{"id":44844,"date":"2020-05-04T12:48:38","date_gmt":"2020-05-04T02:48:38","guid":{"rendered":"https:\/\/billmitchell.org\/blog\/?p=44844"},"modified":"2020-05-04T12:48:38","modified_gmt":"2020-05-04T02:48:38","slug":"the-advanced-nations-should-take-the-lead-of-pakistan-in-job-creation","status":"publish","type":"post","link":"https:\/\/billmitchell.org\/blog\/?p=44844","title":{"rendered":"The advanced nations should take the lead of Pakistan in job creation"},"content":{"rendered":"<p>\t\t\t\tLast Thursday (April 30, 2020), the US Department of Labor&#8217;s &#8211; <a href=\"https:\/\/www.dol.gov\/ui\/data.pdf\">Unemployment Insurance Weekly Claims Report<\/a> &#8211; showed a further 3,839,000 workers filed for unemployment benefits in the US, taking the cumulative total since March 14, 2020 to 30,589,000. In a labour force of 164 million odd, that implies the unemployment rate is already around 22 per cent. The highest rate endured during the Great Depression was 24.9 per cent in 1933, which prompted the US President to introduce the major job creation program to stop a social disaster &#8211; the New Deal. History tells us that the major job creation programs (starting with FERA then morphing into the WPA) were opposed by the conservative (mostly) Republicans in the Congress. As is now! It wasn&#8217;t just the unemployment that mattered. Hours of work were also cut for those who maintained their jobs and some estimates suggest over 50 per cent of America&#8217;s labour force were underutilised in one way or another (read David Kennedy&#8217;s 2001 book for a vivid account of this period). The problem now is that the US has a Presidency that is unlikely to take the bold steps that Roosevelt took in the 1930s, even though the latter was a fiscal conservative and the former does not appear to be so inclined. However, some nations are leading the way &#8211; and they put the more advanced nations to shame in this regard.<br \/>\n<!--more--><\/p>\n<p>In my blog post &#8211; <a href=\"https:\/\/billmitchell.org\/blog\/?p=44804\">The European Commission non-stimulus is a waiting game before new austerity is imposed<\/a> (April 27, 2020) &#8211; I introduced the criteria that I use to appraise the effectiveness of different fiscal options in dealing with a disaster of the scale we are facing in world labour markets.<\/p>\n<p>I followed it up with this blog post &#8211; <a href=\"https:\/\/billmitchell.org\/blog\/?p=44821\">A Job Guarantee would require $A26.5 billion net to reduce the unemployment rate by 6 percentage points<\/a> (April 30, 2020) &#8211; which summarised our latest modelling of the investment needed by the Australian government to deal with the crisis.<\/p>\n<p>It showed how inadequate the current wage subsidy response is in Australia and the wanton disregard for the damage that the flood of unemployment will cause in the short-term and over a much longer term horizon.<\/p>\n<p>The criteria &#8211; to repeat &#8211; were (with an additional criterion added and highlighted as below):<\/p>\n<ul>\n<li>Implementation Speed &#8211; How quickly can the spending enter the economy? For example, an initiative that seeks to build a fast rail service down the East Coast of Australia to join, say, Brisbane and Melbourne, would take longer to get dollars in to the economy than an announcement that the government will offer a job to anyone who wants one (Job Guarantee). To arrest the severe fall in non-government spending and income generation, speed is essential. It doesn&#8217;t preclude medium-term projects, but the government has to be careful not to have large expenditure streams coming on tap after the economy is already recovering and no longer needs the temporary fiscal support. See also Scalability below<\/li>\n<li>Labour Intensive &#8211; Does the intervention target activities that generate lots of employment? With employment growth slumping so dramatically, it is best to target activities that will arrest the employment contraction as substantially as possible.<\/li>\n<li>Multiplier &#8211; How much of the initial spending injection stimulate what economists call &#8216;multiplier effects&#8217;, that is further non-government spending. For example, giving low-wage workers cash payments or sustaining their wages, is likely to result in a high proportion of each dollar being spent on consumption goods and services. Conversely, giving loan guarantees to businesses at the time when the economy is entering a deep recession is unlikely to have strong multiplier effects because the latter rely on spending stimulating output and employment.