The Great Contradiction in Job Guarantee Advocacy


Share  Tweet
UN Women / Flickr

In the old telling (Wray 1997), a Job Guarantee (JG) program set out to solve a very specific problem: getting to 0 percent unemployment without setting off unsustainable wage-price inflation. This was (and still is) thought to be impossible under normal circumstances because, when unemployment gets that low, workers have enough bargaining power to demand unsustainable wage hikes. JG was said to offer a way out of that conundrum because it was able to get to 0 percent unemployment without meaningfully improving the bargaining power of workers.

Old

Old school JG pulls off such a feat by creating an open-ended minimum-wage public employment program. The program employs everyone not employed by regular employers, getting the country to 0 percent unemployment. And, by only paying the minimum wage, the JG would not actually be competitive with regular jobs, almost all of which pay more than the minimum wage. The idea that workers in regular jobs would be able to use the existence of the JG to force up their wages was thus described as preposterous: how do you force your employer to pay you more if your “bargaining chip” is that you can go get a minimum wage JG job that pays you even less than you are already making?

In fact, JG advocates claimed, the JG program actually helps discipline the wage demands of regular workers. If a regular worker gets too uppity, employers could just fire them and replace them with a JG worker who would be thrilled to take a job that pays more than the fixed minimum wage they get in the JG program.

Randall Wray is very explicit about this in his 1997 paper:

However, just as workers have the alternative of [JG], so do employers have the opportunity of hiring from the [JG] pool. This is the primary “price stabilization” feature of the [JG] program. If the wage demands of workers in the private sector exceed by too great a margin the employer’s calculations of their productivity, the alternative is to obtain [JG] workers at a mark-up over the [minimum wage]. This will help to offset the wage pressures caused by elimination of the fear of unemployment.

Another way to put this is to say that the JG does not eliminate the reserve army of unemployed people who help hold down the wage (and other) demands of workers. It’s just that, instead of the reserve army sitting around on unemployment benefits, they now work a minimum wage job that they are eager to leave as soon as they can get higher pay from a regular employer. Wray actually puts the point in exactly these “reserve army” terms:

It must be remembered that the [JG] workers are not “lost” as a reserve army of potential employees; rather, they can always be obtained at a mark-up over [the minimum wage].

The old telling makes perfect sense of course. The whole challenge JG is trying to solve is getting to 0 percent unemployment without creating unsustainable wage-price inflation. If it somehow massively increased the bargaining power of regular workers, then it would create unsustainable wage-price inflation and be unworkable as a policy. The benefit of the JG over having a small percentage of the workforce on unemployment benefits is not that it tightens labor markets and runs up wages, but rather that it puts people to work, and jobs are better than welfare (the normative judgment at the heart of JG advocacy).

New

The new version of the JG argument, which is being pitched to political audiences rather than academic audiences, has completely reversed the claim that the JG will not meaningfully improve the bargaining position of regular workers. Indeed, the new JG advocates even use the exact same language as the old JG advocates, but in the opposite direction. For instance, here is Rohan Grey quoted in The Intercept:

“The NAIRU is a central component for most macroeconomic theories that have been used by central banks around the world, and it’s a political, technical, and moral excuse to not try and hire that last 5 percent,” said Grey. “What it actually does is keep a reserve army of unemployed people who effectively discipline the rest of the employed. If you piss off your boss, if you get too uppity, you could fall over into the abyss.”

So Grey argues that, because the JG employs everyone, it gets rid of the “reserve army of unemployed people” and therefore makes it so that regular workers can’t get fired for being “too uppity” in the demands they make on their bosses. Old School Wray, on the other hand, argues that, because the JG pays the minimum wage, it does not get rid of the reserve army available to employers to discipline their workers if they get too uppity (Wray actually uses the word “obstinate” though, not “uppity”).

Notably here, the underlying program has not changed at all. The JG is still an open-ended minimum-wage public employment program. Yet somehow it recently went from a program that was claimed to preserve the reserve army to one that got rid of it.

What’s remarkable here is not just that the story has completely reversed, but that, if the new claim is true, then the program cannot possibly work. Remember, the reason Wray was trying to argue that the JG won’t significantly increase the bargaining power of regular workers is because, if it did that, then it would cause unsustainable wage-price inflation. So, if the new advocates are right, and the JG actually does significantly increase the bargaining power of regular workers, then it will collapse under its own inflationary weight.