Social Europe

  • EU Forward Project
  • YouTube
  • Podcast
  • Books
  • Newsletter
  • Membership

Job Guarantee Programs: Careful What You Wish For

Thomas Palley 14th September 2018

Thomas Palley

Thomas Palley

Some progressive economists are now arguing for the idea of a Job Guarantee Program (JGP), and their advocacy has begun to gain political traction. For instance, in the US, Bernie Sanders and some other leading Democrats have recently signaled a willingness to embrace the idea.

In a recent research paper I have examined the macroeconomics of such a program. Whereas a JGP would deliver real macroeconomic benefits, it also raises some significant troubling economic and political economy concerns. Those concerns should be fully digested before a JGP is politically embraced.

The real benefits of a JGP

The starting point for discussion should be recognition that a JGP delivers multiple benefits. First, it ensures full employment by making available a job to all who want one on the terms specified by the program. Second, it substitutes wages for welfare benefits to workers who accept such jobs and would otherwise be on welfare. Third, it may deliver supply-side benefits to the extent that it helps unemployed workers retain job skills and avoid becoming detached from the labor force during periods of unemployment. Fourth, society benefits from the services produced by workers holding guaranteed employment jobs. Fifth, it has significant desirable counter-cyclical stabilisation properties.

That said, a JGP generates some policy conflicts and it also has some drawbacks. Those conflicts and drawbacks concern macroeconomics, microeconomics, and political economy.

Macroeconomic concerns

A first macroeconomic concern is the putative cost of a JGP. This is a complex multifaceted concern. The immediate cost of a JGP will depend on the state of the economy and the state of the aggregate demand (AD) generation process. An economy with a deteriorated AD generation process, marked by a reduced wage share and increased inequality, will be prone to higher unemployment that raises the program’s cost. That speaks to the need to pair a JGP with other conventional structural Keynesian policies that remedy the causes of AD weakness.

A second macroeconomic issue concerns financing and policy trade-offs. If government is financially constrained, policy must operate in a realm of trade-offs. Consequently, adopting a JGP may require giving up other desirable policy proposals such as increased public infrastructure investment, expanded subsidized healthcare, covering the shortfall in Social Security via general revenues, free tertiary education at public universities, elimination of student debt, or a universal basic income (UBI).

This effect of financial constraints on government explains why discussion of a JGP tends to quickly spill over into a broader discussion about the macroeconomics of public finance. JGP proponents tend to believe government is financially unconstrained and can pay for everything by printing money. After the fact, government can then readily withdraw the money it has printed by raising taxes. All of this can be done without causing financial, economic, or political disruptions or distortions. That view is identified with modern money theory (MMT), which dismisses financial constraints on policy and argues the only constraint is availability of real resources (i.e. unemployed workers or under-utilised capital).

In contrast, more conventional public finance macroeconomics argues that history, economic situation, markets, and political process impose financial, economic, and political constraints on governments that are difficult to thread. Though government has the technical ability to pay for everything owing to its power to issue money, doing so in excessive fashion will provoke disruptive and distorting financial, economic, and political reactions.

The possibility of such reactions renders government’s technical ability to pay for everything an economic will-o-the-wisp. A government with a short time horizon can use its printing power to finance all its policy desires, but subsequent market reactions to budget excess will impose costs and may make the policies unsustainable. Alternatively, a government with a longer time horizon takes such future reactions into account when setting current policy, making it de facto financially constrained despite the appearance of being unconstrained.

A third macroeconomic concern is inflation. The JGP wage is a real wage, which means the JGP nominal wage must be tied to inflation. Private sector nominal wages may then likely be tied to the JGP nominal wage to maintain an appropriate wage differential. Consequently, the JGP nominal wage could start to act as a form of economy-wide nominal wage indexation. Such indexation could potentially generate an unstable wage – price spiral, particularly if the existence of a JGP aggravates distributional conflict by increasing private sector wage demands. Raising the private sector wage share may be a desirable feature, but it points to the need for additional macroeconomic stabilisation policy tools. That requirement is either ignored or denied by JGP proponents.

