A conversation about job guarantees
The following is an email conversation that I had with a journalist (hence the lack of acknowledgements and references), with a couple of quotes added.
Q: Can you explain the concept of a job guarantee program?
SH: A job guarantee involves commitment to providing optional government funded employment opportunities, alongside optional training and education opportunities, to everyone who wants to take advantage of them, at a socially acceptable level of wages and working conditions, which then set a floor that the private sector and conventional government sector must at least match.
The program must be paid for by the federal government, which as a currency issuing central government can always afford to make payments in its own currency, since it cannot run out of Australian dollars. The problem with federal spending is that it can add to inflationary pressures, when there is too much spending in the economy, but never that the government can run out of money or be insolvent. Such an outcome is impossible, for a currency issuing monetary sovereign.
The program should be locally administered, and so differ in terms of the range of activities carried out in different parts of the country, depending on local needs. It should never compete significantly with the private or conventional government sector, but should operate in a complementary way to the rest of the economy.
It should permanently eliminate involuntary unemployment and underemployment. It should expand in an economic downturn, when the private sector needs fewer workers, and naturally contract in an upturn, when the private sector creates more employment opportunities.
It should also, over time, extend the norm for what is considered to be employment worthy of remuneration. And while we have not yet run out of things we can do for the benefit of the community – and if that ever happens, you would have to worry about the purpose of our existence – we will never run out of activities which can be incorporated into a job guarantee.
Q: What are some international examples of it working?
SH: The two most important schemes in recent years sharing at least some of the characteristics of the job guarantee favoured by economists like me (we are known as modern monetary theorists) have been:
1 Plan Jefes de Hogar in Argentina (2002-08), launched soon after the major financial crisis and foreign debt default of 2001, when official unemployment was nearly 22%. It offered a voluntary job opportunity to heads of households (every family was able to designate one member as ‘head of household’) in community projects that were funded by the federal government but run locally. A very wide variety of projects formed part of the scheme. It did not share all the ideal characteristics of a job guarantee, in that access was limited to households with children, disabled family members, or a pregnant woman in the family.
It played a major role in reducing extreme poverty, in spite of the fact that the job guarantee wage was set, in the opinion of most external observes, too low. It began to change the accepted role of women in rural communities, as most of the participants in the program were women.
The years 2002-8 were years of high economic growth in Argentina, and of falling unemployment. Unfortunately, the government decided to phase out the job guarantee. This was despite the fact that it proved to be very popular with participants, appeared to have a wide range of social and economic benefits, and was assessed favourably by the World Bank.
Incidentally, in a survey of participants, where they were given six options for what they liked most about the program, the most popular choice was that it gave them something to do – the receipt of a basic income was the fifth most popular choice. But the income was important.
The program was eventually replaced with welfare – an unconditional income payment. This was not popular with job guarantee participants, and there are suggestions it reflects an unease amongst powerful men with the role the program had played in changing the economic role of women.
2. The Mahatma Gandhi Rural Employment Guarantee Scheme (MANREGA) in India (2005 – present) provides up to 100 days of minimum wage employment to every family which asks for it.
The scheme has played an important role in both reducing rural poverty and also in supporting incomes during the Global Financial Crisis.
According to the Economist magazine, ‘Policy wonks argue that cash handouts to the poor would be easier to administer, and would leave the recipients free to work the fields or roll beedis (country cigarettes) for private employers’. But the poor themselves seem surprisingly sceptical of this idea. “If money comes for free, it will never stay with us,” one elderly farmer says. “The men will drink it.” To wring anything out of India’s rigid bureaucracy takes a fight. If people feel they have earned their money from the government, they become more deter- mined to claim it, even if that means waiting all day outside the village bank.’
Q: What makes it a hard sell politically?
SH: People’s willingness to consider a job guarantee scheme depends on how it is framed to participants and the public more widely, and on how the public relate to those who might participate in it. More generally, we must address social attitudes towards the unemployed, underemployed, the insecurely employed and the discouraged. We have had more than three decades of discourse designed to reinforce attitudes amongst the employed that labour market outcomes are an efficient reflection of productivity and effort. More perniciously, we have financialised, or commercialised, our attitudes towards others, to the point where many see the unemployed as belonging to a different group to themselves – at least until the time they unexpectedly find themselves joining that group – so that they do not identify with them or feel any responsibility for their well-being.
To ‘sell’ a job guarantee scheme, policy makers must encourage people again to see everyone as part of a community, where relationships are not defined in narrow, impersonal financial terms, but in terms of mutual obligations and “from each according to their abilities, to each according to their needs”.
Welfare payments don’t achieve this outcome. They are not high enough to eliminate poverty. They don’t nourish self-esteem. They don’t encourage mutual respect and social inclusion.
Q: Can you explain the job guarantee’s anti-cyclical nature and why that is a benefit?
SH: During an economic downturn, what is needed is for the government’s fiscal deficit to increase, in order for the government to spend more when every- one else is spending less, to sustain the private sector and keep people in work and in receipt of incomes. This is important because your income is someone else’s spending, and so when total spending falls, people’s incomes fall.
That’s when people get into debt problems, lose their homes, and end up living in poverty.
Government policy is already counter- cyclical to some extent, since there are more welfare payments made during a downturn, and the government collects less in tax as people’s incomes fall.
A job guarantee is a more effective counter-cyclical measure in a downturn. It automatically, and without the government having to look into the future and fine tune anything, increases spending to those who need it and geographically where and when it is needed to prevent a serious recession from happening. It is a social safety net for the economy, in the event of a global recession, for example.
