Low grade drivel in The Guardian on the subject of Job Guarantee.

There’s an article in The Guardian today on the subject of JG entitled “Work for the dole: this punishing forced labour policy..” by Van Badham.

Badham's first cock up (in her second paragraph) is to claim that the pay on JG schemes is “sub-poverty-level subsistence”. Well the problem with that is that remuneration on JG schemes is normally equal to and sometimes more than unemployment benefit. Thus if the remuneration really is “sub-poverty”, then that’s the fault of those who determine benefit levels, no those who design JG schemes.

Next Badhams claims (3^rd paragraph) that the motive of those favouring JG is to “punish the unemployed”. OK Badham’s motive for writing for The Guardian is that it satisfies that weird sexual perversion she suffers from. Anyone can attribute daft motives to others.

And in her 5^th paragraph she waxes lyrical about the deprivations suffered by those on unemployment benefit. Well that’s nothing to do with JG is it?

The woman is a moron. I can’t be bothered finishing the article.

JG and subsidised temporary employment.

This is an interesting study of the effects of a recent subsidised temporary employment scheme in the US. Title of the study: An Evaluation of ARRA-Funded Subsidized Employment Programs. ARRA stands for American Recovery and Reinvestment Act (2009).

The scheme concentrated on the long term unemployed, and subsidised employment lasted up to 12 months.

Some of the conclusions of the study were as follows, but note that the following four points do not do the study justice: the study is made up of very roughly 50,000 words and 100 charts. So study it yourself if you want a fuller picture.

1. The scheme improved the post subsidised employment earnings and employment record of those involved. Those placed with private or “for-profit” employers benefited more than those placed with public sector employers (p.50).

(Studies into similar programs in Switzerland about ten years ago found likewise. See here and here.)

2. Private sector or “for-profit” employers were more likely to retain subsidised employees after expiration of the subsidy than public sector employers. Overall, 37% of subsidised employees were retained in expiration of the subsidy.

3. Trying to induce employers to retain subsidised employees when the subsidy expires seems to be counter-productive.

4. Public sector employers were more willing to retain less skilled employees than private sector employees. (Surprising, since public sector employees tend to more skilled than private sector ones, at least in the UK).

The European banker / politician nexus awards itself yet more public money.

The European Central Bank seems to have got a bit tired of buying dodgy periphery sovereign debt, and is now considering buying “packages of bank loans to households and companies” as the Financial Times put it in a front page article entitled “ECB looks at buying bank loans in battle to ward off deflation.” (27^th Jan).

While Euro politicians and bankers doubtless think the purpose of the economy is to enable them to line their own pockets, the actual purpose (as explained in introductory economics text books) is to supply consumers with what they want (both as expressed by what they do with their disposable income and the types of public spending they vote for at election time).

Thus given inadequate demand (or a danger of “deflation” to use the FT’s phraseology) the obvious and logical remedy is to give consumers more of the stuff that enables them to purchase what they want: and that stuff is called . . . wait for it . . . . “money”. Plus (assuming the ratio of public to private spending is to remain constant) public spending needs to be increased.

As Warren Mosler correctly points out, it is not the job of central banks to expose themselves to the above sort of risk.

Plus if the ECB does buy the above strange assortment of assets, that nicely illustrates the point I made in this post a few days ago, namely that the more reliance is put on monetary stimulus without a corresponding amount of  fiscal stimulus, the more the state ends up buying an ever larger proportion of private sector assets. And that must at some stage mean the state / central bank buying assets which is has no business buying.

Germany’s work sharing scheme achieves nothing.

I’m a Dean Baker fan, but I’m not comfortable with the praise he heaps on Germany’s work sharing scheme in a recent article entitled “The Myth of the German Boom…”. In fact he attributes the difference in unemployment rates as between Germany and France (about 5% vis a vis 10%) largely to work sharing.

The flaw in work sharing.

Work sharing is just one of numerous alleged cures for unemployment which all aim to reduce labour supply. Those quack cures include early retirement, delayed entry to the labour force for youths, longer holidays – the list goes on and on.

The big idea is thus. 1. Have the EMPLOYED do less work. 2. That leaves work undone which allegedly can be done by the unemployed. And the flaw in those alleged cures is sometimes referred as the “lump of labour fallacy” because it assumes there is some sort of fixed amount of work to be done.

To expand on that, the flaw in the idea is thus. Raising employment is easy: just bump up demand. But the constraint on that cure is inflation: that is, the more unemployment falls, the more difficult it is for employers to find the types of labour they want amongst the ranks of the unemployed. So they resort to out-bidding each other for the services of those who are already employed. And that equals inflation.

Now if those already in work do fewer hours (either because they are FORCED to do so or because they do so voluntarily) and aggregate demand remains constant, then there is indeed some “undone work” which it might seem can be done by the unemployed. But – and this is the crucial flaw in the above quack remedy – if inflation becomes excessive when say 5% of the workforce is unemployed (because employers can’t find the labour they want amongst the ranks of the unemployed) than that self same problem will arise AFTER work sharing has been implemented, and when 5% of the worforce is unemployed. I.e. there is no reason to suppose that work sharing reduces NAIRU.

Or put another way, if aggregate labour supply can be reduced relative to aggregate demand for labour, why not do that by raising aggregate demand? That way people (or at least more of them than pertains in a work sharing scenario) can do the number of hours work they want.

Number of employees involved.

As to the actual NUMBERS in Germany who are engaged in work sharing, estimates seem to be all over the place. According to this CNN article, one in four Germany employees are on some sort of work sharing scheme, plus such schemes have been in place for decades. That’s complete madness because over recent decades there have been periods when unemployment was as low as it could possibly go, thus work sharing would have been a waste of time.

In contrast, this ILO publication claims the total number in Germany engaged in some sort of work sharing scheme was 1.5 million.

Germany versus the periphery.

In contrast to Germany, would work sharing be beneficial in the periphery? There is a plausible reason for thinking so, namely that periphery countries cannot cut unemployment to NAIRU since they’re deliberately restraining demand so as to get their wages, cost and prices down (or rather they’re being forced to do that by the Euro authorities). But there’s a problem there (which readers will immediately recognise if they’ve grasped the central flaw in the above quack remedies for unemployment). The problem is thus.

As just mentioned, the whole point of austerity in the periphery is to get costs and prices down. Now as explained above, if work sharing is implemented and aggregate demand remains constant, then the availability of labour to employers declines which is inflationary: just what’s not needed when trying to get costs and prices down. So unfortunately work sharing is a questionable policy even in periphery countries suffering from austerity.