The Job Guarantee, MMT and the Redistribution of Wealth

One important component of MMT is known as the Job Guarantee (JG) or sometimes the Employer of Last Resort (ELR) . The idea is an unemployed worker would be offered a job by the Government instead of unemployment welfare benefit. The job would be for public purpose and pay a basic wage. This would effectively define a minimum wage for other workers too.  There’d be no point working for less than the JG wage somewhere else for example. The government would possibly pay out slightly more than it would in welfare benefits to support these jobs, but it would not be paying out money for nothing. It would be receiving something in return, for the benefit of society as a whole,  and would prevent useful resources, the labour power of millions of workers, from going to waste.

Instead of there being a pool of unemployed there would be a pool of JG workers. Instead of an unemployment rate there would be a JG rate. Whereas government now uses unemployment as a means of inflation control,  a future government would use the JG and the JG pay rate as a means of inflation control. Bill Mitchell likens the JG scheme to one previously used by the Australian government to stabilise the price of wool. It used to buy up wool, which might otherwise have been unsold,  at sales auctions to guarantee a floor price. Then, later as the price of wool might have risen, stocks were sold from the buffer supply to reduce wool prices.

One potential problem is with the rights of JG workers. If they feel they are being asked to work for a lower level of pay than they might consider to be socially acceptable, and also under conditions which might be less than acceptable, do they have a right to join a union and demand higher pay and better conditions? The scheme cannot work too well if that is the case because the minimum wage will then potentially be a source of inflation.

So, the question arises: can we really compare human workers with bales of wool?  Should workers be ‘sold’ from a buffer stock to lower the wages of other workers?  This does not sound, to my admittedly socialist ears,  like an appealing idea!  Trade unions have to have an input into the level of the minimum wage whether or not it is defined by the wage of a JG. Governments may be fair and just in defining a reasonable living wage or they may not be!

It is potentially only a problem if  unemployment is brought down to something like 4% and efforts to reduce it below this figure create inflationary tendencies in the economy. Some of those 4% will be people between jobs but some will be, for as variety of reasons, hard-to-place workers. They shouldn’t just be abandoned but neither should we be too hasty to introduce compulsory work. The meaning of ‘compulsory’ being that there would be no social benefits otherwise.

MMT doesn’t, IMO,  make this point at all clear in its theorising. Bill Mitchell has expressed his view as:

“The existing unemployment benefits scheme could be maintained alongside the JG program, depending on the government’s preference and conception of mutual responsibility.
My personal preference is to abandon the unemployment benefits scheme and free the associated administrative infrastructure for JG operations.
The concept of mutual obligation from the workers’ side would become straightforward because the receipt of income by the unemployed worker would be conditional on taking a JG job…..
I would also allow a person a short-period – perhaps two weeks – in between losing their job and starting a JG job – to sort out their affairs. This period would be covered by full JG pay.”

We can all have our ‘personal preferences’ . Mine would certainly NOT be to “abandon the unemployment benefits scheme ” until such time as we have a genuine socialist society and not just a so-called socialist government in charge of an essentially capitalist society or economy. No economic theory, including MMT, has much if anything to say about the desirability of wealth redistribution. The argument to concentrate on economic growth rather than redistribution, is I would argue, a neoliberal argument in itself. GDP per capita now in the UK is twice what it was in 1979 when Mrs Thatcher first won a general election. It is a similar ratio in most advanced countries too, so Mrs Thatcher cannot have been at all responsible for the UK growth!

Her accusation then,  and from her supporters too,  was  the left was being reactionary in its demands for redistribution and that all economic problems would be solved by having a more productive economy. This might be described as the ‘rising tide raises all boats’ theory. Experience should have taught us that the rising tide may well have raised luxury yachts but not necessarily “all boats”. We have more unemployment now than we had in 1979, more underemployment, more homeless, more people relying on food banks, and the NHS is in very poor shape. Clearly all problems have not been solved and will not be solved, regardless of the level of past and future economic growth, until the question of wealth redistribution is back on the political agenda.

By all means let us establish a  Job Guarantee but let us make it very clear we mean a Voluntary Job Guarantee. We should make sure the benefits of that extra production, that extra economic growth,  are used to equalise wealth distribution rather than those benefits ending up in the possession of the already ultra wealthy as has happened with previous economic growth.  Let’s see how that works out before even thinking about any compulsion.

