By Pavlina R. Tcherneva
For a couple of years Ralph Musgrave has been arguing that the Job Guarantee provides jobs that are essentially the same as those in the private sector with the same kinds of inflationary effects. For this reason, he has been treating the JG a simple job subsidy with a training component, similar to various active labor market policies (ALMP) around the world.
By contrast, much of the JG literature has focused on the differences between the JG and conventional public or private sector employment and on the program’s countercyclical effects (here is the latest model that compares the inflationary and distributional effects of different fiscal policies, including the JG/ELR). All of these arguments are familiar to readers of this blog and will not be rehashed here. We have also described various types of JG to deal with a number of implementation issues. Most recently, I proposed a model that utilizes the social entrepreneurial and non-profit sectors.
Ralph builds his case against the JG by arguing that temporary subsidized work programs in Europe have been ineffective in increasing employability or employment outcomes for program participants.
Here are 5 lengthy papers he lists that identify the various problems with different active labor market policies (ALMP) across Europe:
Let me offer some brief comments on each of these papers. Most importantly, these programs have nothing to do with the JG proposal whatever. The ‘evidence’ provided may be evidence against the effectiveness of those specific programs, but is definitely not evidence against the Job Guarantee proposal.
The first two papers discuss the Swiss EP program which is essentially a ‘workfare’ program, not a Job Guarantee. Worse, it is a means-tested allocation of unemployment insurance. What Ralph considers to be ‘the more successful’ program in Switzerland—TEMP—is actually a very punitive arrangement, forcing people to take ‘unsuitable jobs’ that pay less than their unemployment benefits by overcompensating the difference with additional payments from the unemployment insurance system (p. 7).
The next paper looks at a workfare program in the UK that is, again, anything but a JG. We have always argued against workfare and the welfare reforms of the 90s. See the work of one of our collaborators, Nancy Rose, on Workfare vs. Fair Work. JG is the latter. The UK study listed in Ralph’s blog finds that temporary contracts pay less and are more dissatisfactory than permanent contracts. Brilliant finding. We know well that these programs do not work. The US also reformed welfare, made the benefit conditional on finding any kind of work in the private sector, which was usually very low pay and involved long commutes, so the program didn’t lift the welfare recipients out of poverty and left them without assistance after 5 years of program support. While the UK at least bothered to find the welfare recipients some temporary private sector contracts, the US didn’t. There are too many problems with these types of reforms to discuss here, but again, they have nothing to do with the JG proposal.
Next is a long paper on the Swedish model that offers lots of interesting details and a sizeable literature review, but the whole paper from inception is based on a matching problem assumption, not on deficient effective demand (i.e., unemployment exists not because there aren’t enough number of jobs, but because for one reason or another the jobless can’t be placed into readily available vacancies). Starting with section 2, the paper uses the worst kind of neoclassical modeling to analyze these programs. General-equilibrium effects? And we should take the results seriously? Much of the literature surveyed in the paper also uses the same methods.
But even if we overlook the neoclassical methodology, let me just point out the obvious. The studies of the 90s found negative effects from active labor market policies (ALMP), which is precisely the period of serious neoliberal reforms in Sweden that undermined the Swedish welfare state and the full employment model. No wonder unemployment rose in the 90s and the programs that were vestiges of the past had to deal with a much bigger problem now. Plus those employment programs themselves were reformed with more focus on training and job search, not actual employment. How does that help us understand the JG? The Swedish corporatist policies prior to the 90s were not exactly a JG, but the reforms and subsequent active labor market reform followed the ‘labor market’ flexibility neoliberal agenda.
The last ‘evidence’ against JG is the topper. The Danish case actually indicates that employment programs are more effective, and that training programs alone should be abandoned (p. 22). We’ve been arguing forever that retraining is just a game of musical chairs. How is this paper evidence against the JG?
Ralph’s own researchuses declining marginal product of labor and the NAIRU as core theoretical concepts, so it is no surprise that we have deep theoretical disagreements over how labor markets work and how policy could rectify the problem of unemployment. But let’s be very clear, studies of ALMPs which have unambiguous neoliberal design do not serve as evidence against the JG.
