The Job Guarantee – Understanding Fundamental Concepts

Many public discussions among progressives entirely miss the point of the JG. It’s normal, but at the same time, the lack of firm understanding is detrimental to the JG, and to progress. So, with that, let me try to clarify a few things.

In the first instance, progressives inevitably discuss the consequences for skilled/educated workers. While it is certainly true that a JG would be open to skilled/educated workers if they wished to sign up, the JG is not meant to be a safety net for skilled/educated workers, nor is its main purpose to act as a safety net for anyone. While it does appear to act in the capacity of a safety net, it is because the JG stabilizes the economy through labor. Thus, the JG must employ the unemployed for the initiative to perform its intended macroeconomic functions. This is the same as misunderstanding the purpose of food stamps. People are led to believe that the purpose of food stamps are to help the poor. That’s not the purpose. The purpose of food stamps is to act as an automatic stabilizer. The poor are the avenue through which the mechanism must take to provide the stabilization effect. If food stamps only helped the poor, then cutting food stamps in a downturn would only hurt the poor. But, the truth is, if you cut them in a downturn, everyone, food stamp recipient or not, takes a hit. That’s because the actual purpose is hidden behind a wall of poor people who cannot afford food. You are focusing on the wrong thing. The purpose is macroeconomic; the poor are employed by the national government to make the tool perform its macroeconomic function. Leave the “moochers vs. help the poor” arguments to politicians and the delusional – it has nothing to do with reality.

The misunderstanding concerning the JG occurs for one major reason and several related minor reasons, but in the “skilled worker” instance, it mainly results from applying the typical trickle-down approach to job creation that we have today to a bottom-up approach. The two approaches are completely incompatible with one another. What I’m saying here is that people are only going on experience; they are going with “what they know”, and they are having a hard time seeing things any other way. Totally understandable. First, understand that the trickle-down approach requires a safety net (unemployment insurance, welfare payments), because the unskilled, which comprise a large segment of potential consumer spending power, are the last to be hired and the first to be fired in that approach. As high unemployment is maintained, as wage suppression grows worse, and as private debt increasingly replaces federal deficit spending, the number of unskilled workers needing assistance will also increase. With a bottom-up approach, we guarantee the jobs of the bottom income distribution, reducing the number of workers requiring assistance. Connected with a Basic Income Guarantee, we reduce the need for assistance enormously. In turn, the labor of the unskilled results in both a positive impact on output, and a demand for skilled and educated jobs – something which I will explain a little more momentarily. So, today’s failed trickle-down approach to job creation is the model that many are going on to understand the Job Guarantee’s bottom-up approach. It doesn’t work and only causes confusion.

Secondly, part of the confusion also centers around the fact that many do not understand, or have never heard of, the concept “wait unemployment”. Many people think that JG proponents have simply ignored highly skilled workers in designing the initiative, and this is because, most directly, wait unemployment is never discussed, and also, what is rarely elaborated on is how the bottom-up approach creates a demand for highly skilled jobs. So, in both cases I would urge people to study the concepts in depth.

With wait unemployment, highly skilled/highly educated workers have far different pay packages than the unskilled do. Their incomes are far higher and some are paid severance, some have a decent amount in savings, etc. Thus, many of these workers choose to “wait” out unemployment until a job opens in their field of expertise, rather than just taking any job that comes along, because they can often afford to do so. This is not to say that all highly skilled/highly educated workers can afford to do so these days, but that they are in a better position than the bottom income distribution to do so in a stable, production-based economy.

So, unless the JG offered work in their field at a reasonable pay rate, they would most likely behave as they do today and wait out the unemployment, avoiding the possible stigma of lower wage work. Factually, one JG/BIG proposal in the US ($594 billion per year) contains higher JG wages for skilled workers who wish to participate in the program using their skills to enhance the public purpose. My mentioning the proposal should not be construed as my advocating the proposal. I am only providing the information to properly inform people.

