The Job Guarantee and Basic Income: Part 2
Only a few braved bitter cold in lower Manhattan to form what the organizers hoped would be the world’s longest unemployment line, holding their pink slips.
This is part 2 of a three-part series by Ellis Winningham, in which he further discusses the Job Guarantee as an essential component of Modern Monetary Theory. [Ed]
In part 1 we saw that the Job Guarantee is not a government job creation scheme per se, but rather, it is an automatic stabiliser for the economy. That is its purpose. Now we delve deeper into the JG’s macroeconomic functions. Later we will examine errant views of work, how we can redefine work, the types of JG jobs created, how they are created, and JG administration and funding, as well as have a look at the political implications of the Job Guarantee and a full employment economy.
Understanding fundamental automatic stabilisation and job creation concepts
Many public discussions entirely miss the point of the JG, which is normal, but at the same time, the lack of firm understanding is detrimental to progress. Now I will address some concerns about the JG and skilled/educated labour and, in doing so, will cover some critical topics.
When we talk about the JG, some people inevitably discuss the consequences for skilled/educated workers. While it is certainly true that a JG would be open to skilled/educated workers if they wished to sign up, the JG is not meant to be a safety net for skilled/educated workers, nor is its main purpose to act as a safety net for anyone. While it does appear to act in the capacity of a safety net, that is because the JG stabilises and enhances the economy through labour. Thus, the JG must employ the unemployed for the initiative to perform its intended macroeconomic functions. The employment aspect leaves the public with the false impression that the Job Guarantee’s purpose is to be a safety net. It is the same misunderstanding we see regarding the purpose of food assistance.
To review from part 1, people are led to believe that the purpose of food assistance is to help the poor. That’s not the macroeconomic purpose. The macroeconomic function of food assistance is to act as an automatic stabiliser. The poor are the avenue through which the macroeconomic mechanism must take to bring about stabilisation. If food assistance merely helped the poor, then making cuts to it in a downturn would only hurt the poor. But the truth is that if you cut assistance in a downturn, then everyone, food assistance recipient or not, takes a hit at some point. That’s because the actual purpose is hidden behind a wall of poor people who cannot afford food. You are focusing on the wrong thing. The purpose is macroeconomic: The poor are employed, albeit insufficiently, by the central government to make the tool perform its macroeconomic function. So, clearly, food assistance though absolutely vital for our most vulnerable, remains an inferior automatic stabiliser; it provides a floor in consumer spending on food, but nothing else.
Similarly, unemployment benefits are an inferior automatic stabiliser in that it works, but the pay is deliberately set too low to quickly and efficiently address reduced output during a downturn. Therefore, a superior automatic stabiliser is required, and that is the Job Guarantee.
Now, with regards to “skilled worker” concerns, the problem with understanding mainly results from two distinct things. Firstly, people try to apply the typical top-down reasoning to job creation that we use today, to the JG’s bottom-up approach. The two are completely incompatible with one another.
Understanding top-down job creation The job creation method used today seeks to provide employment opportunities for the bottom income distribution by first creating jobs for skilled and educated workers. The hope, then, is that afterward, demand for “unskilled” jobs will “trickle-down” to the bottom income distribution. The methodology is grossly inefficient and highly unstable. In an economic expansion, the largest potential consumer spending cohort – the bottom income distribution – is the last to be hired, thus slowing the rate of expansion, and when a downturn occurs, the bottom income distribution are the first to lose their jobs, thus speeding up the rate of the downturn.
Understanding the bottom-up approach
Job creation done properly involves first guaranteeing jobs at good wages to the bottom income distribution. When achieved, the resulting vibrant consumer demand then causes a demand for skilled and educated jobs to travel upward, and so, more of these jobs are added. As long as the bottom income distribution’s jobs are maintained, consumer spending will secure the jobs of skilled/educated workers. It is essential that the student not apply micro reasoning here because it leads to incorrect conclusions. For instance, we know that on the micro level, a business might be having financial difficulties and sack several skilled/educated workers. Our concern, however, is the macro level; overall, on aggregate. On aggregate, the bottom-up approach ensures that unemployment for skilled and educated workers remains low.
The second problem with understanding involves a concept called, “wait unemployment”.
What Is wait unemployment?
Many who are interested in MMT do not have a background in economics, therefore, they do not understand, or have never heard of, the concept “wait unemployment”. Some think that JG developers and proponents have simply ignored highly skilled and educated workers in designing the initiative, and they think so because wait unemployment is never really discussed. So, I would urge people to study the concept in depth.
With wait unemployment, highly skilled/highly educated workers have far different pay packages and benefits than the bottom income distribution. Their incomes are far higher and some are paid severance, some have a decent amount in savings, etc. Thus, some of these workers choose to “wait” out unemployment until a job opens in their field of expertise, rather than just taking any job that comes along, because they can often afford to do so. This is not to say that all highly skilled/highly educated workers can afford to do so in today’s NAIRU economy, but that they will be in a better position than the bottom income distribution to do so in a stable, production-based Job Guarantee economy.
So, unless the JG offered work in their field at an acceptable pay rate, they would most likely behave as they do today and wait out the unemployment. In a JG economy, turnaround times will be much faster than that of today’s NAIRU economy.
To sum up this point, what I’m saying here is that people are only going on experience; they are going with “what they know”, and they are having a hard time seeing things any other way. Totally understandable. First, understand that the trickle-down approach requires several inferior automatic stabilisers working together and administered by several government departments, because the bottom income distribution, which comprises a large segment of potential consumer spending power, are the last to be hired and the first to be fired in that approach.
As long as the specious NAIRU economy is maintained, the number of unskilled workers needing assistance will also increase, thus reducing their potential spending power. With a bottom-up approach, we employ one superior automatic stabiliser that guarantees the jobs of the bottom income distribution. In turn, the labour of the unskilled results in both a demand for skilled and educated jobs, and a positive impact on output.
Source: This article appeared on the Facebook page of Ellis Winningham.
Ellis Winningham is an economist, guru and educator with an acerbic wit and keen intellect. He aligns himself with those who promote Federal Government programs to end wage suppression. As federal taxes don’t fund spending, it is possible to fully implement programs that level the playing field and lift the 99% out of perpetual cycles of poverty that are brought about by austerity. He has worked with the U.S. Federal Reserve and understands first-hand about “money and currency” creation for sovereign currency nations.