Job guarantee
Encyclopedia
A job guarantee is an economic policy
proposal aimed at providing a sustainable solution to the dual problems of inflation
and unemployment
. Its aim is to create full employment
and price stability. It is related to the concept of employer of last resort
(ELR).
The economic policy stance currently dominant around the world uses unemployment as a policy tool to control inflation
; when cost pressures rise, the standard monetary policy
carried out by the monetary authority (central bank
) tightens interest rate
s, creating a buffer stock of unemployed people, which reduces wage demands, and ultimately inflation. When inflationary expectations subside, these people will get their jobs back. In Marxian terms, the unemployed serve as a reserve army of labour
. By contrast, in a job guarantee program, a buffer stock of employed people (employed in the job guarantee program) provides the same protection against inflation without the social costs of unemployment, hence (it is argued) fulfilling the dual mandate of full employment
and price stability.
JG draws from a social justice
tradition of right to work
, such as the United Nations Universal Declaration of Human Rights and the US Employment Act of 1946, and an early form was proposed by Hyman Minsky
.
The JG proposal was conceived independently by Mitchell (1998) and Mosler (1997–98). It has since been developed further by authors, including Wray (1998) and a comprehensive treatment of it appears in Mitchell and Muysken (2008)
principle whereby the public sector
offers a fixed wage job to anyone willing and able to work thereby establishing and maintaining a buffer stock of employed workers. This buffer stock expands when private sector activity declines, and declines when private sector activity expands, much like today's unemployed buffer stocks.
The JG thus fulfils an absorption function to minimise the real costs associated with the flux of the private sector. When private sector employment
declines, public sector employment will automatically react and increase its payrolls. So in a recession, the increase in public employment will increase net government spending, and stimulate aggregate demand
and the economy. Conversely, in a boom, the decline of public sector employment and spending caused by workers leaving their JG jobs for higher paid private sector employment will lessen stimulation, so the JG functions as an automatic stabilizer
controlling inflation. The nation always remains fully employed, with a changing mix between private and public sector employment. Since the JG wage is open to everyone, it will functionally become the national minimum wage
. To avoid disturbing the private sector wage structure and to ensure the JG is consistent with price stability, the JG wage rate should probably be set at the current legal minimum wage.
Under the JG, people of working age who are not in full-time education and have less than 35 hours per week of paid employment would be entitled to the balance of 35 hours paid employment, undertaking work of public benefit at the minimum wage. The aim is to replace unemployment and underemployment
with paid employment (up to the hours desired by workers), so that those who are at any point in time surplus to the requirements of the private sector (and mainstream public sector) can earn a reasonable living rather than suffer the indignity and insecurity of underemployment, poverty
, and social exclusion
.
arrangements, including a generic work-tested benefit payment, would also be available to unemployed people, depending on their circumstances, as an initial subsistence income while arrangements are made to employ them. This would rarely be necessary once the system was well established, because in most circumstances JG jobs would be immediately available and offered instead of income support.
(Non-Accelerating Inflation Rate of Unemployment) economy, it is clear that if there were any demand-pull inflation it would be lower under the JG. There are no new problems faced by employers who wish to hire labour to meet the higher sales levels. Any initial rise in demand will stimulate private sector employment growth while reducing JG employment and spending. However, these demand pressures are unlikely to lead to accelerating inflation while the JG pool contains workers employable by the private sector.
schemes. Workfare schemes tend not to cover all of the unemployed.
government introduced the Jefes de Hogar (Heads of Households) program in 2001 to combat the social malaise that followed the financial crisis in that year.
Similarly, the India
n Government introduced in 2005 a five-year plan called the National Rural Employment Guarantee Act (NREGA) to bridge the vast rural-urban income disparities inequality that have emerged as India’s information technology and service sector has boomed. Hard-labour jobs that produce almost no outcomes are given to desperate rural citizens for $1.50/day.
Finally, the South Africa
n government has introduced the Expanded Public Works Program (EPWP) to overcome the extremely high unemployment and accompanying poverty in that country. The programs run against the full employability tide because they recognise that the solution to joblessness and the poverty that this brings is in the provision of employment opportunities rather than a focus on the victims. They also recognise that the state (whether at the level of federal or local government) has a major role to play in providing for employment guarantees.
, the Humphrey-Hawkins Full Employment Act
of 1978 allows the government to create a "reservoir of public employment" in case private enterprise does not provide sufficient jobs. These jobs are required to be in the lower ranges of skill and pay so as to not draw the workforce away from the private sector. However, the act did not establish such a reservoir (it only authorized it), and no such program has been implemented in the United States, though the unemployment rate has generally been above the rate (3%) targeted by the act.
, a UK think tank
associated with the Labour Party
, advocated a Job Guarantee - with compulsory takeup, on pain of loss of benefits - for the long-term unemployed only.