There has been discussion on the topic of JG wage tiers going back quite a few years. Point being, it’s not as though we’ve ignored the skilled worker, but rather, the issue has been pounded into the ground and the consensus favors a uniform wage for reasons concerning the price anchor, which we will get to in a moment.

Even more confusion comes from yet another misunderstanding of what a floor price is.

The Wage-Price Floor

Many do not realize that the current federal minimum wage is a wage-price floor. It is not a poverty-fighting tool. We can all thank idiotic, self-serving politicians for making the public think that the intent of the federal minimum wage is to address poverty. If the public on the whole believes that to be true, then politicians have an easier go at keeping the wage low to satisfy their wage-suppressing corporate friends who donate heavily for the privilege of owning a politician who will serve the needs of capital and not the public. Truly, we do not elect public servants, and I am fed to the fucking teeth with the term. Public servants do not exist. We elect capital servants and we should refer to them as such. Hey, at least then we’d stop lying to ourselves.

The purpose of the federal minimum wage is to create a floor in the economy, through which, no wage can fall below that level of pay. Put simply, if the minimum wage is $9 per hour, then a $12 per hour job cannot become a $5 per hour job. The current US federal minimum wage is $7.25 per hour. So, what that means then is that the federal government has determined that the lowest acceptable living standard for its citizens should be $7.25 per hour. The US Government is the price setter. It sets the floor price of labor and the market obeys. It could just as easily set the price at $26 per hour and the market would obey. End of story.

The JG fixed minimum, which would become the new national minimum wage if a JG were initiated, adds an extra function to the minimum wage. The purpose of the fixed minimum JG wage is two-fold: To act as a nominal anchor against inflation, and to function as the absolute wage-price floor for the economy which is also the level of the standard of living society wishes. So, as to the latter, like the current federal minimum wage, the fixed minimum JG wage is a price floor, not a poverty-fighting tool or a safety net. When we hear talk about the plight of skilled workers and the need for the JG to pay them a higher wage than the fixed minimum for the unskilled, we are looking at the JG as a social safety net exclusively. That is an errant viewpoint. What I’m saying here is the main intent is not to pay JG workers to lift them out of poverty, nor is it a social program intended to directly provide a job for all skill sets with pay commensurate. It’s not a safety net.

As to the standard of living, if society wishes to eliminate all low wage producers for instance, then the national government will set the fixed minimum JG wage high. This act forces producers to either meet that pay level or to vacate the nation’s economy. The JG itself disciplines private sector employers in another way through allowing workers to travel back and forth between the JG and private sector employment, ending the threat of involuntary unemployment. Since unemployment is no longer a threat to the worker, the worker who feels that his or her working conditions are abusive can simply walk out, immediately drive to the local JG office, sign up and be paid starting that very day, free from further harassment. The employer can either reform, changing its business model from one that’s abusive to beneficial, or face a mass exodus of workers to the JG resulting in a loss of customers to its competitors who are willing to treat their employees with dignity, a dramatic loss of income, and eventual business failure.

The Nominal Price Anchor

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 first fixing the floor price of labor and then buying whatever labor is available at that price with its own currency, it achieves both full employment and price stability. Also, it is imperative to note that private sector pay will be higher than the fixed JG wage, because the private sector must pay a premium to attract workers out of the JG. So, while the JG wage remains uniformly fixed, pay in the private sector can rise. As it rises, workers are drawn out of the JG and into the private sector. Should wages rise too much and a wage-price spiral ensue, the federal government adjusts aggregate demand and workers will transfer to the fixed wage JG instead of being left unemployed by the action. This should not be viewed as a safety net process, but rather, it should be viewed correctly as an inflationary pressure attenuation process that results in a positive impact on output and shorter downturns. On this correct view, we reduce the political nonsense and threats to kill the JG based on the ridiculous “moochers vs. helping the poor” argument, by facilitating a correct understanding as to the purpose of the JG itself.

