Responses to Blog #43: Job Guarantee Basic Design

By L. Randall Wray

Thanks for the comments, many of which get ahead of the story.

I’d like to remind readers that we are ADDING the JG onto the EXISTING system. So the correct comparison is NOT against some UTOPIAN IDEAL in which we all live like Wall Street’s finest in some sort of Ayn Rand blissful Fountainhead. But RATHER to compare the existing system against one in which the JG is added. I realize this is a difficult mental gymnastic. I hope this will be clear as I respond to seven comments (the others concern upcoming topics; indeed, even these really are about topics we have not explored in detail but they are worth discussing).

Neil: Government programs eliminate private sector operations; they lock out private sector innovations.

A: We have not yet discussed what JG workers will do. As much as possible we will want to do things that are not currently done by the private sector. Now, you could make the implausible argument that the private sector WOULD do everything at SOME price. That then leads to the “BIG” (basic income guarantee) or “Pump Priming” approach: just funnel money into everyone’s bank account until they can afford everything they want—and at some price the private sector will supply it.

Right. We will get very high inflation long before we create jobs and increase the supply sufficiently to satisfy all demands.

I will be posting soon on the (quasi-religious) belief that the private sector left to its own devices is “innovative”. False. Almost all innovations of any importance come from the public sector. The private sector innovates “pet rocks” (older readers will remember those). Forget about it. Private sector innovation is a pimple on the proverbial elephant’s rearend.

Golfer: No need to create training programs if they exist in the private sector. Go habitat for humanity!

A: On the job training should be a part of every JG job. We are not talking about training programs for jobs that do not exist. Provide the job, and enhance skills on the job.

Go habitat for humanity! (I agree. This is a good example of what we want.)

Neil: Why not just subsidize all jobs at $10 per hour, rather than creating new jobs through JG?

A: Why not just add a zero to every paycheck? Essentially the same. No jobs will be created, no living standards will rise. Indeed, we’d likely lose jobs at least for a while to imports.

Ralph: Are JG workers better than the reserve army of the unemployed and future imprisoned?

A: Of course. You’d rather hire out of street gangs? What kind of employer are you? JG workers show up for work, learn skills on the job, demonstrate their willingness to work. You’d prefer the prisoners?

As for “studies show employers don’t want these workers” that is too vague to respond to. I suspect most of these studies are of workfare programs that are means tested. In otherwords, you take poor people, take away their welfare, force them to work at very low pay, then expect employers to rush in to hire them? Of course that will not work. JG is not means tested. It is not work-for-the-dole. You are comparing apples and oranges.

Mattney: With inflation over time, the real wage in the JG declines.

A: Yes. We will need periodic readjustments upward. Like minimum wages. But with more political pressure.

Rougue: If aggregate demand increases too much then the JG declines (workers hired out into the private sector), so it becomes too small to hold down wage demands.

A: Right. We still have all the usual ways to fight inflation: raise taxes, reduce other kinds of government spending, impose rationing, adopt wage and price controls. We can increase the JG pool as necessary by slowing aggregate demand.

Adam: Some firms will get away with paying less than the JG wage. What about supporting small business?

A: Yes, you will still have the job scams in the back pages of Rolling Stone whereby you actually pay to be employed in the music industry (negative wages). No problem. The JG adds an additional choice: work for pay. If you prefer to pay to work, or to work for pay below the JG wage, go for it!

Like the myth about private sector innovation, there is another myth about small business as “job creators” and so on. I see no reason to subsidize them. Let Darwinian selection work.

Conclusion: Again, I am always amazed at how little faith people have in “markets”.

Oh no, adding a JG will kill small business! It will squash innovation! Firms will lose business to the JG!

Oh my! What will all our poor businessmen do?

I’ve got much more faith in them. We can add on the JG and the JG wage. The private sector will adapt—just as it has a million times before.

The Public Sector sets the terms and the environment within which the private sector operates. That is always true. The JG is a very tiny addition to what we’ve got, if you think about it.

Rules, laws, regulations, public infrastructure, public education system, publicly supplied healthcare (even in the US! Which is primitive beyond belief). You can argue that all these impact our “job creators”.

Oh no, if we provide a public city street, that takes away the possibility of a private toll road!

Free inoculations against childhood diseases destroy profit opportunities!

Laws against spousal beatings reduce the demand for leather straps!

All of these reduce profit opportunities for some firms, but vastly increase them for others. And increase the quality of life.

Have a little faith.