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14 responses to “The Job Guarantee, MMT and the Redistribution of Wealth

  1. I’m wondering whether a voluntary JG job wouldn’t encourage some people to relocate to areas where rents are lower – thereby providing a workforce to areas that might be struggling (regional/rural)

  2. One of the main arguments against wealth distribution is that, because of the shortage of money, you can’t address the needs of the poor without taking from the rich. This is nonsense from the point of view of MMT. This argument does more damage than good because it has rich people and people who are doing well and don’t know they are resenting any money going to the poor because they think it is coming from their pocket. You see all of our politicians, Labor – Liberal – Green, arguing you are spending taxpayers money as though any money spent comes out of their pockets. This is ludicrous. In what sense is it taxpayers’ money. This money is gained in a legal, social and economic framework that benefits some and is to the detriment of others. So split the two. Tax the rich by all means for taking too much in terms of resources but address the needs of the poor and disadvantaged. They do not need to be linked. It is too easy for the Liberal to turn the argument about taxpayers’ money and raise people’s fear and indignance.

    • I wasn’t thinking in money terms. If we are now producing twice as much per person as we were in 1979 but there are social problems which are worse now than they were in 1979, then it must follow that we cannot ignore the effects of a highly skewed distribution of that production. We can’t just push for yet more production as a solution to those problems.

  3. What an odd post. Are you asking rhetorical questions here, or do you really not understand it?

    “One potential problem is with the rights of JG workers. If they feel they are being asked to work for a lower level of pay than they might consider to be socially acceptable, and also under conditions which might be less than acceptable, do they have a right to join a union and demand higher pay and better conditions?”

    They have a right to vote for a government that increases the living wage and changes the terms of the socially acceptable minimum job. Other than that it is exactly the same as any other public sector job.

    There is no risk to inflation, since it would simply be recovered via functional finance on the tax side.

    “It is potentially only a problem if unemployment is brought down to something like 4% and efforts to reduce it below this figure create inflationary tendencies in the economy.”

    No it isn’t. That’s NAIRU thinking, and is incorrect. You can only have inflation if there is competion for resources, and the JG specifically doesn’t compete for resources. It will not counter a wage offer from anywhere else in the economy. It will stop paying out government funds instead which is automatically deflationary via the auto-stabiliser function.

    It’s important to note that the JG *creates* jobs for the person in front of them. The job is matched to the individual rather than the usual mechanism of matching the individual to the job. That is the key difference between a JG and any other work scheme. You don’t just have a choice of badly fitting suits, the suit is created from templates and altered to fit as much as possible.

    Whether society requires people to work for their money is a decision for society. However it is clear that people are more disposed to help others if they are happy and settled in what they are doing themselves. Since the JG automatically gets rid of bad employment, you are more likely to get Income Support through with a JG in place than without.

    More likely what you’ll find is an extension of social care provision (disability living allowance) that will meet up with the bottom end of the Job Guarantee.

    But it is pretty clear that society expects those that can contribute to contribute. If you have a system that helps people to contribute and sell the benefits of what they contribute to the rest of society to help diffuse the resentment then why shouldn’t people be expected to use it? We expect people to follow laws and generally not be a nuisance to others. Why is it so bad to ask people to help if they can – particularly when the entire system has bent over backwards to assist.

    If you can’t accept that people want others who can contribute to contribute if they are to be supported, then very simply you will never be elected to enact anything in the first place.

    A right to social security comes with an obligation to society. It is never a free for all.

    • Thanks for your comments, Neil. You ask if I really do not understand it?

      I think I do but I’m somewhat uncomfortable with that understanding. The implication is that you think I don’t? OK. Maybe you are right and can help me out. Do JG workers have a right to join a union and agitate, and if need be, go on strike for higher wages and better conditions?

      Yes or No please.

      Furthermore if there’s no lower limit, if NAIRU thinking is as incorrect as you claim, why is there a need for a JG in any case? Why not just reflate the economy until unemployment is effectively zero?

  4. Dear Peter

    “being asked to work for a lower level of pay than they might consider to be socially acceptable”
    Yeah this could be the right wing version of the job guarantee, where it makes bombs or people are employed as thugs and stuff. 😉

    If governments got so far as to understand how they actually operate and it logically follows that the JG is a good policy outcome
    on the road travelled to this they would know that they can afford to operate the JG to make satisfiying jobs.
    “The scheme cannot work too well if that is the case because the minimum wage will then potentially be a source of inflation.”

    “something like 4% and efforts to reduce it below this figure create inflationary tendencies in the economy.”
    I never get these ‘potential source of inflation’ arguments when we’re talking about basic living means. Thats why you have a taxation policy that can react to this stuff with a very rapid/immediate and high level of granularity.