To be clear: The one thing that the fixed minimum JG wage is not designed to do is to act as a poverty-fighting tool. The problem occurs when you errantly think that it is, and then you begin fooling around with the fixed minimum wage using it as a silver bullet to kill poverty. If you cause the fixed JG minimum wage to vary for unskilled workers, then you lose the anchor against inflation. The perspective of the bottom income distribution worker’s plight is not where we must look to understand the purpose of the JG. If we do that, we inevitably side track ourselves with political arguments concerning poverty as though the JG is meant to be the silver bullet solution. It is the effects that the unskilled worker has on the macroeconomy that we must examine to keep our heads clear.

Good Things Sometimes Take Time

All unskilled labor that is willing to work, but that the market does not want, including all workers who wish to leave their private sector employer, will form a labor pool in the JG. Initially, the JG pool will be large. Over time, this pool will shrink until it remains small at all times. That is because the JG enhances the private sector over time. The key phrase here is “over time”. It has taken 40 years for neo-liberalism to create the mess that you see today. Believing that we can fix the problem overnight is nonsense. We can immediately take positive action to make things far better, laying the foundations for job security for the public, but it’s also going to take some hard work and time to totally reverse the damage. Again, there is no silver bullet.

Private sector wages and working conditions with a JG in place will improve over time, and the cost of living and the standard of living will improve. Yet, though being told this, some progressives still point out that the JG wage proposed is too low. They are either forgetting or disregarding entirely the fact that there is also a basic income guarantee attached to a US JG package (which is easily done for any other nation), as well as many other macroeconomic policies that need to be enacted to address the entire problem.

Say it with me: “There is no silver bullet”.

And again, wait employment means that many highly skilled workers might prefer to wait than take JG work, unless, of course, they prefer to apply their skills to the JG. If they choose to participate, the JG is there at the fixed minimum JG wage. However, unskilled workers (the bottom income distribution), have no choice to wait whatsoever. This is the contingent that we must consider, and these people will most likely immediately take JG work if private sector work cannot be had. But again, what people don’t take into account is that unskilled workers comprise a large swath of the consuming public. So, let’s put all of this together into a brief summary:

Through their labor and earnings, the bottom income distribution spend, which creates demand for goods and services. Because of the ability for unskilled labor to transfer back and forth between the JG and the private sector, unskilled employment is guaranteed. Therefore, a positive impact on output is realized and, here’s the major point that needs to be understood:

A demand for jobs travels upward from the unskilled to the highly skilled and highly educated, instead of the current trickle-down approach where we create jobs for skilled/educated workers first and merely “hope” that demand will trickle-down to the unskilled bottom income distribution who represent a large swath of potential spending power.

So then, if the unskilled are guaranteed employment at all times, a demand for skilled/educated workers will be sustained, and any layoffs of skilled and educated workers will be short-lived and easily weathered in comparison to what we see today.

As we can now understand (hopefully) there is simply no need to pay highly skilled workers a higher JG wage. These workers, more than likely, would rather wait for an opening in their field than to take, what might be considered, a stigmatized low-wage job. The reasons why laypersons and the public fail to see this, is because, again, they do not understand wait unemployment fully nor the bottom-up approach, so they cannot see it clearly in their minds, and also, because of the speculation economy which I will discuss presently.

You cannot apply what you see in a neo-liberal speculation economy to a bottom-up, JG anchored production-based economy. The two are entirely different. The root of all of the misunderstanding is the conflation of a speculation-based economy with a production-based economy. It is something that many do not understand for a good reason and it is quite problematic. They will think, “I am an engineer. The JG doesn’t seem to address my concerns. Therefore, the JG is a bad idea.” What is not understood here is why the engineer is experiencing a rough go at it in the first place. I am going to explain it as simply as I can. It is up to you to listen, digest, understand and then come to terms with the explanation.

