For Economic Stability and Opportunity

DARREN QUINN

In his recent scrutiny of the Job Guarantee (JG) proposal, Daniel Gerrard posits some thoughtful criticisms that overlook the inherent potential a wellstructured JG program holds for economic stability and opportunity. Gerrard’s concerns necessitate an urgent and critical examination, underscored by technical analysis and hard statistics.

Concern 1: potential for technocratic drift

Gerrard’s first apprehension lies in the potential for policy shift over time, mainly when control is vested in technocrats. However, not all automatic stabilisers are susceptible to such drift. The architecture of a JG program plays a critical role in its long-term stability.

A JG program should be constructed with dual mandate objectives:

• the elimination of involuntary unemployment
• the stabilisation of wages and prices in response to business cycles

These mandates should be fortified with key operational parameters to protect against policy drift:

1. JG jobs must pay a living wage: statistics show that the current minimum wage falls short of a living wage; thus, JG wages should exceed the minimum wage and be indexed to inflation. This provision safeguards against the creation of a permanent underclass of JG workers.
2. JG participants must be able to transition to private sector jobs: without penalties, this ensures worker mobility and prevents the JG from becoming a poverty trap.
3. JG jobs should provide skills training, coaching, and other supports: this expands opportunity and facilitates participants’ transition to more rewarding private or public sector jobs.
4. JG hiring should occur automatically: this should be based on unemployment levels and follow a transparent formula, without political interference, to maintain the countercyclical stabilising function.
5. JG workers should have recourse to appeal unfair treatment: their work should meet standard labour protections to prevent exploitation.
6. JG projects should focus on care, sustainability, and community betterment: this prevents makework and builds social value.
7. Democratic oversight should be integrated into the governance of the JG to retain accountability and prevent technocratic drift. MMT recognises monetary policy should be designed to serve the public purpose; the same principle applies to fiscal policy like a JG.
8. A JG’s wage should be based on a living wage pegged above the minimum wage but below the median. This targets assistance to the involuntarily unemployed while avoiding underemployment effects.
9. Skills training and job search assistance will be critical to facilitate mobility between JG and private employment. MMT’s view is unemployment is from deficient demand; a JG fixes demand while upskilling workers.
10. Carefully designed JG jobs can provide dignity and meaning. Historical programs like the Works Progress Administration, Jobs Compact, Regional Employment Development (RED) scheme, and Community Development Employment Projects (CDEP) disprove the notion that direct job creation is inherently stigmatising if managed appropriately.
11. A JG’s countercyclical flexibility retains accountability relative to traditional stimulus, which can foster pork-barrel spending and waste during downturns. By integrating these safeguarding measures into legislation, we can preserve the spirit and impact of a JG while mitigating technocratic drift and labour market distortions. History has shown us, through instruments like Social Security, that the risk of policy drift is manageable with consistent vigilance.

You may be interested in this address for Australian Fabians on a job guarantee by Professor Bill Mitchell.

The role of traditional stimulus and the superiority of a JG program

Before delving into Gerrard’s second concern, it’s worth addressing his views on traditional stimulus measures. Gerrard rightly points out that traditional stimulus, particularly in periods of high unemployment, can be wasteful and poorly targeted.

Infrastructure programs, whether steel and concrete projects or initiatives focused on education and services, have occasionally missed their mark. However, it’s important to note that a JG program is not equivalent to a traditional stimulus measure.

A JG program is a proactive, targeted approach to tackling economic instability and involuntary unemployment. Unlike standard generalised stimulus measures, a JG program is designed to directly address the needs of those most affected by economic downturns.

Furthermore, Gerrard expresses concern over moving the delivery of such programs further from democratic accountability, fearing this could create a permanent underclass. However, as outlined above, a well-designed JG program inherently includes democratic oversight and accountability measures. The transparent hiring process based on unemployment levels, the provision for workers to appeal unfair treatment, and the emphasis on community betterment projects help to ensure that the program remains accountable to the public and does not deviate from its primary objectives.

Additionally, unlike traditional stimulus measures that can foster wasteful spending—often referred to as ‘pork-barrel spending’—during downturns, a JG’s countercyclical flexibility and focus on providing living-wage jobs with skills training ensures the efficient use of funds. In this way, a JG program can provide a more effective solution to economic downturns, avoiding the pitfalls of traditional stimulus measures while offering a sustainable path to economic stability and opportunity.

