Monday, 17 September 2012

Edward Harrison discovers that Job Guarantee is a farce.

Edward Harrison (who runs the Credit Writedowns site) made an amazing observation while walking down a street recently. He was (to quote) “walking down the street with my wife and son when we noticed some serious (but unnecessary and annoying) street work that the local county had done. I went ballistic, complaining that, on the one hand, the local elementary school right across the street had been shut down because the building was ‘not up to code’, yet on the other hand, the county was doing these ridiculous and unnecessary street and sidewalk ‘improvements’. It immediately hit me that one could claim that these improvements were keeping people employed and aiding the economy. But, my viscerally negative reaction tells you that such a claim would be considered false by many taxpayers. It’s through these eyes that I view the debate on the job guarantee.”

Well done Edward Harrison. He has discovered by actual observation a point I’ve been making for 20 years, which is that what might be called “specially set up” make work schemes or “job creation schemes” like the WPA are inherently inefficient compared to jobs with regular employers (public or private).

In other words, given say an unemployed teacher, it’s much better to subsidise them into work in a school, then have them doing “unnecessary street and sidewalk improvements”, to quote Edward.

Unfortunately the above point seems to be beyond the comprehension of most of those discussing make work schemes / Job Guarantee / WPA. As to some of the more abstruse or complicated theory behind such schemes, there is not the faintest chance of the human race ever understanding it.



  1. The above doesn't come close to a JG relevant story.

    The two entities, county and local school board in this
    case have different budgets, and decision makers.

    In this case, even if the county wanted to fix up the school, they can't. So, they are fixing what they can, the surrounding infrastructure.

    The JG is to provide jobs to those who haven't one, and who want to work, AT A MINIMUM WAGE LEVEL.

    Ideally, it would be funded by the Currency Issuer.

    For the specific case in point, the county could use JG personnel to fix sidewalks and streets, to patrol the neighborhood, and to plant flowers in the medians. Critically, all JG jobs must not require skills, and must provide OJT to participants, ie: they should build skills.

    Of course, there is no prohibition on govt hiring skilled unemployed at JG wages to perform skilled tasks, like refurbishing the school, for instance.

    Also, there is no prohibition on govt hiring unemployed teachers to teach evening GED classes at the local YMCA, either.

    I do agree that most people have a difficult time relating to using JG to provide a buffer stock of employed, skilled people. That is amazing because those same folks have no problem with govt guaranteeing profits to defense contractors, and no problem with govt guaranteeing a floor price for agricultural commodities, like corn and wheat.

    But guaranteeing that everyone who wants to work has the opportunity to work, at minimum wage, offends those who see themselves as self made islands in a sea of ???

    A macro economic thought.. . .

    Given 25 million unemployed, currently on food stamps, living off savings, if they have any, or with mom and dad, what is the loss in GDP compared to those same people working a JG job, and what is the loss in payroll tax receipts, and what is the loss in income tax receipts, and what is the loss in homes occupied?

    If those 25 million are heads of household, that is 25 million households not living independently, or 25 million homes not sold / rented.

    Given the JG pays participants $20,000 / yr or $10 / hr, and the payroll tax rate is 9%, and the income tax rate is 20%, each JG participant generates $7600 /yr in tax receipts, or $190 billion, and earns $500 billion, which given a multiplier of 2.9 increases GDP by 1.5 trillion, or about 10%. This increased economic activity produces about $500 billion in increased tax revenues, which means a JG program produces a net gain to govt of about $200 billion.

    Not to mention the increased business activity amounting to $2 trillion


    1. I don't see the relevance of the fact that JG and the educational system “have different budgets, and decision makers”. The army and the police have “have different budgets, and decision makers”, but that doesn’t rule out giving work to the army that has been done by the police up to now, and shifting the necessary resources from police to army.

      Next, you claim “The JG is to provide jobs to those who haven't one, and who want to work, AT A MINIMUM WAGE LEVEL.” My answer to that is that JG type subsidised jobs with existing employers would also have to be around the minimum wage level (as indeed the UK's "work programme" jobs are). This low pay is necessary in both traditional JG and JG with existing employers else those concerned don't have much incentive to seek regular jobs.

      Next, you claim “Critically, all JG jobs must not require skills, and must provide OJT to participants, ie: they should build skills.” It strikes me as barmy by set up an employment system that SPECIFICALLY AIMS not to use whatever skills people have. The WPA in the 1930s certainly didn’t do that: they tried to make use of whatever skills people had, and quite right (not that I'm ruling out the skill enhancement idea that you suggest).

      Re your budget and tax calculations I don’t fully understand the point you are making here. But if you’re saying that extra govt spending can actually REDUCE the deficit rather than increase it (a bizarre outcome on the face of it) then I agree. There is a study here that supports that idea:

      However, I don’t think that’s a merit in JG as such: it’s a point that can apply to ANY FORM of increased (or reduced) government spending.


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