    Yes every potential dollar transaction in the private sector could be inflationary but put a probability on that?
    When i have to write code for little black computer chips i often use a quicksort algorithm to order numbers. Its upper bounds/worst case scenario compute time is Oh(n2). But in reality probability prevents this from happening because the odds of the algorithm sorting data in the exact order that creates n2 outcome is miniscule. For problems where speed matter its miniscule as in 1 out of .
    Giving people a basic job+income has this kind of probability of causing inflation.
    I dont think JG will ever be 100% job satisfaction but nor is the private employment market. People on JG would swell up during a crisis
    and then quickly fall in number and if that means some people get pushed onto it painting buildings, reading stories to children when they would rather work in another field so be it.
    At least the superiority of the JG as an automatic stabiliser means they could exit and find the right job in the private sector.
    The other senario is people with a disability stuck on JG long term: well maybe working makes them feel better about themselves, in that case have a small niche of jobs which may be superfluous for this group.

  5. “I think I do but I’m somewhat uncomfortable with that understanding. The implication is that you think I don’t? OK. Maybe you are right and can help me out.”

    Yeah, your questions suggest you don’t understand the JG. That’s ok, though. Keep asking questions! It’s not like you’re required to agree with all of it to be in “the club.” 🙂

    ” Do JG workers have a right to join a union and agitate, and if need be, go on strike for higher wages and better conditions? Yes or No please.”

    Well, this sort of “yes/no” ultimatum, as frequently occurs, obscures the details of what the JG proposal is and is not. The point of the JG is that the govt sets a wage that doesn’t move with market forces–that’s part of what keeps the program from being inflationary. NAIRU theory says tight labor markets force wages up. But if the JG wage doesn’t rise as there are more JG workesr, then you’ve countered at least that part of the NAIRU scenario. I personally prefer a JG wage that is indexed to the CBs inflation target, plus perhaps a bit more to enable JG workers–and thus insure that all workers at the lower end of the wage spectrum–to share in the productivity growth of the economy. So, something like 2.5% or 3% per year (2% inflation target + 0.5% or 1% for productivity). Now, what about the workers themselves complaining about wages being too low? Well, because it’s a wage set politically, they will need to influence the political discussion. Can they organize into a union? That’s really not a question for MMT to address at this point; if 20 countries ran a JG, then there would be 20 different versions of the JG. Some would be better than others. Some of them I might not even think are very good at all. But probably all of them would be an improvement of the status quo. At any rate, how JG workers are able to affect the political discussion is something that will be determined in each of these countries, as Neil says, through the political process. If they are allowed to organize, it will be as a result of their ability to influence this process. In some countries this will be more effective than in others. What MMT says is that the JG wage should be a living wage provided the nation’s ability to produce goods and services per capital is sufficient. This is true of all the “developed” countries, at least. Perhaps it should be even more than that; certainly the US can afford it. It is the job of MMT and other JG proponents to explain what sort of wage/benefits package the nation can “afford” in this manner; it is not the duty of proponents to dictate precisely the politics of how such a wage should emerge from the political process in each country.

    “Furthermore if there’s no lower limit, if NAIRU thinking is as incorrect as you claim, why is there a need for a JG in any case? Why not just reflate the economy until unemployment is effectively zero?”

    A few things here. First, saying NAIRU isn’t correct isn’t necessarily related to the JG proposal. Many on the left of the political spectrum that haven’t even heard of JG would say NAIRU is wrong. But “how” it is wrong is a bit nuanced. It is certainly true that utilization of too much capacity will create inflation, and depending on the sectors of the economy stimulated, it might happen before utilization rises a lot in the economy overall. In that sense, there is a rate of unemployment that will bring higher inflation. However, that’s not NAIRU, which (due to the expectations augmented Phillips Curve) says inflation will accelerate higher and higher if you don’t bring the unemployment rate back up to a “natural” level. I don’t see any evidence, though, that putting the unemployment rate permanently at, say 2%, will lead to inflation rates rising forever–2% to 5% to 10% to 20% to 100% and on and on. In fact, it might just rise temporarily to 5% and then back down. I don’t know and the real world has no experience with a rate that low except in Japan, where it created virtually no inflation. The experience in the US was that inflation went up a bit when unemployment got at its lowest levels in the postwar period (though not in the 1990s), but didn’t accelerate in the absence of supply shocks.

