In this piece, I examine why. Bear with me because I will tie together four threads. First, we have the return of the stagnation thesis; Second there’s growing evidence that the US labor market is not recovering, and many are arguing that this is the “new normal”; Third, the Fed has (re)discovered what many of us have known all along: low interest rate policy does not stimulate investment; and Fourth, our “thought leaders” are finally discovering that Americans want government to do something about involuntary unemployment. All of these threads strengthen the case for the Job Guarantee.
1. Stagnation Thesis
Let’s start with the mainstream’s recognition that our economy is stagnant. Larry Summers argued that all we’ve got left is bubbles. (see here. ) Over the past 3 to 4 decades we turned the economy (and government) over to Wall Street, which lives on speculation in assets. Some call it the “casino economy” (following the1986 book by Susan Strange); many others call it “financialization” (Rick Wolff); and Minsky called it “Money Manager Capitalism”. We won’t go into the details here, but I’ve come to believe that this is the “natural state” of modern capitalism. Rudolf Hilferding (Finance Capitalism) and Thorstein Veblen (Vested Interests and Business Enterprise), and later John Kenneth Galbraith (The Great Crash) diagnosed the earlier phase of the disease—the tendency for finance and monopoly interests to “sabotage production” and sink the economy as they suck the life out of it in the form of rent. We temporarily bottled the Blood Sucking Vampire Squids (thanks to Matt Taibbi for the term that will forever stick) with the New Deal and reforms that strangled finance. Our Golden Age of Capitalism began, and lasted until the Nixon or Reagan years, depending on how you measure its end.
The most useful account of the stagnationist tendencies of modern capitalism comes not from Summers or even from Alvin Hansen’s postwar warnings. Rather, it was the life-long work of two economists in Oregon, Harold Vatter and John Walker. (For much more, see a paper I wrote in 2007, as well as an earlier paper on secular stagnation that blames demand constraints, co-written with Marc-Andre Pigeon.)
I’ll be brief. The problem is that capital is too productive for its own good. The production-enhancing qualities of investment exceed its multiplier effects on aggregate demand. The problem grows over time, and is compounded by the tendency to replace workers (who earn wages used for consumption) by machines (that don’t earn wages). As I’ve said before, this progress eventually but inevitably leads to machines making machines. By the late 19th century we already had a problem. It was relieved by the growth of government through WWII and the early postwar period. The federal government grew faster than GDP until around 1960 (in other words, as a percent of the economy, the federal government increased steadily); for the next decade and a half, it was the turn of the state and local governments to grow faster than GDP. It is not a coincidence that as state and local government faltered in the mid 1970s, the Great Stagnation began, only temporarily relieved by President Reagan’s military build-up designed to ruin the USSR.
In truth, Western capitalism’s success has always been about War–Real Wars like WWII and Vietnam, as well as the threat of war with the USSR, which allowed us to build up a modern education system (National Defense Student Loan program), fund and build a modern highway system (Dwight D. Eisenhower National System of Interstate and Defense Highways), and put Americans on the Moon (to beat the Ruskies there, as Kennedy said not ”first but, first and, first if, but first period!”). Our other big government programs have similarly been “wars” (War on Poverty, War on Drugs, and the infamous Carter “MEOW”, moral equivalent of war on inflation), but have never enjoyed the financial support needed to replace Real War as an economic stimulus to growth. The Wall Street Bubbleonia economy is not really capitalism at all—it is a return to Feudalism with blood-sucking bankers rather than feudal lords.
Some years ago there was a book that proclaimed “The End of History”, which got the title almost right, but got the thesis precisely wrong. Unless the West can find an alternative to War around which to build its economy, we are toast. But that’s a big topic for another day.
Let me instead quote from John Cassidy’s piece on the Hansenian-Summerian thesis:
Hansen, who argued in the late nineteen-thirties that “secular stagnation” had befallen the U.S. economy, turned out to be wrong. But that had a lot to do with a big Keynesian stimulus program otherwise known as the Second World War, which served as the precursor to three decades of widely shared prosperity. Absent another military conflict, it is hard to see where a comparable burst of capital investment and innovation is going to come from. The online revolution, after a promising start, has so far proved disappointing. The green-energy revolution hasn’t really got going. There doesn’t appear to be the political will to seize upon a rebirth of America’s old cities and invest in the “new urbanism.” Unless something else comes along, it looks like we will be left with the old formula of cheap money and rising asset prices. And, as Summers points out, we all know where that leads.
