MMP Blog #42: Introduction to the Job Guarantee or Employer of Last Resort

By L. Randall Way

This week we begin our series on the Job Guarantee or employer of last resort. Both terms have been used to refer to the same proposal; indeed we have also experimented with other terms: Buffer Stock Employment and Public Service Employment. Each of these terms has its own advantages and disadvantages—as each draws attention to a different aspect of the program. Henceforth I will use Job Guarantee (JG) in this series.

I will proceed slowly. There is much confusion about what this proposal is and is not. We’ll begin with basics and proceed to develop the most general program. We’ll then look at variations on a general, universal approach to the proposal. The proposal can be, indeed must be, adapted to the institutional characteristics of the nation (or smaller component—city, county, state) that adopts it.

As you know, some have called it slavery; others accuse supporters of fascism or communism. Some claim we want to destroy the safety net. Others say we want to destroy capitalism.

These claims have always seemed to me to be completely over the top. What we are advocating is very simple and should not be threatening to anyone regardless of theoretical orientation.

I think that once the program is fully understood the only opponents will be those who enjoy seeing others unemployed. As I have argued, we cannot rule out cruelty. It is part of the human condition. So I do understand that some people like to witness the suffering of others—those they consider to be “undeserving”. Cruelty will always exist. But we should never let the cruelest people in our society dictate public policy.

As readers will recall, J.M. Keynes recommended directing cruelty toward management of balance sheets rather than toward tyrannizing fellow humans:

There are valuable human activities which require the motive of money-making and the environment of private wealth-ownership for their full fruition. Moreover, dangerous human proclivities can be canalised into comparatively harmless channels by the existence of opportunities for money-making and private wealth, which, if they cannot be satisfied in this way, may find their outlet in cruelty, the reckless pursuit of personal power and authority, and other forms of self-aggrandisement. It is better that a man should tyrannise over his bank balance than over his fellow-citizens; and whilst the former is sometimes denounced as being but a means to the latter, sometimes at least it is an alternative. (GT Ch 24)

And as recent research demonstrates, we have created a sector of the economy that specializes in employing such people:

Studies conducted by Canadian forensic psychologist Robert Hare indicate that about 1 percent of the general population can be categorized as psychopathic, but the prevalence rate in the financial services industry is 10 percent. And Christopher Bayer believes, based on his experience, that the rate is higher. Bayer is a well-known psychologist who provides therapy to Wall Street traders. The type of psychopath the author is writing about is characterized by compulsive gambling.  And the Wall Street psychopath doesn’t necessarily show up to his or her first day of work in this condition.  These “financial psychopaths” generally lack empathy and interest in what other people feel or think. At the same time, they display an abundance of charm, charisma, intelligence, credentials, an unparalleled capacity for lying, fabrication, and manipulation, and a drive for thrill seeking. A financial psychopath can present as a perfect well-rounded job candidate, CEO, manager, co-worker, and team member because their destructive characteristics are practically invisible. They flourish in fast-paced industries and are experts in taking advantage of company systems and processes as well as exploiting communication weaknesses and promoting interpersonal conflicts. Unfortunately–writes the author–the best candidates for many Wall Street jobs exhibit the traits of a financial psychopath. http://www.businessinsider.com/wall-street-psychopaths-2012-2#ixzz1oFcrIIq0

I think Keynes might have under-appreciated the damage such psychopaths on Wall Street can do to our economy. In any case, we should not let the cruelty of these psychopaths prevent us from pursuing sensible programs, such as full employment for anyone who wants to work.

The JG program can be added on to the existing set of social programs. We can retain unemployment insurance, welfare, social security, food stamps, job training programs, apprenticeships, and retraining programs for those such as downsized auto workers. There is no need to eliminate any of these programs. Later we can discuss the wisdom of reducing such benefits—but the JG can be added with no cuts to such programs.

The JG program can be added to an economy with a “big government” or to one with a “small government”. The JG, alone, will not turn a “small government” economy into a “big government” economy. There is some latitude for choice over the size of the JG program, itself. As we will see, it is in some sense a “residual” program (“last resort” draws attention to this aspect) that picks up workers as they “fall” out of the private sector. To keep the JG program small we need more employment in the private sector.

All the traditional programs—whether supply side or demand side—are still available to try to pump up the private sector. For reasons I will discuss (and that were the topic of a recent excellent blog by Pavlina Tcherneva on the front page of NEP), I am quite skeptical of the ability of such policies to achieve anything close to full employment on a continuous basis.

But I could be wrong. Even with the JG in place, we can give these supply side and demand side programs a try—if we really want to. If their supporters are right, the JG will shrink to a “vanishingly small” (to borrow the words used by John Carney in a recent column) size. Fine. We’ll see. I do not think they will work, and I think that we would end up with unacceptably high inflation long before we approached anything close to full employment.

That is why I think we need a JG no matter whether we pump our supply or demand sides, no matter how much we cater to the private sector, or increase the size of the public sector.

At the most basic level, what the JG does is to increase the choices available to those who want to work.

Look at it this way. If you are involuntarily unemployed today (or are stuck with a part-time job when you really want to work full time) you only have three choices:

  1. Employ yourself (create your own business—something that usually goes up in recessions although most of these businesses fail)
  2. Convince an employer to hire you, adding to the firm’s workforce
  3. Convince an employer to replace an existing worker, hiring you

The second option requires that the firm’s employment is below optimum—it must not currently have the number of workers desired to produce the amount of output the firm thinks it can sell. It is not in “equilibrium”.

If it is in equilibrium it will not hire you because the costs of your wage will exceed any induced sales from employing you. This is the well-known “Champaign” problem: unless you promise to spend your entire wages on the output of your employer, there is no reason to believe sales of your output (“Champaign”) will equal the cost of paying wages to you (to produce “Champaign”).

If the firm is in equilibrium, then, producing what it believes it can sell, it will hire you only on the conditions stated in the third case—to replace an existing worker. Perhaps you promise to work harder, or better, or at a lower wage. But, obviously, that just shifts the unemployment to someone else.

