Thoughts about the Job Guarantee: A Reply: https://medium.com/modern-money-matters/thoughts-about-the-job-guarantee-a-reply-55c4a9b68608 … #MMT #JG
2017 aza. 20
Replying to @neilwilson
And thanks for the citation! 🙂
Neil Wilson-en Thoughts about the Job Guarantee: A Reply
A response to the Nov 17 thoughts of Simon Wren-Lewis
(https://medium.com/modern-money-matters/thoughts-about-the-job-guarantee-a-reply-55c4a9b68608)
Simon Wren-Lewis has put up a very considered post on the Job Guarantee which deserves an appropriate response. I have been calling for Simon to write about the Job Guarantee for a very long time, and I’m grateful he has done so. It is a very good piece from an alternative point of view and I hope I can do it justice in this reply.
(i) Egoera
Simon writes: “But MMT (Modern Monetary Theory) economists go beyond that to suggest that [the Job Guarantee] could be a permanent feature,”.
Certainly in the UK it is already a permanent feature — albeit in a heavily restricted form. The requirements of the Universal Credit system is that individuals have to work 35 hours a week (The Claimant Commitment) looking for jobs that, in aggregate, cannot exist in return for their money at the princely rate of £2.09 per hour.
So the suggestion is to turn that into something that is more useful macroeconomically.
(ii) Sektore pribatua
Simon writes: “The main problem that Gregg discusses in his paper is the ‘Lock-in’ effect, where those in a JG job reduce their search activity.”
MMT economists do not really consider this a problem. Or if it is a problem, the issue is one for the private sector to solve not the Job Guarantee.
It’s worth pausing at this point and ask ourselves why this problem cannot be dealt with by unemployment benefit. And that’s because the benefit cannot be paid at the living wage rate. Others in work will not stand for it, largely for two reasons:
(i) the person receiving the money has not earned that money by giving up their time — as the people working have.
(ii) the people working cannot choose to take the money instead of the work they are currently doing.
The Job Guarantee deals with both those problems The Job Guarantee is an alternative job offer open to everybody, neatly dealing with both dimensions of the resentment issue.
(As an aside: you’ll note that Basic Income only attempts to deal with (ii) — in a manner that requires massive tax rises).
(iii) Enplegua da kontua
The Job Guarantee job is employment, like any other job. If people want to spend their entire careers on the Job Guarantee they can do so. If somebody wants to leave a position outside the Job Guarantee and take a Job Guarantee job they can do so.
If the private or public sector doesn’t like that, then they just have to learn to compete. The problem lies with them and their attitude to employees, not with the Job Guarantee. After all, in other ‘talent’ segments of the economy firms have to fight with each other for limited labour. All the Job Guarantee does is turn the ‘gig economy’ into the ‘talent economy’ for everybody.
(iv) Enplegua sektore pribatuan
But it’s not all one way. Because we no longer have to worry about jobs in the private sector we can stop worrying about Uber, zero hours contracts and false self-employment. Automation is no longer a threat, but an opportunity, and private firms can be encouraged to automate as fast as possible. The minimum wage becomes market determined as a delta from the Job Guarantee living wage. Or more accurately, the minimum package becomes market determined. It is entirely feasible for some jobs offering great prospects to offer less than the Job Guarantee living wage. After all, there are still some people who believe Cowell when he says he’ll make them a star…
(v) Lan bermeko enplegua edozeinentzat da
Simon writes: “As I understand it any worker without a job would be offered a JG job.”
Everybody has access to the Job Guarantee job — currently working or not — for the anti-resentment and competitive reasons stated above. If an individual is resident and permitted to work in the nation then they can take a Job Guarantee job at any time. It can be part-time or full-time.
You can see the Job Guarantee as a zero-hours gig where the boot is on the other foot. If you’ve worked less than 35 hours in the week, the Job Guarantee employer has to provide work and pay you for it.
(v) Alokairu minimoaz
Simon writes: “The obvious response would be for private and public sector employers paying minimum wages to increase their pay sufficiently to stop this happening, which in turn would often lead private sector firms to raise prices.”
I have to say I’m surprised by this statement, because it is the usual right wing argument against raising the minimum wage. The evidence is that it doesn’t happen. The wage changes are absorbed by the productive process.
In MMT terms we say that a quantity adjusting firm will always outcompete a price adjusting firm. Your average hairdresser will just work longer hours in response to a bigger queue, not shut the shop and put the prices up.
If firms put prices up, then that is evidence of insufficient competition in a market area, or evidence that competition is no longer delivering productivity and innovation improvements for that market area (therefore profit serves no useful purpose and the firm should ideally be transferred to worker ownership or nationalised). Once you ‘set expectations’ amongst profit firms that raising prices will be treated with a harsh competition authority response and/or tax rises, you’ll get the quantity adjustment you’re looking for.
Remember, once we have a Job Guarantee all private firms are ultimately disposable. Just like Cowell’s stars, there is always somebody else with a dream ready to have a go.
When a Job Guarantee is introduced, all that happens is the minimum non-guarantee wage becomes market determined not socially determined. The difference is that the Job Guarantee is a socially determined job, not just a socially determined wage. So all of a sudden the non-wage factors of the job become part of the competitive mix.
