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Sunday, June 28, 2020

New Book: The Case For A Job Guarantee


Yet another MMT book is out in North America: The Case for a Job Guarantee, by Pavlina R. Tcherneva (Amazon affiliate link). The book does a very good job of covering the ground of what the Job Guarantee is, and why it is needed.

Although online discussions of MMT typically revolve around "printing money" and "whether MMT is new?," the Job Guarantee is a core part of the theory, and often skipped over.

This article is not meant to be a formal review, nor do I explain the Job Guarantee. I am in the process of writing a MMT primer, and I will use this book as the basis for sections on the Job Guarantee.

Book Description

The Case for a Job Guarantee discusses the academic literature and has a full set of citations, but is written for a broader audience.  The tone is not that of a dry policy document, rather it is focused on the human costs of unemployment, and how they can be reduced.

After an introductory chapter, chapters 2-4 cover some basics of MMT, and how the analysis of the labour market differs from orthodoxy (notably, the concept of NAIRU). Chapter 5 discusses the structure of the Job Guarantee, and chapter 6 the linkage between the Job Guarantee and the Green New Deal.

From the perspective of an advanced reader who is already familiar with the MMT basics, it might have been preferable to have a greater weight on Chapters 5 and 6. That is, more discussion of the the experiences in existing programmes, as well as policy details. However, it is clear that this material would be of less interest to most readers.

What is the Job Guarantee?

My plan is to devote two sections of my book to the Job Guarantee: the first discussing the structure, the second discussing common criticisms and responses to them. Since I do not want to write the same thing twice in the matter of a few weeks, I will be extremely brief here.

The Job Guarantee -- as the name suggests -- is a programme that guarantees a job to all adults. Tcherneva uses the same wage as suggested by others for the United States -- $15/hour. The key to the programme is that the U.S. Federal Government pays for this programme out of its regular budget, but the actual jobs are created in a decentralised fashion.

By having the Federal Government pay for the programme, it can be fully counter-cyclical, without the financial worries faced by sub-sovereigns. It will be a potent automatic stabiliser, and will also help reduce regional disparities as the wage is uniform.

The decentralised nature of the programme means that potential jobs would be proposed by state and municipal governments, as well as charities. The workers will be creating goods and offering services for the community, but not competing against the private sector. The Federal Government's administrative role would be to collect information on best practices, and monitor that there are no shenanigans.

Will it Work?

There are a number of concerns that one could have about the Job Guarantee; the book discusses many of them. In my view, the story is straightforward: it is a big programme, so it takes more effort than just mailing people cheques. However, the same is true of any number of other governmental programmes, like universal K-12 education.

The cost of the programme is not really a problem. Even if we just look at dollar spending (ignoring the MMT injunction to look at real resources), during an expansion, the cost of the programme might be relatively close to the cost of dealing with the side effects of unemployment. There might be a rebalancing of government spending towards the Federal level, but that is advantageous from a risk management standpoint. During a recession, the dollar cost will rise rapidly, but the spending is more efficient that conventional stimulus plans, which as Tcherneva points out, largely act to put a floor under profits, and not to create jobs.

The Job Guarantee creates a policy lever to help stabilise inflation, more precisely, wages in the steady state. The key is that the Job Guarantee cannot be automatically indexed to inflation, as otherwise it becomes pro-cyclical. (The feasibility of freezing the Job Guarantee wage in the face of inflation will be an awkward political challenge.) However, the introduction of the Job Guarantee will have the effect of pushing up wages at the low end in the private sector: minimum wage employers will need to offer a compensation package that is better than the Job Guarantee. This will have the effect of raising costs for certain industries (e.g., restaurants), and could easily result in a one-time bump in the price level.

From my perspective, the main practical problem the programme faces is sabotage by free market fundamentalists. (Tcherneva is more diplomatic than I am, so that is not a quote from the book.) Although the Job Guarantee is somewhat neutral for profits in aggregate (the pie being larger offsets an increase in the wage share), as Michal Kalecki argued (in "Political Aspects of Full Employment"), many capitalists prefer lower profits to giving up any power over workers. Tcherneva argues that many reforms (for example, work week reductions) were finally normalised by capitalists, but today's conservatives are very different than those of the post-war era.

