MMP Blog #43: Job Guarantee Basics: Design and Advantages

By L. Randall Wray

Program Design. A JG or ELR program is one in which government promises to make a job available to any qualifying individual who is ready and willing to work. The national government provides funding for a universal program that would offer a uniform hourly wage with a package of benefits.  The program could provide for part-time and seasonal work, as well as for other flexible working conditions as desired.

The package of benefits would be subject to congressional approval, but could include health care, child care, old age retirement or social security, and usual vacations and sick leave.  The wage would be set by government and fixed until government approved a rate increase—much as the minimum wage is usually legislated.

The advantage of the uniform basic wage is that it would limit competition with other employers as workers could be attracted out of the JG/ELR program by paying a wage slightly above the program’s wage. It also ensures that all workers in the program are treated “equally” in the sense that their remuneration is the same.

It can be objected that a worker who loses an $80,000 a year job will not be as happy with the JG job as one who loses a $25,000 job. The higher income worker would eventually face difficulty maintaining her previous lifestyle and covering debts incurred when income was high. All of this is true.

In some sense, that is a “design feature” of the program. I do not say this callously. The idea is that we want those who can move out of the program to accept job offers in the private sector (as well as non-JG jobs in the public sector) as soon as possible. And we can certainly retain programs currently in place to help such workers (ie: help with mortgage payments) as they transition back into higher paid jobs. But we do not want to pay them high wages in the JG that would create disincentives to taking job offers in the private sector.

Finally, those who had high pay before losing their previous jobs at least had an opportunity to build a private cushion for such calamities. Those who have always been low wage workers never had that opportunity. Think about how they would feel working alongside other JG workers who receive higher pay simply because their former jobs were higher-paid.

So for these reasons, many of us who support the JG argue that on balance a uniform compensation package is best. If society then feels that losers of high wage jobs deserve special treatment, a separate safety net can be democratically approved. The JG program, itself, should not be complicated by introducing a variety of “means tested” benefits.

Again, this is in keeping with the general, “universal” design: take workers as they are, pay them equal wages and benefits for equal effort.

It is important here to add one more comment. Often critics will then start some complaint with “Well with the JG program, you cannot fire workers….” So let us be clear: the JG program only takes workers willing to work. Those that fail to work up to expectations get fired.

Last week in my response to comments, I did say that we must make accommodations: jobs must be designed to fit the workers. For example, if a vision-impaired worker cannot perform the tasks associated with a job that requires sight, the proper course of action is to offer a different job—not to kick the individual out of the program. However, a worker who habitually shows up late, or drunk, or who otherwise violates reasonable work rules will be subject to normal disciplinary action, including firing. The JG is not for everyone, and it is not welfare. It is a jobs program for those who want to work.

Program advantages. Benefits include poverty reduction, amelioration of many social ills associated with chronic unemployment (health problems, spousal abuse and family break-up, drug abuse, crime), and enhanced skills due to training on the job.

Mathew Forstater has emphasized how such a program can be used to increase economic flexibility and to enhance the environment.

The program would improve working conditions in the private sector as employees would have the option of moving into the program. Hence, private sector employers would have to offer a wage and benefit package and working conditions at least as good as those offered by the program.

The informal sector would shrink as workers become integrated into formal employment, gaining access to protection provided by labor laws. There would be some reduction of racial or gender discrimination because unfairly treated workers would have the JG/ELR option, however, the program by itself cannot end discrimination. Still, it has long been recognized that full employment is an important tool in the fight for equality.

Finally, some supporters emphasize that a program with a uniform basic wage also helps to promote economic and price stability.

The JG/ELR program will act as an automatic stabilizer as employment in the program grows in recession and shrinks in economic expansion, counteracting private sector employment fluctuations. The federal government budget will become more counter-cyclical because its spending on the ELR program will likewise grow in recession and fall in expansion.