It is the “dogs and bones” problem: if you bury 9 bones and send 10 dogs out to go bone-hunting you know at least one dog will come back “empty mouthed”. You can take that dog and teach her lots of new tricks in bone-finding, but if you bury only 9 bones, again, some unlucky dog comes back without a bone.

The only solution is to provide a 10th bone. That is what the JG does: it ensures a bone for every dog that wants to hunt.

It expands the options to include:

  • There is a “residual” employer who will always provide a job to anyone who shows up ready and willing to work.

It expands choice. If you want to work and exhaust the first 3 alternatives listed above, there is a 4th: the JG.

It expands choice without reducing other choices. You can still try the first 3 alternatives. You can take advantage of all the safety net alternatives provided. Or you can choose to do nothing. It is up to you.

Let me close with a long quote from J.M. Keynes, among my favorite quotes from him:

The Conservative belief that there is some law of nature which prevents men from being employed, that it is ‘rash’ to employ men, and that it is financially ‘sound’ to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable – the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years.

The objections which are raised are mostly not the objections of experience or of practical men. They are based on highly abstract theories – venerable, academic inventions, half misunderstood by those who are applying them today, and based on assumptions which are contrary to the facts . . .

Our main task, therefore, will be to confirm the reader’s instinct that what seems sensible is sensible, and what seems nonsense is nonsense. We shall try to show him that the conclusion, that if new forms of employment are offered more men will be employed, is as obvious as it sounds and contains no hidden snags; that to set unemployed men to work on useful tasks does what it appears to do, namely, increases the national wealth; and that the notion, that we shall, for intricate reasons, ruin ourselves financially if we use this means to increase our well-being, is what it looks like – a bogy.

58 Responses to MMP Blog #42: Introduction to the Job Guarantee or Employer of Last Resort

  1. Must admit Dr. Wray, that’s one of my all-time favorite quotes as well.

  2. Well, let’s if it works. But under some precise conditions:
    1) The wage must be 20-30 % lower than any other wage.
    2) The wage must be regulated by law. All changes in the law regulating the salary will become effective only after the general elections and wages cannot be adjusted more frequently than once every 5 years.
    3) Under no condition the workers employed in the JG program should be passed to the general public administration through preferential routes. If they wish to become normal public employees they will have to follow the standard methods and having worked under the JG program will provide them no special advantage
    4) If a worker is employed under the JG program he/she will do always the same job; no career, no change in position, always the same activity. He/she must accept whatever job is offered and, in case of refuse, cannot work under JG for the next two years. The same if he/she leaves the job provided by the JG program.
    5) Any workers under the JG must be in good health. In case of illness over the normal limits he/she will go under other types of social protection. That’s to avoid the risk of people getting the JG salary and then submitting some sort of medical certificate to avoid that and, at the same time, doing some “hidden” job
    6) It will not be allowed to be member of a union when working under the JG program.
    7) The board of the entity that will administrate the JG program must not include any present or former member of the parliament or member of the local councils. The majority of the board has to be formed by randomly selected citizens (such as a jury in US), obvioulsy having a minimum level of instruction to be defined. The maximum serving as member of the board has to be fixed in 5 years.
    8) The activities for the worker of the JG program must be selected by the citizens. A panel of citizens, again randomly selected for a period of maximum 3 years, will define what they have to do.

    Under those conditions a JG program could be fully acceptable by anyone, or most of the people.

    • Sorry. Vicenzo. But I think it’s not enough to specify a set of conditions without providing reasons for those decisions. I think your conditions reflect all manner of neoliberal value judgments that I don’t agree with. Also, why should we make it a condition that everyone agree with the JG proposal. To get it passed we need no more than the support of a majority of the House and 60 votes in the Senate. So, not everyone or nearly everyone needs to agree.

      • Joe,
        when saying that everyone will accept it I was not intending that in a politicl way, i.e. passing a law in the Parliament. I was meaning in terms of cultural acceptance.
        Regarding the reasons for the conditions I have already specified the reason for the conditon number 5.
        For the other conditions I wll bring the explanations for some of them, leaving to you the others
        2) The JG is a public program, so it belongs to all the citizens. Increase of wage must therefore be approved by the citizenship i.e. by the Parliament representing the citizens. That reason is valid also for 7 and 8
        3) We, in Italy, have already experienced in the sixties and the seventies the “automatic” transfer of people that were hired by the governement to do the typical JG works (gardening, archiving, constructions) to the roles of the administration. That had at least two deleterious effects: a) increasing the beureaucracy, i.e. the unproductive work – more papers to fill to open a door inside own house – and increasing costs
        7 and 8) Politicians have the tendency to create “clientes” for their own benefit, let politicians administrate the JG program and, whitin a short period of time, it will become just a way for a politician to get the favors of a number of people.

        That said, under those conditions even an Austrian might culturally accept the JG program.

        • Thanks for your reply, Vincenzo.

          On 5, I think the job assignment needs to be appropriate to the health of the individual, but I don’t see why a general criterion of “good health” is necessary for everyone.

          On 2) of course, the wage must be regulated by law, but Government and lawmaking are continuous in the United States and laws regulating the JG can change at any time. We could only pass a requirement that the wage must be stable for 5 years through a constitutional amendment, and that’s much too hard for pass. Also, I’m not sure why the period should be 5 years rather than three or why the JG wage should not be indexed to productivity gains or losses.

          Of course, I agree that JG Administration should be selected according to law, but your proposal about requirements for this carries too brief an explanation to evaluate. I do think the local councils Administering the JG program should involve citizen participation and then selecting them should involve bottom-up processes.

          On 8. I don’t know about random selection, vs. selection according to criteria. I just haven’t thought through the issues.

          On 3. and this: “If they wish to become normal public employees they will have to follow the standard methods and having worked under the JG program will provide them no special advantage.” I do see the point,but I also think that work in the JG should not disqualify people from competing for regular civil service jobs. If they did, it would impose a special disadvantage on JG workers, and I think we don’t want that either.

          On the other conditions. I still don’t see how you arrived at them.

