The Job Guarantee: The Coolest Economic Policy You’ve Never Heard Of

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

Author: Carlos Maciel

Carlos is a member of the first class of the Levy Institute MS program. His thesis work is a framework for a environmentally friendly Job Guarantee program. He is a graduate of Denison university where he majored in Economics and International Studies. Topics of interest include inequality, sustainability, financial economics, and community development.

20 thoughts on “The Job Guarantee: The Coolest Economic Policy You’ve Never Heard Of”

  1. Why can’t we have more public investment in jobs and a basic income? Why must it be an either-or? Those who advocate for job guarantee over basic income need to at acknowledge that the basic income can in principle allow people more freedom over how to structure their lives than a job guarantee program. Those who advocate for a basic income over a job guarantee need to acknowledge that we need more public investment in this country and until machines take all the jobs this means creating waged work.

    1. I agree, a mixed strategy is probably best. Not everyone will be willing and able to work under JG (and BI can fill that gap!), and not everyone will want to stay idle on BI (JG fillin’ the gap). BI might keep some tech workers busy, but I think a lot of people want tangible jobs not “free” incomes. It’s rewarding to accomplish a large project with a group, which is a coordination problem that JG seems more likely to accomplish than BI.

      Either way – the idea is that the government can & should create more wages for the bottom. Relying on the private sector hasn’t worked, let’s try something new.

      – Brad

    2. Hi there,

      I agree with your comment and apologize if my post made it seem like I am in the “either-or” camp. My intent with that post was to provide a brief introduction to Job Guarantee, and I failed to give a good enough explanation on how BI and JG differ, are similar, and can compliment one another. Soon I will write another post where I focus on that exact issue, your comment serves as a good reminder of points to consider.

      Cheers,

      Carlos Maciel

  2. “Ideas about JG programs date back to as early as the 1600s…”. Most of the windbags who waffle on about JG have no idea how old the idea is. So it’s good to see someone who is moderately clued up on this point. In fact the idea goes back way before the 1600s: Pericles implemented the idea in Ancient Athens 2,600 years ago. My source: “Unemployment in History” by John Garraty, Ch1.

    As regards the cost of JG, I am suspicious of claims that it is cheap to run. First, if it were cheap, why have so many JG type schemes been abandoned as quickly as they are set up in Europe and North America over the last 50 years or so? Second, the nearest thing we have to JG in the UK at the moment, namely the Work Programme is certainly not cheap to run (unfortunately).

    Re the first link, that doesn’t seem to work. Might be a temporary glitch.

    “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.” There is a problem there, namely that the form of JG advocated in the above article seems to be much like the WPA in the 1930s, namely that the work involved is public sector type work. The article says “JG is a direct public employment policy”. If that’s the case, then JG does not help produce the goods actually in demand when aggregate demand rises. Ergo JG would do little to ameliorate inflation.

    I actually proposed a solution to that problem 20 years ago by outlining a system in which JG people find work with PRIVATE as well as public sector employers. That idea (unlike the ideas advocated by present day advocates of JG) is actually up and running in the form of the Work Programme in the UK.

    My latest publication on this subject, which will be somewhat above the heads of 90% of those who advocate JG is here:

    http://kspjournals.org/index.php/JEPE/article/view/1237

  3. Has any significantly large economy ever tried this type of program successfully? I remember that the constitution of the Soviet Union guaranteed everyone a job… but of course the Soviet Union had various other problems (e.g, an oppressive authoritarian state structure) that kept it from being a good test case for this concept.

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