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 My political instincts are probably out-of-date, so what I write here should not be taken as a definitive statement on how Canada should approach implementation.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.
In Warren Mosler's and Damiano Silipo's paper - Maximizing price stability in a monetary economy - which is currently working its way through the EU parliament. They suggest that the initial minimum wage be set up at a non disruptive level.
This prevents the transition job from creating an initial, inflationary wage shock which might adversely disrupt commercial arrangements and what's generally called the competitiveness of the business community.
While the the minimum wage does function as a general wage floor, by initially setting it at a non disruptive level it subsequently works to prevent deflation while not promoting inflation.
They advise 7 Euros per hour and a 35 hour working week.
This also means that if this wage is offered to anybody willing and be able to work, as a point of logic, it removes the need for min wage legislation.
Should the ECB desire to promote a 2% rate of inflation assuming 0% productivity growth. The min wage can be increased 2% annually from its original setting.
They recommend a 60 day implementation period. Starting with working in various government administrative offices which after 30 days is rolled out to the regional and city governments and 30 days after that to non profit and charitable organisations.
When trying to work out the impact on real GDP growth and inflation. They use a VAR model. Which does not require any prior assumptions on the realtionship between these two functions.
It shows an initial spike of slightly over 2% inflation rate. Which then falls below 2% and settles at 1.65% over 2 years. That's using aggresive job numbers of people who would take the transition job and the size of the multiplier effect. Using a less aggresive multiplier would show inflation at even a lower level.
What I like about the idea is it replaces the scatter gun approach of the automatic stabilisers with what you know you are going to get. You know exactly the price and the hours worked never mind the public purpose value.
If a job guarentee had been implemented in 2002 and you did a comparison of what happened after the crash in 2007 to 2017. Then compared the performance of the automatic stabilisers v's job guarentee and their effects on the economy. There would only be one winner in my view and the job guarentee would win by a country mile.
The issue with being “non-disruptive” is that is exactly what some people would want to do. The side objective is to remove low productivity employers, which may give stronger growth in the long term. Free market fundamentalists would probably scream, but they would anyway. I have mixed feelings on that score; wiping out low productivity employers without having a good idea what they will be replaced with makes me nervous.Delete
I still think we need minimum wage legislation. It’s one of the few hammers we have to deal with highly abusive employers, who are exploiting workers who are unaware of the law, or unwilling to go to the authorities.
All good assumptions and cases, but you have the constitutional discussion slightly off, it seems to me. The fundamental issue is maintaining the level of federal government spending. Starting with Pierre Trudeau's imposition of "established program financing" in 1977, but even more so through Mulroney's, and Martin-Chrétien's downloading efforts, the whole thrust of Canadian government policy since the late 1970s has been to download responsibilities on to currency-using provinces from the federal government, providing less money in exchange for fewer federal conditions, those which in fact standardized treatment across the country. A prime example of this is the cancellation by Paul Martin of the Canada Assistance Plan, which ensured equivalent standards in the form and legal framework for social assistance across the country, while guaranteeing a federal dollar-for-dollar match of provincial expenditures. Bob Rae's effective countercyclical use of this program led to its reduction by Mulroney and cancelation by Chrétien-Martin.ReplyDelete
This process of transferring social responsibilities to the provinces has no especial constitutional justification, as noted by Rowell-Sirois Commission on Dominion-Provincial Relations in the late 30s-early 40s, and the thrust at that time was precisely to put into place national infrastructure to counter the deflationary effects of federal downloading.
AS all MMTers know, the notion, dishonestly repeated ad nauseum by federal and provincial right wing politicians, that "all is ok because the feds and the provinces have equivalent taxation powers" is an obvious fraud, designed to justify curtailment of public expenditure (which only a currency-issuer can maintain). Provincial government debt is already at historically high levels.
I conclude that the first condition for workable program is that the responsibility for its implementation must rest with the Government of Canada -- so your reference to it falling to the provinces, under the byworn constitutional convention that as a "social program" seems a tragic flaw. The only way to sustain sufficient federal investment is for the Government of Canada to be directly responsible for the program, otherwise we will see the slippage that has happened elsewhere.
Fortunately, the job guarantee can easily be designed to avoid this pitfall, as long as it is presented -- correctly -- as first and foremost a program for macroeconomic stabilization. There is legitimate debate about the extent of federal involvement in social program delivery, but there can be no question about the Government of Canada's pre-emiment responsibility and right to hire whom it wishes, nor about the legitimacy of the spending power under the Constitution.
