The Job Guarantee
Today’s post is a look at the Job Guarantee, an alternative welfare programme along the lines of Basic Income.
The Job Guarantee
We’ve looked at Basic Income (UBI) several times before (1, 2 and 3):
- Its main attractions are simplicity – everyone gets the same amount – and therefore its potential efficiency, plus its compatibility with a dystopian future in which the robots take all the jobs.
- The main problem with it is unaffordability, and in particular the increased tax burden on middle-income workers.
Today we’re going to look at the main alternative to basic income – the Job Guarantee.
What is it?
The Job Guarantee (JG) involves the government acting as an employer of last resort.
- The government would hire all the labour that can’t find work in the private sector.
These workers would be paid minimum wage, so as not to disrupt existing employment.
- They would also receive a standard worker’s benefits package (sick and holiday pay, NI contributions etc).
At the time of writing, with record employment levels on both sides of the Atlantic, this might seem like a very low priority, but let’s assume for the purposes of today’s article that higher unemployment will one day reappear.
The benefits
The potential benefits of JG over regular welfare are four-fold:
- We (the taxpayers) get some useful work for our money.
- Recipients remain more employable that those paid not to work for years or decades.
- Removing excess labour capacity from the system should support higher wages.
- JG should be counter-cyclical, and help to smooth out recessions.
Most of these are questionable:
- It’s not easy to come up with genuinely useful work that is not valuable enough to pay someone to do.
- Years on a JG scheme could soon be equated by employers with years on welfare.
- How would the system ensure that its beneficiaries transition into real jobs?
- If JG pays minimum wage, then it’s hard to see how it supports wages much higher than that.
- It’s possible that secure JG jobs could attract workers from more difficult and risky private sector minimum wage jobs.
- This in turn might mean that private sector employers would need to offer higher wages. (( Note that this would increase inflation, and erode the purchasing power of the minimum wage – and if the JG wage is itself indexed to inflation, then things get complicated ))
- Alternatively, private sector employers might invest in more equipment / automation.
One possibility is that JG would not really be a jobs scheme, but rather a disguised training scheme that upskills the unemployed so they can better compete in the real labour market.
- This would be a tougher sell (to the electorate) that a straight JG, but probably still more popular than existing welfare or a UBI.
The problems
The key issue is finding work which is simple enough than minimum-wage level staff can carry it out, yet is genuinely useful to society.
- Digging holes and then filling them in again probably won’t cut it.
One danger is that the work closely resembles that already carried out by prisoners, with the attendant stigma.
- The most promising area is therefore outside work, probably with an environmental focus.
- Of course, a lot of this kind of work is hard – perhaps not what the unemployed are looking for.
No doubt there will be a lot of “caring” work, too.
- There’s a risk here that existing charitable activities will be displaced.
- And there is the problem that cutting back this caring at the end of a recession might not be popular.
Looking on the bright side, a hard Brexit might provide the silver lining of lots of fruit and vegetable-picking work.
The second problem is that for JG to work, it needs to provide an incentive beyond the existing welfare system.
- With the benefits cap being significantly higher than the minimum wage, it’s hard to see how this might work, other than for single non-parents, who will mostly be young people.
And since the JG scheme would be voluntary, it will also be interesting to see how society views those who choose to remain on traditional welfare, taking money for nothing.
A third problem is that although JG would be centrally funded (almost everything is in the UK), it is likely to be administered locally.
- This provides scope for some councils to provide punitive work, to encourage the unemployed to relocate.
At the same time, other jurisdictions might encourage more unemployed to take up residence by providing enjoyable and fulfilling activities.
- There are obvious risks from this ghettoisation, which would be likely to occur along party lines.
The fourth problem is the danger of JG becoming the cushy alternative to a minimum-wage private sector job, to the detriment of the economy.
- How would the JG scheme be capped, if the central concept is to offer a job to everyone who wants it?
Costs
Unlike Basic Income, the costs of JG are not easy to calculate.
- They depend both on the details of implementation, and the response of the economy to the introduction of JG.
If the JG work is valuable, then replacing welfare with minimum-wage labour might actually result in a cost-saving.
- And any increase in costs (before accounting for the benefits of the outputs) should work through as increased spending from JG recipients.
This in turn should expand the private sector, and therefore shrink the JG base (and it’s costs).
JG costs would increase again during recessions, but the counter-cyclical impact should have benefits in reducing the severity and duration of such recessions.
Conclusions
To cynics like myself, the Job Guarantee is not really a radical proposal.
- In many northern towns and cities, public sector employment rivals rates seen in former communist regimes.
- And having worked in both the public and private sector, the government is already acting as the employer of penultimate resort.
JG would merely extend this safety net to a few more even less useful / employable souls.
I also question whether JG would naturally render its recipients more suitable for any work other than that most similar to what is provided under the new scheme.
- It’s not even clear how JG recipients would combine their JG labours with a search for a “real” job.
The scheme could presumably be designed to do achieve both of these objectives, though.
JG has the advantages that it’s easy to understand, and unlikely to face serious public opposition (unlike Basic Income, where the government gives away free money to people who do nothing to earn it.
So whilst I and people like me (( Small state, low tax people )) would be unlikely to object to the introduction of the Job Guarantee, it’s debatable how much of a step forward it would really be.
Until next time.
Mike Rawson
Mike is the owner of 7 Circles, and a private investor living in London. He has been managing his own money for 40 years, with some success.