Furthermore, the uniform basic wage will reduce both inflationary pressure in a boom and deflationary pressure in a bust. In a boom, private employers can recruit from the program’s pool of workers, paying a mark-up over the program wage. The pool acts like a “reserve army” of the employed, dampening wage pressures as private employment grows. In recession, workers down-sized by private employers can work at the JG/ELR wage, which puts a floor to how low wages and income can fall. We explore some details in the following blogs.

Concluding Notes. Last week there was a claim that “generous pay” in the JG reduces “job seeking” in the private sector. Let’s do a thought experiment. Say that the current low-paid job offer in the most disgusting type of work the private sector offers is $8 per hour before a JG program is implemented. To recruit a worker into the very worst job, that “worst firm in America” must offer $8.00 per hour before there is a JG.

Now we create the JG program so any worker can get $10 per hour. Obviously, the worst employer in America cannot hire anyone at $8.00 per hour, or even at $10 per hour. To induce a worker to leave the JG to get the worst non-JG job in America, the employer might have to pay $10.25 per hour, or even more. It is possible that given the JG option, the very worst employers in America would have to offer wages that put them out of business.

True enough.

But you can make the same argument about the minimum wage: firms that cannot “afford” to pay the going minimum wage cannot (legally) remain in business.

I cannot see this as a legitimate objection to the JG. It is progress.

But the more important point is this: with the JG in place, the program wage and benefits set an effective floor, an effective minimum wage. As Hyman Minsky used to always argue, without the JG the legislated minimum wage is a lie. The true minimum wage is zero—if you cannot find a minimum wage job, you get a zero wage. With the JG in place, the true minimum is the program wage (plus benefits).

And this program wage cannot be “market determined”. It must be socially determined: government offers an infinitely elastic demand for labor at the wage (plus benefits) it chooses to pay. It sets the wage as public policy, then hires all those who accept the offer of a job.

To get workers, the private sector will have to offer something better than the JG compensation package. It could be a higher wage, better benefits, better working conditions, or better opportunities for career enhancement.

How much will it have to sweeten the deal? It will depend on the job and the employer—but this is supposed to be something “labor markets” know how to do: compete for labor. No matter where we set the JG initially, the private sector will adapt—coming up with offers to induce workers away from the JG.

But, yes, some of the very worst employers in America will go out of business. Others will be incentivized to improve working conditions and perhaps to reduce workforces by switching production techniques (for example, using more machines and fewer workers).

There is nothing new in this. Markets react to rising wages by processes that have been familiar to economists for hundreds of years.

It is always remarkable how little faith our “free marketeers” have in the “invisible hand” of the market!

31 Responses to MMP Blog #43: Job Guarantee Basics: Design and Advantages

  1. How does the JG design avoid the ‘Elephant stepping on ants’ problem? One of the issues with government programmes is that they have a tendency to eliminate private sector operations inadvertently. Government running up a ‘training programme’ sounds great, unless you are a private sector training provider – in which case you lose your livelihood and disappear. Usually quietly and unlamented.

    It is good that the JG design eliminates ‘bad’ employers by price, but how does it avoid squashing the ‘good’ employers who happen to be, say, in the planting flowers business just as an army of JG workers turn up with their spades.

    Similarly how do you avoid locking out areas of the economy from private sector innovation because the JG workers are operating there? Or is that less of an issue than it might appear at first glance.

    • Neil,

      When introducing something like JG there are absolutely bound to be instances of JG schemes putting similar and existing types of economic activity out of business.

      There were numerous complaints in the 1930s from private sector contractors to the effect that WPA bridge and road building was putting them out of work. However, the important question is whether the MACROECONOMICS of JG holds up. If it does, then go for it: that’s what I say. As to the odd unfortunate microeconomic side effect, well you can’t make an omelette without breaking eggs.

      • JG should not impinge on similar existing types of economic activity. If we need more of such activity, simply tax it less, and you will get more of it, including more employment in that sector.

        The essence of JG is that it is for the workers who are unemployed even when the economy is as good as it can be without additional demand causing unwanted shortages and inflation.