Concern 2: labour market impacts

Gerrard’s second concern revolves around the potential impact of a JG on the broader labour market, arguing that it could amplify underemployment by tempting workers into more stable but lower-paid JG jobs. However, this concern can be overcome with appropriate program design.

Underemployment is primarily driven by slack labour demand during recessions. Modern Monetary Theory (MMT) identifies that unemployment increases when deficit spending is insufficient.

The solution is increased deficit spending to boost demand, which a JG provides, while also ensuring workers a living wage.

By setting the JG wage high enough, we can prevent the temptation for full-time workers to leave decent private sector jobs to switch to the JG. The JG primarily aids the unemployed and involuntary part-timers, offering them stability and a safety net. Furthermore, for the minority who may switch, the JG provides skills training and coaching to help participants transition to higher-quality work. This is a strength of the program, not a flaw.

Public works programs and industrial policy initiatives would come first in employing people in the public sector. The JG would then provide employment opportunities for those still unsuccessful in obtaining available jobs through those conventional public sector employment means.

In this way, the JG acts as a secondary and residual program, mopping up labour demand unmet by public works and industrial policy job creation efforts. It does not compete with or displace existing public sector jobs. However, it complements broader public employment initiatives by providing jobs to those still unemployed after implementing public works and industrial policy programs.

There is also negligible risk of a JG displacing existing public sector workers. JG jobs are legally required to be additional work that serves a public purpose; thus, workforces can be expanded without laying off existing personnel. This has been successfully demonstrated by New Deal programs in the US in the 1930s and post-WWII Australia.

The JG will improve private sector job quality in the grand scheme by setting an above-market wage floor. This shifts the bargaining power to workers and incentivises private employers to improve compensation and working conditions to attract and retain talent.

Concern 3: stigmatising make-work

Gerrard’s concern about stigmatising make-work jobs is valid but can be overcome. With proper design, JG jobs can confer dignity and social value. We have seen the successful implementation of socially beneficial JG jobs at scale in India’s National Rural Employment Guarantee. Additionally, the Australian government has implemented targeted employment programs such as the Regional Employment Development (RED) scheme, Community Development Employment Projects (CDEP) and Jobs Compact in the past, showing that meaningful job design has been successfully executed locally.

By thoughtfully designing policy, we can create JG jobs that empower participants with skills and opportunities while contributing lasting social value. The stigma can be further reduced by broadening the availability of JG jobs to all who desire them, not just the unemployed, thus fostering a culture of lifelong education and service.

Addressing Gerrard’s concerns, it’s essential to understand the inherent design of the JG program. One of the critical features of the JG is establishing a fixed wage-price level, acting as an automatic stabiliser. This mechanism is intended to provide economic stability and resist manipulation, ensuring that the focus remains on the welfare of the people and not solely on inflation control. This wage-price level helps to counter the effects of economic fluctuations and provides a consistent measure of income security.

Moreover, the JG is not just about job provision but is holistically designed to address underemployment and the potential for deskilling. It includes skills training initiatives that aim not only to equip individuals for the jobs they are undertaking but also to provide them with transferable skills for future employment opportunities. This approach enhances workers’ employability and mitigates the risk of creating a permanent underclass of low-skill workers.

Additionally, the JG program includes a provision for a basic income until the JG job is ready. This aspect of the program ensures that individuals are supported even during the transition period, further bolstering income security.

Therefore, while Gerrard’s concerns are valid from a theoretical perspective, the actual implementation of the JG program, as posited in Modern Monetary Theory, incorporates safeguards and mechanisms to address these concerns.

In conclusion, while Gerrard’s concerns about technocratic drift and labour market impacts are real risks, they are not insurmountable flaws. With careful policy design, a JG program can function as intended, offering economic stability and upward mobility. There is an urgent need for us to recognise this potential and act accordingly.

Darren Quinn, a self-taught economist and educator, focuses on modern monetary theory (MMT) and macroeconomics. He serves as the Editing Coordinator for the Institute to Promote the Understanding of MMT, where he is also a member of the Office of Coordinators. Currently, he is expanding his knowledge through the Graduate Certificate in Economics of Sustainability at Torrens University, a course sponsored by the Modern Money Lab. An active member of the Australian Unemployed Workers Union, Quinn advocates for the rights of unemployed and precarious workers.