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.


Dan Lynch said...

Because you can't create appropriate jobs out of thin air, Neil, especially given the proposed funding formula requiring that 80% of the JG budget be spent on wages.

What sort of job would you create for a butcher? A machinist? A cowboy? A logger? A manufacturing engineer? And so forth.

And why should these skilled workers be paid only minimum wage? The WPA program paid different wages for different skills.

The reality is that you can't create appropriate, relevant jobs on command. So instead they would end up creating make-work jobs, i.e., picking up litter. Maybe the litter needs to be picked up once in a while, but it doesn't need to be picked up every day, hence it is make-work.

Make work jobs are not an appropriate use of skilled labor. It's demeaning and unproductive.

All the arguments that people make for the JG can also be made for slavery, or for totalitarian labor camps. There were no unemployed black people in the pre-Civil War South.

A JG would not be truly voluntary unless the individual has a viable alternative. That is why I advocate a JIG rather than a JG. And the work part of my JIG would be modeled more along the lines of the WPA than the MMT JG.

Neil Wilson said...

Of course you can create an appropriate choice of jobs. It's ridiculous to suggest that you can't.

Because of course the majority of people on the JG will be unskilled and from the secondary job market. And anybody else, almost by definition, likely has an obsolete skill set.

A derivative trader will not be trading derivatives on the Job Guarantee because those skills are obsolete and serve no public purpose. A lawyer that ends up on the Job Guarantee for whatever reason will find work using their legal skills at, say, the Citizen's advice bureau - because that has a public purpose.

The Job Guarantee will use people's *transferable* skill set and help them transition to a different role. That's one of the reasons Warren Mosler calls the Job Guarantee a 'transition job'.

The Job Guarantee wage is set as it is because that is what the people coming to it are worth. There is no better bid in the market, otherwise they would not be applying to the Job Guarantee.

There is no tariff sheet in society that says one skill is more valuable than another. What you consider valuable, somebody else may consider is a waste of time and space. Who decides? Who is Solomon?

As I said in the post, and MMT economists have said dozens of times, JG at the living wage avoids disrupting the market wage structure. That's why it is as it is. There is no other bid, and no other acceptable way of deciding relative value.

The JG is as voluntary as any other work in society. Only those that believe that they have no obligation to work believe otherwise and start making ridiculous comparisons to slavery and other such unhelpful comments.

Society disagrees with you, and in a democracy the will of the majority carries the day. So you will be working for a living unless you are granted exemption by reason of age or infirmity.

cig said...

If the JG is voluntary, can I just turn up, and browse the web all day on my tablet (that I bring myself, at no cost to you -- I plan to spend all day reading MMT blogs)?

If I cannot do that, the job is not guaranteed, as it is conditional: if I stop following your orders, I lose my job. You cannot call a job that I can lose a guaranteed job.

If I can do that, it's not a job and I could as well stay home or in the pub, and you give me my wage anyway.

You cannot remove the market even if the state pays wages: a job is where someone willing to give orders (demand) meets someone else's willingness to follow orders (supply). And this will never clear exactly (some people will never find someone they can acceptably obey or command).

That's why we don't need JG but an unconditional and universal basic income, which achieves the achievable goals of the JG, without the inevitable collateral damage and cost of a workhouse infrastructure.

I would like JG proponents to actually try the thing: pick 20 random unemployable people from the street, and try to keep them all in something resembling work for 3 months. The experiment shouldn't even cost much (20 x 3 months living wage, which most JG proponents could easily fund out of pocket). If you still support JG after that, I'll happily eat my hat.

Neil Wilson said...

"You cannot call a job that I can lose a guaranteed job"

Yes I can and I have. It's a guaranteed alternative job offer.

It's just like any other job. If you break the rules, you lose the job and the income.

Just like if you steal a car, you lose your liberty.

Society has rules. Most people don't find that a problem.

"I would like JG proponents to actually try the thing: pick 20 random unemployable people from the street, and try to keep them all in something resembling work for 3 months."

We already do. It's called offender rehabilitation - or Communty Payback. In other words we can find lots and lots of work for criminals to do for nothing. Think how much can be achieved by those who are merely down on their luck who are getting paid!

South Yorkshire delivered 221,225 hours worth £1.4 million pounds to the community for 1900 offenders.

From the report:

"Darrel was at Barnsley Wood Recycling on an unpaid work order between 16 May
and 20 July this year.

Barnsley Wood Recycling was set up in 2011 to create employment and training
opportunities for people who struggle to find work. It is a social firm and part of the
Yes2ventures parent company.

