By Fadhel Kaboub
Fifty years ago today, Dr. Martin Luther King, Jr. led the 1963 “March on Washington for Jobs and Freedom.” Yes, jobs!
For the civil rights leaders, the fight for justice was not limited to providing equal voting rights for all Americans and abstaining from discriminatory practices against African Americans. A federally funded Job Guarantee program was a central theme articulated by Martin Luther King and Bayard Rustin (the organizer of the 1963 March on Washington, and one of this year’s recipients (posthumously) of the Presidential Medal of Freedom).
Mathew Forstater’s work has frequently reminded economists and policymakers of our failure to address structural unemployment and to ensure a useful and productive employment opportunity for anyone who is ready, willing, and able to work.
In a 1965 interview, Dr. King said “we must develop a federal program of public works, retraining, and jobs for all—so that none, white or black, will have cause to feel threatened. At the present time, thousands of jobs a week are disappearing in the wake of automation and other production efficiency techniques.”
In 1968, he also said “We need an economic bill of rights. This would guarantee a job to all people who want to work and are able to work… It would mean creating certain public-service jobs.”
Rustin was very clear in 1968 when he wrote: “The government becomes the employer of first and last resort for the hardcore poor…Neither individuals nor the private sector of the economy has, or can take, responsibility for full employment in American society. This is the responsibility of all segments of the society and thus, finally, of the government.”
The details of this Job Guarantee plan have been worked out nearly five decades ago by the A. Philip Randolph Institute in the “Freedom Budget” of 1966. Needless to say, this plan has enjoyed wide support from NEP economists working in the Minsky tradition.
Unfortunately, mainstream economists have been successful in spreading their deficit phobia in Washington and have kept the U.S. from implementing one of the most socially and economically transformative policies since the New Deal program. The so-called “sound finance” advocates (deficit hawks and deficit doves) fail to understand the meaning of financial sovereignty, recognize the difference between currency issuer and currency users, and accept the logical implications of the sectoral balance analysis.
Five years after the Great Recession, the U.S. Congress has spent hundreds of billions of dollars on market-friendly, supply side, incentive-driven policies that have failed to put a dent on unemployment, and the Fed has poured more than $29 trillion dollars to bailout Wall Street. Yet, an effective Job Guarantee program has been ignored for five decades for the same old excuses (it is too expensive, wasteful, inefficient, inflationary, etc.), which have been fully refuted by the NEP community.
In this recent paper, I put together a cost estimation for a Job Guarantee (JG) program that would employ 23.4 million underemployed individuals (those who are officially unemployed, the marginally attached to the labor force, and the involuntary part-time workers).
I proposed a three-tier JG wage structure such that skilled workers earn $21/hour, semi-skilled workers earn $18/hour, and unskilled workers earn $15/hour. Additionally, JG workers would receive an annual benefits package of $10,000.
For the sake of argument, I assumed that the 23.4 million people in the JG program are working 40 hours/week even though not all JG workers will opt for full-time employment.
Adding another $50 billion to account for program material costs, and assuming that the unemployment pool is evenly divided between skilled, semi-skilled, and unskilled workers, I find that the net annual cost of the program is only $593.8 billion or 3.93 percent of GDP.
That is less than $600 billion a year to end unemployment, reduce unemployment-related social costs (mental health, suicide, family breakdown, crime, incarceration, etc.), and bring tangible hope to economically disadvantaged communities.
Now, is there anybody in Washington today who has the courage to truly honor the legacy of Martin Luther King, Bayard Rustin, and A. Philip Randolph; not with medals, flags, postal stamps, and endless speeches, but with real action, a Job Guarantee program?
Those of us advocating for social justice as workers, teachers, journalists, lawyers, engineers, and citizens from all walks of life must continue building this social movement to guarantee productive employment for all.
Dr. Fadhel Kaboub is an Assistant Professor of Economics at Denison University (OH) and a Research Associate at the Levy Economics Institute (NY) and the Center for Full Employment and Price Stability (MO). His research focuses on job creation programs, monetary theory and policy, and the political economy of the Middle East. For more on his work, visit www.kaboub.com
Twenty plus million unemployed and no money. Yet we are about to shoot missiles at Syria. There is something strange about that. The struggle continues for social justice. Thanks for this your thoughts Doctor.
Dr Kaboub,
Thank you for sharing your work. I will post this information on my social network.
Patrick Wells
How I wish every legislator and adult citizen In the U.S. would read this! Is there not any way to get this kind of vital information folks in a single, widespread media or other mainstream event?? I keep waiting for factual information to find its way to the networks….but with media now a corporate rather than a public endeavor, that’s pretty much a pipe’dream. Please don’t ever stop sounding the alarm that we are so far off track that utter insanity has begun to look normal to us!