22 Responses to Responses to Blog #43: Job Guarantee Basic Design

  1. JG is not means tested. It is not work-for-the-dole.

    I think this is a very important point to emphasize, not just rhetorically, but in the actual design of the program. Programs for poor people (or, more generally, for economic losers) tend to be poor programs–poorly funded, indifferently administered, reluctantly supported by the populous at large.

    There is no reason the JG must fall into this trap. Much of the work that needs doing–that ther is a public interest in doing but that goes undone today, because there is no profit in it–is intrinsically rewarding. It is in other words often the sort of work that more people would likely choose to do, if they could at least make a modest living doing it. This motive ought to be encouraged as much as possible. It is the sort of work that many people do now choose, when their financial and life circumstances allow it.

    Such workers are, under our current arrangements, called “volunteers”. We should strive to keep that honorific title in the case of JG workers as well. (Consider using an existing program name, already associated with the spirit of volunteerism, such as Americorps.) And moreover, we should strive to make the actual experience of seeking and getting a JG job as similar as possible to the act of volunteering one’s time and services.

    Volunteers are not put in a position of feeling compelled to take any particular job–they freely choose the commitment, not only to volunteer, but to volunteer for a particular thing. They frequently, e.g., seek out opportunities to contribute their time and energies to particular causes, or particular communities. The job-matching function of the JG should seek to emulate this kind of ‘choice’ as much as possible.

    In addition, it’s important to realize that some (perhaps many?) volunteers also in a sense ‘compete’, only not for greater pay. They compete for something like recognition. It would not be bad to consider this in the design of the program as well. Public honors and awards for outstanding service do not add to inflationary pressures, but they might help create an environment in which the pool of JG workers could, in any given year, include a fair number of economic ‘winners’ as well as economic ‘losers’.

    • You triggered an idea in my mind. In the olden days, IBM would give awards each year to top performers. The very best could brag about how many of these they had achieved in their careers. I’d be surprised if other companies didn’t do similar things.

      JG could recognize top performers somehow, in a way that would be indicative to a potential employer of their outstanding performance. If someone were to choose a “permanent” JG-volunteer career, it would be a source of personal pride and satisfaction for them as well.

  2. In other words, participation in the JG should be, in an experiential and social sense, as much like participation in, say, the Peace Corps, and as little like participation in a workfare program, as possible. A good goal would be to make the program so socially prestigious that having spent some time in it is considered a significant advantage when applying to elite universities.

    If successful, this type of program design would, in a sense, lead to a certain amount of ‘hiring off the top’ of the private sector–but not in the sense of hiring away would-be private sector employeesj, by out-bidding the private sector on price (a la ‘military keynesianism’). Rather, the program would effectively remove a certain number of workers every year (those most susceptible to the motivations of intrinsic and social, as opposed to monetary, rewards) from the competition for private sector wage incomes. This would provide the price anchor function without the stigma of ‘last resort’ hiring.

  3. “Neil: Why not just subsidize all jobs at $10 per hour, rather than creating new jobs through JG?”

    Thanks for the response, but it looks like I may not have got across what I meant.

    The subsidy is in addition to the Job Guarantee system you propose.

    You still have the actual Job Guarantee – which is required to ensure that there are more jobs than there are people – and to anchor the minimum job standard. So you still create the jobs.

    But the state continues to pay the JG wage whether the individual is in a Job Guarantee role, or a private sector role or retired. Consider it a sort of ‘Universal Pension’ – paid to everybody engaged in ‘useful work’ unless exempted by reason of age or infirmity.

    Private sector firms are then ‘subsidised’ based on the number of people they engage, but it reality they are freed to chase right to the bottom and make their private sector top-up wage as close to zero as they can through competition.

    What I suppose I’m asking is why do we need to knock the ‘income guarantee’ bit of the Job Guarantee off when the individual transitions to the private sector?

    • Neil, Your proposal has similarities to an idea put by the economics Nobel laureate Edmund Phelps. He advocated a subsidy of all low paid labour. See:

      http://www.columbia.edu/~esp2/lowwage.pdf

      An advantage of his proposal compared to yours is that to a large extent it’s only the low paid that need subsidising. E.g. subsidising the employment of partners in law or accountancy firms is a waste of time. The latter “wasted” is not for the most part a resource cost: that is, it does not involve the consumption of real resources which are then wasted. Nevertheless, collecting money from taxpayers and administering employment subsidies both involve administration costs (maybe 5 to 10% of turnover). And that is a real cost.

      Another way in which both your idea and Phelps’s waste real resources is that they reduce the incentive for employers to get useful work out of employees who would have been employed anyway. (I made that point a couple of days ago on this blog).

