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A job guarantee (JG) is an economic policy proposal aimed at providing a sustainable solution to the dual problems of inflation and unemployment. Its aim is to create full employment and price stability, by having the state promise to hire unemployed workers as an employer of last resort (ELR).
The economic policy stance currently dominant around the world uses unemployment as a policy tool to control inflation; when inflation rises, the government pursues contractionary fiscal or monetary policy, creating a buffer stock of unemployed people, reducing wage demands, and ultimately inflation. When inflationary expectations subside, expansionary policy aims to produce the opposite effect. In Marxian terms, the unemployed serve as a reserve army of labor. By contrast, in a job guarantee program, a buffer stock of employed people (employed in the job guarantee program) provides the same protection against inflation without the social costs of unemployment, hence potentially fulfilling the dual mandate of full employment and price stability.
The job guarantee proposal is particularly associated with certain post-Keynesian economists, particularly at the Centre of Full Employment and Equity (University of Newcastle, Australia), at the Levy Economics Institute (Bard College), and at University of Missouri – Kansas City including the affiliated Center for Full Employment and Price Stability.
JG draws from a social justice tradition of right to work, such as the United Nations Universal Declaration of Human Rights and the US Employment Act of 1946, and an early form was proposed by Hyman Minsky.
The JG proposal was conceived independently by Bill Mitchell (1998), and Warren Mosler (1997–98). It has since been developed further by authors, including L. Randall Wray (1998), and a comprehensive treatment of it appears in Mitchell and Muysken (2008).
The JG is based on a buffer stock principle whereby the public sector offers a fixed wage job to anyone willing and able to work thereby establishing and maintaining a buffer stock of employed workers. This buffer stock expands when private sector activity declines, and declines when private sector activity expands, much like today's unemployed buffer stocks.
The JG thus fulfills an absorption function to minimize the real costs associated with the flux of the private sector. When private sector employment declines, public sector employment will automatically react and increase its payrolls. So in a recession, the increase in public employment will increase net government spending, and stimulate aggregate demand and the economy. Conversely, in a boom, the decline of public sector employment and spending caused by workers leaving their JG jobs for higher paid private sector employment will lessen stimulation, so the JG functions as an automatic stabilizer controlling inflation. The nation always remains fully employed, with a changing mix between private and public sector employment. Since the JG wage is open to everyone, it will functionally become the national minimum wage.
Under the JG, people of working age who are not in full-time education and have less than 35 hours per week of paid employment would be entitled to the balance of 35 hours paid employment, undertaking work of public benefit at the minimum wage. The aim is to replace unemployment and underemployment with paid employment (up to the hours desired by workers), so that those who are at any point in time surplus to the requirements of the private sector (and mainstream public sector) can earn a wage rather than be underemployed or suffer poverty and social exclusion.
A range of income support arrangements, including a generic work-tested benefit payment, could also be available to unemployed people, depending on their circumstances, as an initial subsistence income while arrangements are made to employ them. This would rarely be necessary once the system was well established, because in most circumstances JG jobs would be immediately available and offered instead of income support.
The fixed JG wage provides an in-built inflation control mechanism. Mitchell (1998) called the ratio of JG employment to total employment the buffer employment ratio (BER). The BER conditions the overall rate of wage demands. When the BER is high, real wage demands will be correspondingly lower. If inflation exceeds the government's announced target, tighter fiscal and monetary policy would be triggered to increase the BER, which entails workers transferring from the inflating sector to the fixed price JG sector. Ultimately this attenuates the inflation spiral. So instead of a buffer stock of unemployed being used to discipline the distributional struggle, the JG policy achieves this via compositional shifts in employment. Replacing the current non-accelerating inflation rate of unemployment (NAIRU), the BER that results in stable inflation is called the non-accelerating inflation buffer employment ratio (NAIBER) (Mitchell 1998). It is a full employment steady state JG level, which is dependent on a range of factors including the path of the economy. There is an issue about the validity of an unchanging nominal anchor in an inflationary environment. The JG wage would be adjusted in line with productivity growth to avoid changing real relativities. Its viability as a nominal anchor relies on the fiscal authorities reining in any private wage-price pressures.