        There are “always” such workers, because we “always” save some of our income, and thus cannot consume all that we produce. (See sectoral balance equations, including the idea that imports represent the savings of the foreign sector.) It is a mathematically inherent characteristic of our economic system.

        It is the responsibility of government, as the creator and sponsor of our economic system, to do something about these workers. Unemployment insurance is our current solution. JG is simply a better solution.

    • There is no reason that JG should cause government to create its own training programs when similar private sector programs exist. JG workers should attend appropriate existing private sector training programs. Training is an appropriate “fringe benefit” of a JG job, just as it is an appropriate benefit of a private sector job. JG workers might also use some of their incomes to buy their own training from the private sector, if they like it better than what their employer offers, just as many private sector workers do.

      As for planting flowers, or any other sort of public works program, if that is a good idea, then government should be doing it now, JG or not. If there are flower-planting firms in the area, then government should hire them to do it rather than sending public employees out to do it. This goes for building roads and bridges, and all the other sorts of things government does on a regular basis.

      If you think of JG in terms of these types of activities, then think “Why are we not already doing them? Why are the workers who do such things unemployed?” The answers are probably “Not enough budget” and “insufficient aggregate demand”. These situations are more appropriately addressed by better government fiscal policy, not by JG. We didn’t need a WPA bureaucracy, we just needed more spending on construction projects.

      Think now of Habitat for Humanity, or your local food bank. Plenty of homes need work, and plenty of hungry people need food distribution services. Why are we not doing those activities? The answer is that Habitat and the Food Bank would do more, lots more, if they had more labor available to them, but their labor force is volunteer labor. JG can turn idle (not volunteering) workers into paid workers, and still make them look and cost like volunteers to their employers. They “compete” with nobody.

  2. “Now we create the JG program so any worker can get $10 per hour.”

    Can I do another thought experiment.

    Why is it better to have a separate programme offering $10 per hour from public funds, and requiring that the private sector fund all the cost of a job if they want to bid away?

    In other words the JG wage ends when the individual transitions away from a JG job.

    Wouldn’t it be a better system for public funds just to pay $10 per hour for all jobs in the economy – essentially meaning that everybody working gets a ‘public’ JG wage all the time no matter where they are working (and it could continue into retirement). There would still need to be buffer jobs created, but it would mean that the ‘private’ wage top-up can then be bid down to zero. Which is what the private sector always wants anyway.

    • Interesting. But you’d lose a bit of the automatic stabilizing though?

      I mean, in a boom you would want these governmental “base payments” (JG) to decrease. With your scheme they wouldn’t.

    • If government funds all wages, that reduces the incentive for private employers to produce what the customer wants. In the extreme case, if an employer’s only cost is labour, and government funds the entire wage, the employer could get away with having employees doing nothing all day. That’s what I call Miss Allocation of Resources..:-)

    • In perusing the comment section of the MMT blogs if find you have very little that you can accept about the posts that are presented. Shall we just announce somewhere in general that you object to the whole idea of MMT and then you would not need to do any comments. Or just write-‘I object’ and be done. I would also add that you don’t really seem to respond to any one’s criticisms of your comments. Again, just state: ‘I object strenuously to the whole idea of this particular blog’ and be done. Instead you present picky, pointy little objections that are nonsense.
      To wit: ” that the private sector fund all the cost of a job if they want to bid away.” The private sector is not paying for this-taxes don’t fund government programs; if you had learned the lessons of the previous 42 blogs you would not be posting silly questions like that.

  3. Randy, I agree with about 90% of your post. But I have a couple of criticisms.

    You claim that JG employees act “like a “reserve army” of the employed, dampening wage pressures as private employment grows…”. Strikes me that JG employees are no more of a reserve army than are the unemployed.

    Of course JG employees are a BETTER RESERVE ARMY to the extent that JG improves employability. But the empirical evidence that I’ve come across is that public sector JG does not improve employability much. In contrast, temporary subsidised jobs in the private sector DO IMPROVE employability: which is one reason I favour extending JG to the private sector.

