When Kevin Rudd was faced with the threat posed by the unfolding GFC in late 2008 his government became very pragmatic and immediately ditched the narrative they had been pushing out throughout that year about inflation being a threat and the need for tighter fiscal policy and surpluses. They introduced, in two rounds, a fairly significant fiscal stimulus (around 4.2 per cent of GDP) which effectively saved the Australian economy from entering a recession. A significant part of that intervention was that it had various temporal properties – a cash handout in December 2008 designed to get spending power into the hands of consumers just before Xmas (the famous ‘flat screen’ payment – there were a lot of TVs purchased), which obviously was an immediate focus, and, a longer term component, which included their plan to put insulation into every home. This was aimed at job creation clearly, to address the cyclical needs, but, it was also intended to address the longer term climate crisis, that were beyond the GFC cycle. When appraising what government’s should be doing now – to deal with the socio-economic consequences of the medical crisis – that style of thinking is essential. The questions that need to be asked are: 1. What can be done now to avert an economic collapse? 2. What do we want to change about the pre-structure of the economy into the future? 3. How can we use the stimulus intervention to make those changes, while addressing Question 1. In this blog post, I go through some of that style of thinking. I also provide some specific estimates of the investment needed to introduce a Job Guarantee in Australia.
It is Wednesday so music and some snippets. I have updated the US unemployment claims data with a new map and state table. Shocking. We are working on updated estimates of what the Australian government would need to invest to run a Job Guarantee. We haven’t done that for a while because I didn’t want the press to get obsessed with dollar amounts. But as I am currently talking a lot about the Job Guarantee in the media, I thought some numbers would be useful as a comparative exercise against the JobKeeper wage subsidy, which is the central stimulus plank of the Australian government. The current estimates suggest that to create around 685 thousand jobs might require an outlay of $34 billion over the course of a year. That got me thinking. The main response of the Australian government is the $A133 billion over 6 months JobKeeper wage subsidy scheme. The Treasury claims it will be the difference between an unemployment rate of 10 per cent and 15 per cent. That difference is 685 thousand jobs. Then start doing some division and multiplication and you start to see that this doesn’t make sense as I explain below.
As the public scrutiny of the body of work we now refer to as Modern Monetary Theory (MMT) widens there is a lot of misinformation abroad that distorts or otherwise undermines what has been done to date. Most, but not all the misinformation or emphasis comes from those who attack our work. Their criticisms usually disclose an incomplete understanding of where MMT came from and what the core propositions and logic are. They stylise, usually using terms and constructs that are present in mainstream thinking, but inapplicable to an MMT way of thinking, and end up spitting out things like ‘printing money’ etc, which they think represents a devastating rejection of our work. As part of my own work, and I do this in liaison with Warren Mosler, I am interested in documenting the train of events that led to what we now call MMT. I love history and think it is very important in helping us understand things. So today I am continuing to examine archives to trace the provenance of key MMT concepts. And I am continuing to document the idea of a Job Guarantee, which is central to the MMT framework, despite many who claim to be MMTers thinking otherwise. I have noted in the recent press, claims that the origins of the buffer stock employment approach that became the Job Guarantee was the work of Hyman Minsky. Nothing could be further from the truth as you will see. It is important, in my view, to make the provenance very clear and that is what this blog post is about.
The Australian Bureau of Statistics released of its latest data today (January 23, 2020) – Labour Force, Australia, December 2019 – which continues to show that the Australian economy is in a weak state with a fairly moderate labour market performance being recorded for December 2020. The culprit – the Australian government – which is starving spending by its obsessive pursuit of a fiscal surplus. While unemployment fell by 0.1 points as a result of the employment growth, full-time employment also fell. So all the net job opportunities created were part-time which suggests that the quality of the overall employment mix has deteriorated. In the last six months, 74 per cent of net employment change has been in the part-time labour market. The broad labour underutilisation (unemployment plus underemployment) is at 13.4 per cent and has been stuck around that level for months. There is no dynamic – policy or otherwise – present, which will see this massive pool of available labour brought back into productive use anytime soon. That alone, is a indictment of failed policy. The unemployment rate is 0.6 percentage points above what even the central bank considers to the level where inflationary pressures might be sourced from the labour market. The Government is thus deliberately inducing deflationary tendencies into the economy and it is the workers that are bearing the brunt. My overall assessment is that the Australian labour market remains a considerable distance from full employment. This persistence in labour wastage indicates that the policy settings are too tight (biased to austerity) and deliberately reducing growth and income generation. There is clear room for some serious fiscal policy expansion at present. The Federal government is willfully undermining our economy with its irresponsible policy position. The impact of the bushfire crisis is likely to start being felt in next month’s figures.