      The system I favour – the system that I think JG should be turned into – would involve even less waste than Phelps’s idea. That is, I favour subsidising the unemployed into work with existing employers (public and private), plus I think it is possible to distinguish quite well between those who would have been employed anyway, and those who would not.

      • “An advantage of his proposal compared to yours is that to a large extent it’s only the low paid that need subsidising”

        That creates an unnecessary claw back ledge with massive marginal tax rates. Completely pointless.

        Just create a new zero and leave it at that.

        “Nevertheless, collecting money from taxpayers and administering employment subsidies both involve administration costs (maybe 5 to 10% of turnover).”

        Not if it is universal. File a timesheet on the Real Time PAYE system and the employee gets paid by the state. No cost over the current system, and exactly the same way that you’d pay the Job Guarantee.

        “they reduce the incentive for employers to get useful work out of employees who would have been employed anyway.”

        Don’t see that. The chase to the bottom will just mean that the margins on the business are thinner There is no difference between selling at £9000 with wages of £8000 and selling at £9000 with wages of £0 but sales tax of £8000.

    • Neil,

      With your version of the proposal, an important stabilizer is lost: countercyclical fluctuations in government JG-spending.

      With the original scheme, JG-spending *decreases* in booms and *increases* in slumps. It thereby works as an automatic stabilizer, promoting Price Stability ™.

  4. Randy, You claim that I said “studies show employers don’t want these workers”. I don’t remember saying that, plus on looking thru earlier comments I can’t see where I said that.

    Next, you claim at the start of your post above that JG will be ADDED to the existing system: the suggestion presumably being that JG jobs will tend to add to aggregate numbers employed. You also say that JG should be voluntary or that there is no workfare or “work for dole” element. Those two statements are incompatible, and for the following reasons.

    1. If the economy is working at below capacity, the best cure for unemployment is a straight rise in AD (and/or expansion of the regular public sector). I.e. JG is not the best solution to unemployment in this scenario. So let’s forget that scenario and assume the economy is at capacity.

    2. Where the economy is at capacity, if people are ATTRACTED to JG rather than coerced to do JG work, that inevitably REDUCES the relative attractions for them of regular jobs. Thus aggregate labour supply to the regular jobs market is reduced. And that is inflationary, which means AD must be cut (and/or regular public sector jobs cut).

    This is simply Calmfor’s Iron Law of Active Labour Market Policy coming into play. As to whether one regular job is destroyed for each JG job created, or whether the trade-off is less disastrous, no doubt that depends on the exact design of the JG system. But certainly the idea that JG can be made voluntary is not entirely compatible with the idea that all JG jobs are extra jobs.

    Next, in reference to the European studies I referred to you say, “I suspect most of these studies are of workfare programs that are means tested. In other words, you take poor people, take away their welfare, force them to work at very low pay, then expect employers to rush in to hire them? Of course that will not work. JG is not means tested. It is not work-for-the-dole.”

    First, as regards poverty, making JG relatively coercive or including a workfare element does not apply just to the poor. If the rule is “do this JG job else your benefit gets reduced”, that applies those who recently lost well-paid jobs just as much as it does the less well paid.

    Second, re your claim that a workfare element discourages employers from taking on JG employees, this does not seem to have been the case in Switzerland. See:

    ftp://repec.iza.org/RePEc/Discussionpaper/dp154.pdf

    Incidentally there are several other studies into the effect of European JG type systems which I listed here:

    http://ralphanomics.blogspot.co.uk/2012/01/effect-of-temporary-subsidised.html

    As regards the “means testing” to which you refer, I can’t see any objections means testing. The various JG or quasi JG systems that have operated in Britain over the last three decades or so have all been means tested to much the same extent as unemployment benefit is means tested. That is, someone with four children gets far more benefit (or “wage” when doing JG work) than someone with no children. I have no objections to that, and presumably you don’t either.

    But perhaps what you mean by “means testing” is different to what I mean.

    • I think he said that JG AS A PROGRAM will be added to the existing system, not that all JG jobs are added jobs, or even that nobody would prefer JG to a regular job. If a few do, then so what? We need to raise aggregate demand now anyway, so we just raise it a little bit less. When we get to a happy place, and if automatic counter-cyclical adjustments are insufficient to offset whatever economic cycles remain, then congressional action would be required, just like today.

      There are dangers, though, to making the package too attractive, and they do involve excessive aggregate demand and inflation. Nothing we aren’t politically prepared to deal with already (even when there is no danger).