No relative wage effectsEdit
The JG introduces no relative wage effects and the rising demand per se does not necessarily invoke inflationary pressures because by definition it is satisfying the net savings desire of the private sector (see Mitchell and Muysken, 2008 for more details). Additionally, in today's demand constrained economies, firms are likely to increase capacity utilisation to meet the higher sales volumes. Given that the demand impulse is less than required in the NAIRU (Non-Accelerating Inflation Rate of Unemployment) economy, it is clear[how?] that if there were any demand-pull inflation it would be lower under the JG. There are no new problems faced by employers who wish to hire labour to meet the higher sales levels. Any initial rise in demand will stimulate private sector employment growth while reducing JG employment and spending. However, these demand pressures are unlikely to lead to accelerating inflation while the JG pool contains workers employable by the private sector.
While the JG policy frees wage bargaining from the general threat of unemployment, several factors offset this:
- In professional occupational markets, while any wait unemployment will discipline wage demands, demand pressures may eventually exhaust this stock and wage-price pressures may develop. With a strong and responsive tertiary education sector, skill bottlenecks can be avoided more readily than with an unemployed buffer stock;
- Private firms would still be required to train new workers in job-specific skills in the same way they would in a non-JG economy. However, JG workers are far more likely to have retained higher levels of skill than those who are forced to succumb to lengthy spells of unemployment. This changes the bargaining environment rather significantly because firms now have reduced hiring costs. Previously, the same firms would have lowered their hiring standards and provided on-the-job training and vestibule training in tight labour markets. The JG policy thus reduces the "hysteretic inertia" embodied in the long-term unemployed and allows for a smoother private sector expansion;
- With high long-term unemployment, the excess supply of labour poses a very weak threat to wage bargaining, compared to a JG environment (Mitchell, 1998).
Comparison with other policiesEdit
A crucial point is that the JG does not rely on the government spending at market prices and then exploiting multipliers to achieve full employment which characterizes traditional Keynesian aggregate demand management. The JG program differs in that it "would be targeted directly to households. It is a genuine bottom-up approach to economic recovery. It is a program that stabilizes the incomes and purchasing power of individuals at the bottom of the income distribution that trickles up and stabilizes the rest of economic activity. Strong and stable demand means strong and stable profit expectations. A program that stabilizes employment and purchasing power is a program that stabilizes cash flows and earnings. Stable incomes through employment also mean stable repayments of debts and greater overall balance sheet stability".
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Full employment vs full employabilityEdit
The JG seeks to reorient labour market policy away from the current OECD emphasis on full employability - whereby governments engage in programs to prepare the unemployed for work without guaranteeing that work will be available - towards a focus on creating enough work. The full employability agenda has come under fire from a number of sources in recent years (see, for example ILO, 2004).
Workfare is a scheme where participation in activities is a requirement for obtaining social benefits. Workfare schemes may not cover all of the unemployed, and may not offer the same income as a full-time minimum wage job.
Several modern countries have implemented direct job creation schemes to combat persistent unemployment.
The Soviet Union guaranteed a job for nearly everyone from about 1928 (as part of the Great Break) through to its end in 1991. A job guarantee was included in its 1936 constitution, and was given further prominence in the 1977 revision. Later communist states followed this lead.
In the United States from 1935 to 1943, the Works Progress Administration aimed to ensure all families in the country had one paid job, though there was never a job guarantee. Full employment was achieved by 1942 due to World War II, which led to the ending of the organisation the following year.
The original drafters of the Employment Act of 1946 intended for it to mandate full employment, however Congress ultimately gave it a broader pro-employment nature. The Humphrey-Hawkins Full Employment Act of 1978 authorized the government to create a "reservoir of public employment" in case private enterprise does not provide sufficient jobs. These jobs are required to be in the lower ranges of skill and pay so as to not draw the workforce away from the private sector. However, the act did not establish such a reservoir (it only authorized it), and no such program has been implemented in the United States, even though the unemployment rate has generally been above the rate (3%) targeted by the act.