Last week (October 7, 2019), the ILO released its latest report on Timor-Leste – Timor-Leste labour force surveys 2010-2013-2016: Main trends based on harmonized data. I have been waiting for this publication as it provides the most coherent labour market data for TL. I am working on a detailed Job Guarantee proposal and I needed the ILO data. In this vein, I have also been reviewing the most recent fiscal statement from the Timor-Leste Government to see what direction of policy is taking, which will further help me understand the opportunities. TL is one of the poorest nations. It has a very fast growing and young population. Around 70 per cent of the workforce is ‘self-employed’ in the agricultural sector despite that sector enjoying only modest growth (9 per cent between 2000 and 2017) which has seen it slip in importance from 24.5 per cent of total GDP in 2000 to just 9.2 per cent in 2017 (latest data). The growth in employment in TL has been largely confined to Dili and is mostly in self-employment with limited job security and capacity for wages growth. There are two factors constraining the growth of quality employment: (a) the lack of investment in education and skills development; and (b) the lack of diversity in the structure of the economy, with the oil and gas sector accounting for 43 per cent of total output (2017) but generating very few employment opportunities. Governance issues (rule of law, contractual enforcement, political uncertainty) also contribute to a lack of capital formation, which, in turn, constrains employment growth. What is needed are policies to diversify the economy both in industrial structure and in spatial terms (promote growth outside of Dili), strong investment in education and health, and job opportunities that are suitable to the unmet needs in regional areas and the skill levels of the citizens who live there. Once I investigate the data more deeply I will publish a Job Guarantee proposal. But here are some necessary thoughts that condition my approach.
As Mario Draghi’s tenure at the helm of the ECB draws to a close, he becomes (slightly) more pointed and looser with his public statements. On Friday (October 11, 2019), he gave a speech – Policymaking, responsibility and uncertainty – at the Università Cattolica in Milan on the occasion of receiving the Laurea Honoris Causa (honorary degree). He broadened the scope of his policy ambit by saying that “I will not focus strictly on monetary policy or the business of central banking, but I would like instead to share my thoughts on the nature of policy responsibility.” In the same week, the Eurogroup (the European Finance Ministers) of the European Commission released a press release – Remarks by Mário Centeno following the Eurogroup meeting of 9 October 2019 (October 10, 2019) – which announced that they had agreed to a “a budgetary instrument for the euro area – the so-called BICC”. Don’t get too excited. The BICC will only achieve the status of an “Inter-Governmental Agreement”, meaning it will not be embodied in the Treaties. Also, the Member States will have to contribute funds in advance and must “co-finance” withdrawals. And, as usual, there was no mention of the fund size, which will be miniscule if history tells us anything. But this is all context for Mario Draghi’s Speech.
Last week, I posted a graph in this blog post – RBA cuts rates as a futile exercise as Dr Schwarze Null demands fiscal action (October 2, 2019) that showed that over the 12 months to August 2019, 312 thousand jobs have been created (net) in Australia. The stunning result is that 301 thousand (96.5 per cent) of those net jobs have been in the public sector. The private labour market is thus stagnating. I was interested to delve further into that result to see if I could bring more detail to bear. That is what this blog post is about. A data exercise to enrich our understanding and knowledge.
