The deluded advocates of the Job Guarantee.

It has become fashionable among advocates of the Job Guarantee (JG) in the last year or two to argue that the wage for JG should be well above the existing minimum wage. In fact various Levy Institute works have argued that the JG wage should be DOUBLE the existing minimum wage.

Well now, there can’t possibly be any objections in principle to raising the minimum wage - maybe even doubling it. The pros and cons of that are obvious. The pros include better pay for the less well off, while the obvious potential con is less work for those lacking skills, experience and so on. Thus a decision on the minimum wage simply requires research into where the best compromise between the various pros and cons lies.

But what is completely barmy is advocating a JG wage well above the existing minimum wage while not advocating a rise in the minimum wage itself, or at least not raising the minimum wage for non-JG employers to the JG level.

The currently fashionable answer to the latter point in JG circles is that the existence of a generous JG wage will force other employers to compete, and raise their minimum wages to about the same level. Well that’s a bit like saying that the minimum wage for employers with more than twenty employees should be raised in the expectation that those with FEWER THAN twenty employees will be forced to compete! Why not just raise the minimum wage for ALL EMPLOYERS?? Be a darned sight simpler wouldn’t it?

Or how about raising the minimum wage for all those working INDOORS in offices and factories in the hope that employers will be forced to raise the minimum wage for those working OUTDOORS? Equally barmy, don’t you reckon?

Another problem with the above barmy idea is that a higher wage for JG work than for other employers will draw employees away from regular work and into JG work which is inherently less productive than regular work, and that clearly has a GDP reducing effect – not that I’m saying the OVERALL effect of JG is necessarily to reduce GDP.

As for exactly WHY JG work is less productive than regular work, that’s quite simple. Reason is that employers, both private and public create the most productive jobs first, i.e. they abstain from turning potential jobs in to real jobs if they think those potential jobs are insufficiently productive. In contrast, if some sort of employment subsidy is available, JG or any other type of employment subsidy, then employers will bring some of those relatively unproductive jobs into being.



Politics.

Another point is that it’s not very politically astute to advocate a new system, JG or any other new system, in its most expensive form: that is guaranteed to turn off finance ministers and politicians who are always desperate to avoid more government spending, given that there are a near infinite number of worthy projects that can potentially absorb billions upon billions of taxpayers’ money.

Put another way, why not advocate the new system, at least initially, in a relatively cheap or paired down form? That will be more acceptable to politicians. Plus there is such a thing as diminishing returns: that is (as the introductory economics text books explain), the INITIAL tranche of any new product normally brings big benefits, while as output of the new product increases, the benefits of yet more of the product gradually decline as output increases. Or to put in economics jargon, marginal product declines as output rises. And that phenomenon is almost bound to apply to JG.

So if you want to impress politicians with the benefits of a new product or system, keep it small scale to start with.

And finally, anything new is bound to have teething problems (in as far as JG is a new idea, which it isn't really). That means that if you go for small scale initially, the mistakes will be small. In contrast, if  you go for big scale, any mistakes will be catastrophes, which will make your new idea a laughing stock for the next decade.