          • Thanks for the reply to reply Joe as that helps me in clarifying some points.
            My points came out from, let’s say, personal experience. My father was a high level officer in the public administration. Probably he has been, when he was in service, one of the top 10 “recruiters” in the country. So I lived the history of the public administration though his stories and his actions.
            Well, to make to story short, in the sixties and the seventies most of the people that were hired by the “government” – intending any type of public administration, from State to municipal ones, were essentially JG tupe jobs, gardening, plumbers, electricians and so on. In general they had no career inside the administratio, thet were doing always the same job, in many cases a job that they learned inside the public, and because of the relatively low salary, they had a strong incentive to look for another job. Not strange to say many of them in the morning were working for the government and in the afternoon for their own. In any case they were transferring the benefit of the good skills they learned with the public employement into the private sector, exactly what is expected by the JG program, i.e. to take unemployed unskilled workers to transform them into skilled ones.
            The system worked, I would say pretty well, for 20 and more years exactly on the basis of the conditions I wrote, at least conceptually. For example before being hired people had to pass a medical test to check if they were able to the service and later, in case of severe illness, they were declared “unable to the service” and passed to other types of public assistance. Wages were fixed by law by the Parliament, not by contractual agreements among the workers’ unions and some type of commission. The reason of that is rather simple: the commission had no specific interest to negoriate more favorable conditions for the government.
            Later everything changed. Workers hired as plumbers becaame “administrators”, so increasing the beureaucracy, wages negotiation became a matter of unions and commission, so that now public wages are 20-30 % higher than in private employement; so which incentive does a peson have to switch from a guaranteed job having a high salary to a more or less risky one with a lower salary?
            I could go on with a lot of other points, but I think these ones might help you in understanding my reasons.

        • Vincenzo,

          I agree with your point No. 1. At least, there certainly must be an incentive to seek normal or regular jobs.

          Re your point No. 4 and what to do with people who refuse JG work, there is a kerfuffle in the UK right now about this. This is an article by a left of centre journalist on the subject:

          http://www.guardian.co.uk/society/2012/mar/20/jobseekers-work-experience-compulsory-unpaid

    • Even if I didn’t read your name, I immediatly understood that yours was clearly an italian post :)

      You get all the problems we experienced in the past, but let’s not make italian issues worldwide issues: we can solve the problem letting the JG program be managed by independent, private associations, maybe at european level. Solving our political problem, the fact that they have far too much power, is possible without changing the concept of JG/EOLR.
      What should these people do? Well, surely they cannot be considered standard public employees, at least not in Italy as we already have far too many. But they could be used in NGO or specific temporary project. Like “take old ladies to go shopping”.

      What I love of the JG concept is that people get a public salary TO DO something, instead of taking an unemployment benefit and going on the beach or having a black job like it happens today in Italy.
      I mean: consider what is happening today in our country and it’s easy to understand that a JG program, even if not perfect, would be a giant leap forward.

    • I think I am not understanding you. Many of these conditions seem onerous to me, like 1,2,4,6? But I’ll wait for Dr. Wray to bring his proposal out a little more.

      • As I wrote in reply to others the main reason for 1, 2 and 4 is to provide a strong incentive to look for an employement in the private sector.
        Regarding number 6 the main reason is to avoid unions to push to transform the JG workers into standard public workers, with all the associated risks.

        At the end, in any case, that is my vision, i.r. the vision of a person that believes that the governemnt is essentially able to waste resources, directly, though useless expenses – building a bridge leading to nowhere- or indirectly through the creation of unnecessary regulations that are only limiting the activity of the private sector without any real benefit – I always bring the example of the REACH regulation that is in force in the European Union; till now I have not found a single person that explained to me the benefits of that, but for sure it adds a lot of costs to any company operating in the chemical sector.

        Those limitations are, therefore, the ones that can make possible even for a person with my vision the acceptance of a JG program. Take into consideration that to set-up such program it is necessary not only a 50 % + 1 majority in the Parliament, as that might change after the elections, but also wider acceptance by the citizens.

        • I begin to see your reasons, but, for me anyway, they appear too restrictive. But there may be a middle ground.

        • Vincenzo, I agree with Marco that JG designs for Italy may not fit other nations. As for this:

          “As I wrote in reply to others the main reason for 1, 2 and 4 is to provide a strong incentive to look for an employement in the private sector.
          Regarding number 6 the main reason is to avoid unions to push to transform the JG workers into standard public workers, with all the associated risks.”

          Here in the US, over at least the last 35 – 40 years, the Government has worked with business suppress wages. The minimum wage in the US today is $7.25 per hour. If it had kept pace with productivity and currency devaluation, that wage would now be between $20 – $25.00 per hour. Moreover, the fringe benefits in the US do not compare to those in Europe and actual hours worked, Medical Benefits, public educational programs are currently near the bottom of the OECD nations.

          So, my JG program for the US would involve a minimum wage that is far higher than the lowest private sector wages and all JG jobs would involve full fringe benefits including Medicare for All. My intention is to force private sector businesses who want to move JG employees from non-profit work to private sector to pay a living wage in higher than the JG wage and at leadst comparable fringe benefits. I think we need some social justice in the US at long last.

  3. Nicely framed. What could possibly be the objection?

  4. As Randall Wray says, his second option (convince an employer to hire you) “requires that the firm’s employment is below optimum—it must not currently have the number of workers desired to produce the amount of output the firm thinks it can sell. It is not in “equilibrium”.

    A distinction needs to be made here between micro and macro. If a widget making firm is not meeting demand for widgets, it can expand numbers employed. That is obvious. But the more significant argument here is macro.

    What constrains employment in the aggregate (assuming a knob can be twiddled and AD and employment expanded to the maximum level consistent with acceptable inflation) is the fact that the marginal product of labour falls to or to below the minimum or going wage. Or as RW puts it, the firm “will not hire you because the costs of your wage will exceed any induced sales from employing you”.

    RW then jumps to the conclusion that the only solution is to set up an entirely new employer to take on the person whose marginal product falls short of the going wage.

    Actually there is another solution: subsidise the employment of marginal employees so that firms DO TAKE THEM ON.

