Tuesday, 3 January 2012

Job Guarantee - it's really not that difficult

I have to say the furore over the Job Guarantee idea has been very instructive - particularly about what people value in the world. The amount of leaping to conclusions and post-hoc justification has been astounding to behold.

After all we're simply talking about trying to make sure an individual in a society has a way to earn a living.

As a systems person its blisteringly obvious to me why you'd want to operate this mechanism since it solves a lot of dynamic fluctuations in one go. However it is obviously not clear to most others. So let's see if I can distil it down to its essence and explain the mechanisms.

The Job Guarantee comes from the proposal that the economy should provide full employment and price stability.

Full employment means that if you want to you will be usefully engaged in society in a manner that allows you to feel of value in some way. Given that our school system trains us to derive value and status from work, then value can be given to the majority via a job of some sort. (For reasons why our school system is not really fit for purpose, see this excellent RSA Animate video).

The Job Guarantee essentially says that the state will guarantee to pay wages in exchange for your labour.

Note what it doesn't say:
  • It doesn't say that the state will necessarily compel you to take a job.
  • It doesn't say that the state will necessarily organise the work.
  • It doesn't say that you can only work for the state.
  • It doesn't say that you will necessarily receive no income if you don't want to work
It says the state will guarantee to pay you a certain amount of wages in exchange for a certain amount of your labour. That's it. Nothing else.

This is exactly the same as the state saying it will guarantee to buy your wheat, or your milk or your wool if you are a farmer producing those goods.

If you like you can view it as a put option. Every week you are essentially given a put option by the government that allows you to sell your week's labour to the state for a set price - the strike price. The state then sets the strike price. How much are the wages and how much and what type is the labour required in exchange for those wages.

That then becomes the nominal price anchor for the entire economy. Everything prices itself off that strike price.

Since the operation of the guarantee is a signal of private sector investment failure, the private sector is necessarily disciplined by its operation. Some of the consequences of that are:
  • jobs of a worse quality than the guarantee cease to exist and the firms providing them go bust - freeing up space for the more enlightened. Good riddance to them.
  • private sector firms in trouble go bust naturally and the government has no need to run around like a headless chicken panicking over the job losses - usually accompanied by a spraying of discretionary spending ineffectively in all directions. The guarantee pick up the slack automatically.
  • government can thumb its nose at threats of job losses for any of its policies, since the guarantee picks up the slack.
  • private sector malinvestment can be allowed to resolve and debt bubbles allowed to go down safe in the knowledge that aggregate demand will be maintained (but likely at a lower level - disciplining prices again) and we are less likely to lose sound investment in the maelstrom of insolvency.
  • the employability gap between private sector workers and guarantee workers is smaller which actually reduces the negotiation capacity of engaged private sector workers.
It is important that the private sector feels the discipline so that they regain their appetite for investment as soon as possible. And that happens when profit margins return to something juicy and attractive - which is what maintaining aggregate demand and employability achieves.

Importantly though the system is also getting rid of private sector dross. You need to make spaces for the entrepreneurs to move into.

And once the private sector gets its mojo back the guarantee automatically decreases - as does the private sector discipline. Which then helps the private sector get back to its self-sustaining ignition point where it can become the driver for the recovery.

So enough of the theory. How do we actually get this into practice and reap the benefits.

Interestingly most of the objections refer to edge cases (Hi George). And I have a simple solution to those.

Ignore them.

Too difficult to address for now. We can deal with them later if necessary.

Let's deal with the majority problem - a lack of work opportunites for employable people who want to work.

So at the moment* I would set the guarantee price as follows:
  • the state directly pays the wages of any new person engaged by the public, voluntary, non-profit or charity sector on receipt of a validated timesheet up to a maximum of 35 hours a week at the minimum wage.
  • the employer employs the individual and is responsible for ensuring the individual gets paid.
  • the employer is prohibited from topping up the wages or paying expenses or in any way increasing the remuneration of the individual for the work done.
And let's see how far down the road that gets us.

(* when the facts change, I change my mind. What do you do sir?)

Why not the private sector? Well the private sector lack of investment is the problem and giving them free or subsidised staff is hardly an incentive to amend their behaviour. The guarantee needs to generate a tension in the private sector that turns into a determination to reduce the number of guarantee staff via investment.

And anyway the private sector initially needs to focus on expanding output to service the newly restored aggregate demand.

I suspect that employers using significant amounts of banks loans would similarly have to be excluded from access to guarantee staff. Non-profit doesn't mean that they don't make money. Some of the best businesses I know are co-operatives. Since part of the problem is bank reticence we need to stop them getting access to the stimulus from any other direction than new investment in productive capacity.

So would prices start to go up when this is implemented? Undoubtedly some will at first. But wages would not, and that means putting up prices is a dangerous game. Finite wages purchase reduced amount of goods which means somebody loses out, goes bust and puts a few more people on the guarantee - which reduces wages some more. That is how the nominal anchor pulls prices back into line.

The existing unemployment or pension payment systems can be used to pay the wages. In the UK they are all part of the Department of Work and Pensions structure. Starting and stopping jobs is the same as starting and stopping unemployment benefit with the same PAYE implications and National Insurance registration requirements. HMRC is already into a pilot programme collecting 'Real Time information' about PAYE records to support the new Universal Credit. So those systems are there already, pay millions of people and can be adapted relatively quickly given that they are already half way through the process.

Minimum wage is already enforced by HMRC, so they would get the job of dealing with the 'Mr Donald Duck' applications. That may involve a slight increase in expenditure on rubber gloves and Vaseline admittedly.

So it's really not that difficult to reduce the jobs deficit. That state does what the state is good at - making payments and generally keeping out of the way. Aggregate demand is restored in a counter-cyclical fashion and we can run like this alongside the existing unemployment management structures for a while and see what the data says before trying to tune anything else.

To those who see Byzantine structures and government officials eating their first born I would suggest less Hollywood disaster movies and more Pulp:
You'll never live like common people,
you'll never do what common people do,
you'll never fail like common people,
you'll never watch your life slide out of view,
and dance and drink and screw,
because there's nothing else to do

And remember these are real people we're trying to help here. Real people just like you and me.