      Implementing JG should raise AD simply because JG will pay more than unemployment benefits, and especially more for the long-term unemployed whose benefits have expired. If it were done in an economy that was already at full employment, or NAIRU, or whatever you want to call it such that the added demand would cause intolerable inflation, then JG would have to be accompanied by a tax increase in order to neutralize its macroeconomic impact. Fine. It still has positive social impacts and automatic adjustment impacts that make it worthwhile. And now is not one of those times, where a little added demand would cause intolerable inflation.

      • Golfer1John,

        I agree that JG adds to AD to the extent that the JG wage is more than benefits. But therein lies a problem: the more attractive are JG jobs, the more such jobs will be AT THE EXPENSE OF regular jobs for reasons I gave above in answer to Randy. That makes the “positive social impact” you refer to look doubtful.

        JG will also raise AD to the extent that JG schemes employ resources other than recently unemployed and relatively unskilled: i.e.to the extent that JG employs capital equipment, materials and permanent skilled labour.

        But sticking with the assumption I made in answer to Randy, namely that the economy is at capacity, those “other factors of production” cannot be ordered up from, or withdrawn from the regular economy, else inflation ensues. Therefor AD must be paired back. Or as you put it, a “tax increase in order to neutralize its macroeconomic impact” would be needed. So the “positive social impact” looks even more doubtful.

        Put another way, I suspect the merit in JG is not that it raises AD. The merit is that it expands the number of unskilled people employed relative to other factors of production. But that merit, i.e. encouraging employers to take on more unskilled employees can be done via the Edmund Phelps subsidy I mentioned above (or my variation on the Phelps subsidy). Plus the latter two subsidies get the unskilled into forms of employment where the ratio of different factors of production are more or less normal, thus output from those employees will be higher than on JG schemes.

    • I am having difficulty calibrating what you say. On 1, actually, I think when unemployment is high is when we want the JG. Nothing says we cannot spend on infrastructure, if that is thought needed. What would be your proposed solution here?

      On point 2, employers can attract JG people to work for them by paying a higher wage than the JG wage. Still, there is nothing forcing them to work, when they think the work is not worth the risk or difficulty. Do you want it to be some other way? I think there are ways to stem inflation if that becomes a problem, as Randy has suggested.

      I don’t know what the “Iron Law” is so you got me there. But the idea is not to destroy jobs but to create a buffer at the lower wage rate. Also, I am not sure what you mean by “compatible” jobs, and JG are not “extra” jobs. They are jobs for people who would otherwise be unemployed like the twenty million or so we have now, most of whom have no supplemental insurance at all.

      I also don’t think we need to force anyone to work. That way leads to, well, insert here…. And we don’t need means testing. And we don’t need to subsidize businesses to take on anyone. That way leads to lobbyists, consultants and cronyism. (Yet there are a few non businesses where I would subsidize. I will save that for another day.) This is supposed to be a free market. All I want from the program is jobs, enough to take the unemployed off the street.

      I don’ t mean to be insensitive but perhaps you are overthinking it, or I don’t understand the program. In the end we can make it however we like. I would like it simple as possible, to lower the administrative regulations and cost.

  5. I am very much in favour of the job guarantee element of the MMT approach. I wonder if those of you more knowledgeable in economic theory and practice have considered the jobs guarantee from a marxist economic perspective. I am in middle of David Harvey’s Enigma of Capital. One of the major points he makes is that in a capitalist system capital has to grow (he cites a rate on average of 3% of GDP per annum), and therefore capital is constantly seeking new avenues for growth. When capital comes against a barrier to growth, we get crises (not always financial crises). He talks about the tension between labour and captital, ie capital can’t grow without demand provided through labour wages, but labour wages also take away from capital growth. My question is, would a jobs guarantee put so much power in the hands of labour that it might have an unintended negative effect on the growth of capital? Could the jobs guarantee inadvertently lead to different kind of capital crisis? I ask this as Wray makes it clear that the Job Guarantee adds onto the existing system, which is of course, a capitalist system.

    • It’s not just David Harvey who claims that the capitalist system has to continually expand else it’s scuppered. This idea is extremely popular amongst Marxists, and it’s a load of rubbish, far as I can see. If technological improvements ceased and GDP per head remained constant for the next century, I totally fail to see why that would be a problem for free markets or the capitalist system.

    • Marx and the people who continue to cite him don’t have much to offer. The “capitalist” system is perfectly capable of shrinking. Nobody wants to see their wealth shrink, of course, and so they try to find productive uses that will maintain and increase it. There is definitely a problem with the central banks taxing labor through inflation, but that is a simple conflict of interest and not a mathematical problem. MMT won’t help you there — read Rothbard, Hayek, Mises.