    For the JG, the point there is that it whether or not you believe in NAIRU, it is a better approach to stabilizing inflation while maintaining low unemployment and better use of productive capacity. NAIRU works to stabilize inflation through a buffer stock of unemployed; JG does this thorugh a buffer stock of employed. But even if NAIRU is wrong, EVERYONE believes you can’t have too much capacity utilization without getting higher inflation–even if not accelerating inflation as in NAIRU. And in that case the JG still gets you at least the same result with inflation and a better result with jobs and capacity utilization.

    In the end, the “inequality” meme against the JG (not that this is what you are saying completely, but I’m just making a point) misses the mark. JG isn’t meant to solve every problem. Cars don’t fly, but they are still useful. EVERY solution you can think of to involuntary unemployment still leaves some people unemployed involuntarily UNLESS you hire everyone left out by offering a wage and allowing the quantity of people taking the job to float. That’s just logic. So, NO MATTER WHAT you think we should do policy wise, you still MUST choose between an unemployed buffer stock or an employed one, because there WILL be a buffer always. That’s what the JG fixes. Now, with regard to inequality, I think it’s a no brainer that a JG at a living wage is far better for inequality than an involuntarily unemployed buffer stock. It doesn’t mean, and was never intended to mean, that JG solves inequality. But I have a hard time believing that the JG would make it worse UNLESS a nation desiged a version of the JG that made things worse–for instance, replacing the social safety net with a JG at a wage set lower than the safety net provided. But virtually all JG proponents would be against such a version of the JG; one can’t use the worst possible versions of the JG against the idea of the JG. But politics is messy–I have no illusions that a JG’s implementation wouldn’t be messy in many cases. But a JG that’s at least fairly well-designed will almost always be better than what we currently have. And that is the appropriate comparison to make.

    • Thanks for your comments, Scott. I agree with your remarks on the NAIRU. It’s not a term I much care for. As you say it is generally agreed, though, that if we push for too much capacity utilisation in an endevour to create enough demand for labour we could create too much inflation. Perhaps we just need a better term? So I understand the need for a JG. Or at least I think I do!

      So the question is on its nature. Is Bill right to call for us to “abandon the unemployment benefits scheme”?

      Politically, this idea is non-starter with the left. It’s just going to alienate them. The right might like it but they aren’t our natural allies anyway.

      Are you saying it is a question of either/or on the buffer stock? Why not a bit of both? Incidentally I also don’t much like that term when it is applied to people. We aren’t things to be kept in stock!

      • “So the question is on its nature. Is Bill right to call for us to “abandon the unemployment benefits scheme”?”

        I think what Bill means is to get rid of the “scheme” by which we deal with unemployment via unemployment benefits, welfare, etc. I don’t think that’s inconsistent with keeping a safety net + JG. In the earliest JG literature, it’s made clear that JG is consistent with “whatever” social safety net one desires. So, there’s nothing inconsistent with blending a JG and BIG, for instance. I would be against most if not all forms of JG + totally eliminating any additional safety net.

        “Are you saying it is a question of either/or on the buffer stock? Why not a bit of both? ”

        The point is there are 2 choices–whatever policy you propose to deal with poverty, economic inequity, etc., there will always be some people left without jobs offered from the pvt sector. The choice is then whether to leave them without an offer of a job, or to not leave them without the offer of a job.

      • Thanks again Scott. I think we’re in agreement now!

        I might just mention that the US meaning of the word ‘scheme’ carries negative connotations. Whereas in British English or Australian usage it probably only does when used as a verb. Bill’s use of the word scheme is straightforward with no implication of a ‘scam’.

  6. Thanks Peter for a good and ‘critical’ article. As a ‘lay’ person i.e. not an economist I can’t pretend that some of your concerns haven’t crossed my mind from time to time. As such I make my comments here. There is a big difference between an idea no matter how laudable it is and its practical application – people are not as we know automatons or sheep for that matter. Maybe I am wrong to say this but I think it vital that we avoid the pitfalls of dogma – theories are all very well but they have to have flexibility built in and we have to recognise that things don’t always pan out as we think they will once people or politicians for that matter become involved. Life isn’t a mathematical equation and as we all know there are no certainties. I often think that even with the clarity that MMT offers in terms of our money system actually works and the opportunity to put public purpose at the heart of government, based on the uncertainty of the forces of change (particularly at this time of flux) and the rate at which it happens in real life (unless cataclysmic) to expect a miracle conversion is wishful thinking – it is more likely going to be a work in progress.

