It is official, the unemployment rate in the US has dropped to its lowest level in 16 years. Economists all around the country must be tapping themselves in the back and buying each other drinks in congratulations, right? Wrong. Despite the official drop in joblessness, we have a decline in labor participation, […]
Author: Carlos Maciel
It’s been nearly a decade since we first felt effects of the Great Recession. While the recession officially ended, its consequences still affect us. Some are beneficial, others (like sluggish growth and the number of people leaving the labor market) not so much. One of the better side effects of the 2007-2008 […]
There’s been much talk about Trump’s plan for jobs and infrastructure that entails over one trillion dollars in new spending (without tax increases) and promises to employ thousands of American workers. Because it looks like this would require significant deficit spending, it has drawn stiff criticism: even Trump’s the own conservative supporters have expressed concern.
Among advocates of Keynesian spending and Modern Money Theory (MMT), however, some precautionary excitement can be observed. Their perspective is different because they are unafraid of a government deficit, and in favor of direct job creation. They understand that deficit-spending is not inherently bad, and that the US government will never have to default on its debt. When the economy is not at full employment, increasing the deficit would actually be helpful, not harmful.
A fiscal stimulus aimed at reducing unemployment is timely and necessary. Despite the confidence expressed by the Fed about the latest employment numbers, the situation for those who are jobless is not looking good. One of the reasons for the latest rate hike by the Fed was their positive outlook on unemployment numbers. Chairman Yellen has gone as far as saying that (at 4.6% unemployment rate) we are close to full employment and fiscal stimulus is not necessary to reach that goal.
However, the low official joblessness rate hides the fact that an increasing number of Americans have left the labor force altogether; for example there are currently over 5 million Americans who are not in the labor force but have reported that they want a job. This is where a Job Guarantee program could come in handy. In short, the government would act as an Employer of Last Resort, effectively guaranteeing a job to all of those willing and able to work.
And if Trump uses the deficit-spending towards jobs in infrastructure, it might result in something that resembles the job guarantee policy that America needs**. I argue, however, that the financial feasibility should not be the only criterium for a successful implementation of the job-guarantee. It also has to be sustainable. If we’re going to be at full employment, we have to do it in a way the planet can handle.
The current structure of the economy relies too heavily on fossil fuels, wasteful production methods and non-renewable resources. Unless we change this, sustaining full-employment would result in increasing production, consumption, and waste. My favorite Keynes’ quote is that “In the long run we are all dead.” If we’re talking about a long run of increasing pollution, he will surely be right. As we know, too much of a good thing can be a bad thing. This applies to jobs too. Unless they are green jobs, too many jobs will be bring us environmental destruction.
The issue of the environmental sustainability of a Job Guarantee program has been on my mind since I first heard of the proposal. Mathew Forstater’s Green Jobs proposal was inspirational to my work. In my Master’s thesis, I tweak its existing framework to target environmentally sustainable outcomes. I find that we can transform the Job Guarantee program to ensure its sustainability without increasing its cost. Here’s how:
I set up the program in a way that promotes social enterprise and community development, following the work of Pavlina Tcherneva et al. With the help of social entrepreneurs, NGOs, and Nonprofit Organizations, local communities should decide what projects will be undertaken. For example, communities along the Hudson river could support a program where workers dealt with invasive species such as the zebra mussel and water chestnut. Other localities could handle neighborhood farming, recycling centers, flood containment structures, bike paths, etc.. It’s been found that if the community is involved in determining what projects are taken on, participation levels are higher.
A more detailed account of my proposal and calculations is available upon request, but this is the gist of it: I used an Input-Output model to establish what would be the cost of employing the official U-3 unemployed population into “green” Job Guarantee jobs. That framework accounts for indirect job creation related to the proposal, but not induced employment. What I find is that the US government can, under conservative assumptions, employ all of those who are officially unemployed for around 1.1% of GDP while paying them a $15hr wage. That is about 17% of the annual military budget. The Green Job Guarantee program is projected to cost just under 200 Billion dollars per year in order to ensure employment for 7.8 million people.
As the world economy quickly transitions into a more sustainable state, a shift in the productive structure will occur, rendering some current occupations useless. Workers who are employed in areas like fossil fuel energy generation (the fabled coal workers of the American Midwest for example) will be left without a job and unlikely to find a new one right away. There is no way to predict how quickly this transition will occur: it could be a gradual–albeit fast–process if led by government initiative, a slower and insufficient movement if guided by profit motives, or even a sudden transition caused by widespread popular response to natural disasters.
Given current trends it is safe to assume that the transition to a renewable energy generation and a sustainable economy will occur before the fossil reserves are depleted. Just as the stone age ended before we ran out of stone, the “oil-age” will end before we run out of oil. As such, fossil fuel workers (and those who depend on their consumption) are at risk of losing their jobs in the near future. A Job Guarantee program would allow those workers to not only find employment readily, but also to acquire the on-the-job skills that will allow them an easier transition into the Green economy.
So as we continue to criticize and investigate the means of job-creation proposed by the President-Elect, let’s look beyond the government deficit, and consider the planet, too. Whether you’re afraid of government debt or not, you should be concerned with the destruction of the earth. If we are going to have a public program that aims a generating new jobs and bringing people back into the workforce, then that program should be a Job Guarantee. But, if we’re going to guarantee jobs, the will have to be green. And we have all the tools we need to make that happen.
*Interested in some good work on how to build a sustainable economy? Check out the publications from PERI and the Binzagr Institute for Sustainable Prosperity. Interested in a non-profit that is already doing some great things in that area? Visit GreenWave‘s website and get involved!
