Objections to the Job Guarantee

On Thursday I went to Sheffield to watch an excellent lecture on the Job Guarantee by economist L Randall Wray. It was a good chance to meet some Twitter friends in person for the first time and also to see in the flesh someone whose work I’ve been following for the last three years and whose ideas I’ve blogging about for the last two. Wray was talking about the key policy proposal of Modern Monetary Theory – the Job Guarantee. The Labour Party are proposing something called a Job Guarantee, but isn’t really worthy of the name, so I was interested in what the other people at the lecture thought of the idea when fully fleshed out. The people there were probably already pretty sympathetic to the idea, and most did seem positive, asking what other economists thought of it and whether businesses would object. I also wanted to see what people who may not have heard of the idea would think of the Job Guarantee when first exposed to it, so I canvassed for some views on Reddit. Here is what I posted:

…I would like to hear your opinions of an alternative policy, which would be a job guarantee scheme. What is a job guarantee? Here are the main features:

  • The government would offer a job to anyone willing and able to work.
  • The government would pay the wages, but it would be up to local communities to design the jobs
  • The jobs would be paid at a living wage
  • On the job training would be provided

What are your first thoughts/objections?

I got a modest number of responses which were along the lines of what I expected. These are a few of the responses:

Non jobs

If a government creates jobs they will be non jobs equivalent to digging holes and filling them back up again. This argument is often used, and is kind of a misunderstanding of Keynes who said:

“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”

Source: Book 3, Chapter 10, Section 6 pg.129 “The General Theory..”

So Keynes was arguing that even paying people to perform useless tasks would be better than nothing, but something useful would be much more sensible. Similarly, even if all jobs created under a Job Guarantee were indeed non jobs, that would still be preferable to leaving people unemployed. But with clever job design though and a bit of imagination, we can do much better than that!

Too expensive

This argument is that it would be too expensive to create jobs to hire unemployed people, so it’s better to keep them on the dole and hope things pick up. But how much would it actually cost? At the moment there are around 2.1 million unemployed people. The living wage is around £7.65 an hour (higher in London, but I’ll use the lower figure here. So if we gave all the unemployed full time jobs (35 hours pw) paying the living wage this would cost:

2.1m x 7.65 x 35 (hours pw) x 52 (weeks per year) = £29.24bn. Wow, that’s a lot! But that’s only the gross cost. For the net cost, we need to deduct the cost of paying unemployment benefit (the number claiming unemployment benefit is only around half the total unemployed figure). This is:

1.01m (on JSA) x 72.4 (weekly JSA for someone over 25) x 52 (weeks per year) = £3.8bn

£29.24bn – £3.8bn = £25.44bn

There are some other costs not included about like management, administration and training costs, but there are other savings that may mean the final cost would be even lower because don’t forget, these 2 million now working will be paying income tax and national insurance. Not all will want to work full time, so the average hours worked per week on the Job Guarantee would be less than 35. You wouldn’t need to offer all 2 million a job though because as the newly employed spend their wages, this will create additional jobs in the private sector as sales increase.

Ignoring all that though and using the higher figure, for a net cost of £25bn, we could have a economy in which everyone who wants a job has one. This is about 1% of the UK’s GDP, or less than half our defence budget, or less than 20% of the welfare budget. When you look at that in context, it doesn’t seem that expensive at all. Don’t forget too, this £25bn is much higher than it would be in normal times. As the economy recovers, private businesses would be able to hire from the pool of job ready Job Guarantee workers, and the number of people in Job Guarantee jobs would shrink.

Training and education not subsidised jobs

This is what I would call the neo-liberal line. It says that unemployment mainly occurs because the unemployed do not have the right attitude or the right skills to get the jobs that are there for people who do have the right attitude and the right skills. Those who subscribe to this view argue that the role of government should be to train the unemployed to to find work. This is the strategy we have employed in the UK for at least the last 15 years. The problem is, it’s nonsense. If the jobs don’t exist, no amount of training will help every unemployed person into work. Some of them will always fail. It’s really rather cruel.

Jobs would need to be economically viable

I’m not quite sure what this means, but I think it’s the view that for something to be worth doing, it must make a profit, and that the private sector creates the wealth with which the public sector uses to provide public services. This is just not true though. Government should not be run like a business. The things it decides to fund should not rest on “economic viability”, but on whether the funding will improve the general welfare of the country.

Sounds like communism

Didn’t really get this one, but I suppose it’s a reaction to the government increasing its payroll by up to a couple of million more workers. The Job Guarantee though would only be the offer of a job. No one has to take up the offer. And rather than being communist, it’s actually pro-business in a lot of ways. Businesses often complain that the people they hire lack basic skills or the right work ethic. They view hiring the unemployed as often a risk not worth taking, so they should welcome a job ready pool of workers with recent work experience from which to hire. They just have to make the workers a better offer to the one they get in the Job Guarantee. A little competition in the labour market would be a good thing. The wages paid to Job Guarantee workers would also bolster the sales of private sector businesses.