From 1945, the Australian government was committed to full employment through the position established by the White Paper on Full Employment in Australia, however this never included a formal job guarantee. The Reserve Bank Act 1959 charges the Reserve Bank of Australia with ensuring full employment, amongst other duties.
The Australian government has since had a "mutual obligation" regime for most unemployed people wishing to receive welfare payments nationwide from 1997 (and in remote indigenous communities from 1977). Part of this is a near-universal offer of at least 16 hours of low-paid work each week, for periods of time. For much of this regime, the work options were for employment with not-for-profit charity organisations, a government body or their own young children. These options have included Work for the Dole (from 1997), Community Development Employment Projects (1977-2015), Community Development Program (from 2015) and the Green Army Program (2014–18). More recently there have been options to do low-paid work for commercial businesses as well (Drought Force from 2003 and Youth Jobs PaTH from 2017). There is also often an option to instead undertake approved education, or to volunteer. The Victorian state government has offered the similar Drought Employment Program since 2016.
Similarly, the government of India in 2005 introduced a five-year plan called the National Rural Employment Guarantee Act (NREGA) to bridge the vast rural–urban income disparities that have emerged as India's information technology sector has boomed. The program successfully empowered women and raised rural wages, but also attracted the ire of landowners who have to pay farm labourers more due to a higher prevailing wage. NREGA projects tend to be highly labour-intensive and low skill, like dam and road construction, and soil conservation, with modest but positive long-term benefits and mediocre management.
The South African government introduced the Expanded Public Works Program (EPWP) in 2012 to overcome the extremely high unemployment and accompanying poverty in that country. EPWP projects employ workers with government, contractors, or other non-governmental organisations under the Ministerial Conditions of Employment for the EPWP or learnership employment conditions.
The European Youth Guarantee is a commitment by European Union member states to "guarantee that all young people under the age of 25 receive, within four months of becoming unemployed or leaving formal education, a good quality work offer to match their skills and experience; or the chance to continue their studies or undertake an apprenticeship or professional traineeship." The committed countries agreed to start implementing this in 2014. Since 2014, each year more than 3.5 million young people registered in the program accepted an offer of employment, continued education, a traineeship or an apprenticeship. Correspondingly, youth unemployment in the EU has decreased from a peak of 24% in 2013 to 14% in 2019.
Sweden first implemented a similar guarantee in 1984, with fellow Nordic countries Norway (1993), Denmark (1996) and Finland (1996) following. Later, some additional European countries also offered this as well, prior to the EU wide adoption.
Germany and many Nordic countries have long had civil and military conscription programs for young people, which requires or gives them the option to do low-paid work for a government body for up to 12 months. This was also the case in the Netherlands until 1997. It was also the case in France, and that country is reintroducing a similar program from 2021.
In popular cultureEdit
In the third season of the American political drama House of Cards, a job guarantee program, called "America Works," is a key policy proposal of protagonist Frank Underwood (portrayed by Kevin Spacey) after he becomes President of the United States. Details of the program are sparse, but it is portrayed as involving both public sector employment (in the form of public works programs) and private sector employment (with subsidies for employers who take on new workers), and is intended to be financed with cuts to Social Security and Medicare. America Works is not fully implemented, but a pilot program centered in Washington, D.C. is portrayed as having employed tens of thousands of people before funds are rescinded.
The Labour Party under Ed Miliband went into the 2015 UK general election with a promise to implement a limited job guarantee (specifically, part-time jobs with guaranteed training included for long-term unemployed youth) if elected; however, they lost the election.
Bernie Sanders supports a federal jobs guarantee for the United States and Alexandria Ocasio-Cortez included a jobs-guarantee program as one of her campaign pledges when she ran for, and won, her seat in the U.S. House of Representatives in 2018.
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