** I must make clear that, although Trump’s infrastructure plan might very loosely look like a Job Guarantee program because of its intent, it differs significantly from it because of how it will will be implemented. The president elect’s plan is based on private spending and making concessions to big corporations; it is basically a big giveaway to developers and not a program to ensure full-employment and financial stability.
These are strange times. For those who have been drowning in the craziness milk-shake that is the United States presidential campaign and have not been able to follow other world events (we do not blame you), it should come with some assurance to know that the rest of the world is not […]
Earlier this month I had a conversation with a regional manager from a major insurance company. She explained to me the many aspects of her industry: the commission based salaries, strategies to sell life insurance to one year-old children, and how to retain employees. To be honest, I don’t find insurance to […]
When you think of economic issues what are the first things that come to mind? Poverty, inequality, unemployment, inflation, and crisis are all common answers to the question. Wouldn’t it be great if there was a policy that could address all of those issues (and more) in a cost-effective manner? In this piece I will give a very brief introduction to Job Guarantee (JG) schemes, the proverbial economic silver bullet.
Hyperboles aside, Job Guarantee proposals (which may come in many different names such as Employer of Last Resort, or Public Service Employment) are a remarkably good way to address many of the social economic problems current faced by populations all over the world. Ideas about JG programs date back to as early as the 1600s, they have been implemented in many nations during a variety of different stages of the business cycle – and usually to a great deal of success.
Simply put, JG is a direct public employment policy where all of those people who are willing and able to work are guaranteed a job given that these individuals meet some basic employability requirements. Most proponents of JG establish that these jobs should pay a basic, fixed, uniform wage plus full medical coverage and free child care (the latter can be provided by JG workers themselves). The goal of the program should be to ensure that all full-time JG workers are able to obtain a living standard that is above a reasonable poverty threshold. Thus, this sort of program go a long way in addressing poverty. Furthermore, it would also target another major economic problem, the stagnation of real wages and the currently low minimum wage granted to US workers. The JG wage would instantly become the minimum wage for the entire economy: workers in other sectors that are receiving less than the JG wage would be very compelled to take one of those guaranteed jobs, and employers would have to raise their salary offers in order to keep their workforce. Finally, the wages would also act as price anchor, which improves upon the stability of the economy.
The first question I usually get when telling someone about the Job Guarantee is “yeah but, how can we afford it?!” Questions about the deficit and national debt have been put to rest previously on this blog (see here), hence I shall focus on other questions regarding its affordability. For starters, it has been shown elsewhere that JG is remarkably cheaper and more effective than other proposals, such as Basic Income and Negative Income Tax, in achieving lower poverty and unemployment rates (see here, and in many pieces by Rutger’s Phillip Harvey). Secondly, the newly employed JG workers would bring in savings in many different ways: they would get out of unemployment insurance, food-stamps, and other such programs; they will pay income tax, medicare and social security tax, as well as more consumption related taxes; and the government would spend less on issues that are related to poverty, such as higher crime rates. In addition, employment multipliers would make it so the JG program would not have to employ the entire unemployed population. The extra consumption and production related to the JG will create indirect and induced jobs which will represent a significant portion of the job creation from the program. Finally, yours truly is among a number of economists who have modeled the implementation of a a JG for the US and found that eliminating unemployment at a living wage would cost just around 1% of the American GDP.
At this point many say something like “but employing everyone while raising the minimum wage has to be inflationary!” the answer to which is a simple “nope”. First, we have to bear in mind that in the current system the economy’s most precious resource – workers – is being wasted in unemployment, while under a JG program it will be put to use. Orthodox economic thought claims that millions of people need to be unemployed in order to contain inflation, that it is financially “sound” to a tenth of the population in idleness for an unknown period of time. It comes from the idea that the economy is always operating at full capacity, which then brings the inflation problem to being a matter of equilibrating the demand and supply forces of the economy. Both of these assertions are, to quote Keynes, “crazily improbable – the sort of thing that which no man could believe had not his head fuddled with nonsense for years and years.” Government expenditure is as inflationary as any other sector expenditure. Unemployed workers are spending in consumption either way, being sustained by welfare or, dangerously, by credit – and there’s nothing financially “sound” about that.
A JG program would in fact control for inflation by proving a minimum wage anchor for prices and by increasing the productive capacity of the economy through its projects. It would take off the pressure put on demand from the unemployed by increasing supply of goods and services by incorporating those idle workers in the productive structure. Furthermore, even if we assume it to be inflationary it would be a “one-time” increase in inflation, and not an accelerating type one, meaning that demand (and inflation) wouldn’t rise above the full employment level.
In that sense, the costs associated with a JG program (increasing budget deficit and inflation) are not more than ideological myths that obscure the true social costs of unemployment and poverty and curtails any innovative attempts to deal with them. Indeed, generating aggregate demand, employment and inflation is all what the US economy has tried to do since the 2008 financial crisis, but through the wrong ways. A JG program would be extremely more efficient and less costly than QE or negative interest rates. As the world crumbles in economic and political instability, guaranteeing jobs would surely deal with most of its problems. It is up to governments to load and shoot that silver bullet. I don’t think there’s a more appropriate time than now.
Written by Carlos Maciel & Vitor Mello
Illustrations by Heske van Doornen
Earlier this week Carlos Maciel, The Minksys’ Special Correspondent for Vertical Matters, attended the yearly conference for the American Council for Ladder Producers (ACLP), he managed to do a few interviews. Here is what he found out about the institution’s recent letter of support for the Trump presidential campaign.Carlos Maciel: Here I […]