Friday, 15 July 2016

“Job Guarantee” nonsense.

Job Guarantee (JG) is a popular idea: it’s been around for centuries. Basically it’s the idea that there are numerous jobs or tasks that need doing, thus government can put the unemployed to work doing those tasks. The Work Project Administration (WPA) in the US in the 1930s was just one example of JG. And certainly JG could be used to totally abolish unemployment if we’re prepared to see the unemployed doing very menial jobs.

To illustrate with an extreme example, we could just tell the unemployed their unemployment benefit is henceforth conditional on their walking up and down their street keeping it free of litter. Anyone refusing would be deemed not to be unemployed on the grounds that they had refused work. Hey presto: unemployment vanishes.

The idea actually goes back to Pericles in ancient Athens around 2,500 years ago: he put unemployed Athenians to work on public construction projects.

Unfortunately most of the advocates of JG are a bit naïve: they’re oblivious of the basic problems involved. And that helps explain why most JG type schemes end up as an expensive mess and get abandoned a year or two after being set up: those organising them have little idea what they are doing  - which is not to say JG has no future at all.

Certainly most members of the general public who opine on this subject are clueless. Unfortunately most of the academics who write on the subject aren’t much better. There’s a collection of academics who advocate JG at the University of Missouri  - Kansas City. No names mentioned!!! But if you Google UKMC and JG you’ll find loads of material.

Rate of pay for JG work.

Most advocates of JG gayly advocate generous rates of pay for JG without any apparent awareness of the fact that generous pay destroys the incentive for JG employees to seek normal jobs. That means labour supply to the existing labour market is reduced. That’s inflationary, so demand has to be cut (e.g. via increased interest rates), which raises unemployment! Hardly the object of the exercise!!!

Hire out JG people to existing employers?

Another basic question JG advocates fail to address in any detailed way is whether JG employees should be employed in specially set up. projects (a la WPA), or whether those employees should be hired out to existing employers. Well there’s a big problem with the former option, namely that skilled permanent labour has to be hired to actually run such projects – unless those employed on those projects are to consist just of the recently unemployed (who tend to be relatively unskilled). That’s just a recipe for grossly inefficient forms of employment.

The above naïve advocates of JG might answer the latter point by claiming that some WPA work was relatively efficient (which it was). The answer to that is that the WPA was implemented at a time of catastrophically high unemployment: a scenario where there is a decent availability of skilled labour from the ranks of the unemployed. But the solution to very high unemployment is a straight rise in demand, not JG. I.e. JG comes into its own precisely where there is a shortage of skilled labour amongst the unemployed.

But if skilled labour is taken from the existing workforce, then relatively productive jobs are destroyed, and replaced with the relatively unproductive jobs that inevitably make up JG schemes. Thus “specially set up” projects as per the WPA are a nonsense.

In contrast, if JG people are subsidised into jobs with existing employers, a better mix of skilled and unskilled labour is obtained. But the majority of the advocates of JG haven’t the faintest inkling of the latter problem.

Public or private sector jobs?

Another basic question normally ignored by JG advocates is whether JG schemes should consist just of public sector type jobs (as per the WPA and as per Pericles’s JG scheme), or whether JG people should be hired out to private sector employers as well.

Well suppose there were two schools that were identical in every respect, except that one was private and one public. If JG was confined to the latter, the reason for doing so absolutely has to be POLITICAL rather than economic. I.e. there is no economic reason for not allowing private employers to take on JG employees. And in fact the UK’s JG scheme (or at least the nearest thing to JG currently operating in the UK) hires out the unemployed to private sector employers). That’s the so called “Work Programme” – which incidentally seems to be horribly expensive to administer (perhaps because too many go-gooders have had a hand in its design).


Another problem with JG is this: to what extent do JG people simply displace normal employees? Well there’s guaranteed to be SOME displacement: i.e. employers are bound to some extent to use temporary, JG, i.e. not desperately skilled employees as substitutes for normal or fully viable employees. However, if employers know they can only have any given JG employee for a limited period, the displacement shouldn’t be too bad: employers will tend not to classify genuinely productive employees as temporary JG people because employers like to hang on to productive employees. In contrast, they don’t mind relatively UNPRODUCTIVE employees disappearing to another employer or to unemployment.


My cynical conclusion is that JG might be worthwhile if the existing and very naïve advocates of the idea have nothing to do with it!


  1. Yes to most of the above.
    There are several further issues upon which you may wish to comment:
    - Should JG jobs be provided according to the preferences of JG employees, e.g. job location, hours and type of work?
    - Should JG jobs be available to recent immigrants?
    - Should housing, training,loans and other benefits be provided when needed?

  2. Taking your 3 points in turn, my answers for what they're worth are:

    1. JG normally involves some sort of Workfare element, i.e. "do this job else your benefit gets cut". So to that extent, JG people end up quite often with jobs which won't be what they'd have chosen given total freedom of choice.

    2. Can't see why immigrants should be excluded.

    3. Re training, there is a problem there which the above naive advocates of JG always fail to spot. It's this. Any worthwhile training course leads to a marketable qualification, plus there's only one way to run courses (as every college, school and university discovered long ago) and that's to have such courses run for a SPECIFIC period. But if a JG person joins such a course, they are not available to the labour market for that period (assuming daytime courses rather than evening courses). That means that putting people on those courses cuts labour supply, which as pointed out above is inflationary.

    That of course is not to criticise for example the typical three year university course leading to a degree. The point is that it is naïve to think people can be shifted from JG jobs (where they ARE available for normal vacancies) to training courses (where they are not available) and think there are no macroeconomic consequences.


Post a comment.