In the 1960’s, a period of rapid economic growth, falling unemployment, and accelerating inflation, liberals and progressive set out to make improvements in the social safety net, installing some lasting and well known programs such as Medicare and Medicaid. Various other things were achieved in that period, including acts which advanced the causes of environmental protection, transit infrastructure, transportation safety, and urban development, among other things.
One area in which progressives sought to improve the general welfare was with respect to employment, or more specifically the maintenance and fulfillment of full employment. Liberals and progressives utterly failed. While the rate of unemployment reached a relatively low level of 3.4 percent near the end of 1969 (still lower than at any point since), by 1971 the unemployment rate had doubled to just over 6 percent.
Not only this, over the following fifty years since the rate of unemployment has averaged nearly 6.3 percent. The decline in income-measured poverty slowed down to a near complete halt, actually trending higher since the mid-1970’s.
The Great Society had created programs for training and educating the young and unemployed, alongside incentives to hire workers, but to no avail. What was needed was a different kind of program which took into account some basic principles— principles for understanding and explaining persistent unemployment in the capitalist economy.
As economist and author L. Randall Wray explains in his book Why Minsky Matters (Pg. 56), the basic thesis of Keynes’s General Theory is that “entrepreneurs produce whet they expect to sell,” and further that the ‘sum of production decisions’ was inconsistent with full employment in the short run and the long run. “Moreover, this preposition holds even in conditions of perfect competition and flexible wages” (Pg. 57).
This is why, as economist Hyman Minsky wrote in 1965, a necessary weapon in any ‘war on poverty’ is a program of direct job creation; requirement-less and fair-waged employment for every man, woman, and youth willing to work. This contradicts the then-prevailing economic ideas in the government, those of Kennedy and Johnson’s ‘supply-side Keynesian’ Council of Economic Advisors, whose strategies Minsky predicted would be inflationary and fail to achieve full employment and thus effective poverty relief.
The CEA advocated ‘pump-priming’ policies which incentivized and encouraged investment, together with “welfare for those who fall behind.” This amounted to, in Minsky’s view, ‘stop-go’— “government ramping up demand to lower unemployment, then cutting spending and raising taxes to fight the inflation caused by pump priming” (Wray Pg. 36).
In lieu of such programs of tax cuts/spending hikes and tax hikes/spending cuts, Minsky proposed and advocated what he referred to as the employer of last resort, a play on the name often given to the Federal Reserve, lender of last resort. In a slump, capitalist firms lay off workers and either cut wages or slow their increase. In order to stabilize poverty and demand automatically, such workers would pickup employment and a living wage from a government program.
Unlike stimulus from Congress, which comes late, too little, and which relatively inflationary, a program of assured employment would more reliably and efficiently counteract slumps, in large party by being an automatic program. Aside from acting as a kind of parachute for a recessing economy, the job guarantee would act as an effective wage price floor. As Minsky noted, the real minimum wage was zero because employment was not assured.
Minsky and some more recent economists including Wray have estimated both the cost of the program and the effect on poverty if implemented, coming out to a cost of around 1.25 percent of GDP for a two-thirds reduction in poverty.
I personally have estimated that with a minimum wage pegged at 20 percent of regional GDP per hour, the job guarantee program could reduce income-measured poverty by more than three-quarters. Even with more generous wages (20 percent of U.S. GDP per hour in 2019 reached nearly $17), the net program cost assuming such three-quarters decrease in incomes poverty would begin positive, though less than 0.5 percent of GDP, falling to as low as -0.7 percent of GDP after several years as private employers start to pick away from the federal labor pool.
The table above does not take into account any dynamic economic effects, such as those bearing on inflation, GDP, or the level of unemployment, and are roughly based on currently projected economic conditions. U6 is a broad measure of unemployment, FTE (full-time equivalent) is the U6 level of unemployment translated into an equal number of full-time yearly jobs. Nonfractional just means the level of unemployment which is due to individuals simply transitioning from one job to another.
Anyways, here’s a brief explanation for how this program would operate:
The Federal Government would provide to states and localities the funds for hiring at and slightly above the minimum wage, along with an amount equal to (in this case, though it’s somewhat arbitrary) 22 percent of wages for the purpose of purchasing supplies, equipment, and other capital goods. States and localities would be responsible for making use of the labor in a decentralized and democratic fashion, ensuring works are carried out in the local community interest.
Depending on how quickly businesses and workers respond to the job program, the effect of both alleviating poverty and cutting the deficit could be faster. In addition, by reducing the deficit through automatic reductions in transfer payments spending, this reduction in poverty and increase in earned incomes would likely not be inflationary, and might as a matter of fact be on the aggregate deflationary in the long-run.
Whether that’s the case is hard to say, probably it would have to be implemented to know for sure how all of it works out. There are some other factors that are important to note though. Wage growth is tied to the supply and demand for labor, naturally. A job guarantee would create a permanent tight labor market, meaning employers would need to offer competitive compensation and working conditions in order to draw labor from the job guarantee’s labor pool.
Aside from distributional effects which serve to alleviate poverty and aid the unemployed a jobs guarantee serves the broader purpose production and national wealth accumulation by creating a permanent large reservoir of public-service labor, trained and experience for work in our economy, made up of workers who’d otherwise remain idle. During the Great Depression, millions were employed by the WPA, CCC, and a variety of other alphabet programs (as they were called), put to work constructing dams and bridges, schools and public libraries, electrical plants and highways.
This program would encourage the millions of involuntarily idle and unemployed to produce and be self-sufficient. Further, as a consequence of the permanent tight labor market, discrimination and wage stagnation would become a thing of the past. This can be ensured by a minimum wage tied to labor productivity.
And there we have it. Truly ending welfare as we know it, ending involuntary unemployment, effectively alleviating poverty, and stabilizing the unstable economy. Next time progressives gain trifecta control over Washington, D.C, they shouldn’t waste any time delivering a permanent and comprehensive program of assured employment.