Guest: Government jobs for everyone?
Modern Monetary Theory (MMT) offers unconventional policy recommendations based on US monetary sovereignty. MMT supporters also advocate government-guaranteed jobs that pay a living wage for all Americans. What would be the consequences of such a guarantee?
The public service employment program detailed in a 2018 Levy Economics Institute paper would be funded by Washington and administered by the states. It would offer full-time and part-time jobs paid $ 15 an hour plus benefits. Program expenses would be mandatory, like other eligibility programs. The jobs would “provide public services to community nonprofit organizations, public schools, and state and local governments.”
The program could serve three distinct purposes. The first is to stabilize aggregate demand during an economic downturn. The second is to institute work assistance instead of cash assistance. The third is to establish a “living wage” for all Americans.
When the economy goes into recession, companies lay off some workers and cut the wages of others. Reducing spending by these households produces second (and third) round effects: landlords, for example, reduce their spending after not receiving rent. Many economists support macroeconomic stabilization.
Stabilization works much better when it’s automatic. Discretionary stabilization spending, like the American Recovery and Reinvestment Act of 2009, can take months to get enacted. Dismissed workers can immediately start a job guaranteed by the government.
Today the unemployed receive cash assistance. While I am not advocating for government work jobs, there are two advantages to work relief over cash assistance. First, job demands effectively control fraud, as the social reforms of the 1990s revealed. People who worked on welfare rolls never made it to compulsory vocational training.
The reduction of work also deprives beneficiaries of leisure time to stay at home. People will compare the full value of their options. Suppose a person values the freedom of not working at $ 30,000 a year. If they also receive $ 10,000, only a job of $ 20 an hour is the total value of the cash assistance.
The MMT jobs program also implements a living wage offering a “fair” level of pay. The economy shows how workers in a competitive labor market receive the value they create for businesses. The “problem” of low wages is then the insufficiency of professional skills.
The living wage is redistribution disguised as work. Market wages and salaries are not charity; the prices that customers voluntarily pay for goods and services cover the wages of workers. Market-based wages come entirely from voluntary payments, and workers earn their wages by helping to produce goods and services.
Guaranteed jobs effectively set a minimum wage because few Americans will work for companies with lower pay (wages and benefits). Government jobs would be much more effective in helping low-wage workers, as a minimum wage ends up excluding a lot from the labor market.
Government jobs paying $ 15 an hour plus fringe benefits would likely cost $ 40,000 per job per year. MMT supporters predict that 15 million government jobs would be needed even when the economy is strong. MMT may advocate such a fiscal program because, in its view, monetary sovereignty makes federal spending free in most circumstances.
The biggest potential problem with guaranteed employment, even at lower wages, is whether people will have to work. What exactly is a “guaranteed job” by the government? The term employment suggests that a person must work satisfactorily or be made redundant. The guarantee suggests that anyone made redundant should then be assigned another position.
The government has guaranteed that absent jobs will blow up the labor market. If you had a “job” paying $ 30,000 plus benefits that did not require work, how much would you need to be paid to take a real job? No-show jobs guaranteed at $ 15 an hour would effectively be a minimum wage of $ 30 or $ 40 an hour.
The United States is prosperous because we produce the goods and services that people want in large quantities. Yet production requires real labor, not government manufacturing jobs. By diverting millions of productive jobs from the private sector, MMT’s job guarantee seems to guarantee America’s impoverishment.
Daniel Sutter is Charles G. Koch Professor of Economics at the Manuel H. Johnson Center for Political Economy at the University of Troy and host of Econversations on TrojanVision. The opinions expressed in this column are those of the author and do not necessarily reflect the views of the University of Troy.