If only every legislator and every adult in this country knew this! Long gone are the days when U.S. citizens were actually 1) educated and 2) informed. I wish there were a way to hammer your point home and to turn this train wreck of an economy around NOW! We have come to the point in America where policies and government actions (and inactions) that are patently insane are beginning to seem normal. Please keep speaking out…and know your facts and your voice need to be heard. Thank you for using your expertise in the service of the common good!
My ONLY concern about the whole JG thing is if, as it’s fully admitted, deficits can be inflationary when too large, and deficits are (at least casually) encouraged and it can’t be known how big is “too big” prior, is there any realistic danger?
Especially since NEP seems progressive bent, I’m more moderate and like the JG as a center point of government, but much else is reduced or eliminated. Not all: SS and investment in infrastructure/technology stay of course. Pretty much a “proper role” thing.
I also get directly supplying jobs is a cure to the problem of lack of jobs, duh, but I thought it was to be at the minimum wage? While the stable income is great, this is pretty much just a min wage job, why is it considered better than welfare? (Besides the obvious putting people to work, for them and society)
But the JG is a brilliant idea and seems to have been successful even in limited use. The idea seems perfect when you dig into it but sadly sounds radical at first, Im sure even the “liberal” US politicians would be shocked. Keep it up though guys, hopefully the info can spread to enough people.
I’m not sure about the reality of the 23.4 million estimate. I like Hugh’s monthly job analysis estimating disemployment. His figure for July was in the neighborhood of 28 million. That would change the initial cost estimate to about $701 Billion annually. However, that assumes there’d be no movement in the private labor market.
The JG program would inject a huge high-multiplier stimulus into the economy creating very strong sales and a response from the private sector workers. It would have to respond by hiring back more and more of the JG workers over time at hire than JG wages with comparable fringe benefits. That would soon lead to large cuts in the JG transition job pool available to the private sector and, of course, large cuts in JG deficit spending as well. I don’t know how long it will take to produce a full private sector recovery in a scenario assuming only a JG program. Normally, MMT economists propose the JG in the context of a recovery program including a full payroll tax, and State revenue sharing. So, the first two stimulus measures, along with the JG give a very strong shot to the economy, which Warren Mosler believes would create a full employment recovery within 90 days. That wouldn’t happen with the JG alone however.
I’d guess that in a JG-only situation the economy would ramp up more slowly, but by 9 months out the JG program might be cut to 1/4 or less of its maximum size. And by the end of the year we might be seeing very low numbers in the JG program and everyone else in Government civil service jobs and private sector jobs finally paying a living wage better than the JG wage. The whole process would be quite a shock to the economy, and I mean that in a good way.
Finally, while I like your tiered pay proposal. I wonder if it hinders the function of the JG as a transition job providing a buffer stock which virtually goes away in full employment periods and then expands during recessions and depressions? I also wonder if the wage levels should be adjusted for local cost of living. My own un-tiered JG proposal is that wage levels in the lowest cost area of the US be $10.00 per hour and then vary upward according variations in cost of living so that they’d be at $24.00 per hour in highest cost areas like NYC. I thought the mean wage across the country might come out at $16.00 per hour or so.
“The JG program would inject a huge high-multiplier stimulus into the economy..” Assuming the regular (i.e. non-JG economy) has spare capacity, then obviously channelling stimulus into the regular economy via JG would raise employment, not just in the form of JG work, but the stimulus would trickle out to the regular economy and create jobs there as well. But that’s a strange way of bringing stimulus to the regular economy.
If the regular economy has spare capacity, why not effect stimulus by upping normal forms of government spending or encourage household spending via tax cuts?
Once the economy is at capacity, there is then a role for JG in dealing with some of the remaining unemployed. Put another way, the role for JG is dealing with unemployment that cannot be dealt with just by raising aggregate demand.
Hey Ralph,
Because the JG directly creates sorely needed jobs, while normal forms of government spending take more time to create jobs?
That said, I prefer the usual MMT prescription of payroll tax cuts, State Revenue sharing and the JG all implemented immediately, along with Bill Black variety banking and regulatory legislation and enforcement actions against the big bank. I don’t know If Warren’s view that this would get recovery in 90 days is right; but I’d bet on success in 180 days.
Great stuff Joe!
If I may, there is one thing I’ve wondered about the JG concept. How would gov welfare, as currently provided, be impacted? I’ve read it can be greatly reduced (sans Social Security) but wouldn’t this end up just as those in the JG as earning the min wage? Thus they would still struggle, I guess what I’m asking is why, as you all at NEP claim, would a JG be a better solution over welfare?
I believe a paper by Wray and someone else spoke about the war on poverty and how it’s largely been ineffective and conservative in nature. So why would a JG be better in terms of actually uplifting?
Another question Ive had is: If too much deficit spending can be inflationary at full employment (is this correct?) if the JG achieves full employment would it thus lead to inflation? If the JG manages to boost the private sector to where it reaches let’s say 2ish% real unemployment could this lead to inflation, even if the JG shrinks drastically? As a non econ student I like the idea a lot just struggle to grasp its impacts.