This placement was ideal for Darrel and he embraced the work, following
instructions and working to the best standard he could achieve. The order sparked
an interest in the company and he got more involved with the business of Barnsley
Wood Recycling. As he was unemployed whilst carrying out his unpaid work order
he asked if he could work as a volunteer once he had completed his hours.

He has since been working there on a voluntary basis three days a week. He is
learning new skills in recycling and restoration of timber furniture, skills that he can
use throughout the rest of his life. Darrel has learned how to use a router to ‘sign
write’ carved wooden signs which the business has since sold to a local school.

If things continue as they are Yes2ventures, the parent company, would like to
employ him to work at Barnsley Wood Recycling."

Would you like that hat with or without sauce?

Ralph Musgrave said...

“Job done - no more unemployment.” Neil, that’s contradicted by a later phrase of yours where you say, “people can choose to go onto social security via the JG.” Well if they can “choose” to do JG, then ipso fact they can choose to remain on unemployment benefit. I.e. there will still be some unemployment.

“Whereas an income guarantee (at the very least) cripples the spending half of your auto-stabilisers..” Why on earth? If someone is given £X/wk in the form of min income, then their weekly spending will be much the same as where they are given £X/wk in the form of JG wage. That of course assumes JG spends nothing on materials, capital equipment etc.

But if JG does spend on the latter, there are problems (way beyond the comprehension of Bill Mitchell and Randy Wray). The problem is thus. If JG spends on materials etc, and assuming the economy is at the traditional capacity level (i.e. the capacity level that would obtain absent JG) then such expenditure is inflationary. Of course that can be dealt with by cutting demand. But that involves destroying regular jobs so as to create JG jobs: hardly the object of the exercise.

The latter little conundrum is actually soluble. But I wouldn’t expect 99% of the advocates of JG to understand the problem there, never mind understand the solution.

“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.” Is that English? I mean how do you replace a job with a machine? Plus if lots of machines replace lots of jobs, that (at least on the face of it) means fewer jobs.

But if you’re saying that a high minimum wage (or JG wage) results in regular employers all increasing output per head, I’m all agog. How far do we take this? If we quadruple the minimum wage do we take it that the output of the lowest paid will by some magic increase fourfold and that there’ll be no increase in unemployment or the number doing JG jobs? If you can substantiate that claim you’ll get a Nobel Prize.

Why don’t they apply that solution in Bangladesh: just pass a law saying everyone shall be paid the average US wage. Lo and behold Bangladeshies quickly see their standard of living rise to US levels.

Neil Wilson said...

There is no contradiction Ralph. You've just wilfully misinterpreted things as usual.

If you're going to do hole picking, you need to make sure you've understood what somebody was getting at first.

The stuff in the middle we've been through dozens of times and I'm sick to death of hearing the same repetition which has no basis in fact.

Key phrase for you: 'we need to ensure that businesses in a capitalist economy are treated like cattle, not pets'.

And the concluding remark is juvenile.

Very disappointing.

Ben Johannson said...


Is there some reason an unemployed butcher must do the work of a butcher in a JG position? I've found myself rather confused that so many implicitly assume this. Surely there's nothing to prevent use of the program as a sort of national apprenticeship, helping workers develop new skills and move into other sectors of the economy.

Tom Hickey said...

Look, the JG is not proposed as the solution to all employment issues. It is a very specific proposal that creates an paid employment opportunity for unskilled labor at a compensation level that serves an anchor for the currency in terms of labor time, addressing employment and price stability simultaneously.

According to Bill Mitchell, who has probably written most on this issue, the JG is intended to mop up the residue of unskilled unemployed which is the first cohort to lose employment and the last cohort hired. And some of this cohort is at present pretty much unemployable. The JG program could be a step in lining this cohort or at least some it for a job.

If others choose to take advantage of it, that is their option. Moreover, it doesn't preclude unemployment benefits, or a BIG of some sort, or a host of other things.

The JG is not designed to address higher level issues of unemployment. But I believe that the fundamental principle holds that government has the ability and obligation to run full employment.

Capitalism is not an excuse for unemployment, which is the excuse given now, i..e., unemployment is voluntary since workers are unemployed because they will not reduce their wage demands enough. That is, if the labor market were flexible, then there would be work for all willing an able. This is a BS assumption, since it does not guarantee employment even with highly flexible wages. It just means a race to the bottom in wages for available jobs.