Last week’s (August 2, 2019) release by the US Bureau of Labor Statistics (BLS) of their latest labour market data – Employment Situation Summary – July 2019 – reveals a steady labour market with month-to-month volatility. The US labour market is still adding jobs, albeit at a slower pace than last year. The unemployment rate remains low (at 3.71 per cent) and the participation rate has moved up a tick, which is a good sign. It is also clear that there is still a substantial jobs deficit remaining and considerable scope for increased participation. Significantly, the bias toward jobs in below-average pay sectors being produced in the recovery has intensified during 2019.
Last week’s (July 5, 2019) release by the US Bureau of Labor Statistics (BLS) of their latest labour market data – Employment Situation Summary – June 2019 – reveals a steady labour market with month-to-month volatility. The US labour market is still adding jobs, albeit at a slower pace than last year. The unemployment rate remains low (at 3.67 per cent) and the participation rate has moved up a tick, which is a good sign. It is also clear that there is still a substantial jobs deficit remaining and considerable scope for increased participation.
When the governments in the advanced nations abandoned full employment as an overarching macroeconomic objective, and instead, starting pursuing what I have called full employability, they stopped seeing unemployment as a policy target (to be minimised) and began using it as a policy tool to suppress inflation. As mass unemployment rose, the politics were massaged by the mainstream of my profession who claimed that the level of unemployment that constituted full employment had risen (this was the NAIRU era) and so there was really no problem. Governments adopted the neoliberal line that they ‘didn’t create jobs’ and had to target fiscal surpluses to ensure their position was ‘sustainable’. The costs in lost income and human suffering have been enormous – most people would not have any idea of the massive scale of these losses that accumulate day after day. Now, it seems, the ‘sound finance’ school is going a step further. We are probably facing an environmental emergency in the coming period (years, decades) but the question commentators keep asking is not what we can do about it but ‘how can we pay for it’? So ‘sound finance’ has already destroyed the lives of millions of people around the world as a result of mass unemployment and poverty, now it is turning its focus on the rest of us. Madness. Paradigm change has to come sooner rather than later.
Apparently the British Left is “fizzing with ideas for a smarter economy” according to the UK Guardian article (May 12, 2019) – The zeitgeist has shifted. Now the left is fizzing with ideas for a smarter economy – written by Will Hutton. I can’t say I sensed an outbreak of fizz. But in the colloquial language from where I come from, the term fizzer means “Something that promised excitement but instead was a disappointment”, Yes, Hutton’s fizzers include promoting the insights of a long-standing (pun intended) critic of employment guarantees, who prefers people to be propped up as consumption units by a UBI, and, yes, surely, if Hutton is involved, reversing the “tragedy” of the democratic choice the British people made to exit the EU. Apparently, “Remain” is the “great progressive social force of the moment” and if Britain was to leave the EU it would “stand in the way of any of it ever being implemented”, where “it” refers to all these ‘left’ fizzers. It is hard getting one’s head around this logic. A restoration of democracy and sovereignty apparently disables the elected government from using its currency-issuing capacity to deliver a progressive program aimed at advancing well-being. But, staying in a corporatist cabal which has embodied neoliberalism in the core legal structure of its existence and allows corporations to sue governments which threaten their profits and is unaccountable to the people is the exemplar of progression. This stuff is in the world of the pixies!
Last week’s (February 1, 2019) release by the US Bureau of Labor Statistics (BLS) of their latest labour market data – Employment Situation Summary – January 2019 – showed that total non-farm payroll employment rose by 304,000 and the unemployment rate rose by 0.1 points to 4 per cent on the back of a 0.1 points rise in the participation rate. The labour force survey estimates were significantly impacted by changes in population benchmarks (an annual occurrence). However, all indications are that the labour market continues to improve. We will see in the next few months whether the strong January payroll employment growth was a one-off blip or a sustained trend. While the US labour market is looking fairly robust there is still a substantial jobs deficit remaining which tells us that it remains some distance from full employment. And, my latest analysis on which occupations are enjoying the employment growth shows that there has been a distinct hollowing out of median pay jobs (the so-called ‘middle class’ jobs), which helps to explain the sharp increases in income inequality.