<\/li>\n<li style=\"background-color: yellow\">Scalability &#8211; fiscal support has to do two broad things: (a) fill the steady-state gap between total spending required to maintain full employment and the non-government spending plans (including, of course, the desire to save overall and withdraw current income from further spending); (b) cyclical shifts in non-government spending that create recessionary or inflationary situations. In this sense, when non-government spending falls cyclically, the government is the only source of recession-preventing expenditure stimulus. But it has to ensure that it withdraws that stimulus proportionally with the recovery in non-government spending so as not to push total expenditure growth beyond the inflation barrier.\n<li>Spatial &#8211; Does the option provide benefits to regions or the social settlement or is it biased to certain spatial locations, especially those that already have relatively deeper labour markets (more job opportunities).<\/li>\n<li>Green &#8211; Does the intervention help us move towards a carbon-zero world?<\/li>\n<li>Supply-chain &#8211; Is the intervention likely to run up against supply bottlenecks and introduce demand-pull inflationary pressures. This is particularly relevant in the current crisis, which is a combination of a supply and demand shock. Where factories are closed and\/or operating on reduced activity levels, it is essential not to be pumping fiscal support into the economy indiscriminately. All spending initiatives will stimulate broad expenditure growth, including for imports. But a carefully designed package can reduce the supply-side strain. For example, in Australia at present there is likely to be some food supply issues as farmers struggle to get workers to harvest the crops (relying typically on &#8216;back-packers&#8217;) with international borders closed. So a stimulus to create temporary public sector jobs for workers locked out of their usual jobs (because of enforced closures) to help ease the supply chain issues would be desirable.<\/li>\n<li>Equity &#8211; this relates to fairness. Handing out billions to help shareholders withstand the losses to their companies is likely to be less equitable than ensuring low-paid workers are able to sustain their mortgage\/rent and other contractual commitments.<\/li>\n<li>Low Corruptibility &#8211; this is what economists call &#8216;moral hazard&#8217;. How easy is the option able to be hijacked by those seeking to corrupt the intent. For example, a wage subsidy is highly susceptible to abuse from unscrupulous businesses (there is an extensive research literature on this) whereas paying the salary of a worker directly or offering then a public sector job is less likely to be corrupted.<\/li>\n<\/ul>\n<p>I spoke about this approach in my live presentation on Friday evening:<\/p>\n<p><iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/K8_ITBCZU3g\" frameborder=\"0\" allow=\"accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture\" allowfullscreen><\/iframe><\/p>\n<div style=\"clear:both;\"><\/div>\n<p>As an aside, in about two weeks &#8211; <a href=\"http:\/\/www.mmted.org\">MMTed<\/a> &#8211; will be launching a weekly Q&#038;A program where were take questions from the public and answer them from an Modern Monetary Theory (MMT) perspective. It will be a live program and, in time, we hope to have guests on the program (once we sort out logistics and technology). We will make announcements about this very soon. Likely starting data &#8211; Wednesday, May 20, 2020.<\/p>\n<p>But, upon reflection, the first criterion noted above &#8211; <strong>Implementation speed<\/strong> &#8211; should be distinguished from what I refer to as <strong>Scalability<\/strong>, which as I note above refers to ensuring that the cyclical stimulus component of the fiscal support is calibrated appropriately with the economic cycle.<\/p>\n<p>Many people &#8211; including progressive economists and commentators &#8211; get this wrong.<\/p>\n<p>They think it is prudent for currency issuing governments to run a fiscal balance on average over an economic cycle, which means that when the non-government sector is increasing its growth rate, the fiscal position should be moving into surplus to &#8216;offset&#8217; the times when the non-government sector is contracting or slowing and the government has to run deficits.