If you set the Job Guarantee as a 9–5, Monday to Friday job, decent pension and conditions and all the minimum wage jobs in the economy are the same in the same local area, then the minimum wage is likely to settle at or around the Job Guarantee wage.
If the minimum wage jobs are all terrible hours, miles away, night shifts, split shifts, zero-hour contracts, etc. then the new market determined minimum wage will be considerable higher — or the conditions will improve markedly. All that is happening here is that the market is suddenly having to adjust to paying the full cost of their ‘social pollution’, just as they would with any other environmental regulation.
(vi) Ekonomia parasitoa
Simon writes: “it would seem probable that the existence of JG jobs paying the minimum wage would attract some workers from private sector minimum wage jobs.”
Absolutely. Fully expected and part of the design. The Job Guarantee will end the parasite economy that Nick Hanaeur speaks of. The firms that will survive will be those that understand the basic Fordist notion that the earnings of the firm depend in some degree upon the wages the firm pays — as Nick notes in his piece.
And because the Job Guarantee is a job and, at least partially, a directable labour pool, if any of the parasite firms were providing a service that can no longer be provided profitably by the market, then the Job Guarantee can pick up that function and deploy labour to provide it.
(vii) Nahi gabeko langabezia
Simon writes: “The existence of IU [involuntary unemployment], and the possibility of joining their number. becomes a threat that keeps inflation stable. In a JG economy that threat is greatly reduced, both because an alternative job is always available and it will pay more than unemployment benefit.”
For me this comes at the problem from the wrong viewpoint.
The scenario Simon chooses is this one:
Business is tight. Employer A hires Labourer B at the minimum wage. Employer A can then pile more and more work and hours on Labourer B because B’s alternative is the dole. So B ends up earning far less than the minimum wage for their hours while Employer A earns super-normal profits, or perhaps even normal profits in a downturn, when they shouldn’t.
Hardly fair is it. We have a minimum wage for a reason.
However that scenario only applies in a system that is systemically short of demand and has no alternative employers bidding for Labourer B. There are other scenarios over the business cycle. When you get alternative employers popping up, as you do in an expansion, you get the following:
Business is good. Employer A hires Labourer B at the minimum wage. Employer A piles on the work. Employer C pops up, but doesn’t like the unemployed because they have no idea if they will turn up. Instead Employer C offers the minimum wage and promises faithfully to be nicer to employees. So Labourer B changes jobs, and Employer A is stuck because the alternative is unemployed people who they have no idea will turn up, let alone work the crazy hours now expected. Then Employer C piles on the work… Rinse and repeat.
You’ll note the scenario is highly dynamically disruptive, yet this is the scenario that plays out pretty much every day in areas like the construction business. It is partially the reason why getting things completed is so difficult. The cultural dynamic is corrosive and workers walk off the job.
Now let’s look at boom time:
Business is really good. Employer A hires Labourer B at the minimum wage. Employer C pops up, doesn’t like the look of the unemployed and starts touting round their alternative offer at a higher rate. Labourer B asks for more money, or they’ll move. Employer A doesn’t like the look of the unemployed, because they have no idea if they’ll turn up, so agrees to pay more money because there’s loads of work coming in and charges accordingly.
The unemployed buffer has little effect on the behaviour of business because it is a one way trap designed to frighten labour.
Now lets replay those interactions with a Job Guarantee in place.
Business is tight. Employer A hires Labourer B at the market determined minimum wage. Employer A can no longer pile on the work onto Labourer B because there is a guaranteed decent employer who Labourer B will move to if ill-treated. So Employer A has to keep the work at a reasonable level. Employer A now earns normal profits, and may move into a loss, while the worker earns the minimum wage.
Surely that is how it should be?
Let’s do the expansion phase:
Business is good. Employer A hires Labourer B at the minimum wage. Employer C pops up offering the minimum wage and has the choice of Labourer B or new Labourer D currently with a track record of reliability on the Job Guarantee. Employer A would be happy to retain Labourer B but knows they have the option of Labourer D. Neither Employer A, nor Employer C can pile on the work, because the Job Guarantee is known to be decent. So both Employer A and Employer C get the labour they require at a fair deal and stuff finally gets done.
And the boom phase.
Business is really good. Employer A hires Labourer B at the minimum wage. Employer C pops up offering the minimum wage because they have the choice of Labourer B or new Labourer D currently with a track record of reliability on the Job Guarantee. Labourer B asks for more money. Employer A would be happy to retain Labourer B but knows they have the option of Labourer D so they turn the wage rise down. Labourer B can’t get any more money out of Employer C either for the same reason. Yet still neither Employer A, nor Employer C can pile on the work, because the Job Guarantee is known to be decent. So both Employer A and Employer C get the labour they require at a fair deal and stuff finally gets done.
Importantly Employer Z will tend not to pop up and stay around because policy has been set sufficiently tight that the Job Guarantee buffer will not exhaust. But even if it did the Job Guarantee remains a credible threat to labour services in the private firms. Nobody can become a parasite business. Competition for labour would ultimately eliminate one of the other players, force their profits down to the new normal, or drive an innovation cycle (doing more with less). All of which leads to cheaper prices, not more expensive ones.