During an economic expansion, there is a need for the government’s fiscal deficit to fall. You can even imagine rare circumstances when a government surplus might be appropriate, to avoid too much spending causing runaway inflation.
A job guarantee will naturally shrink during an expansion, as people find work elsewhere in the economy. What’s more those workers will have benefited from remaining employed in the job guarantee, as opposed to having been unemployed and perhaps living in poverty in the absence of such a scheme.
A job guarantee can be an effective mechanism for stabilising a naturally unstable capitalist economy, while ensuring a fairer distribution of income and eliminating insecurity and absolute and relative poverty..
Q: Why is the minimum wage as it currently operates not really a minimum wage, and how does the job guarantee address that?
SH: It is not a real minimum as there is no guarantee you can get a job. If you can’t get a job, you won’t get the minimum wage. You’ll be on the inadequate Newstart payment, or worse still you might get nothing at all. The current minimum therefore is $0.
A job guarantee provides guaranteed wage incomes and decent working conditions (including super payments) to everyone who chooses to participate. Everyone has access to a job guarantee, as a right. This does not preclude welfare payments to non-participants.
Q: How does a job guarantee program differ from work for the dole?
SH: It is voluntary. It has a decent wage. It has decent working conditions. Job guarantee workers get the normal rights in employment you would expect. Everyone in a job guarantee scheme is on the same hourly wage, but other than the absence of a wage structure within the job guarantee, it is equivalent to any other form of employment. It sets the minimum acceptable standard, and this should be set higher than today’s minimum wage, which is not high enough.
Q: What are the psychological impacts of involuntary unemployment that monetary compensation doesn’t address?
SH: The experience of involuntary unemployment is almost unique, in the sense that it has a significant and long lasting impact on life satisfaction. We never fully adjust to unemployment. It shifts the baseline for subjective well- being (SWB), with permanent effect. A variety of studies carried out by economists and psychologists, using panel data on the determinants of subjective well-being, have confirmed the negative impact of unemployment on the quality of people’s lives.
Unemployment, always and everywhere, reduces subjective well-being. Any significant unemployment is a social problem, quite independently of any lost output associated with an output gap.
Meaningful employment satisfies real human needs, on a variety of levels, and delivers social status. Since the world consists of people with such needs, we ought to have an appropriately designed job guarantee, to meet those needs.
The responses individuals give to questions relating to well-being are admittedly highly context dependent, easily influenced by question ordering and framing, and hard to compare across surveys due to differences in scaling and other factors.
However, in recent years a number of studies of the impact of personal characteristics and life events on subjective well-being have been published by psychologists and economists, using panel data from national and international surveys.
Most people have a baseline level of subjective well-being (SWB), to which they revert over time, even following a variety of major positive or negative life events. The overwhelmingly most important determinant of this baseline for SWB is individual personality traits.
Even events such as marriage, divorce, illness, disability, winning a lottery, or other significant life events have at most a marginal impact on baseline SWB.
In most cases, even though negative life changes evoke a stronger emotional response than positive life changes, consistent with loss aversion, the impact is mainly if not entirely temporary. This is the ‘adaptation effect’, defined by the psychologist George Loewenstein as ‘a reduction in the affective intensity of favourable and unfavourable circumstances’.
Unemployment on the other hand, like persistent pain, has an apparently permanent effect on SWB. It significantly shifts baseline SWB. Some studies find evidence that the unemployed do partially adjust to the experience, but there are other studies that find no significant evidence of habituation at all. This is also true, though to a lesser extent, of underemployment, and of insecure employment.
An experience of involuntary unemployment seems to affect reported well-being negatively, even subsequent to a successful return to employment.
People who have been unemployed are permanently affected by the experience. This is, obviously, very serious news for countries with mass youth unemployment, and once again this is independent of any impact that unemployment may have had on human capital, and therefore productivity There is also evidence that the experience of unemployment may have a greater impact on SWB in a more individualistic culture
Q: How likely is it for a job guarantee program to be implemented in Australia?
SH: In a sense, we virtually had a job guarantee in place in the 1960s, in that there were plenty of jobs in the government sector for those who would other- wise have found it difficult to find paid employment. It was not until the late 1970s that Australian governments gave up their post-war commitment to maintain full employment. A true commitment to full employment means having enough paid jobs so that every- one who wants to be in employment has the opportunity to do so.
I think a job guarantee is inevitable at some stage in the future, as we adjust to accelerating technological changes and belatedly address climate change, as part of a ‘green New Deal’.
The alternative is a division of the population into ‘haves’ who are in employment and ‘have nots’ who are not, and are reliant on some form of welfare (whether it is called a UBI or not). This won’t deliver the subjective well-being and social inclusion which will remain essential to a stable and successful society.
It is just a question of time. Perhaps it will happen in other countries first.
Indeed, Prof Stephanie Kelton, Bernie Sanders’ chief economic adviser during the last presidential campaign in the USA, is one of the leading advocates of the type of job guarantee I have been discussing above.
Q: Given you mentioned its likely to be a while before society comes around to the idea of a job guarantee program, in the meantime, with more job losses coming in the manufacturing industry, what would you consider to be the best response?
SH: Make that ‘while’ as short as you can. A voluntary, equitable, flexible, innovative job guarantee is, in my opinion, the best available response.
Dr Steven Hail is a Lecturer in Economics at Adelaide University, and is a member of ERA.