Food for Thought #3: Jobs Guarantee Program

Jobs Guarantee Program

The fall of Old-Keynesianism in the 1970’s was also the demise of the notion of full employment, as it was believed that such a goal would be detrimental to price stability as general wages begin to rise. However, Modern Money Theorists such as Wray (2012) and Mosler (1997-1998), as well as others, have pointed towards a concept of ‘full employment with price stability’, despite this looking rather odd on your textbook Philips curve, which posits an inverse relationship between inflation and unemployment. The policy itself sees the government employing every unemployed worker who seeks employment. However, those in the program must accept a salary that is below all other private and public sector jobs, thus always giving them the incentive to move to new private sector jobs when they become available. For example, the ‘living wage’ could become the new minimum wage for private and other public sector jobs, whilst the current minimum wage (now referred to as the ‘basic wage’) would remain applicable only for those in the program.

The ’employer of last resort’ (ELR) or ‘Jobs Guarantee’ (JG) program works as an automatic stabiliser. Governments spend more on facilitating this policy in times of recession, when unemployment is high, and spend less in the boom years, when unemployment is low. It is argued that this ‘reserve army of labour’ will prevent general wage levels becoming too high, as firms can always source new employment from a labour pool of workers on the basic wage. However, it is important to note that this may not be the case for high-skilled professions where demand outstretches supply. Nonetheless, for as long as there is an incentive for those in the program to seek employment in the private and remaining public sectors, such policy should not affect general wage inflation. Further, for as long as governments restrain themselves from buying up goods in the private sector, and/or effecting exchange rates, this policy should not be inflationary in general. However there is always the risk of political interference, such as bringing the basic wage closer towards the minimum wage, which could damage the incentive dynamic, or perhaps using the program as a means to provide cheap labour for particular vested interests.  

In terms of affordability, Modern Money Theorists argue that as long as the government exercises its own sovereign floating currency, it is able to purchase anything in its own currency (as discussed last time), including unemployed labour. It could also potentially save money, as it is argued that such a program could potentially led to a decrease in crime as well as other health and social issues (Wray,2012). A policy like this one can be seen in India, where the government offers 100 days of work for rural workers when the otherwise seasonal agricultural sector cannot. Such a policy is also an attempt to prevent migration to urban areas, where the perception of the chances of finding employment is higher. Argentina’s Jefes program is also a similar example (see additional material below). It is argued that the work offered must be productive, such as improving infrastructure, regenerating deprived areas and pursuing environmental projects. It is also argued that groups of unemployed workers could form worker cooperatives that are given contractual work from the government based on the suggestions above.

The concept of the worker cooperative as well as their role within the economy will be explored in more depth next time, until then, feel free to post your thoughts on the idea of the JG program and whether such a concept could work in reality.

Additional Material

An interview with L. Randall Wray discussing the program – https://www.youtube.com/watch?v=HfMnbnMXpOA (Watch from 8 minutes onwards).

Indian example – Hirway, I. (2006) ‘Enhancing Livelihood Security through the National Employment Guarantee Act: Toward Effective Implementation of the Act’, The Levy Economics Institute Working Paper No. 437. (Available at: http://www.levyinstitute.org/pubs/wp_437.pdf).

Mitchell, W. and Muysken, J. (2008) Full Employment Abandoned: Shifting Sands and Policy Failures. Cheltenham: Edward Elgar.

Mosler, W. (1997-1998) ‘Full Employment and Price Stability’, Journal of Post Keynesian Economics, Vol. 20 (No. 2), pp. 167-182.

Argentinian example – Murray, M. J. and Forstater, M. (2013) Employment Guarantee Schemes: Job Creation and Policy in Developing Countries and Emerging Markets. New York: Palgrave Macmillan. (See Chapter 3 for Argentina’s Jefes Program)

Wray, L, R. (2012) Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems. Basingstoke: Palgrave Macmillan. (See Chapter 7)

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