Economic policy
Economic policy refers to the actions that governments take in the economic field. It covers the systems for setting interest rates and government budget as well as the labor market, national ownership, and many other areas of government interventions into the economy.Such policies are often...
proposal aimed at providing a sustainable solution to the dual problems of inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
and unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
. Its aim is to create full employment
Full employment
In macroeconomics, full employment is a condition of the national economy, where all or nearly all persons willing and able to work at the prevailing wages and working conditions are able to do so....
and price stability. It is related to the concept of employer of last resort
Employer of last resort
Employers of last resort are employers in an economy which workers go to for jobs when no other jobs are available; the term is by analogy with "lender of last resort"...
(ELR).
The economic policy stance currently dominant around the world uses unemployment as a policy tool to control inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
; when cost pressures rise, the standard monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
carried out by the monetary authority (central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
) tightens interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
s, creating a buffer stock of unemployed people, which reduces wage demands, and ultimately inflation. When inflationary expectations subside, these people will get their jobs back. In Marxian terms, the unemployed serve as a reserve army of labour
Reserve army of labour
Reserve army of labour is a concept in Karl Marx's critique of political economy. It refers basically to the unemployed in capitalist society. It is synonymous with "industrial reserve army" or "relative surplus population", except that the unemployed can be defined as those actually looking for...
. By contrast, in a job guarantee program, a buffer stock of employed people (employed in the job guarantee program) provides the same protection against inflation without the social costs of unemployment, hence (it is argued) fulfilling the dual mandate of full employment
Full employment
In macroeconomics, full employment is a condition of the national economy, where all or nearly all persons willing and able to work at the prevailing wages and working conditions are able to do so....
and price stability.
Conception
The job guarantee proposal is particularly associated with certain post-Keynesian economists, particularly at the Centre of Full Employment and Equity (CofFEE) at the University of Newcastle, Australia and at the Kansas City School of economists and the Center for Full Employment and Price Stability, both of the University of Missouri – Kansas City.JG draws from a social justice
Social justice
Social justice generally refers to the idea of creating a society or institution that is based on the principles of equality and solidarity, that understands and values human rights, and that recognizes the dignity of every human being. The term and modern concept of "social justice" was coined by...
tradition of right to work
Right to work
The right to work is the concept that people have a human right to work, or engage in productive employment, and may not be prevented from doing so...
, such as the United Nations Universal Declaration of Human Rights and the US Employment Act of 1946, and an early form was proposed by Hyman Minsky
Hyman Minsky
Hyman Philip Minsky was an American economist and professor of economics at Washington University in St. Louis. His research attempted to provide an understanding and explanation of the characteristics of financial crises...
.
The JG proposal was conceived independently by Mitchell (1998) and Mosler (1997–98). It has since been developed further by authors, including Wray (1998) and a comprehensive treatment of it appears in Mitchell and Muysken (2008)
Overview
The JG is based on a buffer stockBuffer stock scheme
A buffer stock scheme is an attempt to use commodity storage for the purposes of stabilising prices in an entire economy or, more commonly, an individual market...
principle whereby the public sector
Public sector
The public sector, sometimes referred to as the state sector, is a part of the state that deals with either the production, delivery and allocation of goods and services by and for the government or its citizens, whether national, regional or local/municipal.Examples of public sector activity range...
offers a fixed wage job to anyone willing and able to work thereby establishing and maintaining a buffer stock of employed workers. This buffer stock expands when private sector activity declines, and declines when private sector activity expands, much like today's unemployed buffer stocks.
The JG thus fulfils an absorption function to minimise the real costs associated with the flux of the private sector. When private sector employment
Employment
Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...
declines, public sector employment will automatically react and increase its payrolls. So in a recession, the increase in public employment will increase net government spending, and stimulate aggregate demand
Aggregate demand
In macroeconomics, aggregate demand is the total demand for final goods and services in the economy at a given time and price level. It is the amount of goods and services in the economy that will be purchased at all possible price levels. This is the demand for the gross domestic product of a...
and the economy. Conversely, in a boom, the decline of public sector employment and spending caused by workers leaving their JG jobs for higher paid private sector employment will lessen stimulation, so the JG functions as an automatic stabilizer
Automatic stabilizer
In macroeconomics, automatic stabilizers describes how modern government budget policies, particularly income taxes and welfare spending, act to dampen fluctuations in real GDP....
controlling inflation. The nation always remains fully employed, with a changing mix between private and public sector employment. Since the JG wage is open to everyone, it will functionally become the national minimum wage
Minimum wage
A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labour. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion about...
. To avoid disturbing the private sector wage structure and to ensure the JG is consistent with price stability, the JG wage rate should probably be set at the current legal minimum wage.
