Forget for a moment about “Medicare for All.” A proposal is gaining steam on the left that would overhaul the U.S. economy in a far more radical way. Known as a federal job guarantee, the plan would require the government to provide work on demand to any American at a minimum of about $12 an hour plus full benefits.
Beyond its cost, the job guarantee would turn the fundamental logic of work on its head. The federal job guarantee ... could greatly weaken the productivity of the overall economy, leading to a decline in output and further job losses.
Public policy should aim at helping unemployed people in ways that strengthen their potential, rather than making them lifelong dependents.
A federal job guarantee would cost more in its first two years than the entire New Deal, in today’s dollars.
—Max Gulker, “The Dangerous Fantasy of a ‘Jobs Guarantee,’” Wall Street Journal, Nov. 15, 2018
The prospect of a federal job guarantee must have really spooked Max Gulker, a researcher and writer for the free-market-oriented American Institute for Economic Research (AIER).
And for good reason. A federal job guarantee—under which the government would offer a job to anyone who needs one—would alter the balance of power in the labor market in favor of workers. And it would enlarge the size of the government considerably more than the New Deal did in the midst of the Great Depression.
In other ways, Gulker’s diatribe against a job guarantee is simply off base—from his claim that a job guarantee would lead to a life of dependency and meaningless work to his assertion that it would have devastating macroeconomic consequences. The push for a guarantee of a job would not only put people to work but could also initiate government programs to confront today’s ever-worsening environmental crisis.
Out of the Frying Pan
The way Gulker tells it in his AIER report, “The Job Guarantee: A Critical Analysis,” you would think that the current low unemployment rates had ushered in an economic nirvana where workers have jobs that they have freely chosen and offer them a steadily improving standard of living.
The truth is far different. Nine-plus years of economic expansion have pushed the official unemployment rate below 4 percent, but many workers still don’t have jobs. The percentage of people 16 years and older in the labor force—the “labor force participation rate”—stood at 62.9 percent in October 2018, considerably below the 66 percent rate in December 2007 at the onset of the Great Recession. Also, the number of workers who want full-time jobs but are forced to take part-time work is going up, not down.
In addition, hourly wages corrected for inflation for production and non- supervisory workers—a key measure of workers’ purchasing power—have gone up more slowly since June 2009, the official beginning of the current economic expansion, than in any of the previous 10 economic expansions since 1949. And in the last year, real hourly wages have barely budged, improving by less than 0.5 percent since October 2017.
If that is the best the labor market can do, why would most workers object if a federal job guarantee turned “the fundamental logic of work on its head”? Turning the job market on its head would seem to be exactly what’s called for.
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In his AIER report Gulker steadfastly maintains that labor markets are governed by “mutually beneficial cooperation.” Employers hire workers who will create enough value for them to be profitable, and workers take their jobs only when they are offered an acceptable wage. And a job guarantee would replace this anodyne world of individual freedoms with coercive government mandates.
But in a real labor market not scrubbed clean of differences in power between employer and employee, workers often accept jobs, no matter how unsafe or how low the pay, out of desperation. A job guarantee would empower low-wage workers by offering them an alternative—another job. Gulker’s warning of a job guarantee breeding “lifelong dependency” might give one pause. But why should it? Workers who get hired through a job guarantee would be no more dependent upon the wages and benefits from their jobs than workers in the private sector. And if “lifelong” means a work life without long spells of unemployment, surely that too would improve the lot of many workers.
Also, in practice, a job guarantee, the functional equivalent of a minimum wage with a public option, is hardly more interventionist than other labor laws or the rules that govern other sectors of the economy. For instance, the Federal Reserve sets a minimum interest rate, known as the “Fed Funds rate,” on borrowing among commercial banks, which in turn influences interest rates throughout the economy, especially mortgage rates. The Fed also acts as a “lender of last resort” in an economic crisis, just as a job guarantee would allow the federal government to be an “employer of last resort” in an economic downturn.