Microeconomic concerns

As regards microeconomics, there is concern related to the minimum wage aspect of a JGP. A necessary condition for the program to work is workers be willing to move from guaranteed jobs to private sector jobs when the latter become available. That requires the utility derived from a private sector job to exceed that of a guaranteed employment job. The utility depends on the job package consisting of wage, benefits, and work conditions. In effect, a JGP would set a floor for employment conditions in the private sector, akin to a minimum wage, only broader. If the guaranteed employment job package is more attractive than the private sector job package, that will attract workers out of the private sector, lowering private sector output and employment. In that case, private sector employers may respond by improving their job package, which could have effects akin to a high minimum wage that prices low productivity workers out of employment.

Political economy concerns

Lastly, there are significant political economy concerns. A first such concern is the impact of a JGP on public sector unions. The distinction between government sector employment and guaranteed employment is artefactual, and both contribute to national income at cost. Consequently, there would likely be considerable pressure to lower public sector wages and benefits to the level of the guaranteed job on grounds that the work is similar. In effect, there is a high risk that a JGP could be used to open a new front for undermining public sector unions and public sector remuneration.

A second political economy concern is workfare. Not only may the JGP be used to undermine the character of public sector employment, it can also be used to undermine the right to welfare. Thus, the right to welfare can be made conditional on accepting a guaranteed employment job. In this fashion, a JGP can become a double-edged sword, cutting upward against the public sector and downward against the welfare system. That is not an outlandish speculation in the context of US political economy, where the large prison population is already being exploited to work for near-free for the benefit of politically connected labor-intensive private industry.

A third political economy concern is the productivity of guaranteed employment jobs. A JGP will be sold politically to the public on grounds that JGP workers are productive. However, delivering productivity requires organisational and managerial capacity that the public sector may not have. In that case, there is a risk that such jobs become perceived as “make work”. That would play into the political economy of animus to government, and it could boomerang back in the form of politics opposed to government provision of public goods and services and opposed to macroeconomic stabilisation policy.

Careful what you wish for

In sum, the debate over JGPs is fraught. Even those who support the aims of a JGP, and are favourably inclined to activist public policy, may still be wary of a JGP for economic and political economy reasons. Implementing a JGP will require political capital and the right political conditions. It might be better to use that favorable moment to introduce new policies (e.g. a UBI) and upgrade a collection of existing different policy modalities that together deliver the same or more benefits without the political economy risks.

Thomas Palley

Thomas Palley is an independent economist living in Washington DC. He founded Economics for Democratic & Open Societies. The goal of the project is to stimulate public discussion about what kinds of economic arrangements and conditions are needed to promote democracy and open society. His numerous op-eds are posted on his website http://www.thomaspalley.com.

Harvard University Press Advertisement

Social Europe Ad - Promoting European social policies

We need your help.

Support Social Europe for less than €5 per month and help keep our content freely accessible to everyone. Your support empowers independent publishing and drives the conversations that matter. Thank you very much!

Social Europe Membership

Click here to become a member

Most Recent Articles

u421983462 041df6feef0a 3 Universities Under Siege: A Global Reckoning for Higher EducationManuel Muñiz
u4219836ab582 af42 4743 a271 a4f423d1926d 0 How Trade Unions Can Champion Solidarity in Europe’s Migration DebateNeva Löw
u421983467298feb62884 0 The Weak Strongman: How Trump’s Presidency Emboldens America’s EnemiesTimothy Snyder
u4201 af20 c4807b0e1724 3 Ballots or Bans: How Should Democracies Respond to Extremists?Katharina Pistor
u421983c824 240f 477c bc69 697bf625cb93 1 Mind the Gap: Can Europe Afford Its Green and Digital Future?Viktor Skyrman