Under the JG, people of working age who are not in full-time education and have less than 35 hours per week of paid employment would be entitled to the balance of 35 hours paid employment, undertaking work of public benefit at the minimum wage. The aim is to replace unemployment and underemployment
Underemployment
Underemployment refers to an employment situation that is insufficient in some important way for the worker, relative to a standard. Examples include holding a part-time job despite desiring full-time work, and overqualification, where the employee has education, experience, or skills beyond the...
with paid employment (up to the hours desired by workers), so that those who are at any point in time surplus to the requirements of the private sector (and mainstream public sector) can earn a reasonable living rather than suffer the indignity and insecurity of underemployment, poverty
Poverty
Poverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...
, and social exclusion
Social exclusion
Social exclusion is a concept used in many parts of the world to characterise contemporary forms of social disadvantage. Dr. Lynn Todman, director of the Institute on Social Exclusion at the Adler School of Professional Psychology, suggests that social exclusion refers to processes in which...
.
Income support
A range of income supportIncome Support
Income support is an income-related means-tested benefit in the United Kingdom for people who are on a low income. Claimants of Income Support may be entitled to certain other benefits, for example, Housing Benefit, Council Tax Benefit and help with health costs...
arrangements, including a generic work-tested benefit payment, would also be available to unemployed people, depending on their circumstances, as an initial subsistence income while arrangements are made to employ them. This would rarely be necessary once the system was well established, because in most circumstances JG jobs would be immediately available and offered instead of income support.
Inflation control
The fixed JG wage provides an in-built inflation control mechanism. Mitchell (1998) called the ratio of JG employment to total employment the buffer employment ratio (BER). The BER conditions the overall rate of wage demands. When the BER is high, real wage demands will be correspondingly lower. If inflation exceeds the government’s announced target, tighter fiscal and monetary policy would be triggered to increase the BER, which entails workers transferring from the inflating sector to the fixed price JG sector. Ultimately this attenuates the inflation spiral. So instead of a buffer stock of unemployed being used to discipline the distributional struggle, the JG policy achieves this via compositional shifts in employment. The BER that results in stable inflation is called the non-accelerating-inflation-buffer employment ratio (NAIBER) (Mitchell 1998). It is a full employment steady state JG level, which is dependent on a range of factors including the path of the economy. There is an issue about the validity of an unchanging nominal anchor in an inflationary environment. The JG wage would be adjusted in line with productivity growth to avoid changing real relativities. Its viability as a nominal anchor relies on the fiscal authorities reigning in any private wage-price pressures.No relative wage effects
The JG introduces no relative wage effects and the rising demand per se does not necessarily invoke inflationary pressures because by definition it is satisfying the net savings desire of the private sector (see Mitchell and Muysken, 2008 for more details). Additionally, in today’s demand constrained economies, firms are likely to increase capacity utilisation to meet the higher sales volumes. Given that the demand impulse is less than required in the NAIRUNAIRU
In monetarist economics, particularly the work of Milton Friedman, on which also worked Lucas Papademos and Franco Modigliani in 1975,NAIRU is an acronym for Non-Accelerating Inflation Rate of Unemployment, and refers to a level of unemployment below which inflation rises.It is widely used in...
(Non-Accelerating Inflation Rate of Unemployment) economy, it is clear that if there were any demand-pull inflation it would be lower under the JG. There are no new problems faced by employers who wish to hire labour to meet the higher sales levels. Any initial rise in demand will stimulate private sector employment growth while reducing JG employment and spending. However, these demand pressures are unlikely to lead to accelerating inflation while the JG pool contains workers employable by the private sector.
Wage bargaining
While the JG policy frees wage bargaining from the general threat of unemployment, several factors offset this:- In professional occupational markets, while any wait unemployment will discipline wage demands, demand pressures may eventually exhaust this stock and wage-price pressures may develop. With a strong and responsive tertiary education sector, skill bottlenecks can be avoided more readily than with an unemployed buffer stock;
- Private firms would still be required to train new workers in job-specific skills in the same way they would in a non-JG economy. However, JG workers are far more likely to have retained higher levels of skill than those who are forced to succumb to lengthy spells of unemployment. This changes the bargaining environment rather significantly because firms now have reduced hiring costs. Previously, the same firms would have lowered their hiring standards and provided on-the-job training and vestibule training in tight labour markets. The JG policy thus reduces the "hysteretic inertia" embodied in the long-term unemployed and allows for a smoother private sector expansion;
- With high long-term unemployment, the excess supply of labour poses a very weak threat to wage bargaining, compared to a JG environment (Mitchell, 1998).