    That leads to the problem as to how to identify marginal employees. Well that’s not too difficult. 1, offer less attractive job seekers to employers on a subsidised basis for a limited period. 2. If the employer is happy to let one of those employees go when the subsidy expires, that proves the person is genuinely marginal. 3. But if the employer keeps them and funds the person’s full wage, that proves the person is not marginal, in which case the subsidy comes to an end – and possibly the employer should be forced to repay some of the subsidy.

  5. That assumes we ought to subsidize private sector employment over non-profit or public sector employment. I’m afraid I don’t agree. A lot of private sector employment has little or even negative value, such as, for example, employment in the trading divisions of the Big Banks, or employment in health insurance companies, or employment at Fox news.

    I see no reason to subsidize private sector profit making organizations that cannot afford to pay people a living wage. In fact, I think if they can’t pay a living wage then they don’y deserve to exist. On the other hand, subsidizing private non-profit activities is a different matter. If they’re helping to achieve public purpose then I’m all for subsidizing them with JG positions.

    • Joe, I don’t agree with argument that the private sector should be excluded because some private sector activities are futile. Same goes for some public sector activities.

      Re your second paragraph, you are trying to portray public sector or non-profit activities as being more worthwhile than private sector activity. There just isn’t any objective way of comparing the two. You might want more spent on public sector health care; but many others think we currently spend enough on this.

      The way we actually settle this argument is via the democratic process: at election time. Thus those designing JG schemes must work on the assumption that the output of the least productive employee in each sector, public and private, is the same.

      In other words to maximise GDP (in the eyes of the electorate), if there is an X% expansion in the public sector thanks to JG, then there ought to be an X% expansion in the private sector as well.

      • I agree with much of what you say Ralph, but this:

        “Re your second paragraph, you are trying to portray public sector or non-profit activities as being more worthwhile than private sector activity. There just isn’t any objective way of comparing the two. You might want more spent on public sector health care; but many others think we currently spend enough on this.”

        I don’t agree with. First, I’m pretty sure I don’t agree with your unexplicated idea of objectivity. Because the ideas of most people about this are incoherent nonsense. My notion of objectivity is here: http://www.kmci.org/media/Whatknowledgeis%20%28non-fiction%20version%29.pdf And according to my analysis there an objective comparison of the value of different activities whether public or private is certainly possible and also ought to be pursued.

        Second, I’m not saying that private sector activities are necessarily less or more valuable than public sector activities. I am saying that value comparisons of different activities and outcomes are possible, and also that there are procedures for carrying out such comparisons that are just as “objective” as other scientific procedures.

        And third, I think the notion of what the US spends on medical care is systematically ambiguous. In real terms, the US clearly doesn’t spend nearly as much as other OECD nations, but in nominal terms it spends about 50% more of its nominal GDP than it has to, and in doing so increases economic inequality here in America. I think most Americans will agree with me on this and that the political case will be made successfully in the next few years. I think the JG can be implemented in such a way that it will help that.

        “The way we actually settle this argument is via the democratic process: at election time. Thus those designing JG schemes must work on the assumption that the output of the least productive employee in each sector, public and private, is the same.”

        I don’t think the conclusion of this argument follows from your premise and I also think the conclusion is value-loaded. I need not work on any such assumption. I am perfectly free to refrain from making an such silly assumption at all. the least productive employee in the public sector may do tremendous damage, and the same is true of the least productive employee in the private sector. productivity, whether positive or negative has to be based on the value of the outcomes of the employee. A President who got the United States into a nuclear war destroying much of civilization is an example of highly negative productivity, as would a bank or financial CEO who crashed the world economy.

        Let’s get real here, Ralph. Let’s not engage in postulating silly assumptions that have no basis in reality. The voters would not make such assumptions and neither would we. Any sensible voter knows that he lowest paid Garbage collector in New York City during the year 2008 was far more productive than John Thain, the man who crashed Merrill Lynch. And both we and they need to be making those kinds of value judgments.

  6. Let’s summarise my main remaining question on the JG, which I’m hoping will receive a post all on its own.

    For those nations not subject to State Aid restrictions in the EU Treaty, why does the design need to exclude the private sector from the subsidy.

    Is there a macro-economic argument for that position, or is it just based on the “if they can’t pay a living wage, they don’t deserve to exist” line.

    • Actually, I wondered the same thing. But it seems to me that once you subsidize a private employer you are entering into a morass. Which ones, how much, why? Is there a time limit? Any industries inclued or excluded? Then there is this thing referred to as crony capitalism. Will the subsidy work to give one business an advantgage? Is there s size limit? But you suggest one that deserves attention: if they can’t pay the wage, maybe they should go out of business. All that said, the thing that made me wonder about it though was the possibility of public works and infrastruture. But those activities are also performed by private, for profit companies or by municipalities. That could be another troublesome problem. Who do you subsidize, which connected politician, etc.?

    • I agree with Jon F’s comment, generally. But I also think that subsidizing some private sector businesses could contribute to public purpose, so that it might be justified to give those JG subsidies. However, the test for public purpose here, be very strict, especially in nations where there’s a lot of corruption and where regulation has been week.

      In the US there has been far too much subsidization of the private sector at the expense of working people. I think that has to stop, and that the general standard for employment should be that a business must offer a living wage. If it cannot do so, but still wants to operate with a JG subsidy, then I think it should be required to operate as a non-profit, until it can stand on its two feet and hire its employees at a wage greater than the JG. Only then does it have the right, in my view, to make a profit for its owners.

    • “If they can’t pay a living wage, they don’t deserve to exist” . . . I’m not even impressed by THAT argument.
      In the Western world over the last century or so about ten thousand economists have advocated about as many different employment subsidies for the private sector. So if anyone wants to put the “shouldn’t exist” idea, they’ve got rather a large number of opponents: me plus about ten thousand other economists.

  7. Why would JG better prevent inflation than a national unemployment rate of four percent?

    • Tyler,

      A Job Guarantee program is essentially a stock of labor that expands and contracts in busts and booms, respectively. 4% unemployment means that there is 4% of the population willing to work that cannot, they are idle resources (labor) that can be put to work for productive things that may not be profitable and therefore not done by the private sector (building roads, bridges, working in soup kitchens etc). If you employ these 4% in a JG, they will be earning extra income, a living wage as opposed as to simple welfare benefits, which they will presumably use to consume or invest in the market. Now, you might say this is inflationary, since JG programs do not contribute to the stock of marketable goods but JG employees are earning extra income: more money chasing the same amount of goods. And in the short run, this may be the case.