Most Popular Articles

u4219834647f 0894ae7ca865 3 Europe’s Businesses Face a Quiet Takeover as US Investors CapitaliseTej Gonza and Timothée Duverger
u4219834674930082ba55 0 Portugal’s Political Earthquake: Centrist Grip Crumbles, Right AscendsEmanuel Ferreira
u421983467e58be8 81f2 4326 80f2 d452cfe9031e 1 “The Universities Are the Enemy”: Why Europe Must Act NowBartosz Rydliński
u42198346761805ea24 2 Trump’s ‘Golden Era’ Fades as European Allies Face Harsh New RealityFerenc Németh and Peter Kreko
startupsgovernment e1744799195663 Governments Are Not StartupsMariana Mazzucato
u421986cbef 2549 4e0c b6c4 b5bb01362b52 0 American SuicideJoschka Fischer
u42198346769d6584 1580 41fe 8c7d 3b9398aa5ec5 1 Why Trump Keeps Winning: The Truth No One AdmitsBo Rothstein
u421983467 a350a084 b098 4970 9834 739dc11b73a5 1 America Is About to Become the Next BrexitJ Bradford DeLong
u4219834676ba1b3a2 b4e1 4c79 960b 6770c60533fa 1 The End of the ‘West’ and Europe’s FutureGuillaume Duval
u421983462e c2ec 4dd2 90a4 b9cfb6856465 1 The Transatlantic Alliance Is Dying—What Comes Next for Europe?Frank Hoffer

S&D Group in the European Parliament advertisement

Cohesion Policy

S&D Position Paper on Cohesion Policy post-2027: a resilient future for European territorial equity”,

Cohesion Policy aims to promote harmonious development and reduce economic, social and territorial disparities between the regions of the Union, and the backwardness of the least favoured regions with a particular focus on rural areas, areas affected by industrial transition and regions suffering from severe and permanent natural or demographic handicaps, such as outermost regions, regions with very low population density, islands, cross-border and mountain regions.

READ THE FULL POSITION PAPER HERE

ETUI advertisement

HESA Magazine Cover

What kind of impact is artificial intelligence (AI) having, or likely to have, on the way we work and the conditions we work under? Discover the latest issue of HesaMag, the ETUI’s health and safety magazine, which considers this question from many angles.

DOWNLOAD HERE

Eurofound advertisement

Ageing workforce
How are minimum wage levels changing in Europe?

In a new Eurofound Talks podcast episode, host Mary McCaughey speaks with Eurofound expert Carlos Vacas Soriano about recent changes to minimum wages in Europe and their implications.

Listeners can delve into the intricacies of Europe's minimum wage dynamics and the driving factors behind these shifts. The conversation also highlights the broader effects of minimum wage changes on income inequality and gender equality.

Listen to the episode for free. Also make sure to subscribe to Eurofound Talks so you don’t miss an episode!

LISTEN NOW

Foundation for European Progressive Studies Advertisement

Spring Issues

The Spring issue of The Progressive Post is out!


Since President Trump’s inauguration, the US – hitherto the cornerstone of Western security – is destabilising the world order it helped to build. The US security umbrella is apparently closing on Europe, Ukraine finds itself less and less protected, and the traditional defender of free trade is now shutting the door to foreign goods, sending stock markets on a rollercoaster. How will the European Union respond to this dramatic landscape change? .


Among this issue’s highlights, we discuss European defence strategies, assess how the US president's recent announcements will impact international trade and explore the risks  and opportunities that algorithms pose for workers.


READ THE MAGAZINE

Hans Böckler Stiftung Advertisement

WSI Report

WSI Minimum Wage Report 2025

The trend towards significant nominal minimum wage increases is continuing this year. In view of falling inflation rates, this translates into a sizeable increase in purchasing power for minimum wage earners in most European countries. The background to this is the implementation of the European Minimum Wage Directive, which has led to a reorientation of minimum wage policy in many countries and is thus boosting the dynamics of minimum wages. Most EU countries are now following the reference values for adequate minimum wages enshrined in the directive, which are 60% of the median wage or 50 % of the average wage. However, for Germany, a structural increase is still necessary to make progress towards an adequate minimum wage.

DOWNLOAD HERE

Social Europe

Our Mission

Team

Article Submission

Advertisements

Membership

Social Europe Archives

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Miscellaneous

RSS Feed

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641