The Job Guarantee and MMT

For the handful of people who are interested in claims of academic priority, the Job Guarantee is a core part of MMT. Although variants of the policy have been proposed before, the analysis is different. Bill Mitchell and Warren Mosler independently conceived of the Job Guarantee as a buffer stock scheme that helps determine the price level in a fiat currency. Although "determining the price level" is not a concern to normal human beings, it is a problem for economic theory once the Quantity Theory of Money is thrown out, and the currency is not pegged to a commodity.
  • If one is looking at economics from a post-Keynesian perspective, this is a key distinction that helps us a draw lines in the taxonomy of the squabbling theoretical tribes. (There are many such tribes, with some consisting of one economist.)
  • If one is approaching MMT from a more conventional perspective, the broad post-Keynesian/neoclassical divide cuts across many topics, and this is just one. From this perspective, the correct question is not "what does MMT offer versus neoclassical theory?," rather "what does broad post-Keynesian theory offer versus neoclassical theory?"

Wrapping Up...

In summary, The Case for a Job Guarantee is a good book to get a better grasp on an important part of MMT, as well as understanding the labour market.

I have written up a section on the NAIRU. and thus labour market analysis has been on my mind. As noted earlier, I will be writing up a proper summary of the Job Guarantee for my book. Drafts should make it onto my website in the coming weeks.

Post-Script: The Job Guarantee and the Pandemic

The book was largely written before the pandemic hit, so it only shows up in a few passages. I just want to offer my own comments on how the Job Guarantee fits in with the pandemic response.

The reality is that the Job Guarantee is a complex programme. There is no way it could have been implemented during the lockdown period, given the coordination issues. It was easier to mail people cheques. However, that is a poor criterion to judge a programme; successful programmes like K-12 universal education would also be rejected.

However, if the programme existed before the pandemic hit, it would have been very easy to repurpose it as a pandemic response vehicle. All the payments issues that have been discovered would have been dealt with. Meanwhile, the aid is targeted, so there was no need to invent criteria for who gets paid. Due to physical distancing requirements, it seems likely that people would be told to stay at home during the lockdown phase, so the implementation would resemble the grants used during the pandemic. However, once the parameters of the virus were better understood, the Job Guarantee workers could do things like make masks, help in areas that are under pressure, and help educate people about safety protocols. (The latter would generate tons of great social media content as deranged people scream at each other.)

(c) Brian Romanchuk 2020

5 comments:

  1. I believe that the cost of a Job Guarantee will be very small.

    MMT teaches us that recessions are caused by the private sector wanting to net save. The resultant unemployment causes people to try to save more which worsens unemployment and so on in a reflexive cycle.

    Once you have a JG in place however, you remove the fear of job loss. Knowing that you'll at least be able to earn that $15/hr means there is a lower level of precautionary saving. Keynes would be pleased.

    The only exception I see is for nations with huge export sectors. In that case, recessions in other countries would feed into the domestic export sector.

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  2. I don't see how this is so different from unemployment insurance. When you lose a job today the government pays you to look for a new job (retrain, network, etc...however you see your time best used). So the question just boils down to what's a more productive use of your time: government work vs. job-hunting. How do we know?

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    1. Unemployment insurance presumes that you were previously employed. Once you are unemployed longer than some threshold, you lose your benefits. In the high-pressure economy of the post-war decades, this was enough. However, we now have large levels of long-term unemployment as well as underemployment.

      The other issue is that just getting a cheque is not the same thing as showing up for work. People get “unattached” from working and the social connections it creates, and this causes them problems. Employers also discriminate against the long-term unemployed. By being the JG, they will have supervisors who can give current evaluations.

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    2. Yes, valid points. Seems to me that we'd be making a big bet on the effectiveness of government-assigned work relative to a persons own retraining/networking efforts. Would both program exist side-by-side (unemployment insurance & job guarantee)?

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  3. Yes, all the same, the moment of force majeure, such as the current pandemic, makes its own adjustments. I think it’s very interesting to read your thoughts in the book, regardless of whether your theory works during a pandemic or not.

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