Everywhere I read it seems, the ‘Green New Deal’ appears. I wrote a bit about it last week in my evaluation of the latest US job numbers – US labour market moderated in November and considerable slack remains (December 11, 2018). The point I made there was that a shift to a green economy would possibly generate around 21 million jobs (14 per cent of total US employment), which given reasonable estimates of excess capacity would require a huge shift in the employment structure and multiples of the available idle labour supply. Of course, that is the objective – to shift workers from fossil fuel, carbon intensive industries into sustainable activities. That is no easy task and would require a fundamental shift in the government-market balance in terms of resource allocation. The market alone will not accomplish that shift in a desirable manner. Cue – more regional and occupation planning. I have also been seeing an increasing number of Tweets talking about a ‘Just Transition’ framework, something I have written about in the past. And there are now Tweets out there equating that with a Job Guarantee. At that point, we get ahead of ourselves. We must see the Job Guarantee in perspective and not ask it to do too much. That is what this blog post is about.
My blog post last week – On the path to MMT becoming mainstream (April 17, 2018) – discussed the way in which the language and concepts that have been developed by the Modern Monetary Theory (MMT) authors are now permeating mainstream narratives and the media. While this has increased the pushback and hostility from both the Right and Left opposition to MMT, it is also a sign that the public understanding of the way in which the monetary system works and the policy options available to currency-issuing governments, is improving. Most recently, there is been a flurry in the US media discussing employment guarantees, which is a welcome relief from the previous saturation coverage of impoverished UBI ideas. It is fabulous, that at the policy level, the idea that the state can eliminate mass (involuntary) unemployment if it so chooses is becoming more acceptable. That’s down, in part, to the great work being done there by my MMT colleagues. There are also derivative public sector job creation proposals getting ‘airplay’ which I do not consider to be MMT-inspired nor are what I would call Job Guarantee initiatives, but which are still, to their credit, raising awareness of the need for the state to ensure there are sufficient jobs for all rather than dispatch citizens who are unable to find work to the unemployment queue. The push back is increasing and that is a sign that dissonance is being felt by the neoliberals who oppose the state taking responsibility for mass unemployment and using its fiscal capacity to render it a thing of the past. Many of the critics from the Left do not have the courage to come out and say they prefer the alternative to a Job Guarantee, which is entrenched unemployment. That leaves them carping away with no legs to stand on. The Right objections are venal as they always are – they want mass unemployment to persist to dampen wages growth and allow more real income to be captured by the top-end-of-town.
The latest labour force data released today by the Australian Bureau of Statistics – Labour Force data – for September 2017 shows that total employment growth was positive but weaker than last month with most of the action coming via part-time employment. However, total hours worked continued to rise, which suggests that employers are offering extra hours to existing jobs. Unemployment declined with a constant labour force participation rate, which says that employment growth was slightly stronger than the underlying population growth – a good sign. Labour underutilisation overall (underemployment and unemployment) was at 13.6 per cent summing to 1,814 thousand persons, which tells you that there is still considerable slack in the labour market. The teenage labour market showed modest improvement but remains in a poor state. Overall, my assessment from last month remains – it still to early to conclude that the uncertainty of the last few years is giving way to sustained growth.
I have noticed a new phenomenon – a sort of new myopia – has emerged as the blogoshphere has expanded. The knowledge set that people think they are empowering themselves with becomes rather constricted – sometimes to a selection of blogs they may have read, sometimes even to the last blog they read on a topic. So we get a range of views and prognostications emerging – held out as expert commentary in many cases – upon the basis of perhaps just a few blogs having been read. As a long-term blogger, I also see this syndrome in the comments section of blogs. Someone new turns up it seems having read the latest offering from someone and launches into an array of criticisms which have been previously addressed but the commentator hasn’t bothered to read. The point is that research is a lengthy process and opinions should only be formed with conviction when one is convinced they have read all the major offerings in the area of interest and considered the evidence base. Which brings me to the real point. Before I wrote blogs I had generated 25 or so years of academic research material – in journal articles, books, book chapters, commissioned reports – hundreds of items of work. That is standard fare for an active researcher chasing competitive grants. That is where one’s contribution to ‘knowledge’ (as far as it is) is to be found. I only started writing blogs as a way of promoting Modern Monetary Theory (MMT) to a broader audience that would never read my academic work. I think that has been a successful strategy. But it has also created this ‘new myopia’. People think that the knowledge set available lies exclusively in blogs. It doesn’t. My blogs cut corners in writing style, referencing, and leave things unsaid that a more formal treatment would cover. The aim of the blog is accessibility and to provide an introduction to ideas which will encourage readers to delve further and arm themselves with deeper knowledge so as to promote informed progressive activism. A case in point is recent deliberations about one of my pet topics – the Job Guarantee.