    My second criticism concerns your “concluding remarks”. You criticise the argument that generous JG pay reduces job search efforts by JG employees: you refer the fact that a JG wage of $10/hr makes it near impossible for regular employers to create $8/hr jobs. True, but in acting in this capacity, JG is bolstering or replacing minimum wage laws. And I don’t object to JG acting in this mode.

    But that’s not the ONLY effect of a generous JG wage. To illustrate, if someone normally expects to get a $12/hr job, the fact of making the JG wage $10/hr rather than $8/hr will reduce that person’s incentive to find the $12/hr job. I.e. any rise in the JG wage will reduce the incentive to find regular jobs: aggregate labour supply is reduced.

    That in turn is inflationary if the economy is at capacity: it puts a constraint on raising AD. In short, the more generous are JG wages, the more will JG jobs tend to be at the EXPENSE OF regular jobs.

    Indeed, taking things to the extreme, if JG wages are exactly the same as regular jobs for given skills and experience, then JG jobs will simply displace regular jobs on a one for one basis. That is why the VAST INCREASE in public sector spending over the last century had no effect on unemployment.

    I’m not saying that is clinching argument in favour of miserable wages for JG employees. I’m just saying we should be honest about the above unfortunate side effect of generous JG wages and no sweep the problem under the carpet.

    Lars Calmfors actually encapsuled the above point in his “Iron Law of Active Labour Market Policy”. This states that the unemployed cannot be attracted to JG type work by generous pay without there being a penalty in the form of JG jobs displacing regular jobs. I.e. if we want NO DISPLACEMENT, then we have to go for some form of coercion or workfare: “do this JG job else your benefit gets cut”.

    I think I published the same idea before Calmfors (20-30 years ago), but the name “Iron Law” is a nice name, so I’m happy to run with “Calmfor’s Iron Law”.

  4. Subsidies are part of our economic system. The banking loans system operates on a public/private basis with government as Lender of Last Resort and Deposit Insurance Schemes. Neil Wilson’s proposal of a public JG minimum wage plus benefits package for all willing to work is just another such economic demand stabilizer scheme.

  5. Philip Pilkington

    Well, that will be the end of call centers as we know them. The ones that are already outsourced (which is, all discrimination aside, extremely annoying) will remain outsourced. So, if you want to fix your internet connection you’ll still have to call India. But the ones that aren’t outsourced — the ones that hire ‘natives’ to try to sell you junk — will go the way of the dodo. I think I can live with that…

  6. It’s important to prepare for the right’s response to this idea. Here’s how they will likely respond:

    “This is Obamacare on steroids. In fact, it’s communism. Everyone had a job in the Soviet Union.”
    “Once the oil tycoons learn we are soon to have full employment, they will jack up oil prices to unimaginable levels.”

  7. Why is that the right are allowed to frame the jobs issue by insisting that only jobs that contribute to making a profit are the only “true” jobs? Point out that Banksters only make their profits because of a “Communist” provided safety net and the right starts to pretend the safety net can be removed but never does so in practice. If finance cannot be provided to oil the wheels of commerce without government involvement then why not basic well-being generally? It is afterall the regular injection of the “people’s” High Powered Money that keeps the whole system afloat anyway.

  8. “gaining access to protection provided by labor laws.”

    please train your JG workers to NOT ACCEPT an employment agreement that has an Arbitration Agreement included. an Arbitration Agreement TRUMPS State labor laws and ALL State enforcement is voided by the Arbitration Agreement. so the glorious perceived “protections” are null and void. these corporations twist a public benefit into a method that harms the employee and allows them to get away with bad behavior. employee beware!

  9. “In a boom, private employers can recruit from the program’s pool of workers, paying a mark-up over the program wage. The pool acts like a “reserve army” of the employed, dampening wage pressures as private employment grows.”

    Let’s grant for the sake of argument that this “reserve army of the employed” effect not only works, but works perfectly in preventing wage-price spirals.

