As an initial disclaimer, the title of this article is a very deliberate choice: it is how I would approach the problem, and does not reflect the state-of-the-art research on the topic by academics in the MMT school of thought. I only have a limited knowledge of their detailed research. Furthermore, I discuss a potential implementation in Canada that is based on my political instincts as to what would be politically sustainable programme; as a result, my views on implementation probably vary from the main MMT academics. My political instincts are probably out-of-date, so what I write here should not be taken as a definitive statement on how Canada should approach implementation.
What is the Job Guarantee?
The first question we face is: what is the Job Guarantee programme? The one-sentence summary is: the central government guarantees a job for all citizens that are willing to work. There are a lot of hidden complexities in that summary, which tends to trip people up (particularly those who are politically opposed to the programme, who tend to be deliberately obtuse when writing about it).
My description here is quite brief; this article by Bill Mitchell has more information (from a more-informed source).
The demand for such jobs obviously rises in a recession, and so the wages paid would be counter-cyclical. As a result, the central government (which controls its own currency) is the natural level of government to pay those wages.
There are two broad ways the job creation could be managed.
- The government has a permanent bureaucracy that manages centres where would take in entrants, and find work for them to do. (I come back to the definition of "the government" later.)
- The government allows municipal governments and charitable non-profits to find and hire workers. (Presumably with a government-supported electronic platform for would-be workers to find such positions; citizens without internet access would be able to use terminals at government-run facilities such as public libraries.) The government's role would be to set standards, offer technical support, and have a team of inspectors making sure the wages are being paid according to set standards.
(Of course, a mixture of these two job-delivery modes could be used.)
The general preference seems to be towards the second option; by decentralising the programme, it makes it much closer to the conditions on the ground in different regions. In countries like Canada and the United States, that is an important consideration. Furthermore, it creates a much larger body of dedicated citizens who see the programme as useful (every charity that has manual labour needs). This creates a voting bloc that only the most sociopathic free market ideologues would want to mess with.
I have not looked recently at the Canadian Constitution, but my instinct is that the programme would be implemented at the provincial level, like the other aspects of the welfare state. The role of the Federal government is to set standards, and offer cash support. Otherwise, it would be difficult to come up with a programme that would keep the provincial governments in both Alberta and Québec happy. This provincial-level implementation would allow even more customisation based on local conditions. The Job Guarantee wage bill would probably replace some existing Federal fiscal transfer spending (which might distress some empire-building provincial politicians).
I am going to dodge the issue of what the workers will do; it seems that existing charities have plenty of labour needs. However, one basic principle is that the workers would generally not be producing goods or services that would be sold into markets, as that would put them into direct competition with the private sector.* (If the intention were to sell goods and services, various slow-witted individuals would argue that the objective is to "make money," and that when it inevitably "loses money," the programme is a failure. The whole point of the programme is to "lose money" during a downturn, so as to inject income flows in a counter-cyclical fashion.)
A key assumption I am making is that the people enrolled in the programme are indeed working, and so these positions would not be viewed as a "money-for-nothing" proposition. This means that people would presumably not just quit private sector employment to work at a Job Guarantee position for lower pay (unless that private sector work was very unattractive relative to the pay offered).
How I am Not Analysing the Job Guarantee
Such a programme would have a variety of effects on the economy, and could be analysed in many ways. I am going to outline a number of ways I am not doing so here.
- Aggregated macro analysis. Aggregated macro analysis (such as using a stock-flow consistent model) would have its place in analysing the cyclical properties of a country with such a scheme. However, such analysis would rely on behavioural assumptions about macro behaviour, and we do not have the data to be able to fill in the parameters with confidence.
- Mainstream microfoundations. The only justification for the mainstream micro-founded approach to macro is that it is supposed to allow us to judge the effects of policy regime shifts ("Lucas Critique"). However, the assumption that everyone is the same (which is a de facto requirement for these models) falls flat on its face when we obviously have two classes of citizens, depending on whether they are in the programme or not. In other words, these mainstream models are even more useless than they normally are for this task.
- Small-scale experiments. Small-scale experiments are useful for determining the best implementation practices, but by definition, cannot tell us about the macro effects that I am interested in here. A small-scale experiment cannot cause structural changes to the labour market of the economy, which is exactly what I want to know about.
The Analysis Technique
We need to get our hands on a detailed breakdown of the current wage distribution of Canadian workers across industries. I have looked at this data previously, and have a rough idea of what it looks like, but one could throw as much effort one wants at getting more details.
I am interested in finding what the new "steady state" in the economy is after the programme is implemented, and not trying to guess what the quarterly GDP numbers over the next few quarters. The working assumption is that the current wage structure is relatively persistent, and that it would be the baseline for the steady state (in the absence of a Job Guarantee programme). Since the time interval involved is vague, we will assume that all wages are growing at the same rate, and so we work with "current dollar" wages (effectively a base year for a real wage).
We know (by just looking at the data) that wage structures changes over time. Although it would be nice to be able to capture this, the reality is that the resulting model would be hideously complex and unusable.
We now move away from our base case, and introduce a Job Guarantee. The key policy variable is the level of wages paid. Depending on that hourly rate, we would expect the effects to vary.
In order to avoid getting distracted by numbers, I will refer to the wage as being relative to the minimum wage. As anyone familiar with Canadian politics would guess, that wage varies by province. That creates issues for detailed regional analysis, but not my back-of-the-envelope analysis.
Case: Extremely Low Wages
The government could set the wages in the programme at a stupidly low level, like $2 an hour. Only the truly desperate or masochistic would show up. The programme would be an expensive joke, since it would be necessary to set up an infrastructure that is never used.