So, in terms of delivery, there can be collaboration with the not-for-profit sector, and the social economy, primarily as federally-funded service delivery agents(and such delivery can be effectively co-ordinated by Service Canada with existing provincial programs, such as the coopératives et entreprises d'intrégration that are so well used for labour market integration in Quebec). However, the JG has to remain a federal responsibility, and kept ridigly separate from purely social investment, such as those on social assistance/bien-être social, which are the typical remit of the provinces (which, of course, would how have far more funds to support such provincially-flexible social programming).
Looking at the Quebec political class, I have my doubts about the feasibility of a purely Federal programme. They might be paying the wages, but the province would want a say in implementation. Other provinces might be more willing to play ball.Delete
Should we push more for the Feds? My feeling is that current arrangements have a lot of political inertia behind them. In most cases, the provincial government is more popular than the Feds, and unpopular provincial governments have a short life expectancy. Growing up out west, I remember how unpopular Trudeau I was, and how there was literally nothing western Canadians could do about it.
I think you have that backwards (provincial POLITICIANS shout and scream about jurisdiction, generally without a leg to stand on, but, in every province, once programs such as UI/EI are implemented they receive strong popular support within the year). The Government of Canada is generally preferred when it is activist -- even in Quebec it is only the political class which raises objections to federal investment, and such is the disaffection with all provincial parties in Quebec that I think the LPC is almost certainly more popular now. BUT that is all irrelevant -- a JG can only be sustained if it remains federal.Delete
If I was not clear -- I DID understand that you were, under option 2, proposing a federally-regulated and funded program delivered by not-for-profits at the provincial level. But if the program were ever to be seen to be, by the public and decision-makers, a provincial responsibility, then there would be no hope for its effectiveness and continuance. This is so not just because of the tendencies of Canadian politicians per se, but also because of the long-standing Canadian traditions of interprovincial tax competition and deregulation competition (think of the "Alberta advantage" and so-on). The ideal would be a Constitutional amendment requiring the Government of Canada to provide directly employment for all who wished it, at a living wage.ReplyDelete
I also meant, rather than integration, insertion, as in les coopératives d'insertion. https://fr.wikipedia.org/wiki/Entreprise_d%27insertion#Au_Qu.C3.A9becReplyDelete
I have always believed that if an MMT job guarantee were to be implemented it would mean we were living in more progressive political times than currently. Our world would be one in which a much broader array of public services would be available than today. For instance we would have good quality and widely available home care for people who are sick, disabled, or otherwise unable to provide for themselves and are better off at home than in a residence. Other areas where services would be much improved include seniors` residences, day care, and environmental services and our schools and hospitals would no longer be understaffed.
So it has always seemed to me the job guarantee would be for workers who were at the low end of the labour force, those unable, for some reason, to find work in the broad expansion of public services or in other areas pumped up by the resulting increase in demand.
However Bill Mitchell has recently written that a job guarantee would be provided regardless of the political circumstances. Perhaps so, but I find it hard to imagine that governments would spend billions to have people do charitable work but not provide basic services that are lacking. Would we really pay people to pick up trash along rivers when disabled people are languishing in residences with almost no services? Or when our children are stuck in minimalist, cramped day care? Really?
In any case I certainly agree the wage level of the job guarantee would be critical. Even if it were set at the current minimum wage I think quite a few minimum wage workers would switch, especially if the jobs had some social merit. Wouldn't you prefer to read to a sick child rather than flip hamburgers in a poorly ventilated kitchen? In addition some minimum wage employers don't provide adequate hours or don't pay reliably so a guaranteed job would be preferable. It seems to me 10 percent of the workforce is at or near the minimum wage so a generous job guarantee could affect a lot of people.
Finally a comment with respect to the minimum wage. The minimum wage
in Australia is about $18 per hour. The cost of living there is only a little higher than here and unemployment about the same.
A generous job guarantee in Canada would certainly be a way to lift the general standard of living in our country at the low end. One transitional effect would be the disappearance of many low wage jobs in fast food, convenience stores, etc, as is indeed the case in Australia where you don't see as many of those as you do here.
There’s a synergy between adding new governmental services and the Job Guarantee, but they each have to make sense as a stand alone programme.Delete
If the government says it is going to provide a service, it has to provide it where the demand is. That means that there are fixed labour demands in locations that are determined by demand. The Job Guarantee cannot provide steady amount of labour, nor particular skills. They could fill in for labour-intensive tasks, but they would still need permanent workers providing supervision. The facilities and permanent workers are where almost all of the programme dollars will go.
Under my assumption that the EI programme is absorbing a lot of the cyclical.y unemployed, the Job Guarantee pool will have a lot of people who are considered unemployable by the private sector (during an expansion, at least). We live in a socety where I cannot wait on the school yard with my kids before the bell; nobody is going to be happy having ex-convicts working in a daycare.