Job Guarantee and the Economy
For Gulker, a job guarantee is a recipe for economic disaster. For starters, Gulker takes issue with the employment estimates of the job-guarantee proposals. For instance, Randall Wray and his several Levy Institute co-authors calculate that their job-guarantee program would employ at most 15 million people in jobs with wages that average $15 an hour. And in their National Investment Employment Corps proposal economists Mark Paul, William Darity, and Darrick Hamilton put the number of people who would be attracted by their guarantee of jobs paying a minimum of $11.83 an hour (the wage necessary to reach the poverty line for a family of four), with health benefits, at 10.7 million people.
Even progressive economists worry about the size of these estimates. Dean Baker of the Center for Economic and Policy Research points out that the federal government workforce, excluding the postal service, is but 2.2 million workers. Economist Josh Bivens, from the Economic Policy Institute, calculates that 10.7 million people is about three times the number of K-12 public school teachers in the United States.
Gulker is convinced that a job guarantee would drain far more workers from the private sector than these estimates suggest. For instance, approximately 41 million workers currently earn less than $11.83 an hour. And Baker estimates that a job guarantee with a $15-an-hour wage and healthcare benefits would attract “at least 20 million people” or “perhaps 30 million.”
The goal of a job guarantee could be accomplished by public-sector spending large enough to bring about genuine full employment, where there are at least as many job openings as there are persons seeking employment. William Vickrey, the Nobel Prize-winning economics maverick, estimated more than two decades ago that the traditional unemployment rate would need to fall to between 1 percent and 2 percent to bring about genuine full employment. Paul and his co-authors advocate lowering the more comprehensive U-6 unemployment rate, which accounts for workers marginally attached to the labor force and workers forced to work part-time, to 1.5 percent. Unemployment rates that low would surely empower workers just as a job guarantee would, by providing them with alternative employment.
Just what effect any job guarantee or public-employment option would have on the economy depends on what kinds of jobs it creates. Putting people to work to repair our crumbling infrastructure, whether in small or large projects, usually tops the list of public employment jobs, which typically also includes service jobs such as elder care, childcare, job training, education, and health services. There is especially solid evidence that infrastructure spending has a powerful positive effect on the economy. Even International Monetary Fund researchers assign a large multiplier, or bang for the buck, to the effect that a dollar of public investment has on economic output. In addition, the wages of all these workers would also lift the overall spending in the economy, increase economic growth rates, and help to maintain a full- employment economy.
Bigger Than the New Deal
A job-guarantee program would cost more than the New Deal did. Relative to the size of the economy, spending on infrastructure, the chief component of the New Deal, averaged 1.36 percent of GDP during 1933 to 1937, and was 2.96 percent of GDP in 1933, the year Roosevelt launched the New Deal.
Gulker, however, objects to using the New Deal as a standard to assess the cost of any jobs program today because our economic circumstances are vastly different than those during the Great Depression, which was a national and global emergency. But we are in the throes of another national and global emergency which demands immediate action. Research cited in the recent National Climate Assessment of 13 federal government agencies warns that unless the government acts quickly to reduce greenhouse gases, losses to the U.S. economy could reach 10 percent of GDP by the end of the century.
Alexandria Ocasio-Cortez, one of the newly elected progressive members of the House of Representatives, has called upon the Democratic Party leadership to establish a House Select Committee for a Green New Deal. Her Green New Deal would push to dramatically expand renewable power sources, construct an energy-efficient smart grid, and eliminate residential and industrial greenhouse-gas emissions as well as those from transportation, all within 10 years. Her proposal would also guarantee a living-wage job to every person who wants one.
What would such a program cost? In 2015, Political Economy Research Institute economist Robert Pollin proposed a similar Green New Deal agenda, “capable of delivering both a viable path to near-zero emissions and climate stabilization, as well as expanding good job opportunities.” The heart of his proposal was to commit to investing 1.5 percent of GDP in infrastructure projects. Pollin’s Green New Deal agenda would create 1.5 million jobs and its spending would push the economy closer to full employment. But reaching and sustaining genuine full employment would require yet more spending, well beyond even the 2.9 percent of GDP in the first year of New Deal infrastructure spending.
With an environmental crisis bearing down on us, and having suffered through a nearly decade-long economic expansion that has done so little to improve the lot of most workers, this is no time for half measures.