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Wednesday, April 25, 2018

Job Guarantee In The News

The Job Guarantee -- a key part of Modern Monetary Theory (MMT) -- is back in the news. Unfortunately, I am tied up with other projects, so I am not about to launch an in-depth analysis of the proposal. I would instead point the interested reader to the report: "Public Service Employment: A Path to Full Employment," by  L. Randall Wray, Flavia Dantas, Scott Fullwiler, Pavlina R. Tcherneva, and Stephanie A. Kelton. (As an immediate disclaimer, I have not had a chance to read the report, but I assume it would give the best detailed introduction to the concept. There are other simplified FAQ articles available.)

There are two angles to approaching the analysis of a Job Guarantee right now.

  1. A top-down macro analysis of the effects of such a programme, under the assumption that it is administered in a sensible fashion.
  2. The analysis of the administration of the programme.
At most, I would have experience in dealing with the first topic; I have never really needed to delve into the history of the administration of jobs programmes.

From a big picture macro standpoint, it would act as a useful automatic stabiliser, but would end up looking similar to unemployment insurance. If the programme works as advertised, it would help put the long-term unemployed back into the work force in a meaningful fashion, and so there would be beneficial supply side effects (a phrasing that would raise eyebrows of most MMT economists...). (I discuss the inflation control angle below.)

The real thorny macro problem is the initial setting of the Job Guarantee wage. Since the Job Guarantee would presumably provide benefits (medical insurance being a big deal for Americans), the "competitive" private sector minimum wage would end up being at a premium to the Job Guarantee wage. How much premium would be needed? It should be an objective of public policy to pressure low-wage bottom feeding employers in order to best utilise the labour pool (the limited size of which allegedly worries the demography bugs in the economist profession). However, I am skeptical that the best way to introduce a new programme that has a lot of moving parts is to deliberately cause disruption elsewhere.

If we wait until 10 years after implementation (or longer, if we manage to avoid recession), we would probably have most of the data we need to know the empirical effects of the programme on the macro-economy. Until then, we will have to rely upon a certain amount of analysis by analogy.

In particular, it would take time to evaluate the ability to control inflation via the Job Guarantee wage. In the first few years, a relatively high Job Guarantee wage would cause some disruption as the private sector adapts to the new environment. A one-time rise in some prices (provided by low-wage employers) would be likely. We would then have to see how inflation acts across the cycle after that one-time effect passes, and the effect of changes to the wage paid in the programme.

However, that is not particularly useful: politicians and voters will want a better idea of the effects of the programme before implementation. Most of the questions will revolve around administrative issues.

From my perspective as a Canadian, the main initial hurdles for administration are constitutional. The Federal government is going to have to bankroll the programme, given its counter-cyclical spending pattern. However, the administration runs into two sets of roadblocks.
  1. How does it fit with the views of the provinces (particularly Quebec)?
  2. How does it fit with the treaty rights of the first nations (Canada's indigenous population)? Any top-down administrative decisions run into the reality that treaties were negotiated on a one-at-a-time basis. If the first nations are skeptical about the intentions of provincial politicians, this could crash into the previous point.
In summary, although I write about MMT, I am not the best source for details on the Job Guarantee. 

(c) Brian Romanchuk 2018

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