A Global Marshall Plan for Joblessness?

By Pavlina Tcherneva
(Crossposted from INet)

Global unemployment is expected to surpass 200 million people for the first time on record by the end of 2017, according a recent ILO study, and limitations of official statistics suggest that the problem is much larger . As conventional measures increasingly fail to produce tight labor markets and jobless recoveries become the norm, economists grapple with this new reality by calling it secular stagnation and by adjusting upwards the rates of unemployment deemed ‘natural’ — but the human, social and economic costs of this growing problem are rarely considered in economic modeling.

The Problem: A Global Unemployment Epidemic

Mainstream economic theory considers some level of unemployment to be ‘natural’ (i.e., unresponsive to policy remedies without creating some other problem like inflation), but it largely ignores the harsh human, environmental, and economic costs of unemployment. In fact, some of the best work on this question comes from disciplines outside of economics.

It’s not hyperbole to note, for example, that unemployment kills. Literally. Research shows that one in five suicides is related to unemployment, and joblessness causes 32–37 percent excess mortality for men. And while for women the impact is less clear, we know that there are robust and lasting negative effects from unemployment on social participation and social capital – all prerequisites for a fulfilling and productive life at home and in the workplace. The deep negative impact of unemployment on individuals’ mental and physical health is well-established. And joblessness has been found to have strong scarring effects on life satisfaction.

The link between crime and unemployment is also well-established. Certain criminal activities vary with the business cycle, and studies have found significant and sizable impact of unemployment on the rates of specific violent and property crimes. The connection between youth unemployment and crime is particularly troubling in the context of the ILO’s findings that 74 million young people are unemployed globally (one third of their overall global unemployment estimate). Other studies suggest that the actual number of jobless youth around the world may be six or seven times the ILO estimates.

Unemployment doesn’t just harm the unemployed. It also harms their children and families. It exacerbates infant mortality, depression, alcohol consumption, and the spread of infectious disease. And joblessness is a root cause of human/child trafficking and global sexual and labor exploitation.

This list only scratches the surface of the insidious effects of unemployment. While the ‘natural’ unemployment rate is embedded in virtually every forecasting model used by government and industry, none of them account for the extraordinary social and economic costs of the epidemic that this ‘natural rate’ actually represents.

The Solution: A Global Marshall Plan for the Unemployed

Because the social and economic costs of unemployment spread and reproduce in complex and pernicious ways, it ought to be treated like an infectious disease. The policy response should aim at inoculation against unemployment, not at countering its effects.

Today, when governments tackle the issue they focus on counteracting its impact after mass layoffs have already occurred. Monetary and fiscal measures are fine-tuned to produce investment-led growth, but they are usually too weak and always too late.

But instead of accepting rising levels of unemployment, a preventative policy of inoculation is needed, which avoids accepting unemployment as natural in the first place. Such a policy requires providing decent jobs at decent pay to all who want to work on as-needed basis: A Global Marshall Plan for the unemployed.

As economists rediscover the limits of monetary policy, the policy discourse is shifting. Calls for strong fiscal policy intervention are coming from unlikely places. And while some countries cling to austerity like lovers in a dysfunctional relationship, a new era of fiscal policy activism is near.

Whether by deliberate policy design or by necessity, governments will have to respond to the looming economic, social, political and environmental challenges by using their fiscal powers. Preferably, this would happen by design. Otherwise, it will arrive in the form of inadequate ad hoc emergency measures.

This proposal is for a coordinated approach in the form of a Global Marshall Plan for the unemployed that tackles a wide array of global problems by deliberate and direct action, and by mobilizing the planet’s most abundant resource – labor.

No workfare, no bullshit jobs, no compulsory work, no digging holes. A global Marshall plan would offer employment opportunities to the unemployed in every country, while addressing country-specific problems. As the world faces the consequences of climate change, the Marshall Plan can be the big-push policy that puts the unemployed to work in a Global Green New Deal program. Whether it involves green projects, infrastructure projects, community projects, or care projects, there is no shortage of projects that need doing.

The private sector will continue to serve as the engine of growth, but the capital development of the economy depends both on the private and public sectors. And the Global Marshall Plan will serve as a global employment safety-net for anyone who has been left behind and is looking for work.

Currently most countries provide some unemployment benefits to the jobless. It is time to rethink and modernize the welfare system and switch from an unemployment safety-net to an employment safety net. As market economies move through the economic cycle, so would people – from the Marshall Plan programs to private employment and vice versa, as needed. Thus the Marshall Plan will act as a preventative program that does not allow joblessness to develop on a large scale.

Such a policy is not only a better countercyclical stabilizer than conventional fiscal measures; it also inoculates the global unemployment epidemic and prevents all of the associated costs we already bear.

Can Trade Be an Alternative?