Thanks Pavlina, Ralph's point of view always seemed strange to me, but I haven't found the time to dig into it.
I second that, Joe. I always thought Ralph was close to MMT paradigm but was missing something important.
Pavlina, this is Paolo Barnard. It boils down to this slogan I suggest you all adopt at NEP: "Once citizens understand Sectoral Balances that's it, there is no more deceiving them. The lies of Neoclassical Economics will collapse at once, paving the way to Full Employment".
Excellent job, Pavlina, exposing yet another "flacker" who posts the same drivel all over the internet, never actually engaging the JG.
It's probably worth pointing out that within the European Economic Area any scheme that subsidises private sector workers is almost certainly going to fall foul of the State Aid rules. In other words they are incompatible with the functioning of the Common Market and therefore are not allowed.Almost all of the active labour market policies that exist within members of the European Economic Area are designed to fit within very specific Block Exemptions to the State Aid rules. Hence why they look almost arbitrary in their design (always young people, no longer than 2 years, set amount of money, etc).For a Job Guarantee to get out of the starting blocks in practically any country within Europe it first has to be compatible with the State Aid rules.
I have a question about the JG vs. Basic Income Guarantee.I'm aware there are positives and negatives about each of them, and that MMT advances the JG, but for the sake of my question, please ignore all the "other" positives and negatives.Is there anything unique about the JG that makes it a better price anchor than a Basic Income Guarantee? Again, I'm only asking about the "price anchor" aspect.
I fully agree that a JG program is much better that workfare but still there is a huge risk.Let me tell that my father held a relevant position in the public administration in Italy. So I still remember what he was saying about public employement. Still in the sixties most of the public employess were practicall working under a sort of JG program (although the words job guarantee were not used). They received a basic salary to do something somehow useful (taking care of gardens, printing some books that otherwise would not have been printed – I still have some – and similar). Few were employed in the real administration and paid accordingly to their responsabilities. It was working fine. Most of those workers looked actively to find a better paid employement in the private sector, that was happy to hire already skilled workers. But, at some point, politicians and even the administration saw the opportunity to convert those basic workers to administrators, giving them the salary of an administrator. That provided the benefit to the politicians to create their group of "clientes" ensuring their power and the guarantee to be re-elected. And also the administrators had their benefits.Because there was the need to justify the increased number of administrators, they started to implement oppressive rules jeopardizing the private sector. Do you want to know the latest one I heard about oppressive rules? Few days ago I was looking the window of a souvenir shop (stupid objects worth no more that 20-30 € each) and I saw a plate claimin "Work in progress to comply law nr…". So I asked to the owner what was the meaning of that. He told me that according to the new rules they have to put the technical sheet of each object. The sheet must report the origin of every part of the object, i.e. if the steel is coming for e.g. India, the glass fro Italy and the plastic from China. And, not complying to that rule, he could be fined for hundreds of euros. The plate "Work in prgress" was the way he found to delay the fine. Is there any utility for the consumer to know that the souvenir he is going to buy spending 20 € has those different origins? No, I believe it has an utility only for the administrators that wrote the rule, to justify his salary with the excuse of the protection of the consumer.That is the risk of a JG program. That those employed though it are progressively transformed into "administrators" and new rules having no justification are implemented.Very often nice ideas about economy cannot be applicable because of the humane nature.
I'm not sure whether people are aware of this but Ralph Musgrave is a member of the far right, racist BNP (British National Party). I read an article by him in which he implies that europe should become "racially purer". Ask him yourself – he probably won't deny it. This is very weird, but unfortunately true. I'm not sure he should be included in the MMT debate, to be quite honest. Not someone I think I want to be associated with at any level. http://www.ethnic.ndo.co.uk/mulindex.htm#5
"Very often nice ideas about economy cannot be applicable because of the humane nature."Very often nice ideas fall into a mental trap about how they *must* be designed and how they *must* work.If Pork-barrelling is a problem, then don't design it like that.Ultimately the JG boils down to the state paying the wages of the unemployed and clearing the labour market of its surplus. It is then a matter of system design how it uses the labour it has bought. One design is to deploy that labour outside the private and public sectors and let voluntary sector entities use the labour for their ends – which should, if charity law is working properly, also be ours.But there are lots of other ways of designing the control mechanisms. Disregarding the Job Guarantee idea completely because it might be abused a bit in one particular configuration is throwing the baby out with the bathwater.
