Wednesday, 3 December 2014

Randy Wray thinks “decent wages” can be paid for JG work.

Randall Wray is an enthusiastic supporter of what can loosely be described as make work / job creation / workfare schemes. Along with other supporters of the latter he refers to that sort of subsidised work as “Job Guarantee” (JG). That’s in an article of his entitled “The Answer to the Unemployment Problem is More Jobs”.
Unfortunately he seems to  think that what he calls “decent wages” can be paid for that sort of work. As he puts it, “So here’s my puzzlement. Why won’t progressives try to help develop the moral framing to support jobs-for-all? At decent wages.”
The answer to his “puzzlement” is that “progressives”, or at least the economically literate ones have tumbled to a bit of macroeconomics as follows.
If those on JG work are paid “decent wages”, then their incentive to seek regular or non-subsidised work is destroyed. That in turn reduces aggregate labour supply, which is inflationary, which in turn necessisates a cut to demand, which in turn means unemployment returns to approximately its original level. In short, JG has not created any additional work.
Worse still, it has replaced regular or viable work with less viable or subsidised JG work.
But that’s not to rule out JG schemes. It’s just that “decent wages” are pie in the sky. Or put another way, there is method in the UK’s current JG scheme, the Work Programme, which involves those concerned being paid whatever they’d have got on benefits.
Put another way, for JG to work, there has to be what might be alled a “workfare element”: i.e. “do this job else your benefit gets cut”. The inevitability of that workfare element was pointed out by the Swedish labour market economist, Lars Calmfors, and myself twenty years ago.
The only way round the latter problem is to make up for the above reduced job search efforts by having the state do more job searching, i.e. spending more on state run employment agencies. However that costs. And given the less then brilliant output from JG jobs, it is questionable as to whether the combination of well paid JG work and spending millions on state employment agencies would give us a net increase in GDP. After all, the purpose of work is to PRODUCE, isn't it? That is, the purpose is to increase GDP.

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