Originally published March 25, 2012 on the New Economic Perspectives blog.
Program Design. A JG or ELR program is one in which government promises to make a job available to any qualifying individual who is ready and willing to work. The national government provides funding for a universal program that would offer a uniform hourly wage with a package of benefits. The program could provide for part-time and seasonal work, as well as for other flexible working conditions as desired.
The package of benefits would be subject to congressional approval, but could include health care, child care, old age retirement or social security, and usual vacations and sick leave. The wage would be set by government and fixed until government approved a rate increase—much as the minimum wage is usually legislated.
The advantage of the uniform basic wage is that it would limit competition with other employers as workers could be attracted out of the JG/ELR program by paying a wage slightly above the program’s wage. It also ensures that all workers in the program are treated “equally” in the sense that their remuneration is the same.
It can be objected that a worker who loses an $80,000 a year job will not be as happy with the JG job as one who loses a $25,000 job. The higher income worker would eventually face difficulty maintaining her previous lifestyle and covering debts incurred when income was high. All of this is true.
In some sense, that is a “design feature” of the program. I do not say this callously. The idea is that we want those who can move out of the program to accept job offers in the private sector (as well as non-JG jobs in the public sector) as soon as possible. And we can certainly retain programs currently in place to help such workers (ie: help with mortgage payments) as they transition back into higher paid jobs. But we do not want to pay them high wages in the JG that would create disincentives to taking job offers in the private sector.
Finally, those who had high pay before losing their previous jobs at least had an opportunity to build a private cushion for such calamities. Those who have always been low wage workers never had that opportunity. Think about how they would feel working alongside other JG workers who receive higher pay simply because their former jobs were higher-paid.
So for these reasons, many of us who support the JG argue that on balance a uniform compensation package is best. If society then feels that losers of high wage jobs deserve special treatment, a separate safety net can be democratically approved. The JG program, itself, should not be complicated by introducing a variety of “means tested” benefits.
Again, this is in keeping with the general, “universal” design: take workers as they are, pay them equal wages and benefits for equal effort.
It is important here to add one more comment. Often critics will then start some complaint with “Well with the JG program, you cannot fire workers….” So let us be clear: the JG program only takes workers willing to work. Those that fail to work up to expectations get fired.
Last week in my response to comments, I did say that we must make accommodations: jobs must be designed to fit the workers. For example, if a vision-impaired worker cannot perform the tasks associated with a job that requires sight, the proper course of action is to offer a different job—not to kick the individual out of the program. However, a worker who habitually shows up late, or drunk, or who otherwise violates reasonable work rules will be subject to normal disciplinary action, including firing. The JG is not for everyone, and it is not welfare. It is a jobs program for those who want to work.
Program advantages. Benefits include poverty reduction, amelioration of many social ills associated with chronic unemployment (health problems, spousal abuse and family break-up, drug abuse, crime), and enhanced skills due to training on the job.
Mathew Forstater has emphasized how such a program can be used to increase economic flexibility and to enhance the environment.
The program would improve working conditions in the private sector as employees would have the option of moving into the program. Hence, private sector employers would have to offer a wage and benefit package and working conditions at least as good as those offered by the program.
The informal sector would shrink as workers become integrated into formal employment, gaining access to protection provided by labor laws. There would be some reduction of racial or gender discrimination because unfairly treated workers would have the JG/ELR option, however, the program by itself cannot end discrimination. Still, it has long been recognized that full employment is an important tool in the fight for equality.
Finally, some supporters emphasize that a program with a uniform basic wage also helps to promote economic and price stability.
The JG/ELR program will act as an automatic stabilizer as employment in the program grows in recession and shrinks in economic expansion, counteracting private sector employment fluctuations. The federal government budget will become more counter-cyclical because its spending on the ELR program will likewise grow in recession and fall in expansion.
Furthermore, the uniform basic wage will reduce both inflationary pressure in a boom and deflationary pressure in a bust. In a boom, private employers can recruit from the program’s pool of workers, paying a mark-up over the program wage. The pool acts like a “reserve army” of the employed, dampening wage pressures as private employment grows. In recession, workers down-sized by private employers can work at the JG/ELR wage, which puts a floor to how low wages and income can fall. We explore some details in the following blogs.
Concluding Notes. Last week there was a claim that “generous pay” in the JG reduces “job seeking” in the private sector. Let’s do a thought experiment. Say that the current low-paid job offer in the most disgusting type of work the private sector offers is $8 per hour before a JG program is implemented. To recruit a worker into the very worst job, that “worst firm in America” must offer $8.00 per hour before there is a JG.
Now we create the JG program so any worker can get $10 per hour. Obviously, the worst employer in America cannot hire anyone at $8.00 per hour, or even at $10 per hour. To induce a worker to leave the JG to get the worst non-JG job in America, the employer might have to pay $10.25 per hour, or even more. It is possible that given the JG option, the very worst employers in America would have to offer wages that put them out of business.
True enough.
But you can make the same argument about the minimum wage: firms that cannot “afford” to pay the going minimum wage cannot (legally) remain in business.
I cannot see this as a legitimate objection to the JG. It is progress.
But the more important point is this: with the JG in place, the program wage and benefits set an effective floor, an effective minimum wage. As Hyman Minsky used to always argue, without the JG the legislated minimum wage is a lie. The true minimum wage is zero—if you cannot find a minimum wage job, you get a zero wage. With the JG in place, the true minimum is the program wage (plus benefits).
And this program wage cannot be “market determined”. It must be socially determined: government offers an infinitely elastic demand for labor at the wage (plus benefits) it chooses to pay. It sets the wage as public policy, then hires all those who accept the offer of a job.
To get workers, the private sector will have to offer something better than the JG compensation package. It could be a higher wage, better benefits, better working conditions, or better opportunities for career enhancement.
How much will it have to sweeten the deal? It will depend on the job and the employer—but this is supposed to be something “labor markets” know how to do: compete for labor. No matter where we set the JG initially, the private sector will adapt—coming up with offers to induce workers away from the JG.
But, yes, some of the very worst employers in America will go out of business. Others will be incentivized to improve working conditions and perhaps to reduce workforces by switching production techniques (for example, using more machines and fewer workers).
There is nothing new in this. Markets react to rising wages by processes that have been familiar to economists for hundreds of years.
It is always remarkable how little faith our “free marketeers” have in the “invisible hand” of the market!