You get some real output from a Job Guarantee. At minimum you 'de-risk' the individual as a hiring candidate for the private sector, which automatically reduces the private sector cost of hiring. With a Basic Income Guarantee the employment is a step further away from 'working for a living' – as the money isn't strictly tied to you selling your spare labour to the somebody. So less 'de-risking' goes on, and less real value is created.So I'd suggest you get more better trained, better conditioned unskilled workers out of the JG than a BIG. And that makes it a bigger hiring pool for the private sector to choose its substitutes from, and therefore less likely that they will exhaust the substitution pool.So JG makes the anchor work better and for longer as you approach full employment in all markets.
I agree on the fact that a good idea cannot be disregarded only because of the associated risks.But risks have to be taken into consideration. And, as the governements currently are for sure not working for the benefit of the public, but rather for their own benefit, I would design such program to be managed by the public, the citizen.In another blog, yesterday, I was writing that public municipal transportation should have a management board made by randomly chosen citizens, maybe having a minimum level of instruction and competence, anyhow having clear in mind that the management of that must not be in the hands of politicians but of the real owners, the citizens.
NYC has something similar to what you're talking about the StrapHangers (http://www.straphangers.org/), so it isn't necessarily random, but rather a fairly well organized "public interest research group" as they call themselves. They weren't part of the management structure, but I can see the value in maybe having at least one representative from such an organization have an official place on the board of an entity like the MTA. Sound idea.
Eh… I think that this should really be stressed. Usually I wouldn't be so harsh on someone for their political ideology, but the BNP is a neo-Nazi party and should be sidelined accordingly. What Musgrave wants to do with economic policy is not what I think most people on here even consider worth talking about.Example:http://www.thenorthernecho.co.uk/features/letters/1762573.the_bnp/"IN a simplistic attempt to dismiss the economic benefits of migration, Ralph Musgrave (HAS, Oct 6) ignores the demographic effects of low birth rates and increased life expectancy, and the factthat many young migrants return home after working here for a few years.He then informs us, wrongly, that France and Spain have "drastically cut down on healthcare available to Brits". Changes in the French system will affect both French people and Britishexpatriates, particularly those who retire early, but expats over retirement age will, under EU regulations, remain entitled to the same healthcare as French citizens.Mr Musgrave is, by his own admission, a BNP member. The underlying concern of BNP leaders is to preserve the racial purity of the "indigenous white population"."Also he ran for the BNP in Durnham general election:http://en.wikipedia.org/wiki/City_of_Durham_%28UK_Parliament_constituency%29#Elections_in_the_2010s
the mechanism can be anyone, what is important is to keep the hands of the politicians and of the publicly paid administrators away from the money of taxpayers. Politicians and administrators are paid by the citizens to organize in the best way our lives, not to decide how we have to spend our money. That must be decided by the citizens directly through methods that are probably still to be studied, but using some direct form of democracy, not through delegation.
What do you suggest? Ignore him? I think Prof. Tcherneva is correct to disabuse the public of Musgrave's strange courtship with Lerner's thought. There will be more nationalist who are drawn to MMT, if purely for the role national sovereignty plays in its theoretical framework. Don't ignore them and let the mainstream play guilt by association. Engage them and make the deep differences very clear. p.s. Philip, you are an awesome writer. I would give my left ear to able to write like you. So, keep it coming.
Vicento,Don't you see that the move towards promoting to administration coincided with the decline of basic entry positions? Just as in the private sector, when there are layoffs there is jockeying to protect favorites, the rise of incompetents to positions of authority and a general decline in quality if service. When managers have less staff to manage, they have to devise other "things" to manage in order to justify their position.A true Job Guarantee would require actual managers, there would be no excuse for poor service, as managers could not complain about lack of resources. There would be a shift of the organizational pyramid from top heavy to a strong base. The public should demand and receive transparency via progams designed to deliver public services.Wouldn't it be nice to have clean and abundant public restrooms, for example. Or parks with maintained grounds. Or schools with more adults on premises. It used to be that way in many parts of the Western world.