      In the long run, however, the extra consumption/investment will increase aggregate demand for the private sector, eliminating the “champagne problem” because all of a sudden firms are not employing enough workers to meet total demand. These workers will shift out of JG into higher wage earning privater sector jobs, which will increase the supply of goods/services to meet demand. Now you have enough goods to meet the amount of money circulating around.

      This cycle can continue indefinitely, as workers moving from the JG programs to the private sector enjoy another wage increase, increasing aggregate demand more. Sure, this is inflationary, but inflation in this sense represents an untapped market for firms to expand into. This creates economic growth.

      Alternatively, JG employees can be compensated in non-monetary wages, like health care benefits or insurance, that do not increase employee’s income but are still economically valuable to them. This would not increase income and would not be as inflationary.

      Furthermore, JG programs promote price stability (curb inflation) by keeping the wage stable. Growth in prices is both a function of growth in wages relative to average productivity of labor and growth in aggregate demand relative to aggregate supply. Growth in wages relative to productivity has more weight in influencing price. By keeping wages stable, you have made a big step in keeping prices as a whole stable, as wages are a factor of production in ALL goods and services at some level, contributing to their price.

      JG programs stabilize wages by paying a uniform minimum wage to employees, it is an essential part of the program. This provides a price floor for wages. If firms become too “greedy” and bargain for lower wages with employees, they can simply move out of the private sector to the JG program. If employees get too “greedy” and bargain for higher wages, employers can simply replace them with JG workers willing to earn a slightly higher wage in the private sector. In this way, the price of labor (wages) is kept stable, which contributes to price stability.

      It is hard to say whether a JG program would be “better” than having 4% unemployment at “preventing” inflation. There may be a spike in inflation after implementing a JG program as income increases faster than supply of goods and services. But the point is that there are automatic stabilizers which will keep inflation from increasing beyond the first jump. And isn’t that the point? Even the NAIRU acknowledges the existence inflation, it is just “non-accelerating”. Inflation is only a problem when it disrupts peoples expectations about the future. If it is a constant rate, there is no problem. If anything it promotes growth, because inflation makes borrowing less expensive and spurs on investment.

      Hope this helps.

      • Thanks, Julian – very much appreciated. I didn’t know 4% unemployment means that there is 4% of the population willing to work that cannot. I thought it meant that everyone willing to work is employed. Perhaps I should stop watching Fox News completely.

        • “Perhaps I should stop watching Fox News completely.”

          THAT ……is always a good idea Tyler!

      • Scott Fullwiler

        Julian’s comment is very good. I might offer a complementary point:

        My simulations of the JG from 1985-2005 included the late 1990s when unemployment reached 4%. By putting the JG into real world business cycles, we can see the logic of the program in a large macro model (which is all you can get from a simulation). And in the late 1990s, adding the program was actually reducing inflation very modestly (see figure 7 at the end of the paper). This reduction is entirely due to the JG as I “turned off” the Fed’s reaction function.

        This is impressive given the number of things going against the JG in the model–I added two additional effects on aggregate prices as a result of the program (1 for higher capacity utilization and another for whenever the JG wage was above the minimum wage based on the parameter in the Fed’s own model) and also the price level equation in the model is biased against a program like JG that stabilizes total employment rather than the unemployment rate (as the NAIRU policy approach does).

        Further, I compared several version of the JG in ‘monte carlo’-like simulations (that added hundreds of historical shocks and measured how well the policy brought the economy back to its pre-shock state) against other macro policies like the Fed’s reaction function. In every case, the JG stabilized, and when the JG’s buffer was functioning well and JG workers were assumed in the aggregate to add modestly to national product, the stabilization effect of the JG dominated–that is, there’s no economically significant difference between rows 30 and 31 in Table 2 (row 30 doesn’t include the Fed, row 31 does). The key variables of concern there are the inflation, real GDP, and real GDP growth columns. The differences in the price level column are due to biases in the model against a program that stabilizes total employment rather than the unemployment rate, as I noted above.

        Paper is here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1722991

        • Thanks, Scott. I think JG should be presented to the American people like this:

          1. It will produce lower inflation and lower unemployment than either the Reagan or Clinton years.
          2. It will bring the poor into the middle class, and the middle class into the upper class.
          3. It will greatly reduce the amount of money allocated in the budget for unemployment benefits.

      • Julian, that is a really excellent summary. You managed to capture the essence in very few words. Thanks.

  8. Regarding Vincenzo’s proposed parameters:

    1. In the US I think you should set the wage at the minimum wage (which itself perhaps should be increased). You retain the incentive to seek better pay later (if that is what someone wants), without paying a lower-than-minimum wage which would serve to validate charges of slavery.

    2. Linking the minimum wage to an inflation index would address this, and would be more reasonable than a 5-year waiting period between adjustments.

    4. Why would this be a good idea? It seems that this would only add unnecessary inflexibility to the labor market, which is the type of charge often directed toward govermment programs.

    • 1) The wage level should be in my opinion, such that there is a strong incentive to look for another job, including self-employement. It is hard to understand why, with a lot of unemployed people, whenever you need a plumber you need to wait maybe one or two weeks or call the urgency-plumbers that will charge you hundreds of euros or dollars. Isn’t that a job? And also rather profitable, if I look to what I pay any time I need one? In may cases it looks that job is not missing, rather it is missing the wish to make certain jobs. But, although we would like it, we cannot all be the CEO of a big corporation.
      2) Inflation indexing can be considered for sure but major revision cannot occur under standard contractual procedures.
      4) Obviously the change could occur based on the needs but not on request of the workers. Again that is to give the incentive to look for another jib in the private sector

  9. DogmaSkeptic

    It seems to me that public JG subsidy of private sector empoyers is antithetical to the very objectives of the JG itself, and also dangerously fraught with potential for corporate abuse.