I find it useful if you think of public provision as the bread in a private sector sandwich. "Required Public provision" happens first regardless of the business cycle. This is how much healthcare, social care, education, etc you want from your government. That is a political choice and taxation is set to pay for it - taking resources from the private sector.ReplyDelete
Then the private sector gets to play with what is left - possibly providing the healthcare, social care and education if that is the political bent of the country.
What the private sector then leaves behind is taken up by the Job Guarantee. This then provides the "nice to have" public provisions. The sort of things that allow life to continue if the private sector is in a slump, but you won't miss too much when the private sector is booming.
“The Job Guarantee proposal is a core part of the policy analysis of Modern Monetary Theory (MMT).” Debatable that because JG can be implemented without the monetary elements of MMT. E.g. the WPA in the 1930s was a JG system: that was about 50 years before MMT was born or thought of.ReplyDelete
Next there’s a problem with limiting JG to “municipal governments and charitable non-profits” which is that the public sector is not good at employing the less skilled, and JG people would tend to be unskilled.
Plus the evidence (not that anyone’s interested in empirical evidence) is that JG people benefit more from subsidised private sector jobs and public sector ones or charity work.
“..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.”
Exactly the same problem applies to the public sector: that is public sector employers (who are under pressure to cut costs just like private sector employers) would be tempted to use low cost JG labour to displace regular labour.
As to exactly how to stop displacement (in both public and private sectors), there is no sure fire way, but it would help of the duration of a JG job with a given employer is strictly limited. Reason is that employers are happy to see unproductive employees leave, whereas they are keen to hold on to productive ones. Thus they would tend not to claim the JG subsidy in respect of productive employees.
What I wrote was that the Job Guarantee is a core part of MMT; that does not preclude others from coming up with a similar programme based on another rationale.Delete
I fail to see the public purpose of subsidising employment without there being some additional goal such as training - such as an apprenticeship programme. Such a programme should be separate from the Job Guarantee, other than the fact that it is an alternative way to get people into jobs.
I would be hard-pressed to think of areas where existing government agencies could use more than a handful of JG workers in a given role. (The numbers might add up across many places of employment, but the workers would be scattered.) The days of needing a lot of people to dig ditches with shovels is past. Even in places like hospitals, I doubt that they would be able to bring on too many workers at a time. I doubt that they want a random stream of people showing up for work every day.
The whole point of the programme is to get most workers in a position to re-enter the job market (some workers may not be interested in leaving). Part of the job of monitoring the programme is to ensure that workers are able to find other employment. If one of the job providers is hoarding labour and not allowing them to leave the programme, they would have to be cut off from getting workers. I am not familiar enough with the area to discuss how a rotation scheme would work; presumably workers would have right to get out of JG jobs they dislike after a period of time.
“I fail to see the public purpose of subsidising employment without there being some additional goal such as training - such as an apprenticeship programme.” The answer is simple: additional employment means additional output which makes us all better off, unless the administration costs of a JG system exceed the output of JG jobs. Moreover, and as regards “training”, learning by doing is very effective way of learning. Indeed there is evidence (from Switzerland) that it is better than the training associated with JG systems.Delete
Next, I quite agree that existing public sector employers would not be good at taking on relatively unskilled JG people. The alternative is “specially set up” JG schemes along the lines of the WPA, but that results in a high concentration of relatively unskilled people with one employer. That results in disastrously low levels of output. Caught between the devil and the deep blue sea there.
Re your last sentence, the object is not so much to let people quite JG jobs when they want, though obviously they should have some freedom to do that, but to ensure that employers do not claim the JG subsidy in respect of people who are actually quite productive, and not in need of the JG subsidy.
I think Ralph misses the point. That with those on the job guarentee having now more money to spend into the economy rather than being unemployed.ReplyDelete
The private sector would looking to employ people from the JG to cope with the increased demand for their products. Unless, Ralph wants to continue importing labour from abroad to fill that gap ?
If some of the private sector choose not to like he suggests. It might actually encourage the private sector to invest in more machinary that helps to fix the prouctivity puzzle.
What is considered more productive anyways ? This private v's public arguement is a myth. Is somebody who cleans drains for a living more productive than somebody on Wall street ?
Or is selling plastic tosh via supreme marketing techniques and turning them into must have products for the masses really that productive ? Compared with things that we really depend on like nature and food ?
The question still is. Does Ralph think the automatic stabilisers are more productive and effective than a JG ?
If so the onus is on him to prove it.
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