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.


Benefits bashing, house prices and the right to protest

A lot to get through this week. A lot of stuff caught my eye, but maybe that’s just because I’ve been paying attention. Here then are a few links worth reading from the last seven days.

Starting with housing, Jules Birch put up a nice post about Help to Buy and house prices:

Appearance and reality in the 2014 housing market

And here in a blog for Inside Housing, the same author pours cold water on Tory plans to remove the right to claim housing benefit from under 25s and to exclude people earning over £60,000 a year from council housing:

Benefits baseline

On to universal credit now, and news of more IT problems at the DWP:

Government descends into inter-departmental squabbling over Universal Credit

Staying with the DWP, Jonathan Portes blogged about the results of a DWP pilot called “Help to Work”. The evaluation of the pilot was released with no fanfare on the DWP website, probably because it shows the new measures had very little impact, despite the cost:

The “Help to Work” pilots: success, failure or somewhere in between?

Benefits more generally have been in the news a lot this week after the showing on Monday of a charmingly titled documentary called “Benefits Street”. This stirred up a lot of anger on both sides, and led to more head-scratching about what to do about the welfare system. Regular readers will know I think a job guarantee would go a long way to improving the (economic and welfare) systems. I lot of objections are raised about this idea, and one of the job guarantee’s leading proponents, economist Randy Wray has helpfully produced a post responding to some of these common objections:


Finally now, and on a different topic, some worrying news for civil rights – the Govenment’s  Antisocial Behaviour, Crime and Policing Bill. George Monbiot in the Guardian wrote that this could be used to stymie the right to peaceful protest among other this:

At last, a law to stop almost anyone from doing almost anything

Although as Mike Sivier highlights, certain parts of this bill could be blocked in the Lords:

Foiled! Lords veto Coalition bid to make being ‘annoying’ an arrestable offence

The right way to look at the deficit

Ed Miliband gave an interview to Martha Kearney on the World at One yesterday which has been widely regarded as being in car crash territory. He was talking about what he would be doing now and mentioned a temporary VAT cut. Kearney repeatedly asked him if this meant borrowing would go up in the short term, and Miliband failed to provide a satisfactory answer (he’s now said it would). Opponents responded gleefully to the interview. Here’s the idiotic Grant Shapps:

‘Ed Miliband is too weak to admit what his Shadow Chancellor, Ed Balls, has already said: that Labour’s plans mean more spending, more borrowing and more debt, exactly how Labour got us into this mess in the first place.’

The commonly held view then is that more borrowing is bad (even if it leads to growth), so the only thing to try to do is grow the economy while pursuing austerity at the same time (very difficult if not impossible). With this in mind I thought I’d share a good quote I came across today giving a different perspective on the deficit debate. Here’s economist L Randall Wray:

“Deficits are mostly nondiscretionary–the outcome of the automatic stabilizers. We could ramp up government spending today, and cut tax rates, and might find deficits actually go down. Or up. Or stay the same. Who cares? Not Moi. Functional. Finance. That is what we advocate. Sensible policy, not arbitrary deficit or debt ratios. Full employment. Low inflation.”

Short and sweet and makes a refreshing change from the usual nonsense we hear. How great would it be to hear this come out of a politicians mouth? Basically we are worrying about the wrong things. The size of the deficit is not important. Unemployment, housing, incomes, education, health. These are the things that really matter, and by making economic policy all about the deficit, we are setting ourselves up for massive problems down the road.