Monday, April 30, 2018

The Job Guarantee Controversy

With Senator Bernie Sanders in the forefront, some Democratic members of Congress are planning a bill to guarantee jobs that pay $15 per hour, not including mandatory benefits packages, for all Americans. Legislative details have not yet been announced (!), but several sets of plan have been published recently, including on the website of the Sanders Institute, which was founded by Jane O'Meara Sanders, wife of the senator. Here, let's run through a couple of the more prominent plans, and then list on criticisms that have been bubbling up--with a focus on critiques from writers typically identified as being on the political left.

The Sanders Institute has recently blogged about a report called "Public Service Employoment: A Path to Full Employment," by L. Randall Wray, Flavia Dantas, Scott Fullwiler, Pavlina R. Tcherneva, and Stephanie A. Kelton, published in April 2018 by the Levy Economics Institute of Bard College.
"We propose the creation of a Public Service Employment (PSE) program that would offer a job at a living wage to all who are ready and willing to work. This is a “job guarantee” program that provides employment to all who need work by drawing from the pool of the otherwise unemployed during recessions and shrinking as private sector employment recovers. Federally funded but with a decentralized administration, the PSE program would pay $15 per hour for both full- and part-time positions and offer benefits that include health insurance and childcare ..."
The paper presents a model to estimate what the US labor market would have looked like in late 2017 with such a program in place. The estimate is that about 15 million workers would be receiving public service employment jobs  through the program. In addition, the report argues that the buying power of those workers would create an economic boom such that the the number of jobs in the private sector would expand by 4 million.

For comparison, the US economy has about 6.5 million unemployed workers at present. Thus, the forecast involves about 12.5 million adults who are currently "out of the labor force" and no longer looking for jobs who would re-enter the labor force.

Estimated cost to the federal government of the jobs would run $400-$500 billion, but the government would also have higher tax revenues (from more workers) and a savings of perhaps a couple of hundred billion from less spending on anti-poverty programs and Medicaid. The report states: "[T]he PSE program would lower spending by all levels of government, as well as by businesses and households, on a range of costly problems created by unemployment. It is possible that the program would “pay for itself” in terms of savings due to reduced crime, improved health, greater social and economic stability, and larger reductions in Medicaid and EITC expenditures than those assumed in the simulations ..."

The report only sketches how such a plan would be implemented, but the broad is that it would be federally funded and locally administered, with local and state agencies seeking out the job opportunities. The public service employment jobs would be focused on jobs in three areas:

Environment: "The jobs will tackle: soil erosion; flood control; environmental surveys; species monitoring; park maintenance and renewal; removal of invasive species; sustainable agriculture practices to address the “food desert” problem in the United States; support for local fisheries; Community Supported Agriculture (CSAs); community and rooftop gardens; tree planting; fire and other disaster prevention measures; weatherization of homes; and composting."

Community: "Jobs can include: cleaning up vacant properties, reclaiming materials, restoration, and other small infrastructure investments; setting up school gardens, urban farms, co-working spaces, solar arrays, tool libraries, classes and programs, community theaters, and oral history projects; building playgrounds, pedestrian areas, and bike lanes; and organizing carpooling, recycling, reuse, and waste collection programs."

Care for people: "Projects would include elder care, afterschool programs, and special programs for children, new mothers, at-risk youths, veterans, former inmates, and people with disabilities. One advantage of the PSE program is that it also provides job opportunities to people from these groups who are seeking work. In other words, the program gives them agency. For example, the at-risk youths themselves would participate in the execution of the after-school activities that aim to benefit them; veterans can work for and benefit from different veteran outreach programs. Such jobs can include: organizing afterschool activities in schools or local libraries; facilitating extended day programs; shadowing teachers, coaches, hospice workers, and librarians to learn new skills and assist them in their duties; organizing nutrition surveys in schools and health awareness programs for young mothers. The PSE program will also organize urban campuses, co-ops, afterschool programs, adult skill classes, apprenticeships in sustainable agriculture, and all of the above-mentioned community care jobs, training a new generation of urban teachers, artists and artisans, makers, and inventors."