Globally, the pro-employment policy du jour is export-led growth. Traditionally pursued to promote industrialization, today many developing countries and even industrial giants such as Germany and Japan rely on exports to compensate for lower domestic demand. In the U.S., President Obama has launched the first ever national plan to increase exports in the name of job growth, the National Export Initiative (NEI).

One of the first lessons learned by introductory students in economics (and evidently quickly forgotten after graduation) is that benefits from trade are reaped in conditions of full employment. Since for every net exporter there is a net importer, in the absence of global full employment trade will necessarily produce winners and losers. Job gains in a net-exporting country will correspond to job losses in a net importing country. It is impossible to tackle unemployment on a global scale by pushing export-led policies around the world. Instead, we should be devising policies to produce and preserve full employment in conditions of free trade.

Remembering the Havana Charter

That full employment is a prerequisite for free trade was well understood in the immediate postwar era, when the Bretton Woods system created the IMF and the World Bank. The third organization to complete the new global financial architecture was the International Trade Organization (ITO). The ITO was established by the Havana Charter, the final act of the United Nations Conference on Trade and Employment held in Havana, Cuba, 1947-48.

The very first chapter (out of nine) in the Havana Charter dealt with the issue of employment. Articles 2 and 3 articulated the “Importance of Employment, Production and Demand” and the “Maintenance of Domestic Employment”, respectively. The Articles outlined the necessity of attaining and maintaining full employment by each nation in conditions of free trade. While the U.S. led the initiative, the ITO eventually failed due to weak Congressional support. As a result, the modern financial architecture has no comparable institution that explicitly addresses unemployment and underemployment that arise from trade.

The maintenance of full employment was the mandate not just for individual nation-states but for the global community. Today, not only do we lack labor standards and policies as outlined under the ITO, but we urgently need a set of binding environmental standards as well.

Completing the International Financial Architecture

In that context, creating a Global Marshall Plan for the Unemployed would complete not only the global safety-net, but the global financial architecture as well. The Plan could be funded by an international institution. Short of supplanting it with an international clearing union as in Keynes’s bancor proposal, the responsibility would fall on individual nation-states to institute a national employment safety-net. Additionally, the WTO could mandate that all trade agreements contain provisions requiring governments, labor, and firms to cooperate in devising plans for additional job creation that fully offset job losses from trade. The task is to produce permanent international infrastructure and policies that generate and maintain full employment over the long run.

To be sure this is a tall task. However, if the U.S. leads the way by re-embracing and re-envisioning the New Deal model for the modern day and instituting such an employment policy, the rest of the world will undoubtedly follow. Every nation is already paying for the enormous costs of unemployment: not only for the costs of unemployment insurance and other income support, but importantly for the higher associated health costs, lost output, stunted growth in children, family disruptions, lost social capital, increased crime and incarceration, deteriorating communities, political instability, human trafficking, and migration.

The Marshall Plan for the Unemployed is undoubtedly the fiscally responsible policy approach, as it eliminates these costs and generates positive social and multiplier effects.

In 1948, against all odds, President Truman pushed for a sizeable program, which helped end the economic crisis in Europe. There was little political will. The conversion to peacetime production in the U.S. was not easy. In 1948, the economy was sliding into its second post-war recession. Unemployment at home temporarily soared, food shortages abounded, and policy makers advocated austerity. The country had just emerged from a period of extraordinary deficit spending to fight WWII, and many feared that the Plan would finally “bankrupt America”. But the Marshall Plan passed.

The price tag: $5 billion dollars in 1948. That was about 2% of U.S. GDP and 11% of government spending that year. In the following three years, the Marshall plan disbursed $8 billion more. Later, it was replaced by the 1951 Mutual Security Plan and, by the time it expired, the U.S. was providing $7 billion annually to Europe until 1961.

In 2009, the American Recovery and Reinvestment Act authorized $848 billion in economic stimulus, spread over 4 years, or a little over 1% of GDP per year. It aimed to save or create 3-4 million jobs. Had the funds been disbursed as they were under the New Deal, namely towards direct employment programs and public investment, the ARRA could have created 20 million living-wage jobs, virtually wiping out all of the unemployment and underemployment in the U.S.

Many countries have experimented with small- and large-scale direct job creation programs. These are true and tested policies that are relatively inexpensive and bring great many social and economic benefits. To tackle global unemployment, nothing short of a Marshall Plan for the Unemployed will do.

©2015 Institute for New Economic Thinking

11 Responses to A Global Marshall Plan for Joblessness?

  1. The way unemployment is defined lefts many people out. For example you have to be looking in the last 4 weeks but why would you keep looking if there were no jobs available?

    Let me guess: this definition was invented in the post ww2 full employment era. Maybe it made sense then. But how applicable it is to the modern world? World has changed yet I don’t see anybody challenging these definitions.