He means the Summerian Bubblicious economy, of course.
Now the traditional view is that the solution to rotten economic growth is to stimulate investment spending. If you are a Keynesian, that raises Aggregate Demand through the multiplier, increasing employment and growth. If you are neoclassical, more investment means more productive, increasing Aggregate Supply and directly raising economic growth. (In neoclassical theory, employment takes care of itself—no matter what—so long as you have flexible wages you will always be at full employment of labor.) How do you stimulate investment? Well, both sides agree that tax cuts to business will do it. But if your government is broke, you cannot use fiscal policy. And if you do try it anyway, creating a budget deficit, that pushes up interest rates and “crowds-out” investment. Exactly how much crowding out you get depends on some elasticities and hence how curves slope—all highly esoteric and contentious, but not worth discussing here. To avoid the nastiness of deficits, you can just use Monetary policy: lower interest rates to stimulate investment. You get both higher Aggregate Demand and higher Aggregate Supply so our “scissors” intersect somewhere further to the right and we all celebrate growing productivity and income and consumption.
Nice, huh? The Fed has now been running rates at just about zero for half a decade; Japan has been doing it for over two decades. There’s virtually no investment, no shifting of Agg Demand or Agg Supply curve, rotten growth, few jobs created, and relative stagnation. It doesn’t work.
2. Investment and Interest Rates
Why not? Here’s Keynes’s answer: Firms produce what they think they can sell, and unless they think their sales will be higher through a long series of tomorrows they are not going to increase productive capacity by investing. Tax cuts will not get them to invest more, unless there is some magic fairy dust that makes them believe tax cuts will increase sales into the long distant future. Low interest rates, now, won’t get them to increase investment unless they think that some magic will cause their sales to rise into the deep blue yonder. It takes a lot of fairy dust sprinkling to delude firms to invest just because interest rates and tax rates (on them) come down.
The followers of Keynes—not to be confused with those who call themselves Keynesians—have always rejected the idea that interest rate policy matters much for investment. They have never bought Bernanke’s belief that promising ZIRP for years and years and pumping banks full of excess reserves would get banks to lend and firms to borrow to invest. Won’t work, we said. Didn’t work, everyone now knows.
The Fed, itself, has provided empirical support for the obvious.
A fundamental tenet of investment theory and the traditional theory of monetary policy transmission is that investment expenditures by businesses are negatively affected by interest rates. Yet, a large body of empirical research offer mixed evidence, at best, for a substantial interest-rate effect on investment. In this paper, we examine the sensitivity of investment plans to interest rates using a set of special questions asked of CFOs in the Global Business Outlook Survey conducted in the third quarter of 2012. Among the more than 500 responses to the special questions, we find that most firms claim to be quite insensitive to decreases in interest rates, and only mildly more responsive to interest rate increases. Most CFOs cited ample cash or the low level of interest rates, as explanations for their own insensitivity. We also find that sensitivity to interest rate changes tends to be lower among firms that do not report being concerned about working capital management as well as those that do not expect to borrow over the coming year. Perhaps more surprisingly, we find that investment is also less interest sensitive among firms expecting greater revenue growth. These findings seem to be corroborated by a cursory meta-analysis of average hurdle rates drawn from firm-level surveys at different times over the past 30 years, which exhibit no apparent relation to market interest rates.
While the authors were surprised by the results, no one who had not been indoctrinated in mainstream economics would be surprised to find that firms “expecting greater revenue growth” invest more regardless of interest rates, and firms that don’t expect “greater revenue growth” will not invest even at zero interest rates. Why on earth should 2 or 3 or 4 hundred basis points of interest rate hikes matter to a firm that expects higher revenue growth. Now, to be sure, it might matter to rent-seeking Blood-Sucking Vampire Squids on Wall Street, but not to anyone who’s actually engaged in capitalistic undertakings. Sales will always trump interest rates (within the normal range of fluctuation).