On May 5, 2017, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – April 2017 – which showed that total non-farm employment from the payroll survey rose by 211,00 in April up from the miserable 98,000 the previous month. The unemployment rate fell from 4.5 per cent to 4.4 per cent. The estimate of employment change from the Labour Force Survey was also positive (156 thousand net jobs added). Last month, we wondered whether the poor showing signalled the beginning of a slowdown after the positive ‘Trump’ spike or whether it was just a monthly variation that will iron itself out over the longer period. We are probability safer concluding it was monthly variation. Whatever the direction, there is still a large jobs deficit remaining and other indicators suggest the labour market is still below where it was prior to the crisis.
The Australian labour market has been characterised over the last 12 to 24 months by the dominance of part-time employment creation with full-time employment contracting. Over the last 12 months, Australia has produced only 84.9 thousand (net) jobs with 107.2 thousand of them being part-time jobs. In other words, full-time employment has fallen by 22.2 thousand jobs over the same period. This status as the nation of part-time employment growth carries many attendant negative consequences – poor income growth, precarious work, lack of skill development to name just a few disadvantages. Further, underemployment has escalated since the early 1990s and now standard at 8.3 per cent of the labour force. On average, the underemployed part-time workers desire around 14.5 extra hours of work per week. If we look at the US labour force survey data quite a different picture emerges, which is interesting in itself. Does this suggest that the US labour market has been delivering superior outcomes. In one sense, the answer is yes. But recent research based on non-labour force survey data (private sampling) suggests otherwise. That research finds that “all of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements.” That is, standard jobs have disappeared and are being replaced by more precarious, contract and other types of alternative working arrangements. The trend in the US has not been driven by supply-side factors (such as worker preference) but reflects a deficiency in overall spending. Not a good message at all.
Some years ago I was asked to design a framework for the implementation of minimum wage system in South Africa as part of an ILO project my research group was involved. We were evaluating the first five years of the Expanded Public Works Programme in South Africa, which was a cut-down employment guarantee program (limited by supply-side constraints on public expenditure largely conditioned by the bullying of the South African government by the IMF). One of the issues I had to deal with was the belief among many economists that the existing cash transfer system introduced by the South African government after 1994 should be expanded into a full-blown Basic Income Guarantee and that any notion of employment guarantees should be rejected. Our work demonstrated quite clearly (in my view) the flawed logic in this argument. The cash transfer system was productive as it stood but was no reasonably extensible into a widespread income guarantee without significant negative consequences. The creation of an employment guarantee scheme to absorb the social transfers and leave them as supplemental to cope with varying family structures was a much better option. That conclusion holds for less developed nations and advanced nations alike.
Economists often use the so-called Unemployment-Vacancy (UV) ratio, which is the number of official unemployed divided by the number of unfilled vacancies at any point in time, to measure the strength of the labour market. The latest data from the Australian Bureau of Statistics (ABS) shows that the UV ratio in Australia is currently at 4. This means that there are four unemployed workers per unfilled vacancy – a sign of a relatively weak labour market. However, a new Report from Anglicare researchers in Australia, which was released yesterday, shows that when we disaggregate the analysis and examine a match of vacancies by worker in each skill level, the UV ratios for the most disadvantaged workers is much higher. The obvious solution for the federal government is to introduce a Job Guarantee, which effectively ensures the UV ratio for the most disadvantaged workers would be equal to unity. In other words, there would always be a job opportunity available that would suit the most unskilled worker in the nation. That is what today’s blog is about.