    Insofar as my own party (Labour) is concerned I would like to see it take MMT seriously and I do think it has made some very small steps forward in this respect even if I see some criticism from some quarters that it is not radical enough. We have, however, to be realistic as to what can be achieved in short periods of time to challenge an entrenched narrative. This is where we are and much as I would like JMD or JC to reject the prevailing neoliberal household budget description of our state finances and money system trying to swim upstream immediately (no matter how much I would like them to) is simply not going to help their credibility. The discussion is quite rightly being prepared around rising inequality, unfair wealth distribution, destruction of our public sector and privatisation – things people can actually relate to. How state finances or money systems work are the least of people’s worries so to my mind we have to prepare the way constructively to allow such a discussion to eventually take place. In the meantime we have to keep up challenging the status quo but accept that there will be a bumpy ride on the way.

    • Thanks for your comments, Prue. I’d like to see the Labour Party, in fact all parties, take MMT seriously too.

      I’m not sure how soon that is going to happen or even if it is going to happen. There has been quite a bit of criticism in MMT circles, not without justification, for some of the comments made by progressive and socialist politicians on ‘the deficit’ for example.

      So we have to ask why relations aren’t as good as they might be. From a political viewpoint it is easy to see why politicians like Jeremy Corbyn and Bernie Sanders don’t want to be too closely associated with those who say things like “A sovereign currency issuing Government can never go bust, it can never default, it can always meet any obligation in its own currency which are just like runs on the scoreboard etc etc”.

      Of course this is all true, but it’s just going to scare the hell out of the voters. If I were standing for election I wouldn’t want to be laying myself open to those who’d be delighted to be able to twist these words around for their own nefarious purposes. MMTers have to be a bit smarter – in a political sense – too.

      But I would be happy to use the idea of sectoral balances to show the relationship between the internal and external deficits for example. In fact that would be an easy one for JC. He could win the argument on the govt’s deficit easily if he explained the connection.

      PS I’ve no formal economic qualifications either!

  7. “Furthermore if there’s no lower limit, if NAIRU thinking is as incorrect as you claim, why is there a need for a JG in any case? Why not just reflate the economy until unemployment is effectively zero?”
    Why not have a JG? The JG is there to mop up any workers who don’t have any work. It would be zero in this theoretical instance anyway. There is nearly always a matching problem in the job market, but that is not the same thing as NAIRU. Furthermore, a JG does not mean you can not have a basic income or unemployment benefits or anything else. It is in ADDITION to those things.
    NAIRU (acronym for non-accelerating inflation rate of unemployment) refers to a very specific theory that there will be accelerating inflation if unemployment falls beyond a certain level. Bill Mitchell has shown strong evidence that this theory is wrong:
    http://bilbo.economicoutlook.net/blog/?p=26163
    “It is difficult to construe an unemployment rate over the period where you would witness accelerating inflation if the actual unemployment rate were lower or decelerating inflation if the unemployment rate was higher.

    The following Table compares the frequency of accelerating inflation with decelerating inflation for given ranges of the unemployment rate since September-quarter 1959.

    If there were a well-defined and stable NAIRU we would expect to find some unemployment rate range where all the changes in inflation were negative and below that range most of the changes in inflation positive.

    The results clearly do not support the existence of such a rate.”
    There is more evidence in Bill Mitchell’s other blogs on NAIRU:
    http://bilbo.economicoutlook.net/blog/?p=1502
    http://bilbo.economicoutlook.net/blog/?p=12441
    Clearly inflation is much more complicated than the mainstream economists claim. Inflation is due to the amount of spending in the economy. Sure, there may be some MMTers who support NAIRU thinking (Ralph Musgrave for example) but most don’t. MMTers are quite a wide bunch, and have varying views on things.

  8. Here’s Bill on the subject in a comment:
    http://bilbo.economicoutlook.net/blog/?p=26163&cpage=1#comment-32133
    “Dear KongKing (at 2013/11/20 at 15:57)

    You said:

    However, Bill’s conclusion is not proven – he makes no attempt to justify his belief that the true NAIRU is lower, and he makes no suggestions for better ways of estimating NAIRU.

    I have written many academic (peer-reviewed) articles, book chapters and a book on the topic that show in various ways that: (a) the true NAIRU doesn’t exist; (b) that the mainstream estimates of what I call the inflation barrier are biased upwards, sometimes by several percentage points; and (c) that full employment in Australia lies close to an unemployment rate of 2 to 2.5 per cent rather than the official estimates of the NAIRU which are just over 5 per cent.

    I don’t have to repeat my life’s work every time I write a blog.

    best wishes
    bill”

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