I’m not saying that if the Fed does a “Volcker” (raising overnight rates above 20%) firms won’t delay investment (and home-buyers won’t delay home purchases), but that is highly unusual. If 20% rates do become the “new normal”, investment will eventually get accustomed to even that. (Americans are generally oblivious to the fact that 20% or 30% borrowing rates are relatively “normal” in some other countries.) To be sure, if rates are 20%, expected revenue growth will need to be high—i.e. at least 20%–and that is accomplished through inflation. Higher rates imply that inflation must be higher or debt cannot be serviced. (Conventional wisdom gets the causation precisely reversed, somehow believing that high inflation raises nominal interest rates, when in the real world it works the other way around. Another topic for another day.)
3. The New Normal in Labor Markets
OK so we’ve got stagnation, punctuated by bubbles that temporarily raise economic growth only to be punctured by financial crisis and recession. For normal folk, the fall-out is unemployment. Indeed even the “recoveries” fueled by the bubbles create very few jobs. Over all of 2013, the recovery created only an average of 184,000 private sector jobs monthly. (See Daniel Alpert’s excellent analysis. ) While the unemployment rate fell, that was due mostly to declining labor force participation rates (the non-institutionalized civilian labor force participation rate continued to fall in 2013 from 63.6% to 62.8%). Indeed, if participation rates had not fallen, the unemployment rate would be stuck at over 9% in spite of the new jobs.
To make matters worse, job creation might be slowing: only 74,000 jobs were created in December. Further, as a recent Treasury Report warned: “From February 2010 through October 2013, the government sector’s job losses totaled 608,000. Over that same period, State and local job losses numbered 450,000, including 354,000 local government jobs (of which 243,000 were in local education).” Worries about government finances are forcing cutbacks—in education of all places!—creating headwinds that will slow private sector growth.
And it gets worse. As Dan Alpert reports, the private sector is largely creating jobs in the low wage sector: “These sectors: Retail Services, Administrative and Waste Services, and Leisure and Hospitality Services, together comprise about one third of all private sector jobs in the U.S., but were the source of 57% of jobs created in the first half of the year (nearly 70% in Q2, alone).” In December all of the private jobs created were in the low wage sectors, while the high wage sectors lost 8 thousand jobs.
So we’ve got, at best, “jobless growth” as a normal feature of the economy over the past 4 decades. Recessions officially end long before jobs are recovered (see Stephanie Kelton’s graph here. ) And just when the labor markets begin to improve, the whole thing collapses in a burst bubble and we begin again. There’s a “ratchet effect” in which more people lose jobs in each downturn, and relatively fewer retrieve jobs in the upswing. With the notable exception of the Clinton boom, the business cycle peak is increasingly impotent at creating jobs and raising the labor force participation rate. Pundits now claim, after the Global Financial Crisis, that this is the new normal—we must expect permanently lower labor force participation rates because our economy will never produce enough jobs for the new entrants, let alone for those who’ve been looking for jobs for months or years. Add to that increased mechanization or robotization plus foreign competition plus government jobs downsizing and you see why there’s little hope for America’s job seekers.
Some attribute declining labor force participation rates (LFPR) to demographics: the wave of Baby-Boomer retirements mean that we’ve got a lopsided population pyramid (heavy at the top with aging geezers and few of working age lower in the pyramid to take their place). There is a bit of truth in this, but it is vastly overstated. The fall of the labor force participation rate since 2007 is far too great to attribute it to demographic changes that move almost glacially. And given that most Americans approaching retirement age do not have sufficient savings to augment Scrooge-ish Social Security, there’s no reason to believe that most seniors are ready for life without paid work. As Dan Alpert reports:
“The LFPR is now back to levels not seen since the late 1970’s, before the surge of women entering the labor force… One would expect that, if the LFPR were declining so precipitously because more people were retiring “voluntarily” that the employment/population ratio (“EPR”) for the 55 years and older category of employees would be declining as well. Not only has it not done so, but the EPR for workers aged 55 and older was, on average, higher in 2013 than it was during the Great Recession and any other time prior thereto. Older Americans are hanging on to their jobs for dear life in the post-recession world of diminished or non-existent retirement wealth. While data is not yet sufficient to prove empirically that older workers are proving less rigid when it comes to accepting lower wages in order to keep working (often through taking positions for which they are overqualified), we suspect this is the case.”
