expansion of the state into well rewarded work which most serve the public purpose”
Kevin Harding
Yes. Crowding the private sector out of technical employment has the effect of crowding in productivity by ensuring a lower threshold of innovation within an economy. The private sector is then forced to up-skill remaining candidates or outbid the public sector. Both of these outcomes are beneficial for technical progress because they create incentives for employers to train staff and for workers to improve skills. This proposal answers “make work” criticisms of the job guarantee. These findings are supported by the evidence provided by Mariana Mazzucato and others working in the area of sociology and economics of technology.
campaign for mission oriented finance for innovation website: missionorientedfinance.com
I think that the whole concept of working for someone else is flawed. We need Worker self directed enterprises ( SDEs ) styled on Mondragon. These can compete with traditional capitalistic businesses and we can see how it works out. The key reason I feel that we need SDEs, is so to stop the off-shoring of jobs at the whim of extraordinary wealthy people who undermine at every opportunity fairness and are role models for this moral hazard. Then the next reason is because when the government hands over subsidizes the SDEs would keep the invested subsidy here in Australia.