    Mr Musgrave trivializes the JG concept via misdirection by insinuating that it’s purpose is simply to “take on the person whose marginal product falls short of the going wage” (btw I did not see where ‘RW jumped to [that]conclusion’). The unemployment issue is not simply a matter of some individuals being so inept as to be too unproductive to generate a profit for somebody, the range of issues is much, much broader than that. What I get from the JG concepts presented here (MMT) is an attempt to address the failure of the aggregate private employer “sector” to fully utilize the human resources available or to supply solutions for unprofitable social needs (environment, hospice, starvation prevention, etc).

    JG by subsidy of private employers would inevitably become subject to manipulation by large corporate interests. It is not hard to picture how quickly each multinational entity would establish entire departments (similar to their tax evasion departments) dedicated to leveraging the JG system into providing their entire bottom-tier HR needs, with the subsidy revenue going straight into the CEO’s pocket. Look at the current small business stimulation efforts in the US as one example, where the bulk of the benefits are diverted to large MNCs.

    • Private sector JG is actually in operation in the UK right now in the guise of the “Work Experience” scheme. Far from large firms falling over themselves to exploit the system, some won’t have anything to do with it.

      But this is just history repeating itself. In 1991 (1st Jan) there was an article in The Times (London) entitled “Companies Give Employment Scheme Cold Shoulder”. The scheme concerned was called “Employment Training”, which involved some work and (allegedly) some training.

      • DogmaSkeptic

        The UK “Work Experience” scheme is nothing like the JG concepts described above, and as such does not support the assertion that “Private sector JG is actually in operation in the UK right now…”.
        BBC articles describe the Work experience programme as:
        Voluntary scheme for 16- to 24-year-olds unemployed for more than three months, but less than nine
        “Participants have an unpaid placement for two to eight weeks, working 25 to 30 hours a week
        They continue to receive jobseeker’s allowance and may receive a contribution to travel or childcare costs
        Anyone who cuts a placement short after more than a week faced having their benefits stopped for two weeks
        But this sanction has been dropped, after ministers met dozens of firms ”

        Unpaid temporary labor for young adults is hardly a JG system. To purport it as such in this forum is another misdirection. Other BBC articles descibe a negative public reaction to the program with the perception of it as forced labor due to the cancellation of benefits clause; this resulted in an email campaign by the Right To Work coalition against participating companies which then pulled back to avoid the negative publicity.

        One might suspect that the reference to the 1991 Times article about a training program could turn out to be a similar misdirection from JG, leading one to wonder about the veracity and motives of other comments 0f this sort.

  10. Some people like Ralph just aren’t serious, but at least his only beef is with the the JG where others are intellectually dishonest about MMT itself.

  11. Hi Vincenzo, We ran out of indents, so this reply to you starts a new thread:

    Of course, personal experience, while a relevant source of “conjectures,” a word I use in the non-pejorative Popperian sense, can’t prove or even tend to validate points. Going back to this:

    “. . . the people that were hired by the “government” – intending any type of public administration, from State to municipal ones, were essentially JG tupe jobs, gardening, plumbers, electricians and so on.

    I don’t think that JG “types” of jobs may be the same today in the US as they were in Italy in the ’60s and ’70s. The types of jobs would be defined with the participation of local people based on work that they think needs to be done but isn’t being done by the private sector. That may or may not include gardening, but in the US electricians and plumbers are highly prized and, I have the impression, have no problem finding work at a living wage.

    I agree that the JG will let people use and acquire skills that later may be be required in the private sector. If that’s the case then the private sector is free to hire the people who have the skills they want at a higher wage than the JG pays.

    As far as the JG wage rate is concerned I agree that it should set by the legislature, and should be viewed as the de facto minimum wage that will be paid in the non-Government non-foreign sector from then on. I think that wage should be indexed to currency de-evaluation, even though this will somewhat weaken the inflation fighting function of the JG. If the effect of such indexation can be shown to be substantial even in computer simulations whose assumptions I think are unbiased with respect to this point, then I’d be prepared to withdraw the indexation proposal, a feature that I think most other MMTers would oppose to begin with.

    I’ve already agreed that medical “tests” are appropriate to assess fitness for a particular job. But in the US we hvae to be very careful about this because such tests are politically very sensitive because politicians like to use them to oppress certain groups such as women, or to discourage employment, or to make Government programs unpopular by stigmatizing them, or for any number of reasons. So, here we’d have to be very careful about the kinds of tests used, privacy protections, providing no-cost tests as part of the induction process, and also seeing to it that an assignment occurs first assuming the health of the candidate, and then limitation of the test to conditions appropriate to that employment. Nor should addiction be enough to disqualify people from employment, though enrollment in treatment programs and, of course, meeting of absenteeism requirements would be essential to keeping a JG job.

    I agree that JG wages should not be higher than private sector wages, but as I said earlier, since wages have lagged way behind productivity gains and nominal cost of living changes, I think the initial JG programs should redress the balance first. The JG program should not be in the business of validating the economic oppression visited upon working people for the past 35-40 years in the US.

    Finally, I think you’ve tried to think this through carefully, and appreciate your efforts to do that. But I do think that the cultural and historic conditions in Italy are different from those here, and that as a result variations in the JG program may be appropriate. Your proposals may be right for Italy. I can’t comment on that, but I think your conditions are too harsh for the US and would severely reduce the political popularity of the JG. From my point of view its political popularity is essential, because the real validation of the JG won’t come from its initial passage, but from how it works in practice and whether people end up thinking that it is a fair, just, and effective program for producing FE with PS.

    • Joe,
      you are absolutely right, conditions have to be different country by country, depending by the culture, history and so on.
      Actually speaking what I wanted to emphasize is that the JG program can become a Trojan horse for politicians to expand their power and control on society as well as something that, if not properly managed, will create on the long run more problems than those solved in the short run.
      The danger is always the same. As outlined in the next post about the JOBS act, frauds are the biggest danger we have in today’s world. Any people that like to live on the other’s shoulder will go where there is al lot of money. And a JG program could be, in this vision, an excellent place for them.