Case: Low Wages
The wage level is somewhat of a guess, but if the Job Guarantee wage was set $2/hour below the minimum wage (and the minimum wage stays where it currently is), there would be at least some willingness of the currently-unemployed to take up jobs with the programme. However, the pay level would be so low that it seems unlikely that many would quit existing jobs to work on Job Guarantee jobs.
(I will discuss the interaction with the minimum wage in the next section.)
However, the wage level is very far below the current wages and salaries of the middle class. If they lose their job, they would take their Employment Insurance benefits and look for a job that matches their existing skills; the Job Guarantee would not be true option. This is not just obstinacy: a significant portion of Canadian households have fixed costs that consume most of their after-tax income (notably mortgage payments). A severe drop in cash flow relatively rapidly leads to personal bankruptcy; it is better to spend your time looking for a job (with a chance of avoiding bankruptcy) than taking a job that guarantees eventual bankruptcy.
I am assuming that the Employment Insurance (EI) programme (which is what some marketing genius decided to rebrand the Canadian Unemployment Insurance scheme as) remains in place. For our purposes here, the key attribute of EI unemployment coverage is that it based upon payments into the programme: it pays larger benefits to those who had a higher wage/salary (up to a capped level). This income replacement feature makes it useful to the middle classes, as it keeps a level of cash flow that helps stave off bankruptcy.
Actuaries do a very good of pretending that the EI programme is an insurance scheme (and not a welfare state programme), and it is useful to the middle class. This means that it is one of the few politically untouchable remaining parts of the Canadian welfare state. I think it would be a disastrous strategy to restructure this programme when implementing the Job Guarantee (although the contribution schedules might be adjusted to account for low income workers taking advantage of the Job Guarantee).
My guesstimated impact of the Job Guarantee in this case is that it would be a relatively low impact programme. The number of people in the programme would be relatively modest, and there would be little effect on the existing pattern of employment. It would have a counter-cyclical effect, but it may be smaller than the effect of the existing Employment Insurance scheme.
Case: At Minimum Wage
The next possibility is that the wage is set at the current minimum wage ("inflation adjusted"). Whether or not minimum wage laws would still be needed is a question of debate; I believe they would still be needed to protect employees from abusive employers.
My feeling is that the bulk of minimum wage jobs are pretty lousy jobs. Not all of them, certainly. I worked as a dishwasher/short order cook/chef's aide at a country club during my last summer before I entered university, and the job was excellent training for becoming a chef or even setting up your own restaurant. Of course, one would probably have to go to cooking school later, but I was learning the business courtesy of the fact that I spent most of the day working directly with the chef. As a result, I would have stayed in that job, rather than taking a marginal pay increase if I had continued working instead of going to university. That said, the bulk of minimum wage restaurant jobs are without that redeeming feature.
As a result, I would expect that this choice of wage would have a marked impact on some sectors of the economy. Many employers would be faced with the choice: either make their minimum wage jobs more appealing, or raise wages above the minimum wage.
This where having the detailed data on the existing wage structure comes in. Depending on the quality of that data, it would presumably be possible to pin down how many workers might consider the shift, and which industries would be most affected.
My guesstimate is that the effects would be relatively selective, with some businesses either raising wages (and presumably selling prices), or going out of business. One might be able to use the existing empirical literature on the effect of changing the minimum wage to get an estimate of the effect.
From a macro perspective, I would argue that this would ultimately be a relative price effect: prices in the affected sectors would rise relative to those of other sectors. Given the high levels of existing wage inequality, the rise in the effective "minimum wage" would not affect many workers. (If one of my analysts had come in to argue that they needed a raise because the minimum wage went up, that would have been met with one of my characteristic eye rolls and sighs.)
It could very well be that there would be a one-time increase in the measured price level as a result of the industry restructuring, but there is no reason to be this translates into a steady-state inflation.
The number of people within the programme would be uncertain, as we cannot be sure how many low-wage jobs are completely unattractive. However, it would certainly be expected to be fairly large when compared to the existing number of unemployed.
Case: Wage Above Existing Minimum Wage
If the Job Guarantee wage was well above the existing minimum wage, it is clear that there would be restructuring of the economy. Certain industries (such as fast food restaurants) would have to change their business model.
It might be possible that the private sector response would be a broad inflation in wages across the board -- a generalised rise in the price level. If not, there would certainly be a flattening of wage inequality (which might be a desired outcome).
Longer Term Analysis
If the Job Guarantee wage were relatively high, it would be the de facto minimum wage. Employers would have to either pay at least that much, or make their entry-level positions otherwise attractive.
Eventually, we would return to a situation that resembles the case where the Job Guarantee wage is below the minimum wage: it would be a relatively unattractive job, and the take up by citizens would be expected to be small (during an expansion, at least). Even if the introduction of the Job Guarantee flattens wage inequality, it would not be surprising if it returned, as nominal wages rise away from the Job Guarantee wage.
Price Level Anchor
The MMT authors emphasise the importance of the Job Guarantee wage as a nominal price anchor. Since this article is already lengthy, I would have to discuss that aspect at a later date.
The key policy variable for the Job Guarantee is the wage level. If it comes out below the existing minimum wage, the effect of the programme would be limited. If higher, it will force a one-time restructuring among employers with minimum wage employees. In the longer term, private sector wages would rise above the Job Guarantee wage, and the number of people in the programme would shrink.
* They could support governmental run operations. For example, the government could set up factories that churn out Canadian-themed souvenirs, such as lumber jackets and toques. These items can then be held in inventory, and sold at national/provincial parks. Since the items could be held in inventory for a long time, there would be no worries about the counter-cyclical nature of production.