Thanks. Now that you mention it, I could use a left ear…
Hi Pavlina, this is Aitor from Spain. Is it possible to implement a JG without applying MMT, that's to say, would it be possible to implement JG while in the euro?
You are absolutely right. It used to be that way, then it shifted to a lot of office people producing crazy rules. The politicians and the managers took the people that were actually employed in JG type works and transformed those into beureaucrats able to invent any sort of stupid rule – well, actually they were originally hired to clean the restrooms, what could you expect different from them?No problem in admitting the same occurred in private sector. A lot of financial and human resources guys, no workers, no engineers, no technician. Any good idea for coming out from the current mess should start from the very basic, the human nature. And transparency may be achieved only if there is a direct control of the citizens, not if it is delegated to politicians that, maybe once per year, isuue a (falsified) report of what they have done.
The answer to that is basically "no". The only Eurozone entity which could reliably implement a JG is the ECB. Any other organization or state would be in danger of running out of Euros.
One basic thing, as Neil notes too, is that the JG is not "money fornothing". Set theJG workers to making widgets & the price of widgets falls. Anotherthing is that what are in essence government giveaways to the wealthyare often sold as ways to preserve jobs. This fakery would work lesswell in an economy with a JG. There would be less "money for nothing"for the rich. It's no accident that theabandonment of full employment coincided with a rise in corruption. TheUSA is the extreme example. Most discretionary usage of public money istowards murdering people who are trying to sell us oil. This is highlyinflationary. Particularly visible right now, as warmongering againstIran is causing worldwide oil speculation & high prices at thepump. A JG in the USA would cut this destructive spending and could behighly deflationary if the wage were too low. IMHO discussions often/generally reverse things. The JG is alwaysgood, logical, beneficial policy, for any monetary economy, for any otherpolicy mix, and is always affordable in any real sense, though it might not be consistent with some unnatural restrictions on the state spending its money. Forcing people tonot work is insane. Wealthier economies could afford a BIG. So thequestion should be posed as, how much of a BIG in addition to the JG,not as one instead of another, or having a BIG first and maybe a JGlater as an afterthought. That things have in fact developed in thisabsurd way is a historical accident due to bad economics, rather than alogical development.
Vincenzo, that is confused & bears traces of bad economics. Money that governments spend is not "the money of taxpayers". There is no way for politicians & administrators "to organize in the best way our lives" without deciding how to spend public money, which realistically cannot be entirely directed by citizens. Although I am fully in sympathy with your desire for as much citizen input and oversight, as little delegation as possible.
Not unusual that extreme authoritarian regimes should use MMT. The Nazis used it. The Chinese Communists still use it. What is important is the quantity and quality of the democracy used to deploy it.
Ok, I should have said "away from money" in general. I used the word "to organize" not for a case. Organization is something different from decision. "I" decide where to go on vacation and "I" ask the "travel agency" to organize the trip. The citizens decide where to put resources, the government takes care of executing that under the control of the citizens. If we, citizens, want a new road, we decide to put some of our work on that, because actually speaking some citizens will have to work to build the road. The government will take care of recruiting people of appropriate skill in the proper number and we, the citizens, will control that those are the right ones so that actual scarce resources are not subtracted from other economic activities.
You did a fantastic job on the Conference Paolo. Thank you! I hope it's the beginning of a revolution in Europe!