      • Vincenzo, I think that every Italian that’s reading your words can understand for sure what you’re talking about :). A kind of perverse equation comes to mind when we think about public spending in Italy, that is: public money involved = fraud and corruption. Look at what Italian entrepreneurs and politicians are doing with ESF funds, and you can get the measure of the magnitude of what could happen with a JG-like program. I think that US people that (legitimately, of course) aren’t into Italian affairs can’t fully get the meaning of your objections. An Italian, indeed, would catch that at a glance. The big american shock was the 2008 subprime crisis, that involved private-private financial fraud. The Italian big shock was “Tangentopoli”, that is public-private financial fraud. Coming from different shocks, we are different; we are really cautious about “happy” government spending in the same manner as the American left is becoming distrustful of the private sector.
        Pretty sad, indeed, but we as Italians have no hope to succeed in something like JG (and everything MMT-related, for that matter) if we don’t fully restructure our corrupt political class first, with something radical like you-all-go-home-now, and then regain full control over the activity of politics. Your conditions may be well-thought, but they’re not going to work if we leave that much power in the hands of the people that have misused (stolen) our public wealth for decades.

        • I believe that in every country there has been a split amon “insiders” and “outsiders”. The members of each part might be different country by country but there is a substantial common factor. Insiders are all those that can use the power of the governement for their own personal interest, either because they are part of it or because they can influence it.
          Any company living of public subsides is an insider, no matter if it is private or not, no matter if it is a bank or a car manufacturer.
          Any lobby or group of interests that must thank the government for its wealth is an insider. Do you think that accountants would be happy in case of a complete simplification of the fiscal system? Who would go to an accountant to prepare the tax bill if the system is simple and clear?
          Why do you think there are so many lawyers earning so much? Because of criminality? Or, rather because every law and regulation is so unclear that the normal outsider citizen cannot understand it?
          That’s, at the end, the very reason why, before thinking to any other thing, we should consider some more direct form of democracy involving real control by the citizen.
          That’s the reason why we should think to public properties, no matter if at national or local level, such as roads, schools and so on, not as a property of the State or of the towwn, but as a property of the citizens, each one having one share of the property and nominating directly the board of directors and the managers without passing through the intermediation of the government.

          • Quite interesting this is becoming an italians-only discussin :)

            I agree with Dario on the difference US/Italy: like Vincenzo says, I’d add that a smaller government with direct democracy is the only possible solution to our policians.
            Take Switzerland as example.

            As I said many times, politicians should be like cleaning ladies and gardeners: citizens don’t have enough time to take care of laws and administration, so they hire experts to do the job.
            But if they are NOT experts and they are NOT able to do the job, then we can clean up our house and take care of our garden by ourselves.

      • Maybe, Vincenzo. But if the JG is implemented as part of a broader MMT program, then that program will have a fraud clean-up aspect to it, courtesy of Randy Wray, Bill Black, Michael Hudson and other MMTers. In the United States many, many fraudsters and banksters would see the inside of Federal jails. I dare say that the scale of the pushback will do much to eliminate fraud in Government programs for a generation (nothing is forever). The price of freedom is eternal vigilance.

  12. Dr Wray,
    can you give us the exact reference for the last, powerful, JMK quote? Is that from General Theory?

  13. @marcotizzi
    Yes, but I don’t think we’re doing any harm here. We are simply pointing out that an economic policy is never simply an economic policy, but is deeply involved with the historical – social environment in which it is installed. In the case of Italy, I think that no MMT-like policy could be adopted without solving the problem of corruption. Only one example: I’m from Bari, and a scandal with European Funds just erupted, involving a family of entrepreneurs with a long history of corruption, the DeGennaro family. They have been involved with public frauds for decades, indeed they are still here, competing for contracts in public-works sector. That seems just normal for the majority of Italians. In US I can tell that this aspect is quite different: they know that an healty economic system goes along with punishment for frauds and corruption. CEOs and bankers who steal and cheat see the jail.
    If we keep this system intact, no new economic theory can solve our problems. Take a flawed polytical class and give them neoliberalism, marxism, MMT, keynesianism and everything you want: they will find a way to turn that to their advantage. That’s why I strongly disagree with Paolo Barnard’s view. He’s putting MMT on his (our) “flag” , without talking about a deep process of reform of democracy that must go hand in hand with the adoption of an extended social welfare policy. And that’s why I disagree even more with his approach, that is “Vote for every party you want, only ask them to adopt MMT” I say WHAT? Are we going to give such a powerful tool of public spending in the hand of something like the actual PdL (Berlusconi’s party, for non – italians)?

  14. To all italian people here. A long time ago we were more subtle in policy matter, but things change.
    Another great english man, contemporary of Keynes: G. B. Shaw.
    “The two main problems of organized society, how to secure the subsistence of all its members, and how to prevent the theft of that subsistence by idlers, should be entirely dissociated; and the practical failure of one of them to automatically achieve the other recognized and acted on.”
    You cannot solve the moral issue with economic rules . And viceversa. You must act on culture, education, justice to improve morality. Leave people eat: to live is a right. To be good and honest is a choice: teach them the difference.
    it’s not a good idea to transfer property from State to citizens: “Citizens” do not exist without a State. Citizens are people…de facto you’ll transfer property to private individuals. Necessarily never “super partes”.

    • Sorry Chiara, I disagree both with you and Shaw (who said many stupid things during his life. This is just one of them).
      1- a system works or doesn’t work as a whole: you can’t separate “subsistence to everybody” from “theft”. You can criticize the concept of “job”, you can even criticize the fact that a job is somehow needed (see “Manifesto against labour” or, better “the zeitgeist movement”), but once you accept a labour-based society you can’t say “let’s start giving money to everybody and THEN we’ll solve (how, for God’s sake?) the fact that some people steal it;
      2- it’s absolutely false that State is made of citizens, at least in a rapresentive democracy: State is made of politicians, is coercive and is AGAINST people. The only way to change it is direct democracy: Switzerland is a clear example.
      “I am a fanatic lover of liberty, considering it as the unique condition under which intelligence, dignity and human happiness can develop and grow; not the purely formal liberty conceded, measured out and regulated by the State, an eternal lie which in reality represents nothing more than the privilege of some founded on the slavery of the rest; not the individualistic, egoistic, shabby, and fictitious liberty extolled by the School of J.-J. Rousseau and other schools of bourgeois liberalism, which considers the would-be rights of all men, represented by the State which limits the rights of each — an idea that leads inevitably to the reduction of the rights of each to zero. No, I mean the only kind of liberty that is worthy of the name, liberty that consists in the full development of all the material, intellectual and moral powers that are latent in each person; liberty that recognizes no restrictions other than those determined by the laws of our own individual nature, which cannot properly be regarded as restrictions since these laws are not imposed by any outside legislator beside or above us, but are immanent and inherent, forming the very basis of our material, intellectual and moral being — they do not limit us but are the real and immediate conditions of our freedom.” (M. Bakunin)