    But suppose we have inflation at 2% per year, all from oil cost-push inflation. The government faithfully keeps the job guarantee wage rate at a nominal rate of $10/hour.

    After 12 years of this, the job guarantee’s nominal $10 wage is only $8 in real terms. At that point, what does the government do?

    If the government resists pressure to increase the job guarantee hourly wage, then after a period of time, the job guarantee begins to fail at its own goal of providing a livable wage, and it gradually becomes less clear that it is really an improvement. This obviously works the same way (only faster) if you initially set the job guarantee wage less generously. After 36 years, the job guarantee’s nominal $10 wage is only $5 in real terms. Calling this state of affairs full employment may be technically true, but is a misnomer.

    If, on the other hand, the government raises the job guarantee wage, then we get a positive demand shock. If the government raises the job guarantee wage, then rather than the job guarantee dampening wage pressures, it feeds and ratifies them. So a private sector demand-push wage-price spiral develops, and the the government keeps raising the job guarantee wage along with it.

    Thus, if there is cost-push inflation, the job guarantee has to choose between the two competing objectives of full employment (with a non-declining real wage) and price stability.

    What do you think is wrong with this story?

    • Peak oil is wrong with this story.

      What you describe might happen for a while longer, but eventually oil prices will become high enough that alternatives become attractive, and then oil’s effect on overall prices will be reduced.

      Even then, something else may emerge that we don’t know about now. Things always work out differently in practice than in theory, and adjustments to the JG wage/benefit package should not be ruled out. Indexing would probably be self-defeating, though.

      • I just used oil as an example, because increase in the price of oil in the 1970s is the most familiar example of cost-push inflation.

        My question is not dependent on the specific example of oil, and you can plug in any example of cost-push inflation or market power that you want.

        • Oh, sorry, I thought you chose oil because MMTers generally say that the only reason for inflation since 1971 has been the oil cartel raising their prices, not because of any excessive demand situation. Oil is unique in that its price affects the prices of everything else that moves. A takeover of banana production by a cartel, and massive price increases for bananas, would not have the same effect.

    • Mattay, I agree: I don’t think JG damps wage increases any more than unemployment does – at least not for the reason given by Randy, which was simply that “private employers can recruit from the program’s pool of workers”.

      JG does improve the unemployment / inflation relationship in that JG improves the employability of JG workers. But the empirical evidence I’ve come across shows that private sector JG is better in this regard than training or public sector JG.

  10. I am interested in how the JG stabilizes wage rates. If full employment tends to run up rates, how does the JG hold them down? As people come off the JG they will be going to a higher wage job, by difinition. It doesn’t seem much different than a reserve stock of unemployed excepting one thing you havn’t said yet. Perhaps the implementation will result in a one off inflationary boost of some magnitute. That will be an impediment to getting support for the porgram. And there are others that can be ginned up.

    If you are serious about the $10 per hour plus benefits, there will be a lot of small businesses in trouble, I suppose. But, it may be time to go for a living wage for a change.

    Neil, you know I don’t care if they are planting flowers or growing puppies, they need to pay a living wage or just stop. :) (ps, thanks for the link on the accounting.)

    • Why does a teenage full-time student living with his parents need a living wage in his after-school part-time job?

      There are many reasons why a potential employee might prefer a job that pays less than the JG wage. We should not limit their choices.

      • I suppose you could allow a min wage lower than the JG wage. Probably won’t be too many takers.

  11. “In a boom, private employers can recruit from the program’s pool of workers, paying a mark-up over the program wage. The pool acts like a “reserve army” of the employed, dampening wage pressures as private employment grows.”

    Future scenarios must be distinguished between when private sector hiring is smaller than pool of JG workers willing to transfer, and when private sector hiring is higher than the pool of willing transferers. The JG is being proposed with a lot of work and schedule flexibility that money cannot easily replace, so a potentially large minority will want to stay with the JG. There will be a point when AD recovers to a point where private sector hiring is higher than pool of willing transferers. At this point, the JG wage ceases being a wage dampener.

