Tuesday, 18 February 2014

Why is Job Guarantee so difficult to understand?

I find people's misinterpretation of the Job Guarantee amusing. Not at all sure why it is quite so difficult to grasp.

Simplifying a little, Job Guarantee declares by fiat that all those that were previously short of an 'ordinary job' have an 'ordinary job' and a wage. Job done - no more unemployment. By decree.

That's why there isn't a 'Phillips curve' or NAIRU in MMT. Because both of those rely upon the traditional notion of 'unemployment' and there is none in MMT. Therefore they can't apply as standard. The 'trade off' changes to reference those on the Job Guarantee scheme instead.

So you have to alter the ideas to take into account that the nature of a Job Guarantee buffer is different from an unemployed buffer. Which means there both is and isn't a trade off curve in MMT. Only confusing if you fundamentally don't want to see the difference.

The Job Guarantee (JG) is counter-cyclical auto-stabilising social security with a twist.

The twist is four fold:

(i) people can choose to go onto social security via the JG. This disciplines the standard economy. All of a sudden 'no deal' is an option in the normal business jobs market and that makes the job market behave, well, like a market.  The JG operates much more completely than a 'minimum wage' ever can, but doesn't disrupt the wage structure entirely as an income guarantee would. Minimum wage can't provide an income if there aren't the jobs, and needs enforcing by a police force, whereas an income guarantee (at the very least) cripples the spending half of your auto-stabilisers - requiring taxes to be hiked massively on the other side to make the numbers add up.

(ii) Because they are working, the number of people on a JG becomes less of a social issue - no more 'bring down unemployment', no more 'shirkers'.  Therefore normal businesses can be allowed to go bust, not pay redundancy, etc because the JG will catch people who lose their jobs during a retrenchment. That disciplines the spending and wage channels since there need be no bailouts or the 'special industries' that pump-priming requires. Overpaid workers get an imposed wage cut when they are forced to move to the JG as do greedy bosses. 'Corporate confidence' is no longer of overriding concern.

(iii) People on the JG are working and producing output - so they are more socially productive than on unemployment benefit or income guarantees. And because they are seen to be working they become cheaper to hire from a normal business's point of view (there is always less hiring risk if you know people are working). That eliminates a current risk cost completely from the economy (the 'long term unemployed' issue).

(iv) Forcing businesses to compete for staff should accelerate the capital development of the economy, and replacing jobs with better machines is what we want the private sector to do. People need to be expensive to use, and jobs in the normal business jobs market must not be sacrosanct. Business models that fail, must be allowed to fail without any sentimentality. To pinch a DevOps phrase, we need to ensure that businesses in a capitalist economy are treated like cattle, not pets.

There are quite a few other benefits as explained in the literature which heavily drift into sociology and social cohesion and the nature of the way humans are (like their innate need to see reciprocation - which is why 'give people income' schemes will always fail).

Job Guarantee has always struck me as a pragmatic solution to a difficult mismatch problem. It's very easy to implement - certainly here in the UK, where all the basics are already in place - and does what it says on the tin. But ultimately we will only find out with a full blown field trial.  And that's what we now need to press for.