Taster of the BNP from today's Guardian:http://www.guardian.co.uk/world/2012/mar/09/far-right-hardcore-armed-conflict
I read few days ago a post about Hjalmar Schacht, the Minister of Economy and president of the Reichsbank during the Hitler government.Strange to say he was of Jewish origin, his mother was from Denmark, that was later occupied by the Nazi troops and his parents lived for a long time in US (his full name was Hjalmar Horace Greeley Schacht as a tribute to an American journalist).He financed the Nazi party helping it to take the power and the became Minister.In a very short period, by applying a recipe almost equal to MMT, he turned down-up the economy of Germany that had been destroyed by the mega-inflation and created the ground to develop the Nazi plan of world domination.He left the position of Minister in 1937 and the role at Reichsbank in 1939 but he kept the salary till 1943. Later he participated to the Stauffemberg plot, was arrested and sent to Dachau, but not killed or pushed to suicide as the other participants.He was judged at Nurnberg but found not guilty.Crazy story, indeed. Actually speaking that is a good reason why a program like the JG should not absolutely run by the Governement or it should be under a strict control by the citizens. It can be used for good purposes but also for the most horrible ones that the mankind has ever thought about.Even the banksters, despite the power and wealth they have accumulated, cannot do what the Nazis did. A bad Government can do that. We have always to keep in mind that when we ask for "more Government)P.S. I have visited three times Auschwitz and three times the house of Anna Frank
So, we are definitely screwed up for at laeast 10 years or more!
Along with the JG, we also need to be reforming the basic business structures of much of the private sector. Otherwise, we will end up moving workers from democratically-controlled public employment to authoritarian private employment. The JG, it could be argued, would just serve to assist in maintaining the stability of the current corrupt, unjust, and undemocratic economic structures in our society. A JG, imho, would be better, but far from perfect. If, on the other hand, workers were going from JG employment to private employment in a worker-owned-and-managed cooperative enterprise (i.e. a democratically controlled business), the above criticism would lose it's force. Another policy along these lines that I would have implemented in conjunction with a JG is actively organizing JG workers into cooperative businesses. Let the unemployed put themselves to work! Fund the co-ops with SBA loans and viola, new economic paradigm.
Neil and Calgacus,I appreciate that you both responded to my comments, but I don't think you responded to my question. I'm fully aware there are aspects of the JG that make it more desirable than a BIG. My question asked you to hold all of that "equal" …ignore that stuff, and specifically address how the JG and BIG compare as a price anchor. For example, is forcing people to work less inflationary? If so, why? And so on.Is the price anchor REALLY about setting a base price for labor? If it is, why is a JG any different than a BIG? After all, they both "anchor" the price of labor.
The main thing, the only thing that Spain needs in order to be not screwed up is knowledge, for enough people to understand economics which makes sense and explains the real world. For them to understand that accurately decoded, the message from the ECB is: Please die, so we can steal your stuff for our most rapacious cronies. What I said above is true, but a more optimistic way would be to think of the JG being implementable to the extent that Spain departs from the Euro. The JG could be part of a way out of it.Workers could be paid in Spain IOUs, similar to California IOUs of a few years back, or in / by means of Spanish Mosler bonds, which would be redeemable for payments to the Spanish state. They might trade at some small discount to Euros, but could be a way for Spain to get some of the benefits of having its own currency, and could be part of a program to go off the Euro in a less painful way.
Just like Brazil went from Cruzeiros to Reals in '94. This American Life recently did a good story on it. http://www.thisamericanlife.org/radio-archives/episode/423/the-invention-of-money?act=1
I’ve only just noticed Pavlina’s post above. Hence my slow response, which is as follows.
1. Pavlina claims I treat “JG as a simple job subsidy”. That is a bit misleading. The truth is that I’ve always drawn a clear distinction between JG as advocated by the average MMTer (which I’ll call “conventional JG”), and in contrast, the sort of JG/ELR system I favour. Conventional JG is a system confined entirely or mainly to the public sector, and secondly it’s a system that does not for the most part involve EXISTING employers. In contrast, I favour a system that involves both public AND private sectors. Plus I favour a system that involves just or mainly existing employers (rather than “specially set up” employers – as per the WPA, for example).
2. I have never argued that “temporary subsidised work progams in Europe have been ineffective in increasing employability”. What I HAVE done is to point to the empirical evidence arising from European programs which indicates that subsidised work with private employers improves employability more than such work with public sector employers. Plus the evidence is that this subsidised work produces better results than training.