Gambling vs. Production

Factually, many people aren’t even old enough to remember a production-based economy. They think that such an economy is what we have now – that this is how a production-based economy functions. It does not.

40 years of forced involuntary unemployment, wage suppression and, private debt expansion instead of federal deficits to sell production, means that the lowest income distribution, as well as the middle class themselves, are being hurled into debt to survive and to drive job creation. Under these circumstances, they cannot always maintain the appropriate levels of spending necessary to sustain anything near full employment. Recessions are commonplace, and, historically, since the 1980’s with each recession, these economies have been restructured, and coupled with policies of financial deregulation, these economies became speculation-based.

In a speculation economy, jobs for engineers are not necessary unless something must be designed by an engineer to advance the gambling habits of the financial sector (a new high rise office complex for instance). So, when you look at a job guarantee from the perspective of a speculation-based economy, the JG seems to have issues. From the perspective of a production-based economy, thought is clear, and one can easily see the benefits of the JG. Put simply, engineers today have a rough go at it, because engineers are needed for things like infrastructure and car design, not gambling.

A speculation-based economy temporarily employs labor to build grand memorials to opulence, not permanently to build grand economies.

After the memorial is built, it sets aside both the engineer and the unskilled worker equally until, one day, it says, “Hey, let’s remodel the office, put in a gold-plated toilet, and hire some peasant to polish the seat.”

Try to understand the following statement:

Speculation economies use labor to build monuments to greed; they do not use labor to add anything beneficial to the economy.

In a production economy, the engineer is vital and always in demand, adding beneficial input to the economy, driving the economy forward. See the difference? With speculation, the engineer is useful on occasion; in a demand-based economy, the engineer is always essential. This is precisely why highly skilled/highly educated workers have a problem and it is precisely why progressives ask “But what about skilled workers?” The speculation economy has created the problem. So, once more, when we return the economy to solid ground, then any unemployment among highly skilled, highly educated workers will be short-lived, because 1.) they are essential again, and 2.) we are guaranteeing the jobs of the bottom income distribution – the very people who will ensure that highly skilled, highly educated workers have job security.

Put simply, highly skilled and highly educated workers will stand on the powerful shoulders of the true giants of a production-based economy – the working class man and woman. If you then try to screw with the guaranteed job security of the working man and woman, everything comes crashing down. The JG anchors the currency to labor. Thus, for a politician to cut funding to the JG, or otherwise interfere with it, invites economic turmoil, as well as guaranteeing defeat for that politician in the next election.

So, currently, most western nations operate a speculation economy, not a production-based economy. The JG works in conjunction with government regulation efforts and other vital macroeconomic initiatives to return western economies to stable production-based economies. Put simply, the JG is not meant to solve all economic problems. The JG is meant to be a vital component to the solution.

Let’s say it again: “There is no silver bullet.

Understand me?

We have to eradicate the speculation economy, restore a production-based economy that is directed towards sustainable output, rebuild and modernize infrastructure, properly regulate banks and the financial sector, enact universal healthcare, tuition-free college education, and a host of other public purpose initiatives, and there is no – say it with me one more time – there is no silver bullet. There is no overnight train to Prosperity City.

But most importantly, the purpose of the JG isn’t to be a poverty-fighting tool, nor is its purpose to act as a safety net. Its purpose is to act as a buffer stock of employed persons which results in a positive impact on output, a demand for highly skilled/highly educated jobs, shorter downturns, and also to act as an inflation anchor, to attenuate wage-price pressures should they occur, and act as an automatic stabilizer for a production-based economy. A combined Basic Income Guarantee completes the basic macroeconomic package, helping to address income concerns. In conjunction, the federal government must also direct its macroeconomic agenda towards infrastructure modernization, universal healthcare, tuition-free secondary education, as well as the proper regulation of business, banks and the financial sector, and set appropriate tax policy. There is much to do and the JG is a vital component to the overall agenda; it is not the final solution. But understand, the final solution cannot be realized without the job guarantee in place.