The employment is issue is the knottiest issue in capitalism, which treats labor market as a commodity market. As long as this system is in place, it cannot be fixed satisfactorily. It needs to be replaced. Or government has to step in and hire those that are unemployed at their skill level for the going wage in the industry.

But before that happens, and it won't be soon by the looks of things, steps can be taken to improve an inherently bad situation. That's the way I see a JG.

Neil Wilson said...

"Is there some reason an unemployed butcher must do the work of a butcher in a JG position?"

None whatsoever.

But there does seem to be a thing amongst pump primers that once you've trained to be something then you must be artificially maintained doing that until the end of time - and continue to get paid the same as ever.

The idea that something declines in value or becomes obsolete seems to be an anathema.

That was the reason pump priming failed in the first place - propping up useless businesses, industries and skills long after the sell by date.

Don't understand the thinking behind it.

Tom Hickey said...

On the other hand, there is efficiency in keeping people aligned as closely as possible with their existing knowledge and skill. The "retaining" meme is largely a right wing meme that explains UE based on structural rather than cyclical.

In addition, what is happening now is that people losing their jobs to offshoring or technology advances are being "retrained" at a much lower skill/wage level. It's the dumbing down of the US workforce, on one hand, and the employment of many workers way below their capabilities.

The assumption that capitalism is automatically efficient when markets are free is BS when market "efficiency" results in social dysfunction and waste of potential.

Joe Firestone said...

Neil, a really nice summary posts and good replies to the naysayers!

PeterM said...

I'd be hesitant to make any sort of JG compulsory. If the economy were sensibly managed we'd be looking at unemployment rates of less than 5%. Possibly 2% would be short term unemployed in the process of finding another job.
There would be some who would volunteer for a job but, after all that, there would be a small but very hard core of very hard to employ workers.
They may have drug or alcohol addiction problems possibly combined with mental health issues.
I think we'd need to tread very carefully on the issue of compulsion.

Neil Wilson said...

There is never any compulsion under an MMT style Job Guarantee. There is a world of difference between using the power of the state to force people to do something, and a social expectation that if you are fit and able to work then you should take a job that is on offer. It is the latter that the MMT Job Guarantee employs.

If you are infirm, then the Health and Social Care system will provide the social security. If you are elderly you will receive the Living Wage as a State Pension. Beyond that what social security is on offer is a political matter for the society in which the Job Guarantee runs.

Taking the UK as an example an unemployment rate of 5% is currently 1.6 million people. In addition to that there are another 2.2 million people who are inactive because they are infirm. It's unreasonable to suggest that there is a group of people out there larger than the population of the cities of Leeds, Bradford and Wakefield combined who are similarly infirm but have not been picked up by Social Care.

The fact is that they simply haven't got a job to go to and we need to provide one.

The Job Guarantee along with the Health Care and Pension systems provides complete social security. The only choice that is likely off the table is the one where you are fit and able to work, choose not to work *and* you still expect to receive a full living wage from the state.

And that fits with what public opinion will stand at this point in history. They are not in the mood to permit that choice.

Anders said...


The UK minimum wage pays £252 for a 40-hour week. Where would you see the JG wage being set?

Neil Wilson said...

I'd start at the UK living wage with a strict warning to commerce that I'd expect that to be paid for by increased production and investment, and that any price rises would trigger competition commission investigations and/or additional taxes on profits.

Carrot and stick.

QP said...

How would the JG work operating in just one country within the EU with it's free movement of labour..?

Neil Wilson said...

You'd probably derogate from the freedom of movement of labour.

Preferably, you'd just leave the EU since it is a dead end political project. that no longer serves any useful purpose.

PeterM said...

"But ultimately we will only find out with a full blown field trial. And that's what we now need to press for."

Yes a field trial in some of the areas of high unemployment would 'cost' very little. It would be interesting to do analysis of how much it actually 'costs' the government.

My guess is that it wouldn't be much at all when everything is included. Even in their own neo-liberal terms they'd probably come out ahead.

Do we have any sympathisers in, or potentially, in positions of power?

We'd just need to emphasis that the JG wasn't supermarket-shelf-stacking work for the dole. It would be a proper job. Everyone would pay NI and income tax etc.

Neil Wilson said...

I'm hoping that the Labour idea actually represents a 'foot in the door' approach, and that they have wrapped it up in neo-liberal rhetoric because they are frightened.

Perhaps I'm just feeling optimistic this weekend.

I'm hoping that if they get in power that it won't be a private sector subsidy programme, that it won't only be in place for a year and that it won't be perceived as a punishment.