Finally, note that all these figures are for the civilian non-institutionalized population—those who are over age 16, not in school, and not in prison. Rotten labor markets tend to increase the institutionalized population—reducing the population on which the LFPR is calculated. The US is, of course, incarceration-happy, throwing millions into jails and prisons each year. And (but this is not a bad thing) rotten labor markets tend to be good for college enrollments. Still, that means we’ve got a lower percent of our population working to support those who are not: “Relative to total population, at the end of 2013 we had 118.5 million full time employees, and 26 million part time employees, supporting a nation of 316 million people.” (Alpert, cited above) In other words, just 37.5% of the residents of the USA are working full-time to support the other 62.5%. While the Chinese workers are taking on some of the burden right now to produce for Americans who cannot get work, we could have a higher living standard if we got more Americans working full time (and it is risky to continue to count on Chinese generosity!).
(It’s ironic that our deficit worriers—prodded by Pete Peterson—go on and on about “infinite horizon” red ink in Social Security’s future 30 or 50 or 100 years down the road due to the aging of America. They want to cut government spending now to reduce federal budget deficits today in order to somehow improve Social Security’s finance in the distant future. But the real solution to rising numbers of retirees—both today and in the future—is to get more people working. Cutting government spending and deficits now only reduces the number of people working to support those who are not working.)
The real problems are slow growth and jobless growth. Even if we could get GDP growth up a notch or two, that would not create enough jobs. And for the reasons discussed above, there’s nothing to sustain GDP growth at the 4 to 6 percent rate that would be sufficient to create investment opportunities to act on the supply side and consumption spending to act on the demand side. We could imagine growth of government that could raise aggregate demand enough to induce investment, but it won’t happen. Too many in Washington believe Uncle Sam is broke, so he needs to tighten his purse-strings.
And to ramp up government, Uncle Sam needs something to spend on. In the past we relied on Military Keynesianism—we would find an excuse to invade or a worthy external threat that required massive spending at home: falling dominoes, a missile-gap, an interstate highway system, a Presidential promise to reach the moon by the end of the decade. But with the fall of the Soviet Union, and the conquer of Europe by the Euro, we find it hard to find a challenge worth rising to. President Obama tried to raise the specter of China, but the main threat Americans see is that China produces increasingly desirable products at ever-lower prices. The losses of the job-losers are trumped by the cost savings of the greater number of consumers so it is hard to mobilize the population with that threat. Unfortunately, the President has no idea what he’d mobilize the Americans to do, even if they could be convinced there is a Chinese threat. In short, the perceived dangers of low cost imports that Americans want to buy is no substitute for the Red Menace of the 1950s and 1960s in terms of creating a national interest in economic growth. And that leads inexorably to….
4. The Job Guarantee
The recipe for restoring prosperity is to create jobs and raise wages at the bottom so that sales to consumers will grow. We do not want to rely on another debt-fueled consumption boom. We cannot rely on investment because even in the unlikely event that confidence fairies could convince firms to invest more, the multiplier impact on aggregate demand would soon be outstripped by the reality that the higher productive capacity effect on aggregate supply would outstrip growth of demand. In any event, private-sector-led expansions invariably run out of steam and often end in a financial crisis due to the build-up of debt.
To break this cycle we need for government to play a bigger role. Government-led growth actually improves the financial strength of the private sector, and it does not need to rely on confidence fairies as it directly results in more jobs, higher incomes, and more sales.
There is growing recognition that direct job creation by government should be part of the plan.