Must say though, more I read about the JG it makes a lot of sense, and could be the solution for many of the issues we face in the US.
JG, as you rightly suggest, is not a bonanza for those at the bottom. But in getting people to do something useful, it brings a finite rise in GDP.
“if the JG achieves full employment would it thus lead to inflation?”. Inflation arises when AD is excessive compared to aggregate supply, and labour is the ultimate source of all supply. So if you put people onto simple public sector type jobs and pay them what they’d have got anyway on unemployment benefits, there is no rise in AD. Plus if JG people have the same incentive to “supply” labour to the regular jobs market, i.e. job search, then employment rises, while inflation is not exacerbated. Or if you like, NAIRU is reduced.
But that’s actually an over-simple answer to your question. If you want my full answer, see:
http://mpra.ub.uni-muenchen.de/19094/
Thanks Ralph.
Needless to say I’d not expect a sudden wealth waterfall at the bottom, nor does that seem to be a claim, I just wondered it’d be so preferred over traditional welfare (which of course has its own issues) but I’m guessing it’s the overall societal benefits that is key. Whether its the boost of GDP, doing “good” things and the positive benefits of work to the person.
Thank you for the inflation answer. I am reading your paper now for some more insight.
Thanks, Brian.
First, all current programs would remain in place, but total cost of them would be greatly reduced because much fewer people would use them, only those who could not work.
Second, The JG wage would be much above today’s minimum wage in most JG proposals. Warren Mosler’s is probably the lowest JG rate presently being proposed at $10.00 per hour plus a very good fringe package. I’ve stated my proposal in a comment above and it would average $16.00 per hour plus that fringe package. I’ve seen Randy Wray propose $15.00 per hour in a transcript of one of his talks. MMT JG proposals all advocate “a living wage.” If that proposal is carried through than the difference between the miniwage today and the JG wage, which would become the new minimum would be profound because today’s miniwage is not living wage.
Third, that brings us to your question about “struggle.” Assuming other MMT policies, along with the JG, would keep inflation within bounds, then the effect of the JG would be to greatly ease that struggle depending on the JG proposal. Specifically if the miniwage effectively goes up to $16.00 per hour on the average then a two wage earner family is at 32.00 per hour or $66,560 per year compared to maybe $33,280 now. The shock from that will drive the cost of living up, of course, until the economy adjusts. But if we can contain inflation to 4% per year for an initial two year adjustment period, then you can see that “the struggle” for working families at the bottom would be greatly eased. Some businesses will suffer profit wise, of course. But many others will be helped by the enormous demand increase.
Fourth, a JG would be much better than the war on poverty because the transition jobs provided would produce value for local communities in the way the WPA, the CCC, and other New Deal programs did.
Well, first, after this quote you seemed to be viewing the full employment as something like 2% unemployment. That’s not the JG point of view. In the JG context, when you have such a program everybody who wants a full or part-time job can get a job offer from the Government at the JG wage and benefits. So once the ramp up period is over then that IS full employment if we define it everybody having a job who wants one. In other words, unemployment would then literally be at zero.
Once you reach full employment, if you want to avoid demand pull inflation, then you must end deficit spending. An MMT program including the JG would probably include automatic stabilizers that would gradually reduce and eventually end the deficit spending, at full employment. For example, Warren’s original proposal to have one-time revenue sharing, a full SS payroll tax holiday, and the JG has two stabilizers in it: the FICA tax, and the JG itself.
As full employment is approached (over say 90 days to 6 months), the FICA tax, having gone down to zero at the beginning of the holiday, would automatically increase, until it reached whatever its maximum amount for employers and employees was. And as full employment is approached, or soon afterwards, anyway, the JG inputs into the economy also decrease automatically because the private sector is hiring away JG employees in response to increased demand. The bottom line is that the Government additions to the economy resulting from the tax holiday and the JG are ultimately reduced to nearly zero, while subtractions due to increased income tax revenues, and increased states tax revenues are more and more effective in cooling the exploding economy.
Sorry for such a late response, but hope you see this: Thank you very much. As a non econ student I liked the ideas but struggled with details, but you have explained it well. I’d probably tend to the more restrained side, maybe it’s poli sci background…always want to temper proposals! but this is fresh thinking and more sensical then anything out there. I hope one day these ideas can gain acceptance
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“Those of us advocating for social justice as workers, teachers, journalists, lawyers, engineers, and citizens from all walks of life must continue building this social movement to guarantee productive employment for all” by finding a way to effectively inform a frustrated populace on how simple and just such solutions could be.
–a Job Guarantee program–
An ambitious program but in terms of practical life and a market dominated economy there has never been 100% employment. There will always be some unbridgeable gap between supply of jobs and demand for jobs.
The JG would create Full Employment defined as: everyone wanting a job has the right to, and gets a job offer.
Dr. Kaboub,
Great point. Its always refreshing to know that someone somewhere is still thinking about and striving for the ‘invisible classes’ of our society.
Best,
Usman Gul
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