A broadly similar but distinct-in-the-details approach to a federal job guarantee program is laid out by Mark Paul, William Darity, Jr. , and Darrick Hamilton in "The Federal Job Guarantee—A Policy to Achieve Permanent Full Employment, " written for the Center on Budget and Policy Priorities (March 9, 2018). The same set of authors, plus Khaing Zaw, have also written "A Path to Ending Poverty by Way of Ending Unemployment: A Federal Job Guarantee," which appeared in the  February 2018 issue of the Russell Sage Foundation Journal of the Social Sciences (4:3, 44–63).  Here's some information on the idea from the CBBP paper:
"The permanent establishment of a National Investment Employment Corps (NIEC). The NIEC will provide universal job coverage for all adult Americans. ... The federal job guarantee would provide a job at a minimum annual wage of $24,600 for full-time workers (poverty line for a family of four) and a minimum hourly wage of $11.83. Workers would have the opportunity to advance within the program, rising from the minimum wage in the program to an estimated mean salary of $32,500. The wage would be indexed to the inflation rate to ensure that the purchasing power of enrollees is maintained and the wage will vary to allow for some degree of regional variation. ... To provide a true non-poverty wage and meet the fundamental rights of American citizens, the policy will include health insurance for all full-time workers in the program. The health insurance program should be comparable to that offered to all civil servants and elected federal officials. In addition, the NIEC would offer benefits such as retirement plans, paid family and sick leave, and one week of paid vacation per three months worked. ..." 
"The NIEC can be deployed to cover a wide scope of activities including, but not limited to, the repair, maintenance, and expansion of the nation's infrastructure, housing stock, and public buildings; energy efficiency upgrades to public and private buildings; assistance with ecological restoration and services to reduce the country’s carbon footprint; engagement in community development projects; provision of high-quality preschool and afterschool services; provision of teachers’ aids; provision of high-quality elder care and companionship; rejuvenation of the nation’s defunded postal service; support for the arts; and other activities that shall support the public good."
For January January 2018, the estimated total cost to the federal government of the jobs would be $543 billion, which again could be offset to some extent by lower government payments on existing programs for those with low incomes.

I've described these job guarantee proposals in neutral terms. I do think the US job market needs a genuine shake-up along a number of dimensions, which I'll briefly sketch at the end of this post. I give the authors of such plans full credit for  being willing to attach their names to some big proposals. But ultimately, I'm not not a fan of federal job guarantee schemes. Here are some of the concerns.

If a central government job guarantee is such a great idea, then why wasn't it already done in social democratic countries of Europe long ago? 

When a very large-scale proposal hasn't been used by those who might seem sympathetic to it, it seems wise to be suspicious of its merits. Here's Kevin Drum at Mother Jones magazine:

"This is why even our lefty comrades in social democratic Europe don’t guarantee jobs for everyone. It would cost a fortune; it would massively disrupt the private labor market; it would almost certainly tank productivity; and it’s unlikely in the extreme that the millions of workers in this program could ever be made fully competent at their jobs."
The government managerial problem

The sheer scope of the managerial challenge is breathtaking. Here's a comment from Josh Bivins from the Economic Policy Institute in  "How do our job creation recommendations stack up against a job guarantee?" (April 12, 2018):
"I don’t think we have the public sector managerial capacity right now to oversee the work of 11 million people—who will be coming from varying backgrounds and labor qualifications—and ensure that they will be perceived as undertaking socially useful tasks. This is essentially three times as many people as there are K-12 public school teachers in this country today. These 11 million workers will not have a shared mission (like school teachers) or overwhelmingly have advanced education (again, like teachers). We will need to slot them into a system of management and oversight that has yet to be created or defined (unlike public education, where at least the goals and population to be served are clear enough). Further, if the private sector contracts in a recession, this number could swell within 18 months to 22 million. This would require careful management of a workforce more than 10 times as large as Wal-Mart’s global labor force. Building anything like this much public sector management capacity strikes me as a project that will be years, if not decades, in the making. And attempts to do this all at once will lead inevitably, I think, to stories about how these are disorganized make-work programs and the stigma will follow." 
The job skills mismatch problem

Many jobs in the modern US economy require some level of skill background. For example, construction and buildings are not done by inexperienced workers wielding shovels. The idea that workers will walk in off the street, guaranteed a job, and then sent off to look after the elderly, after-school programs, or pre-schoolers rubs me the wrong way. Bivins puts the point this way: 
"Darity and Hamilton have recently written very convincingly about the need to professionalize the care sector. We couldn’t agree more. But we think it’s precisely this need to make these professionalized, career-building jobs that make them an uneasy fit for a job guarantee. We certainly don’t want child care workers leaving these jobs as soon as demand in the private sector ramps up hiring and offers higher wages. And during times when the private sector contracts, I don’t think we can easily absorb people from a range of professional backgrounds seamlessly into early child care and education jobs. We certainly don’t think we can slide people easily into becoming K-12 teachers during downturns, and professionalizing early childhood care and education means treating this workforce much more like K-12 teachers than they are today. One could argue this is less true for, say, jobs related to physical infrastructure investment, but, I’m not sure I believe it. Most civil construction jobs these days are skilled enough (or dangerous enough or incur enough legal liability) that it’s not obvious to me that lots of people from varying professional backgrounds could just be slotted into them seamlessly during private sector contractions."
The geographical mismatch problem

These federal job guarantee plans do not anticipate that workers will need to relocate to get these jobs: instead, the jobs will need to be created not too far from the existing workers. In large coastal cities, a wage of $15/hour may not seem all that high. But think about a giant swath of the country starting in the upper midwest in parts of Michigan, Ohio, and upstate New York, then spreading down the south and across to the southwest and the Rocky Mountain states. That area includes plenty of rural counties and small-to-medium cities where a wage rate of $15/hour, plus benefits, would be a dramatic shock to the local economy.