Jesse Myerson got the ball rolling with his piece, Five Economic Reforms Millennials Should Be Fighting For, with the Job Guarantee first in his list:
“Guaranteed Work for Everybody
Unemployment blows. The easiest and most direct solution is for the government to guarantee that everyone who wants to contribute productively to society is able to earn a decent living in the public sector. There are millions of people who want to work, and there’s tons of work that needs doing – it’s a no-brainer. And this idea isn’t as radical as it might sound: It’s similar to what the federal Works Progress Administration made possible during Roosevelt’s New Deal, and Dr. Martin Luther King, Jr. vocally supported a public-sector job guarantee in the 1960s.
A job guarantee that paid a living wage would anchor prices, drive up conditions for workers at megacorporations like Walmart and McDonald’s, and target employment for the poor and long-term unemployed – people to whom conventional stimulus money rarely trickles all the way down. The program would automatically expand during private-sector downturns and contract during private-sector upswings, balancing out the business cycle and sending people from job to job, rather than job to unemployment, when times got tough.
Some economists have proposed running a job guarantee through the non-profit sector, which would make it even easier to suit the job to the worker. Imagine a world where people could contribute the skills that inspire them – teaching, tutoring, urban farming, cleaning up the environment, painting murals – rather than telemarketing or whatever other stupid tasks bosses need done to supplement their millions. Sounds nice, doesn’t it”?
His post set off a welcome firestorm of discussion and he appeared on every talk show worth tuning-in. The Huffington Post ran a survey to find out which of the five reforms would garner the most support. The Job Guarantee was the run-away favorite:
“Guaranteed Work for Everybody
Guaranteeing a job to every American was by far the most popular of Myerson’s “5 things,” with 47 percent saying they favored guaranteeing a job to every American adult who couldn’t find one in the private sector, and 41 percent saying they were opposed to the idea. People under 30 were about as likely as respondents overall to support guaranteed jobs for all Americans. Even so, people were divided along socioeconomic lines on whether they would favor this reform. Fifty-nine percent of people with a household income of less than $40,000, but only 36% of those making more than $100,000, said they favored guaranteeing every American a job. Sixty-seven percent of blacks, but only 43 percent of whites, said they agreed. Sixty-five percent of Democrats said they support guaranteeing a job for everyone, but only 39 percent of independents and 35 percent of Republicans agreed.”
Predictably, high income and white conservatives opposed the program, while a large majority of those with lower income, Democrats, and blacks supported the program. Those who are least affected by the tragedy of enforced joblessness are the ones who are least sympathetic to a job guarantee. Note, however, that when we break the poll’s results down further, we find that only a small portion of the population strongly opposes the JG—just over 25%:
Would you favor or oppose a law guaranteeing a job to every American adult, with the government providing jobs for people who can’t find employment in the private sector?
Strongly favor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22%
Somewhat favor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25%
Somewhat oppose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13%
Strongly oppose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28%
When you dig even deeper, the results get even more interesting. Fifty percent, or more, of respondents in every age group except those over age 65 either strongly favor or somewhat favor the JG. Only 9% of Democrats and 11% of blacks strongly oppose the program. Among those with middle incomes ($40-80 thousand annually) only 30% strongly oppose the program. By region, the Northeast and Midwest have strong majorities supporting JG; in the South the JG almost captures a majority (48%) with only the West disapproving (34% strongly oppose it and 17% somewhat oppose the program).
There are two surprising things about these results. First, the question asked posed a program in which the government provides jobs. Given the supposed national hostility to government, it is remarkable that the question elicited such favorable responses. Second, it is surprising that with such high support among Democrats and blacks, we have not seen leaders pushing for something that their constituencies clearly want. Indeed, in my own personal contacts with elected Democratic party representatives and with “progressive” Washington think tankers that supposedly push programs in the interests of low income households and African Americans, I’ve encountered almost universal hostility to the JG. I’ve been told point-blank that there’s no support in Washington for job creation by government.
These poll results, as well as the interest in the piece by Myerson, belie the official Washington position.