This is why we say the Job Guarantee is a superior buffer. It promotes the same competitive response between the Job Guarantee buffer and private firms as there are between private firms where labour operates in a talent economy. This is because under the Job Guarantee, the workers can deliver a proven track record of engagement with the Job Guarantee, as opposed to a perception of inactivity on the dole.
So in reality the number of people on an unemployed buffer would always be far higher than a Job Guarantee buffer because the risk to business of engaging the unemployed is so much higher. Therefore they will move into bidding from each other much earlier in the cycle and because the unemployed buffer isn’t a credible threat to private business labour services you get an unpleasant dynamic where capital can pass its losses onto workers.
The mistake is the usual mainstream one of using aggregate concepts like NAIRU to analyse a currency zone that is hetereogenous in nature.
NAIRU is the exhaustion of the unemployment buffer at specific micro-physical points in the currency area sufficient to cause a dynamic feedback effect that impacts inflation. That happens because the unemployment buffer is insufficient threat to the labour services of private firms, the spend side withdrawal automatic stabliser effect is too weak spatially (compounded by tax credits) and discretionary policy is too loose.
You don’t get anywhere near that on a Job Guarantee because you actually set discretionary policy tighter than you would under Monetary Policy Targeting (MPT). You never want the guarantee employment buffer to exhaust anywhere spatially and unanchor the currency. However, because Job Guarantee cleans up parasite private firms and is spatially targeted to areas without enough work (unlike tax credits which are pro-cyclical spatially and pro-parasite firms), you actually get a higher aggregate across the currency area. Job Guarantee smooths and dampens the hot spots in a currency area so that the currency area as a whole can go further.
So in effect you get a lower size of the buffer overall at the cost of a higher buffer in few places that would be hot spot boom areas under MPT.
Since the productivity of JG workers is necessarily higher than that of an unemployed buffer and there will be fewer of them overall at full expansion the productivity of the entire economy is necessarily improved — even before you factor in the effects on business investment of eliminating the parasites.
(viii) Komunitateko lana
Simon writes: “JG and the lock-in effect will also reduce geographic mobility,”
Again that is a feature, not a bug. The concept that workers should wander the continent looking for their next gig is a middle class concept, not a working class one. The point was well made in Beveridge(1944) §111
This .. may serve to illustrate the folly of expecting a common-form social outlook amongst persons with entirely dissimilar experiences and traditions. Middle-class people, trained for the professions, expect to have to follow the job wherever it may take them. The same holds good only to a very limited extent among the working-class people.
The point is reinforced in §112
Family circumstances and age make some individuals in practice immoveable. And wholesale transference should be regarded as bad social policy. It involves a sacrifice of social capital, that is to say of the services of health, education and amenities which have been built up for a community of a certain size and will be wasted if the community sinks to half or a quarter of that size. The assumption on which the policy was based …, namely that it was impossible or undesirable to control the location of industry … will, to later generations, condemned to struggle with its consequences, appear a sad example of blindness leading to drift.
Working people live in communities and largely wish to remain there. Business serves the people, not the other way around, and it must go where the people are and adapt its processes to do so.
(ix) Lan bermea eta moneta flotatzailea
Simon writes: “ The JG wage would not be able to do this. As the authors note, active stabilisation policy would still be required to do this, although the number of JG jobs could be a useful indicator of what action was required, just as the unemployment rate is now. Another way of saying the same thing is that the JG does not supplant the need for active macroeconomic stabilisation.”
I’ve re-read the Mosler and Silipo paper and, try as I might, I can’t see any mention of ‘active stabilisation policy’ — certainly nothing involving the requirement for an ‘independent central bank’ which I presume is the implication. The Job Guarantee puts the currency on a ‘labour hours standard’ and allows the currency to float internationally. It creates a genuine full employment situation where classical tax and spend policies then apply. If government wants more, say, discretionary education provision it has to make room for it in the full employed economy via its legislative powers by taxing, ordering events, banning things, or constraining the banks.
Ondorioa
Simon Wren-Lewis’ positive contribution to the Job Guarantee debate is very welcome, and shows there is a real desire to deal with the failures of trickle-down growth and punative scapegoating as cures for unemployment.
The Job Guarantee is a strong spend side automatic stabiliser that responds instantly, spatially and automatically. You don’t need any politicians involved and you certainly don’t need any unelected technocrats at central banks. It bypasses human decision making almost completely at the day to day level with the job choices delegated right down to the social entrepreneurs implementing the guarantee. All politicians have to do is set the direction and speed by determining democratically the minimum socially acceptable job and then setting tax policy so that the wage from the guarantee job delivers the real resources needed to live. Then the politicians, and the technocrats, can just get out of the way.
Gehigarriak, Mosler eta Silipo-z:
Gutxieneko alokairua eta lanpostuak (Mosler-Silipo-ren proposamena)
Prezioen egonkortasuna eta langabezia (Mosler eta Silipo-ren proposamena)