<\/p>\n<p>But that conception purely constructs variations in the fiscal position in cyclical terms.<\/p>\n<p>It ignores the fact that, if we abstract from these cyclical variations, there is an underlying desire to save overall in the non-government sector which depends on on-going income growth. That process must be supported by fiscal policy or else the overall saving behaviour of the non-government sector will cause recession.<\/p>\n<p>So, if an economy is in a position where there is an external drain on expenditure coming from the external sector, and the private domestic sector exhibits a desire to save overall, then the government <strong>has<\/strong> to run a continuous deficit, or, otherwise, the economy enters recession and stagnation.<\/p>\n<p>Thus, <strong>Scalability<\/strong> is about managing the fluctuations in the government&#8217;s fiscal balance around that steady state to accommodate the cyclical swings in non-government spending.<\/p>\n<p>It makes the conduct of fiscal policy difficult because projects have to be designed to ensure they can be &#8216;turned off&#8217; as the non-government sector starts to recover.<\/p>\n<p>The cyclical component of fiscal policy should not be &#8216;pro-cyclical&#8217; &#8211; that is, in relation to non-government spending cycles. The steady-state component of fiscal policy <strong>has<\/strong> to be pro-cylical, if the non-government sector exhibits an underlying desire to save overall.<\/p>\n<p>That difference is not well understood but is crucial in the design of an effective fiscal intervention.<\/p>\n<p>The following graphic shows these options and I have now added the Scalability criterion, which last week I had implicitly embedded in the Implementation Speed criterion.<\/p>\n<p>As before, a position at 0 means the initiative meets none of the requirements or the relevant criterion, whereas 100 means the intervention is strongly meeting that need.<\/p>\n<p>I have compared three options:<\/p>\n<p>1. A wage subsidy.<\/p>\n<p>2. A Job Guarantee.<\/p>\n<p>3. Business loan guarantees.<\/p>\n<p>My weightings are approximate and open to debate.<\/p>\n<p>But the superior option here is the Job Guarantee when assessed against the above criteria.<\/p>\n<p>And making the Scalability criterion more explicit only goes to reinforce this conclusion.<\/p>\n<p><a href=\"https:\/\/billmitchell.org\/blog\/wp-content\/uploads\/2020\/05\/Fiscal_Policy_Assessment_Criteria_Mk_2.jpg\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/billmitchell.org\/blog\/wp-content\/uploads\/2020\/05\/Fiscal_Policy_Assessment_Criteria_Mk_2.jpg\" alt=\"\" width=\"680\" height=\"510\" class=\"alignnone size-full wp-image-44845\" \/><\/a><\/p>\n<div style=\"clear:both;\"><\/div>\n<h2>Policy failure amidst the alarm<\/h2>\n<p>Which brings me to the point of today&#8217;s blog post.<\/p>\n<p>The only way that a government can avoid a major contraction in employment such as we are seeing around the world now is through direct job creation.<\/p>\n<p>The Australian Prime Minister has said today that even if the wage subsidy is not fully taken up &#8211; and it won&#8217;t be because it is poorly designed and leaves more than a million casual workers behind anyway &#8211; they will not be increasing fiscal support elsewhere.<\/p>\n<p>He also said that the JobSeeker payment (unemployment benefit) would have to take care of the rest &#8211; that is the workers who the government is now deliberately allowing to become unemployed.<\/p>\n<p>The ILO has just released a report (April 29, 2020)- <a href=\"https:\/\/www.ilo.org\/wcmsp5\/groups\/public\/---dgreports\/---dcomm\/documents\/briefingnote\/wcms_743146.pdf\">ILO Monitor: COVID-19 and the world of work. Third edition<\/a> &#8211; which makes for very disturbing reading.<\/p>\n<p>1. &#8220;global working hours declined in the first quarter of 2020 by an estimated 4.5 per cent (equivalent to approximately 130 million full-time jobs &#8230;&#8221;<\/p>\n<p>2. &#8220;Global working hours in the second quarter are expected to be 10.5 per cent lower than in the last pre-crisis quarter. This is equivalent to 305 million full-time jobs&#8221;.<\/p>\n<p>3. &#8220;the Americas (12.4 per cent) and Europe and Central Asia (11.8 per cent) will experience the greatest loss in working hours.