(For an example of Official Washington’s opinion of the JG, see the ferocious reaction of Matthew Yglesias, the appointed spokesperson for beltway “liberal” thinking, who argues that it’s just too much trouble to create jobs for the jobless. That line of thinking could, of course, have been applied to the Women’s Suffragette movement or the Civil Rights movement. Thank goodness progressives used to think it “worth the effort” to do something progressive.)
I think that if the JG proposal were explained more fully, it might have garnered even more support. While the Federal Government needs to fund it, there’s no reason why we need to have the government create and manage all the jobs. Myerson linked to the excellent piece by my colleague, Pavlina Tcherneva. Pavlina proposes to fund the Job Guarantee through the Federal Government, but the program would be run by not-for-profits: she “proposes a bottom-up approach based on community programs that can be implemented at all phases of the business cycle; that is, a grass-roots job-guarantee program run by the nonprofit sector (with participation by the social entrepreneurial sector) but financed by the government.” I think this is the right way to begin; if the nonprofits cannot create enough jobs, then we let state and local governments also propose projects. And if that still doesn’t eliminate involuntary joblessness, then the Federal Government will add more projects.
Matt Bruenig continued the thread at Demos: “There are lots of things you can say about the idea of a public job guarantee. But one thing you can’t say is that it is an idea with no pedigree in this country.” He found an excellent 1967 government report that proposed a Job Guarantee. What I found interesting is that it perfectly paralleled Hyman Minsky’s proposals from the same period. (See Minsky’s book here. )
As I’ve written before, Minsky argued that the Kennedy-Johnson War on Poverty would fail because it did not put job creation as the central component. (See the paper co-authored with Stephanie Kelton. ) Minsky argued that any serious “war on poverty” would provide a job to anyone who wants to work. He also recognized that the program wage would become the “effective minimum wage” because no one would work for less. In this manner, not only would a JG ensure full employment, but it could also be used to ensure decent wages and working conditions. You will find both of these arguments in the following report. I’m quoting two sections from the report because they are powerful arguments for the JG. While this report focuses on the need for rural jobs, the situation in our major cities is today similar to that discussed in the report.
Read this, and then compare it to the drivel that comes out of Washington today:
THE PEOPLE LEFT BEHIND, A REPORT BY THE PRESIDENT’S NATIONAL ADVISORY COMMISSION ON RURAL POVERTY. BY BREATHITT, EDWARD T. NATIONAL ADVISORY COMMISSION ON RURAL POVERTY. PUBLICATION DATE SEPTEMBER 1967;
OUR NATION IS PLAGUED WITH RURAL POVERTY EXTENDING THROUGH MOST AREAS OF OUR COUNTRY AND ENCOMPASSING SOME 14 MILLION RURAL PERSONS. THIS TOTAL NUMBER WOULD BE EVEN LARGER IF SO MANY RURAL PERSONS HAD NOT MIGRATED INTO THE URBAN AREAS OF OUR COUNTRY. THE RURAL POOR POPULATION IS CHARACTERIZED BY- -LOW INCOME, A HIGHER UNEMPLOYMENT RATE (4 PERCENT NATIONALLY AND 18 PERCENT FOR RURAL AREAS), LOW EDUCATIONAL ATTAINMENT, POOR HOUSING, HUNGER, MALNUTRITION, AND A HIGHER INFANT MORTALITY RATE THAN AMONG THE LEAST PRIVILEGED GROUP IN URBAN AREAS. THE PRESIDENT’S NATIONAL ADVISORY COMMISSION ON RURAL POVERTY HAS CHARTED A COURSE TO ELIMINATE RURAL POVERTY, AS NOTED IN THE FOLLOWING RECOMMENDATIONS – -(1) THE U.S. SHOULD ADOPT AND EFFECT A POLICY OF EQUAL OPPORTUNITY FOR ALL PEOPLE, (2) THE NATIONAL POLICY OF FULL EMPLOYMENT, INAUGURATED IN 1946, SHOULD BE MADE EFFECTIVE, (3) OUR FEDERAL GOVERNMENT SHOULD ASSURE ALL PEOPLE ENOUGH INCOME FOR A DECENT LIVING, (4) MANPOWER POLICIES AND PROGRAMS SHOULD BE REVAMPED, (5) RURAL EDUCATION SHOULD BE IMPROVED, (6) BETTER HEALTH SERVICES WITH FAMILY PLANNING SHOULD BE PROVIDED, (7) AN IMPROVEMENT SHOULD BE MADE IN RURAL HOUSING, AND (8) MULTI-COUNTY DISTRICTS SHOULD BE FORMED TO PLAN COOPERATIVELY AND COORDINATE PROGRAMS FOR ECONOMIC DEVELOPMENT.