I guess I can understand a lot of the knee-jerk reaction to the idea that the government should be prepared to give jobs to all the unemployed, but I hope the above has answered why I think these objections are ill-founded. Those who are unemployed and on benefits are already on the government’s payroll, it’s just that we are wasting their talents. Why not pay them a decent wage and get them engaged in useful work? Sounds like a win-win to me.

17 thoughts on “Objections to the Job Guarantee

  1. “This argument is that it would be too expensive to create jobs to hire unemployed people,”

    I’m starting to get a bit irritated with the money argument. If you give the unemployed money one of two things will happen.

    (i) the economy will dynamically expand in real terms to produce the goods these people needed but were unable to demand because they didn’t have any money. That is the most likely thing that will happen and nobody loses out then – in fact things get cheaper via greater economies of scale

    (ii) the economy will be completely full and you’ll get inflation requiring increased taxation to reduce spending power. If this is the case (and it is very unlikely to be that) then what people are saying is that the poor shouldn’t have access to appropriate food and shelter because they prefer to have cheaper iPhones. Which is a desperately selfish attitude anyway.

    I really don’t know why we pander to a fundamentally selfish attitude that has a negligible probability of occurring anyway.

  2. I suspect the inflation argument exists because on some level it is understood that, in reality, government spending doesn’t cost us anything. Economists often, because of their accepted epistemology rules, will sort of argue that “what we say isn’t literally true, but it is effectively true”. This is often how they react to MMT. It’s “technically” true, but the effect is what we say. So government spending doesn’t “technically” cost anything but inflation will indirectly have the same effect as if it did cost us.

    Economics is filled with these types of bizarre adjustments designed to make blatantly absurd ideas ‘effectively’ true.

  3. “(ii) the economy will be completely full and you’ll get inflation”

    – I’m not sure how this is even conceptually possible, except in some hypothetical ‘spherical chickens in a vacuum’ world. I mean if the government issues money (however it does it, job guarantee or not) while supply is at it’s maximum then you’ll have more money chasing the same goods. Fine in theory. Firstly when is supply at it’s maximum? Ever? What does that even mean? And if it were we would have serious problems that monetary policies can’t touch. And on top of that, how can the ‘supply’ of jobs be restricted? The job of figuring out how to fix the limited supply is itself a job.

    And if you take the free market line surely the market is supposed to be able to find ways around limited supply anyway. Which is obviously true if markets are to form at all… supply starts by being maxed out by definition.. at zero.

    And.. on top of all of that, if it were possible, as you say, the government can just tax the money away anyway.

  4. Alittleecon says: “Wray was talking about the key policy proposal of Modern Monetary Theory – the Job Guarantee.” JG doesn’t actually have anything to do with MMT, as Warren Mosler has pointed out. That is, one can implement JG type schemes WITHOUT implementing MMT at the same time. Indeed they did that in the 1930s.

    That’s a very simple obvious point. And like many simple obvious points related to JG, it’s way beyond the comprehension of the people like Wray currently making a song and dance about JG.

    And don’t jump to the conclusion that I’m opposed to JG: I’m just saying that the people currently making a song and dance about the idea are clueless.

    1. “implementing MMT”

      You have made a category error. MMT can’t be implemented. It’s a theory. A description of reality. It’s either right or wrong. Reality implements it, or doesn’t.

  5. Another bit of nonsense in Alittleecon’s article is this passage: “There are some other costs not included about like management, administration and training costs, but there are other savings that may mean the final cost would be even lower because don’t forget, these 2 million now working will be paying income tax and national insurance.”

    Now there’s a problem there. It’s not insuperable, but since Alittleecon seems to be unaware of the problem, that indicates he shouldn’t be writing on this subject. The problem is this.

    If people’s wage on JG is substantially above unemployment benefit, that reduces their inventive to seek normal or regular jobs, and that reduces aggregate labour supply to the normal or regular jobs market. And that will tend to be inflationary.

    As a result, aggregate demand may have to be reduced, which will destroy regular jobs. In short, the JG jobs will be AT THE EXPENSE OF regular jobs.

    The EXTENT TO WHICH the latter is a problem depends on how near capacity or NAIRU the economy is. I.e. if the economy is literally AT CAPACITY, then the reduced labour supply stemming from generous JG wages will be a SERIOUS problem.

    Incidentally, the Swedish labour market economist Lars Calmfors tumbled to the above problem 30 years ago and set out the solution. But reading the literature is too much like hard work for the current crop of JG enthusiasts. The result is that all they do is re-invent wheels.

    1. Ralph, keep it civil please, and don’t assume that because your particular hobby horses haven’t been raised in the post, I haven’t considered them. I just don’t agree with you. I’ve read your objections to the MMT JG multiple times, but just don’t find them convincing. Sorry.

    2. “If people’s wage on JG is substantially above unemployment benefit, that reduces their inventive to seek normal or regular jobs, and that reduces aggregate labour supply to the normal or regular jobs market. And that will tend to be inflationary.”

      The wage is chosen to be no-desruptive. You have a concept of non-disruptive, it’s the inverse of ‘substantial’.

    3. “if the economy is literally AT CAPACITY”

      There is no such thing as ‘at capacity’ for work. The concept is literally meaningless. It’s even self-defeating. Who gets the job of calculating whether we are at capacity? And what do they do when they are finished?

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