&#8221;<\/p>\n<p>4. &#8220;almost 1.6 billion informal economy workers (representing the most vulnerable in the labour market), out of a worldwide total of two billion and a global workforce of 3.3 billion, have suffered massive damage to their capacity to earn a living.&#8221;<\/p>\n<p>5. &#8220;The first month of the crisis is estimated to have resulted in a drop of 60 per cent in the income of informal workers globally.&#8221;<\/p>\n<p>6. &#8220;Without alternative income sources, these workers and their families will have no means to survive.&#8221;<\/p>\n<p>The ILO, of course, is calling for &#8220;a job-rich approach, backed by stronger employment policies and institutions&#8221; within the context of a generalised fiscal stimulus.<\/p>\n<p>I read an interesting article in Dissent over the weekend (published April 30, 2020) &#8211; <a href=\"https:\/\/www.dissentmagazine.org\/online_articles\/understanding-the-unemployment-crisis\">Understanding the Unemployment Crisis<\/a> &#8211; by Colin Gordon, who is a US academic historian.<\/p>\n<p>His focus was on the US disaster and he argued that the scale of the crisis is worse than the reported increase in unemployment insurance claimants (that over the last six weeks are &#8220;more than nine times&#8221; the &#8220;worst six-week stretch of new unemployment claims&#8221; any point in US history) understates the severity of the problem.<\/p>\n<p>This is because the:<\/p>\n<blockquote><p>\n&#8230; the &#8220;insured unemployment rate&#8221; (the share of the workforce receiving benefits) is but a fraction of the real unemployment rate (the share of the workforce out of work and looking for work) &#8230;<\/p>\n<p>the share of the unemployed actually receiving benefits &#8230; is under a third in most states, and over half in only two.\n<\/p><\/blockquote>\n<p>The reason is a combination of shoddy policy implementation and deliberate strategies designed to deny people benefits.<\/p>\n<p>He says the state-level capacity is unable &#8220;to process the avalanche of claims&#8221; and many of the workers who have lost their jobs via the lockdowns will have exited the labour force &#8211; into hidden unemployment.<\/p>\n<p>But most importantly, Colin Gordon argues that the:<\/p>\n<blockquote><p>\n&#8230; the whole logical fabric of the federal stimulus has unraveled &#8230; ran out of money so quickly it did little to check the flood of UI claims &#8230; slow to roll out everywhere &#8230; so narrowly interpreted (by the states) &#8230;\n<\/p><\/blockquote>\n<p>Instead of &#8220;shoveling federal money &#8230; to working families&#8221; to help them maintain incomes while in lockdown, the impetus in the US states is now to &#8220;re-open as quickly as they can&#8221; even though they are &#8220;still well on the wrong side of the COVID curve&#8221;.<\/p>\n<p>His reasoning is that:<\/p>\n<blockquote><p>\nBy cutting short the relative generosity of the federal benefits, state unemployment insurance systems can revert to their regular modus operandi-which is aimed less at cushioning the blow of unemployment than it is at compelling participation in the labor market.\n<\/p><\/blockquote>\n<p>Total policy failure &#8211; in other words.<\/p>\n<h2>But somewhere there is hope &#8230;<\/h2>\n<p>Amidst all this gloom, I stumbled across an Al Jazeera report (thanks Willem) published April 29, 2020 &#8211; <a href=\"https:\/\/www.aljazeera.com\/news\/2020\/04\/pakistan-virus-idled-workers-hired-plant-trees-200429070109237.html\">Pakistan&#8217;s virus-idled workers hired to plant trees<\/a> &#8211; which should put the more advanced nation governments to shame.<\/p>\n<p>The Pakistan government has closed many sectors, including the construction sector &#8211; just like most governments. There is nothing unique about the policy measures they have introduced in an attempt to halt the spread of the coronavirus, except one major initiative.<\/p>\n<p>They are generating jobs for:<\/p>\n<blockquote><p>\n&#8230; tens of thousands of other out-of-work labourers in planting billions of trees across the country to deal with climate change threats.\n<\/p><\/blockquote>\n<p>These workers are being employed on the Government&#8217;s &#8211; <a href=\"https:\/\/en.wikipedia.org\/wiki\/Billion_Tree_Tsunami\">10 Billion Tree Tsunami programme<\/a>.