    I’m not saying this is an awful scenario, but I think more discussion needs to be made on how price stability will be achieved at that point without sacrificing too much of the new private sector growth.

    • I think the situation you describe would be one in which the economy is considered to be “overheating”, and government should then raise taxes in order to dampen demand. Besides raising the bidding for JG recruits, companies would also be raising their offers for employed workers changing jobs, and the reason is probably that they cannot make as much stuff as they could sell, and they’ll be raising their prices, too.

      Or, perhaps, companies could offer their employees some schedule flexibility, or other benefits, in lieu of wage increases.

      The design point of JG should be a high level of employment, and a small pool of JG workers. It is not a fix for inadequate aggregate demand (yes, it helps, but that is a side effect – having 16 million people in the JG pool is not the optimal way to sustain aggregate demand), it is a way to ameliorate one of the ill effects of a free market system, which by its nature requires that there be some workers not able to find employment, even when the economy is very good. We cannot save and also consume everything we could have produced if everyone was working, therefore there will be workers left over after we’ve spent all that we want to spend.

  12. @admin – Is not allowed to post links?

  13. One thing that I don’t think is addressed is above is that unlike a minimum wage, it is possible for firms to pay less than the JG wage. For instance, a JG job might be to clean up trash while a non-JG job might be to be a greeter at Wal-mart. In this case, there are probably quite a few people who would rather stand around talking to people than picking up trash. Wal-mart could probably get away with only paying these people $8 per hour. So while you’ve set a wage floor for crappy jobs, a pleasant job might have a lower going rate.

    The question I have is in regards to the wage paid for the JG and it’s real value over time. Mattay addressed this above. You obviously can’t peg the JG rate to in index or it would be self-defeating. So, at what point does the real wage of the JG become so low that it is no longer a livable wage? And how to we adjust the wage up in a manner that it doesn’t cause price shocks? I personally would love to see a JG type program, but need some more convincing as to the real impacts.

  14. What sort of support do we need to provide to small businesses? I can see some difficulties for firms with only a few employees. While I disagree with a full subsidy of the wage for all private employers, I’m thinking that there might need to be some sort of subsidy for small firms. Maybe something along the lines of subsidizing a portion of wages or benefits for firms with less than 5 or 10 employees. Then gradually fading those subsidies out as the number of employees increases. My concern is for small mom-and-pop type operations that maybe need to hire 2 or 3 folks, but wouldn’t be able to afford $10/hr plus benefits. The main problem would most likely be the benefits portion as they are at a disadvantage to larger employers who can get better group rates. Of course, If we could institute a JG, we might also have a shot at single-payer healthcare which would alleviate my concern.

  15. I think that the J.G is a much needed idea. I hope the proponents receive the recognition they truly deserve.

  16. I’ve been pondering Neil Wilson’s idea that the JG wage should form either a full wage or a base component part of any worker’s wage irrespective of whether they work in the public or private sector. With the base component part idea the thought occurred to me that you can invert the concept and see it as just the same as the tax free dollars, or tax allowance, part of a wage except that it’s actually positively contributed by the state and the rest of any additional wage is contributed by the employer. Indeed if there was a move to a progressive consumption tax no income tax would need to be paid on the employer’s contribution ( I have in mind a modified version of Robert Franks “anti-positional good” consumption tax).

    All that then remains is for society to decide what percentage of money injected into an economy should be allocated to producing public goods and services and what percentage to private ones. To avoid the unsatisfactory Neo-Liberal approach society has no alternative but planned public education to give a wider needs based perspective. The logic of this is because the majority of us are too busy pursuing individual or family purposes we usually fail to see the wider picture particularly collective needs for public infrastructure and how some individuals through no fault of their own are thwarted in achieving their purposes. We will probably have to “nudge” a little and provide financial incentives to encourage individuals to examine the wider picture but the better economic and social outcomes would justify the subsidies.

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