Keynesianism
A crucial point is that the JG does not rely on the government spending at market prices and then exploiting multipliers to achieve full employment which characterizes traditional Keynesian aggregate demand management. The JG program differs in that it "would be targeted directly to households. It is a genuine bottom-up approach to economic recovery. It is a program that stabilizes the incomes and purchasing power of individuals at the bottom of the income distribution that trickles up and stabilizes the rest of economic activity. Strong and stable demand means strong and stable profit expectations. A program that stabilizes employment and purchasing power is a program that stabilizes cash flows and earnings. Stable incomes through employment also mean stable repayments of debts and greater overall balance sheet stability".Full employability
The JG seeks to reorient labour market policy away from the current OECD emphasis on full employability whereby governments engage in programs to prepare the unemployed for work without guaranteeing that work will be available towards a focus on creating enough work. The full employability agenda has come under fire from a number of sources in recent years (see, for example ILO, 2004).Workfare
In countries with a minimum wage, the Job Guarantee would provide a regular job with a minimum wage, which is not the case in some workfareWorkfare
Workfare is an alternative model to conventional social welfare systems. The term was first introduced by civil rights leader James Charles Evers in 1968; however, it was popularized by Richard Nixon in a televised speech August 1969...
schemes. Workfare schemes tend not to cover all of the unemployed.
Implementation
There are now several countries which have implemented direct job creation schemes to counter the major problems associated with persistent unemployment. For example, the ArgentineArgentina
Argentina , officially the Argentine Republic , is the second largest country in South America by land area, after Brazil. It is constituted as a federation of 23 provinces and an autonomous city, Buenos Aires...
government introduced the Jefes de Hogar (Heads of Households) program in 2001 to combat the social malaise that followed the financial crisis in that year.
Similarly, the India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
n Government introduced in 2005 a five-year plan called the National Rural Employment Guarantee Act (NREGA) to bridge the vast rural-urban income disparities inequality that have emerged as India’s information technology and service sector has boomed. Hard-labour jobs that produce almost no outcomes are given to desperate rural citizens for $1.50/day.
Finally, the South Africa
South Africa
The Republic of South Africa is a country in southern Africa. Located at the southern tip of Africa, it is divided into nine provinces, with of coastline on the Atlantic and Indian oceans...
n government has introduced the Expanded Public Works Program (EPWP) to overcome the extremely high unemployment and accompanying poverty in that country. The programs run against the full employability tide because they recognise that the solution to joblessness and the poverty that this brings is in the provision of employment opportunities rather than a focus on the victims. They also recognise that the state (whether at the level of federal or local government) has a major role to play in providing for employment guarantees.
Programs enacted but not implemented
In the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, the Humphrey-Hawkins Full Employment Act
Humphrey-Hawkins Full Employment Act
The Full Employment and Balanced Growth Act , is an act of legislation by the United States government.-Impetus and strategy:...
of 1978 allows the government to create a "reservoir of public employment" in case private enterprise does not provide sufficient jobs. These jobs are required to be in the lower ranges of skill and pay so as to not draw the workforce away from the private sector. However, the act did not establish such a reservoir (it only authorized it), and no such program has been implemented in the United States, though the unemployment rate has generally been above the rate (3%) targeted by the act.
Advocacy
In 2011, the Institute for Public Policy ResearchInstitute for Public Policy Research
The IPPR is the leading progressive think-tank in the UK. It produces research and policy ideas committed to upholding values of social justice, democratic reform and environmental sustainability. IPPR is based in London and IPPR North has branches in Newcastle and Manchester.It was founded in...
, a UK think tank
Think tank
A think tank is an organization that conducts research and engages in advocacy in areas such as social policy, political strategy, economics, military, and technology issues. Most think tanks are non-profit organizations, which some countries such as the United States and Canada provide with tax...
associated with the Labour Party
Labour Party (UK)
The Labour Party is a centre-left democratic socialist party in the United Kingdom. It surpassed the Liberal Party in general elections during the early 1920s, forming minority governments under Ramsay MacDonald in 1924 and 1929-1931. The party was in a wartime coalition from 1940 to 1945, after...
, advocated a Job Guarantee - with compulsory takeup, on pain of loss of benefits - for the long-term unemployed only.
See also
- Centre of Full Employment and EquityCentre of Full Employment and EquityThe Centre of Full Employment and Equity or CofFEE is an official research centre of the University of Newcastle, New South Wales, Australia, and has operated since 1998...
- Natural rate of unemploymentNatural rate of unemploymentThe natural rate of unemployment is a concept of economic activity developed in particular by Milton Friedman and Edmund Phelps in the 1960s, both recipients of the Nobel prize in economics...
- ChartalismChartalismChartalism is a descriptive economic theory that details the procedures and consequences of using government-issued tokens as the unit of money. The name derives from the Latin charta, in the sense of a token or ticket...
- WorkhouseWorkhouseIn England and Wales a workhouse, colloquially known as a spike, was a place where those unable to support themselves were offered accommodation and employment...
- National Rural Employment Guarantee Act