In certain concentrated higher-poverty areas, the federal job guarantee will be easily the best job on offer.  Many of the existing local employers in those areas will be unable to match such wages, at least for a substantial share of their workforce. The disruption to the existing private employers from this kind of proposal will not be equally distributed.

The current worker displacement problem

One advantage claimed for these proposals is that it will force the private sector to raise wages and benefits to match the government guaranteed jobs. Some employers may do this. But my guess is that lots of employers would undertake a two-part strategy. The first part would be to figure out how to use training and additional equipment so that it made sense to give some workers a pay raise. The second part would be to fire all the other workers. Advocates of a federal job guarantee may want to consider that in a future of guaranteed jobs, it would have a lot less political weight to protest that an employer is laying people off. It would have a lot less weight to protest that companies have a social responsibility to hire. Such protests lose a lot of their kick if all workers are now guaranteed an alternative job. 

The unanswered unionization question 

It's interesting to me that the proposals above contain almost no mention of union workers. I'm not sure what the rationale is here. One possible hidden assumption is that none of the jobs suggested here will be in competition with any existing or potential unionized jobs. But this interpretation seem naive, and none of these authors fall into that category. Ir's possible that rather than stir up possible opposition from unions, these authors are choosing to lie low on this issue.

Another possible hidden assumption is that workers in the Public Service Employment jobs or the National Investment Employment Corps would be unionized. After all, government employees are now one of the heavily unionized sectors of the US economy, and this plan could thus potentially add millions of workers to their ranks.

The problem of workforce incentives and discipline

The problem with a job "guarantee" is that you can't fire people. Let me stipulate that most of the people who show up for a federal jobs program do have some desire to work. But locally run programs do tend to develop a certain internal momentum. If tough-minded administrators are wiling to commit the time and energy to hold workers accountable, one outcome can emerge. If in some areas the administrators just hand out the check, a different outcome will emerge. Again, the word "guarantee" means that if can make a plausible claim to have showed up at a certain worksite for a certain time, you get paid.

What happens to the existing anti-poverty programs? 

The working assumption in these proposal seems to be that with a federal job guarantee in place, all the existing anti-poverty programs will stay in place--although they won't be needed as much. If there is a federal job guarantee, then there will be enormous political pressure to cut these programs. My suspicion is that what these authors envision as an option to take a federally guaranteed job will vert quickly turn into a legal requirement to take such a job.

The budgetary costs are large and real

The proponents these programs are estimating costs in the hundreds of billions of dollar, and proponents for any plan often have a tendency toward overoptimism. That's a lot. (Let's gently dismiss the bits of rhetoric here and there about how these programs would pay for themselves with other cost savings, as a sort of left-wing supply-side wish-fulfillment.)  Indeed, anyone who was arguing that the US government could not afford the Trump tax cut, which in round numbers was about $100 billion per years, seems to me required by basic intellectual consistency to say that a federal job guarantee is unaffordable, too. (Of course, it would be logically consistent to argue that the Trump tax cut was affordable, but a bad idea for other reasons.)

What's the ideal for how a job market should work? 

A growing and healthy economy will be in a continual process of evolution and adjustment. We want the labor market to be part of that adjustment. We want people to move to continually acquire new skills, which can mostly happen within existing jobs, but sometimes needs to happen between jobs. We want some people to move to new areas, either across their metro area or sometimes to new state.

The government has several important roles to play in this vision of a labor market. At the big-picture macroeconomic level it has some responsibility for using fiscal policy, monetary policy, and financial regulation to reduce the risk of recessions and to soften the blow of recessions when they arise. At a smaller-picture level, it has an important roles to play in providing support for education, worker training, as well as in providing safety net

I think the US government should do considerably more in the US labor market than it does. The US tends to focus on "passive labor market policies," like paying unemployment benefits, while doing much less than it should on "active labor market" policies with a combination of job search assistance training, and subsidized public sector employment. For prior discussions of some of these topics, see these posts (and the reports and articles mentioned in them):

Ultimately, it feels to me as if proposals for a federal job guarantee proposal are a cry of despair, erupting from an exhausted patience. To me, the underlying message is: "Stop being distracted by small-scale arguments and day-to-day political compromises, drop the cautious incrementalism, and pay the money to help those who want to work. Stop quibbling, and just make it happen!" Righteous exasperation always has a rhetorical appeal. But the real world is full of costs and tradeoffs, and if the US political system wants to make some dramatic moves to help US workers, considerably better options than a federal job guarantee are available.