<\/p>\n<p>You can follow the program on &#8211; <a href=\"https:\/\/twitter.com\/plant4pak?lang=en\">Twitter<\/a><\/p>\n<p>The program aims to:<\/p>\n<blockquote><p>\n&#8230; aims to counter the rising temperatures, flooding, droughts and other extreme weather in the country that scientists link to climate change.\n<\/p><\/blockquote>\n<p>So it is targetted at medium- to long-term aspirations &#8211; shifting the nation structurally &#8211; while also solving the short-run problem.<\/p>\n<p>Refer to the criteria I provided at the outset and also the questions I indicated were important in last week&#8217;s analysis and Live presentation.<\/p>\n<p>1. How do we avoid the damage of the crisis now?<\/p>\n<p>2. How do we use the stimulus measures to shift behaviour and achieve longer-term goals &#8211; such as fighting climate change?<\/p>\n<p>The Pakistani government is so far ahead of the indolent governments in the West (UK, Europe, US, Australia) on this thinking.<\/p>\n<p>The tree-planting program has increased its normal workforce by a factor of three &#8211; to cope with the employment of those displaced by lockdown rules.<\/p>\n<p>There is a variety of work available &#8211; &#8220;setting up nurseries, planting saplings, and serving as forest protection guards or forest firefighters&#8221;.<\/p>\n<p>Social distancing is practised and enforced.<\/p>\n<p>An official said:<\/p>\n<blockquote><p>\nNurturing nature has come to the economic rescue of thousands of people &#8230; the green jobs initiative is a way to help Pakistan&#8217;s workers recover from the coronavirus crisis with dignity and avoiding handouts &#8230;\n<\/p><\/blockquote>\n<p>Another official said:<\/p>\n<blockquote><p>\nWe can absorb all the unemployed labourers and workers who have fled the cities and returned to their villages in the past few weeks. This is unskilled work\n<\/p><\/blockquote>\n<h2>Conclusion<\/h2>\n<p>The point is clear.<\/p>\n<p>A Job Guarantee should be a base level policy structure in all nations.<\/p>\n<p>The tree planting program demonstrates, within that nation&#8217;s social institutions, all the good things of these sorts of jobs:<\/p>\n<p>1. They are Fast to implement if the institutional structure is already in place &#8211; which is why the Job Guarantee should be a permanent policy structure ebbing and flowing in size with the fluctuations in non-government sector spending.<\/p>\n<p>The tree planting program easily scaled up when the need arose.<\/p>\n<p>2. They are Labour intensive &#8211; clearly.<\/p>\n<p>3. They have strong Multipliers &#8211; because they preserve income of the most disadvantaged who have propensities to consume close to 1.<\/p>\n<p>4. They are Scalable &#8211; when the crisis allows other sectors to open, the workers will be quickly reabsorbed back into their old positions again.<\/p>\n<p>5. They are Spatially advantaged &#8211; jobs can be created where people live and need work.<\/p>\n<p>6. They are Green &#8211; serving longer run objectives as well as the short-term exigencies.<\/p>\n<p>7. They are Equitable &#8211; those in need get relief.<\/p>\n<p>So they strongly satisfy most of the essential criteria without doubt.<\/p>\n<p>All governments should be doing this.<\/p>\n<p>That is enough for today!<\/p>\n<p>(c) Copyright 2020 William Mitchell. All Rights Reserved. \t\t<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Last Thursday (April 30, 2020), the US Department of Labor&#8217;s &#8211; Unemployment Insurance Weekly Claims Report &#8211; showed a further 3,839,000 workers filed for unemployment benefits in the US, taking the cumulative total since March 14, 2020 to 30,589,000. In a labour force of 164 million odd, that implies the unemployment rate is already around&hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[74,70,32],"tags":[],"class_list":["post-44844","post","type-post","status-publish","format-standard","hentry","category-posts-about-coronavirus-crisis","category-fiscal-statements","category-job-guarantee","entry","no-media"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=\/wp\/v2\/posts\/44844","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=44844"}],"version-history":[{"count":0,"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=\/wp\/v2\/posts\/44844\/revisions"}],"wp:attachment":[{"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=44844"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=44844"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=44844"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}