      The barrier to growth is land. Speculation in land value checks both labor and capital. Taxing away that speculation lowers the cost of accessing land which is a boon to labor. It also prevents capital from being parked on unproductive assets (except government bonds, of course) and leveraged against them.

      Best book on classical micro is still Progress & Poverty by Henry George:
      http://schalkenbach.org/library/henry-george/drake-p+p/pchp3.htm

      Why anyone would even consider something like the JG without first having some form of land value tax in place is beyond me. It ignores the root of the problem and is bound to make the situation worse.

  6. Touché. Everyone’s comments rejiggered to ask the same point but be more agreeable. Clever.

  7. Let me start by saying that I fully support a JG and my questions are not coming from a desire to antagonize, but from a desire to more fully understand unintended impacts. I worry about impacts the JG would have on other progressive ideals. I’ll ignore being called Adam as I’ve been called far worse. (Abram is like Abraham with 2 less letters. Thanks mom and dad for giving me an obscure name.)

    My purpose in pointing out that there could be opportunities for firms to pay less than the JG wage was not a criticism. In fact I think it’s a plus. In stead of setting a minimum wage and making all firms stick to that wage, I just wanted to point out to critics that for some work that is enjoyable or offers other fringe benefits, the going rate might actually be lower than the JG wage. Unlike a set minimum wage this allows more flexibility from the firms perspective and can help to keep prices down for some industries. For example, in college I worked at a movie theater. The two biggest benefits were watching free movies as well as getting to watch new movies before the general public. They paid exactly minimum wage. Being a teenager, I was more interested in the perks than the actual wage. They could have paid me $2/hr (minimum wage at the time was $5.25) and I would have still worked there.

    Secondly, my question about small business. My point here was that under our current insurance (scam) system smaller employers would be at a distinct disadvantage to large employers under a JG regime. My concern isn’t so much in creating jobs but with promoting entrepreneur-ism. I think everyone should have an opportunity to start their own business if they want. Not because I think that will create more jobs, but because I think it provides a higher quality of living than having to go work for “the man.” I’d like to see more mom-and-pop shops not for any economic reason, but because I think people should be able to work for themselves. I concede your point that the market will adapt, I just don’t want to see small business put out of business because of the insurance portion of the JG. This is one reason why I fully support single-payer healthcare as that removes the liability from the firm.

  8. I do think the wage could be automatically adjusted. Have it grow at the real GDP growth rate + 2%. (nominal + 2% – inflation). So in a low inflation growing economy their wage grows with everyone else’s, but the wage won’t create a hyperinflationary spiral.

    • GDP can grow, through either technology or though expansion of the labor force, without anyone’s wage increasing. In fact, average wages might even decrease while the economy is growing. Indexing JG to real GDP might give JG wages a bigger boost than private sector wages.

      The JG wage/benefit package should be changed as needed by a deliberate process, not by any indexing scheme. I’m sure hordes of economists would have recommendations for Congress to consider.

      • Should have specified per capita. Mean wage growth would work too.

        Things like the minimum wage will grow in spurts and not provide consistent value if they’re not adjusted automatically. Likewise it will likely be neglected over long stretches of time, and since the increasing income disparity is gradual it is allowed to happen. In a few decades we’ll have another crisis and it will be too low to matter.

        The deliberative process is always there if we decide it is too generous or stingy, but what should happen by default is it should provide a consistent living if the economy allows it.

  9. Neil assuming I’ve understood you correctly I think the merit of your thought experiment that every worker should have the base JG wage paid to them by government irrespective of doing public or private sector work and subject to top up for skill sets and/or demand is that it helps take the perception sting out of the silly four legs good two legs bad argument. For example, the campaign rhetoric of Ronald Reagan saying the last words anybody wants to hear are “I’m from the government and I’m here to help” contrasted with the Banksters rushing for a government bail-out when the Credit Crunch hit. It then becomes a matter for society to democratically decide through planning what the allocation target should be for the percentages of money in circulation used for public and private sector provision of goods and services. Of course, such an allocation target can only ever be provisional because of the need to respond to Minskian economic cycles. Also the provision of public goods and services can of course continue to be subject to competitive tender. Finally, the additional merit of your proposal is that it moves society closer to the understanding that there is an interdependent continuity between government and non-government creation of money, that effectively there is just one money and not two and failing to restrain hyper-inflating Bankster’s money creation powers leads to economic dysfunction.

  10. The French city of Nantes is creating a virtual currency, the Nantos.

    http://www.psfk.com/2012/03/virtual-currency-france.html

    I’m wondering what you guys think of it.

    Thanks,

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