[The following is from pp. 19-21 of the report]
The Commission recommends- –
3. That the United States Government stand ready to provide jobs at the national minimum wage, or better, to every unemployed person willing and able to work.
The rural poor want work. They want to earn their own living, to be respected by their families and communities as responsible and capable people. There is plenty of work that needs to be done in rural areas. Evidence indicates that many of the rural poor could be gainfully employed by private businesses, provided they are given adequate training to qualify for these jobs. Many others could be hired in public service jobs, to repair the dilapidated houses of the rural poor, or to build them new houses; to improve water and sewerage systems, or to build new systems where none exist today. Hospitals and schools need more workers. Highways and parks need to be improved and maintained. The rural poor can do many of these jobs, while earning a reasonable income. The rural poor want jobs in their home community, or within reasonable commuting distance. Many of them do not mind moving to a small or moderate-size city for work, but they are often fearful of moving to the large metropolitan centers. In small cities, “There is less to overcome, less to unlearn, less to apologize for not knowing.” Public service employment is not new to the United States. During the mass unemployment of the 1930’s, as many as 3.7 million persons at a time were employed through emergency programs of the Federal Government. Today’s public service employment programs are much smaller in scope, currently employing only 500,000 persons. As compared with the emergency programs of the 1930’s, today’s programs are quite different in their general approach, in that they are aimed specifically at those persons and areas that have been left behind in an otherwise prosperous economy. Today’s programs are designed not only to provide valuable public service in the nation’s schools, parks, hospitals, highways, and elsewhere, but also to provide education, training, and work experience to the unemployed and underemployed poor. The vast majority of Americans think public service employment is a good idea. In a recent survey, 66 percent of whites and 91 percent of Negroes favored “setting up large-scale Federal work projects to give jobs to all the unemployed”, as one way to resolve race problems and prevent racial riots. We are encouraged by three programs administered by the Bureau of Work Programs, U.S. Department of Labor: Operation Mainstream, New Careers, and Neighborhood Youth Corps. These are dual-purpose programs, providing training as well as public service employment.
One half of the Operation Mainstream funds go to rural areas. This program’s goal is “permanent jobs, at decent wages, for poor adults with a history of chronic unemployment.” Projects included in Operation Mainstream are designed to “improve both rural areas and towns or particular low-income areas.” For instance, the projects may seek to decrease pollution, improve parks, rehabilitate housing, or aid in extending education, health, or social services. To be eligible for this program a person must be at least 22 years of age, must be unemployed, and must come from a family with annual income below the poverty line as developed by the Social Security Administration. At the present time, the number of public service employment opportunities available under the Operation Mainstream program is about 8,100—a mere drop in the bucket. This program is providing valuable experience in recruiting and employing the rural poor, but it should be greatly expanded.
New Careers is a new program designed mainly for urban areas. Only 12 percent of the funds go to rural areas. This program is similar to Operation Mainstream, in terms of objectives and eligibility requirements. New Careers projects are intended to improve physical, social, or cultural conditions. The program is designed to meet critical local labor shortages in such essential fields as health, education, and public safety. Professional jobs are restructured so that routine elements maybe taken over by the trainees. Priority is given to projects that, while easing the workload of professionals, will lead to permanent jobs, with opportunities for advancement, in fields that will benefit the poor. New Careers projects were recently funded to provide work experience opportunities for 2,706 poverty level adults in 17 States. This is a very modest start, but the program is being steadily expanded. These projects are purposely located in communities where maximum prospects for future career opportunities exist. Some are located in large metropolitan cities, such as Hartford and Minneapolis; others are in smaller cities such as Roanoke and Durham, where the rural poor may have a better opportunity to participate.