    These definitions actually seem like rape of language. Unemployed should mean somebody who wants to work but does not work at the moment.

    Measured unemployment numbers seem so small, soothing. 5% unemployment means 95% of people are working, right? Wrong.

    That said I don’t support jobs program to solve mass unemployment. There are lots of countries where unemployment numbers are very high and using jobs program instead of fiscal policy would be insanity. Jobs program should fix imperfections of capitalist system, namely joblessness amid prosperity.

    Here in Europe we don’t leave ill people without healthcare. Why do we leave unemployed without jobs?

    • A jobs program by definition is a fiscal spending program by the government. I think you have misunderstood the article. The Marshall plan was a fiscal stimulus plan.

      Maybe watch Pavlina’s video to make it more clearly understood:

      • Like I said I don’t support jobs program as a solution to mass unemployment. While it is easy to imagine we can find sensible jobs to do for 2-3% of the labor force, same cannot be said for 20-30%. It would lead to, masses of people “working” for the government, in do-nothing jobs, and give whole idea bad reputation.

        • clearly missing the point and btw what are these do-nothing jobs? are you that uncreative? i can find 5 full time jobs on my block alone. what is so useless about beautifying neighborhoods, insulating homes, filling up pot holes, cleaning up foreclosed homes, taking care of seniors and kids, moving electrical cables underground from ugly looking poles thereby avoiding electricity loss every time there is a storm (and there are a lot of storm in Illinois), building infrastructure for public transportation, fixing bridges, building sidewalks (barely any sidewalks in suburbs), teaching dancing, playing instruments, theater?

          • Exactly Marty great comment and great examples. Add in replacing all lead pipes for plumbing too as well.

            What annoys me is when people disagree yet give no alternative. It’s so easy to sit on the sidelines saying things are a bad idea but if you’re not offering any alternative solutions then you’re part of the problem as far as I’m concerned.

            The future workforce of Europe is stuck injure youth unemployment and people disagree with giving them a chance to even know what it’s like to go to a job daily and have some money to spend and everything else you learn as you go. Bizarre logic.

        • Ok what do you support then to fix the unemployment problem? Your last sentence in your first post seems to contradict yourself. You haven’t suggested anything in either the original post or the reply so please add something constructive to solving the problem. The private sector hasn’t done anything to resolve the problem.

          Pavlina is proposing more than just a jobs program it’s a permanent macroeconomic stabiliser to stop the real suffering of recessions and mass lay-offs. This is the biggest benefit of the program. A JG could involve being an academic, artist, writer, researchers etc etc there’s plenty people could be paid to. That’s what helped us move on from being hunter gatherers when we had enough excess production for people to have time to stop and think.

          • Mass unemployment should be addressed by running a fiscal deficit. You know, government spending more than its income so that private sector can increase its spending. It is basic macroeconomics 101 and it is way superior solution to mass unemployment than trying to employ everybody by the government.

            • first, jg is a fiscal program that stabilizes deficits and price in one single swoop. second, gives unhirable citizens transitional job to prepare for private sector. third, focuses directly on the most disadvantaged and ravaged areas. fourth, does not depend on profit making thus implementation can be done in environmentally sustainable and just way.

            • Do you realise nearly every country in the world (bar surplus export countries) are running large fiscal deficits yet the private sector still isn’t employing. conoabies don’t employ with higher profits they employe when there’s demand.

              H you still haven’t added anything substantial to the immense body of work employed by economist who propose a JG scheme.

              It’s 8 years and counting since the GFC how do you propose to solve it other than imaginary concepts of grater fiscal spending that the private sector will use to hire people? You’re thinking neo-liberal and until you shake that mindset you won’t be able to understand what real fiscal solutions there are.

              Please read bill Mitchell’s blog at least to try and start to understand: http://bilbo.economicoutlook.net/blog/?p=33389 many detailed posts

              Again I ask you what is your permanent solution to mass unemployment other than just run higher fiscal deficits? That’s not a permanent solution in the world I live in currently.

              • Well I am sorry if you cannot realize how fiscal policy can help to solve mass unemployment. Let me just quote law from one of the founders of MMT, Warren Mosler.

                Mosler’s law: “there is no financial crisis so deep that a sufficiently large fiscal adjustment cannot deal with it.”

                We live in the age of austerity and nearly every country in the world is trying to cut its fiscal deficit. They run fiscal deficits only reluctantly after they fail to balance the books. When private sector wants to net save, sums involved can be quite large and so should be accommodating fiscal deficits.

                • H, fiscal policy is what we are all talking about through jobs via job guarantee. What exactly are you arguing for or against? Please be clear as you’re not making much sense to mine or others comments.
                  I’m well aware of Mosler’s comments which are contradicting your earlier comments. Fiscal deficit spending on what?