    • Shaw was Irish

  15. I’m not sure if this comment section is still alive; however I hope Professor Wray will see this as it is a concern that came up as I was reviewing all of the web pages I had time for about the Job Guarantee. I am in complete agreement with the discussion that shows a difference between workfare and Fair Work. The latter is the direct hiring of people in the job market to do work that is wanted and necessary and indeed some of which was already being done until, like since the beginning of our most recent great recession, the job market and the economy behind it began to wither and die on the vine. I fully support the idea of fiscal policy-deficit spending -when needed-that injects money into the economy in the way of hiring people who will then have paychecks they would not otherwise have. I think even if that moves the minimum wage up 20-30% that the private sector could hold up its end of the deal and fill in with more jobs as the economy began to grow in response to the creation of new jobs. I do have one major concern; that is the inability of Congress to design, to write, to do their homework in short and roll out a realistic, feasible program and not turn it into a fiasco by just doing something like saying “here’s what the problem is (with brushstrokes that are so minimal that hardly anyone can read them), here’s a newly created government administrator (who now has hardly any guidelines), problem solved.”

    To further explain this, which is I realize maybe is a political discussion, we can look at the failure of the War On Poverty instituted during the Johnson administration. However the problem I outlined briefly, which is really nothing more than bad law making, has plagued every fiscal policy instituted in modern history and is evident in all of the Obama Administration’s attempts to regulate finance and health care. And yes, I know the wretched specter of bribery (aka campaign funding) was ever present during the so called reform bills but that’s just another front we have to deal with in the struggle to re-institute democracy. We do have the Medicaid and Medicare programs to serve as examples despite their given inequalities and administrative issues. Those programs work fairly well and are mostly administered by state and local governments. I can see a day when municipalities, counties and states, taking federal guidelines as a pattern, would administer a jobs program that would put this country on the road to economic recovery and establish a vital, dynamic form of democracy.

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  18. Has the JG/ELR concept considered all expenses paid scholarship/grants as part of the “work” program for those who prefer school and would do far better behind a computer (long distance education) or in a classroom? Brainwork is hard too. Given the surprising inventiveness of children in science fairs and prisoner creativity (Birdman of Alcatraz), would it not be wise to include paid up schooling/research as part of JG even to the PH.D/post doc level? No telling who that 1 in a 1000 will be who’ll come up with a great idea that can move society forward and pay for the 999 others. But first we have to get over old fashioned, elitist thinking that rejects the average student and accepts only the straight-A type as worthy of subsidized further education. Anyone motivated can be creative if given a chance.

    • Vic: Yes it has. Many of the MMT academics have included such things in their proposals.

      At a more rarefied level, I am reminded of an article or interview of Alain Connes a few years ago. He compared the French academic system, which he felt superior to the US system, and more like the US system in the past, basically because the French & old US system was more full employment JG-ish. In the past, US academics, mathematicians who didn’t want to work on current fashions and publish could get jobs at state universities whereas now they have to publish or perish more than ever before, publish something on whatever is currently fashionable, and is likely less original. State Universities having been under attack in the USA for decades, as a recent article by Mike Konczal et al with a link posted here argues. IIRC, Connes believes this change in the USA has caused a discernable damage to mathematical research as a whole. So “No telling who that 1 in a 1000 will be who’ll come up with a great idea that can move society forward and pay for the 999 others.” is true – at any level.

  19. As someone who is…on the classic liberal side (Im hesitant to use libertarian) I have no problem with the JG, at least in theory. I used to support a friedman like lump sump/direct cash replacement of welfare as being more efficient and “market” friendly but I’m beginning to think a JG would be much better.
    I, and I think many rationale just misinformed people, was worried about waste and the $$ being used “well” and cutting welfare abuse but sincerely wanted the aid for the needy.

    Well, JG seems to be the most direct and efficient use of $ there can be, and we already spend the money on welfare…so I see no issue in spending the money to put people to work. After all, that is what conservative minded folk want, work. They hate “giving out” money and want to “throw the bums off and have em get jobs” so I dont see why a non ideological…conservative would be opposed to this. $$ is still being spent but on exactly what they want, people working! Sad that so many are entrenched in ideology, Im sure they dont want people working for the state…but in reality the jobs simply aren’t there and I think will be lesser in quantity and quality in the future.

    Unless I’m wrong, couldn’t other welfare be reduced as it may be less necessary with a JG? Also couldn’t the cash strapped states reduce their welfare since a JG wold reduce the need?
    Also by a super quick use of google, paying minimum for a year to the 14% or 22.7 mill “true” unemployed would still be LESS than all the spending on total welfare, I figure with all taken into account we can “break even” on welfare spending but done so with putting people to work.
    Is there any way to discuss some of the topics more in depth with a contributor to NEP? I have some questions and general interest in what I think is your guys true, non ideological solution.

    • vic marcucci

      Brian,
      I go along with JG only if school is considered “a job” that needs to be done also. Education is at least as important as physical work and some say mental work is harder –more exhausting. Scholarships for life should be part of the plan as automation and expatriation of labor overseas will cut into available work. But the mind is always available and a pretty good source of wealth production if we’d just let everyone embrace their passion intellectually. No telling what would come of it if education and computers came together in a big way as a matter of policy. I don’t see the private sector coming to the rescue in a big way to usefully employ millions of people who want to work (as student or laborer) if there’s no profit in it. This is something that will have to come from monetarily sovereign government.

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