I’ve still not finished moving house. What might have been a straight-forward task has turned into chaos preparing the sub-floor. Piles of household items, furniture and wall decor are now everywhere cluttering the house. So, I am sitting in my garage using an untrustworthy Windows 10 box that I had lying about, rather than my beloved Mac (which I refuse to have running in a garage), sweltering in the heat and humidity. This then is the reason why I’ve not posted this week, nor been able to give a proper reply to anyone (including George Kendall, whom I must get back to soon – Apologies George.). I’ve promised a few answers to nagging questions regarding the function of the JG, so this morning during a break in activity, I’ll get to some, but not all.
First off, there seems to be a belief that the JG is meant to be a permanent government job. Whilst the JG is meant to be a permanent program, it is not meant to be permanent government job, such as a job at the IRS, EPA, or any other agency you can think of. The purpose of the JG isn’t to employ someone until retirement (although a person certainly could choose such a path). The JG is a buffer stock, which means that it is a pool of working labour which can transition into private sector work. Conversely, in a downturn, labour can transfer back to the JG. In other words, for an American audience, the JG acts as a safety net to catch labour thus eliminating involuntary unemployment.
Next is the question surrounding the fixed JG wage. Why a fixed wage? To answer that question, we must first understand what a minimum wage is. Speaking from the macroeconomic viewpoint, the minimum wage sets a wage-price floor through which wages cannot fall. In other words, its purpose is to prevent a $10 per hour job from becoming a $2 per hour job. Such implies that the minimum wage, since it is set by the currency-issuing government, defines a certain living standard that a nation is willing to support.
Secondly, we also need to understand that the market value of an unemployed person is zero, because the market does not wish to purchase that person’s labour. Therefore, should the government buy up all labour that the market does not want and pay it a minimum wage, then there will be no inflationary effects in doing so. If the government decides that its lowest acceptable standard is $8 per hour, then it will pay JG workers a fixed wage of $8 per hour and that will become the national minimum. Should it determine that the nation requires a higher standard, then it would pay JG workers, say, $15 per hour and that would become the national minimum. Yes, if the fixed JG wage is set high enough, there could be a price level increase, but it will be a one-time only increase, which will stabilize to meet the new wage floor price. Because the JG wage is fixed, it has the effect of stabilizing the growth rate of money wages in the private sector and thus, it provides a nominal anchor against inflation.
So, by a currency-issuing government fixing the floor price of labour and then buying whatever labour is available at that price with its own currency, it achieves both full employment and price stability.
This leads to the next question concerning highly-skilled, highly-educated jobs, which is a persistent question (Why would a physician want to clean up roads?). First of all, let’s look at how we think of employment today. The method we use is a trickle-down approach to jobs, where we create jobs for highly-skilled, highly-educated workers and hope that a demand for unskilled jobs is created in the process. The notion fails on many levels. What the JG does is it creates jobs for unskilled labour and through their labour, then creates a demand for highly-skilled, highly-educated workers. The JG benefits the unskilled first and then the skilled and the entire economy. This does not imply that professional workers do not face the terrible effects of mass unemployment. We all do. When unemployment rises, a downturn occurs and affects all. However, some are able to “wait” out the effects of a recession. They have the financial ability to hold out for a job in their field of expertise. We call this “wait unemployment”. Since professionals might receive severance pay or other financial pay-outs, they do not have a pressing need for immediate employment and have the time to search for a job within their profession. Therefore, many professionals will not wish to participate in the JG, though the option is certainly open to all. So, why would a physician wish to clean up roads? More than likely, he or she wouldn’t and can afford not to, unlike a stocker at Walmart who loses his or her’s job.
Next, the question of labour demands and employer demands. The JG benefits both sides in this regard. For instance, the JG removes the ability of employers to threaten workers with unemployment. Should a person work for an abusive, low-wage employer, he or she can simply walk out with confidence knowing that he or she can obtain work through the JG, where the person can set his or her’s own schedule and work in a less stressful environment. On the other hand, should an employer experience unreasonable demands from its employees, the employer could hire from the pool of available JG labour.
Lastly, for today, is the question of inflation. How does the JG deal with inflation should it occur? As we’ve discussed, the JG creates a pool of labour that the private sector can hire from at any time to meet increased production demands. If inflation threatens, government manipulates fiscal policy in response to that pressure and rather than throwing millions of unskilled workers into involuntary unemployment, labour instead transfers from private sector work into the fixed wage JG.
I apologise that this is all I can get to today. As I said earlier in the week, discussion concerning how the JG vacates the Phillips Curve requires an article on its own and must wait until time allows.
I hope these answers provide you with a greater understanding of the Job Guarantee proposal.