Neighborhood Youth Corps
The Neighborhood Youth Corps (NYC) is the young person’s counterpart of the New Careers and Operation Mainstream programs, designed to in-crease the employability of persons under 22 years of age from poor families. The projects help young men and women to gain work experience and earn income. The young people receive special training and career-related services that will develop their maximum occupational potential and encourage them to stay in school or return to school. Work assignments in both the public and private sector provide experience in many fields including education, conservation, health, food service, and recreation. This program includes more than 1,000 active projects, mostly in urban communities. About one third of the NYC enrollment opportunities are rural. The Neighborhood Youth Corps is a promising form of public service employment for the rural poor, in that emphasis is given to preparing the poor for a more productive career.
An Encouraging Start
These three programs are an encouraging start. One undesirable aspect of these programs, however, is that the Social Security Administration poverty lines are used as an eligibility requirement. These poverty lines were designed for other purposes, and are not appropriate or sufficiently accurate to be used for determining eligibility in antipoverty programs. Many people are in great need even though their incomes are a few dollars above some arbitrary poverty line. Furthermore, we favor programs that create an atmosphere of personal dignity. The onus of “poor man’s jobs” must be avoided. Otherwise the effectiveness of the program will be greatly reduced. Many of the poor may be ashamed to participate, and those who do participate may be deprived of the self-esteem that is so essential to human dignity and well-being. It is the intent of the Commission’s recommendation that public service employment be expanded sufficiently so that plenty of opportunities are available to the poor, even without making poverty eligibility a requirement. Public service employment programs must be expanded to blanket the entire labor force, guaranteeing everyone a job who wants one, without regard for age, sex, race, color, creed, or residence. One of the most difficult obstacles to expansion of public service employment projects in rural areas is lack of transportation. Many of the rural poor, particularly those in isolated areas, find it very difficult to commute daily from their homes to these jobs. In chapter 10, the Commission proposes a publicly supported rural transportation system to help overcome this difficulty.
Universal Minimum Wage
It has long been the policy of this nation to establish a national minimum wage. However, the minimum wage legislation has covered only certain occupations. The occupational structure of the rural areas is heavily weighted with jobs not covered by the minimum wage. Consequently, rural America has been largely bypassed by the piece-meal coverage of minimum wage legislation to date. Less productive workers are often forced out of the covered occupations, thus swelling the ranks of the unemployed or the underpaid labor force in jobs not covered by the minimum wage laws. This has the effect of further depressing wages in the uncovered occupations. This Commission firmly believes it is unjust and unethical for society to permit one segment of the population to become affluent at the expense of other segments.
The Commission recommends–
4. That the wages and hours provision of the Fair Labor Standards Act be extended uniformly, with the same minimum wage and over-time pay, to all occupations. These recommendations should be put into effect as quickly as feasible, while giving local areas reasonable time to adjust to the higher wage rates.
Minimum Wage and Guaranteed Employment
A minimum wage law does insure that a worker will be paid at the statutory wage rate, but it does not guarantee that he will be employed. The law makes it illegal for an employer to pay less than the minimum wage. On the other hand, some of the workers, particularly the less productive ones, are likely to be laid off and may not be able to get a job at the minimum wage. Thus, application of the minimum wage alone could worsen the condition of the least productive workers. This Commission believes that an extension of the minimum wage, as recommended here, should be accompanied by a Federal program of guaranteed employment. Together, these two recommendations would have the effect of pushing the wage rate in the unpleasant and undesirable occupations above the statutory minimum wage. This is as it should be. If we as asociety want these jobs done, we should expect to pay reasonable wages, through higher prices if necessary. As soon as a Federal program of guaranteed employment at the national minimum wage is adopted throughout the economy, the minimum wage legislation will automatically become redundant. All employers will have to pay the minimum wage or better to attract any workers, because any job paying less would go unfilled.
[The report cites the following, which I have not seen: GARTH L. MANGUM. GOVERNMENT AS EMPLOYER OF LAST RESORT. (Unpublished paper.)]