3. Re Pavlina’s claim that these European studies do not provide “evidence against the Job Guarantee proposal”, I suggest they ACTUALLY DO provide such evidence. Reason is that, as mentioned above, conventional JG is typically confined the public sector, and European studies indicate that the private sector produces better results.
4. Re the punitive characteristics, of various European subsidised work programs, Pavlina seems to claim that makes them not comparable with JG. I suggest that if private sector work produces better results than public sector work or training under a relatively coercive regime, the same will probably hold under a non-coercive regime.
5. Re the extent to which any program lifts people out of poverty, I doubt there is much inherent difference between the numerous variations on the JG theme. That is, any regime, plus the associated social security system can be made relatively generous (e.g. as per Scandinavian countries), or less generous as per the U.S.
6. Re the “long paper on the Swedish model” which Pavlina accuses of using the “worse kind of neoclassical modelling”, I agree her there: the theory behind that paper has got me baffled as well.
7. Finally, re the Danish paper which indicates that training is a waste of time, I have never argued that that is an argument against conventional JG. It is simply an argument against training – whatever variation on the basic JG model one favours. So I’m pleased to end by agreeing with Pavlina: those who advocate training need to think long and hard about why previous training efforts have been ineffective.
On a separate topic, that is Philip Pilkington’s claim that the BNP is a neo-Nazi party, Nazism consisted inter alia of invading other counties for no good reason and slaughtering millions of their inhabitants. The British Labour and Tory parties invaded Iraq in the basis of doctored intelligence reports and a pack of lies and took part in the slaughter of a million Muslims, whereas the BNP opposed the Iraq war from day one.
I also hope Philip Pilkington will be consistent here and shun the numerous “Nazi” London based politicians adopting BNP policies: David Cameron (the well-known “Nazi”) claimed recently that multiculturalism isn’t working. That’s just one of numerous examples I could cite. I trust he will also shun the neo-Nazi Maynard Keynes who said, “It would be a fine thing to have thirty or forty capital cities in Europe, each the center of a self-governing country entirely free from national minorities, who would be dealt with by migrations where necessary.” And that’s even more “Nazi” than the BNP, because the BNP does not advocate forced repatriation nowadays.
But I’m always pleased at the way the British political left tosses insults like “Nazi” around, rather than examine relevant issues. It shows how petty and small minded they are.
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I am fascinated by Pavlina’s claim that the declining marginal product of labour is an invalid concept.
The sense in which I use the concept in the works of mine referred to above is simply the idea that employers chose the best labour first. But if Pavilina thinks that employers, given the choice, make a bee-line for the unskilled drunks and drug addicts, while leaving the PhDs and people with decent work records on the dole, I’d be fascinated to know where the evidence is.
Or perhaps she thinks employers choose a more or less random mix of skilled and unskilled when choosing employees: in which case the unemployed would be a representative cross section of the population. Well the evidence is (surprise surprise) that they aren’t a cross section.
For example according to p.11 of “A National Survey of the Unemployed” published by PEP, London (author: W.W.Daniel), there are about twice as many unskilled and semi skilled manual workers per hundred unemployed as is the case with the employed. As to professional and managerial people, there are about half as many of those per hundred unemployed as is the case with the employed.
The above strikes me as a very boring and obvious point. I’m amazed I even need to explain it.
There are actually other reasons for declining marginal product (set out in my works) which I won’t go into here. Plus anyone acquainted with standard economics text books will know that “declining marginal product of labour” is used in a somewhat difference sense to the sense I’ve explained above.
But people do in fact skip over the PhDs. Have you never been told you’re “overqualified” for a job, Ralph? Are you not aware that there are plenty of jobs where qualifications are irrelevant, even a negative? What use is a PhD to a postman, for instance?
I enjoyed your IKYABWAI about Nazism btw. Kind of typical of how you think. David Cameron’s being a “Nazi” would not affect a judgement of your neo-Nazism one way or the other. He just has a bigger platform to spew racism from.
That is a really good tip particularly to those fresh to the blogosphere. Simple but very accurate information