"A Federal Job Guarantee and Sustainability" by Wayne McMillan
Introduction
A Job Guarantee program can only be successful within a larger comprehensive sustainability program. However in a transition to a new steady state economy, it can play a vital pivotal role if its design and implementation is carefully crafted to meet ecological and economic conditions. Using the insights from modern monetary theory a Job Guarantee can be funded without cause for fiscal concerns about inflation.
In fact with carefully structured new sustainable employment pathways, combined with new research/development initiatives, a federal government can lead the way forward into a new sustainable economy. A successful Job Guarantee program could begin the creation of new viable jobs in new industries, which opens up future possibilities for private sector investment in sustainable industries.
What is a Job Guarantee?
A Job Guarantee is a Commonwealth or Federal government initiative to ensure that anyone who is underemployed or unemployed who wants a job can find one. This federally funded program provides full- time or part-time work at a minimum living wage with or without training, with leave and child care provisions. In most design examples, the federal government funds local community job providers who have urgent jobs to be done in a variety of areas. A Job Guarantee is designed to mop up unemployment/ underemployment in times of economic downturn, it’s not designed to replace public/private job creation or compete with already established jobs in those sectors.
“The job guarantee (JG) is a public option for jobs. It is a permanent, federally funded, and locally administered program that supplies voluntary employment opportunities on demand for all who are ready and willing to work at a living wage. While it is first and foremost a jobs program, it has the potential to be transformative by advancing the public purpose and improving working conditions, people’s everyday lives, and the economy as a whole.”1.
The need to satisfy both economic and ecological conditions for system viability
If we are able to satisfy the biophysical conditions for a sustainable economy by stopping all productive activity, how will we meet the conditions for the material reproduction of human life? Our dilemma arises from the need to satisfy both economic and ecological conditions for system viability. Biophysical conditions cannot simply be added to the economic conditions for system viability. The biophysical conditions themselves alter and affect the economic conditions, through limiting and shaping the whole realm of possible choices in the organization of production and distribution. The technology, structure of production and distribution, scale and concentration of productive and consumptive unit are needed to be carefully worked out for material provisioning. Therefore the means by which the ecological basis of the economy is preserved must be compatible with material provisioning. It’s true to say that the economic conditions set minimums on the system, whereas the ecological conditions set maximums.
Any activities should be designed and evaluated according to alternative ‘social’, ‘macro’ or ‘environmental’ efficiency criteria. The 2020 Environmental Performance Index (EPI) provides a data-driven summary of the state of sustainability around the world is one example. Using 32 performance indicators across 11 issue categories, the EPI ranks 180 countries on environmental health and ecosystem vitality.2. An Eco-efficiency indicator is another measure which can determine how efficient economic activity is in regard to the use of natural goods and services. 3 (a). It is intended to be a practical approach for the business sector to contribute to sustainable development: by engaging in activities that respect the carrying capacity of the earth and produce long term profits. It should assist in minimizing the resources used in producing a unit of output and the efficiency of economic activities in generating added value from the use of resources.
It can be applied throughout all operations of a company, reducing the consumption of resources, and the impacts on the natural environment, increasing the product or service value. 3(b). Activities can be designed that use no or fewer natural resources, that do not pollute or pollute less, and they may be located in areas where the least ecological harm may be done. An efficient policy is where marginal abatement costs and marginal damages are equal.
Will traditional macro management of the economy lead to full employment and sustainability?
The conventional approaches to promoting full employment range from orthodox neoclassical/monetarist prescriptions based on the view that so called free markets will tend towards full employment on their own, to mainstream Keynesian and Post Keynesian approaches that emphasize demand management via fiscal and monetary policy. The neoclassicals/monetarists believe that if the labour market is left to function in perfect competition, unimpeded by government regulation or excessive union interference, the market will clear at a given price and there will be little involuntary unemployment. If there is unemployment/underemployment they argue it’s involuntary, because workers won’t accept the given market wage and prefer leisure time to working.
Keynes proved some time ago in his General Theory that involuntary unemployment can occur when there is a lack of aggregate demand for produced goods and services, even when the price of labour is falling. He realised that capitalist economies were inherently unstable and were periodically demand constrained. However Keynesian policies of pump priming or direct general government expenditure will experience supply bottlenecks in production and other structural rigidities that result in further unemployment, inflation, and sluggish growth. Downturns in an economy lead to reserves of unemployed workers, which drives down wages and disciplines workers to accept low paid jobs. In a recession most firms have excess capacity to react quickly to market changes, but it won’t be utilised unless firms have orders in the pipeline for their goods or services. Even if Keynesian pump priming succeeded in creating employment, without a comprehensive sustainability program, the push to achieve full employment could cause environmental destruction, as firms compete to minimise their costs at the expense of choosing sustainable outcomes.
Mainstream approaches use a cost-benefit analysis which looks at optimum levels of pollution and resource depletion. Carbon taxes, emissions trading schemes and pollution permits under these conditions allow further environmental/ecological degradation and depletion that reduces ecological/environmental sustainability. However if we were to use a cost-effectiveness analysis, the ends are determined outside the economic calculus, by a democratic political process informed by scientific information regarding the biophysical limits. Economics can then be utilised as a tool to try to ascertain the most cost-effective means for achieving the given independently determined ends.
Is there an alternative approach to managing the economy maintaining full employment and sustainability?
Modern Monetary Theory provides us with a lens to identify macro-monetary reality and a means to ensure full employment. Since 1996 this theory which developed out of the Post-Keynesian, Institutionalist, and Marxist schools of thought has produced a coherent, consistent framework and a substantial published body of academic work. It has proven that federal or commonwealth governments can always provide employment for anyone willing to work. Its main premise is that any sovereign government that issues its own currency, has a free floating exchange rate and has no debts in a foreign currency isn’t fiscally constrained.
Such a government can always spend before it taxes, as long as there is within its economy, available unutilised resources such as capital, plant, equipment, technology, raw materials and unemployed labour. A Job Guarantee under these circumstances will always be able to be funded.
The federal government pays the Job Guarantee wage–benefits package through deficit spending. The wage is set at a current, decent or socially acceptable standard of living wage rate, which doesn’t compete with the private sector. Unemployment is evidence that the government budget or fiscal deficit is too low. As the government hires the unemployed, the deficit expands. The deficit will stop expanding when there are no longer any workers wanting a job. At that point, the deficit is just the right size to close the gap between the private sector level of activity and full employment. This whole process is called functional finance.
Ecological tax reform including tax credits and subsidies, quotas, and similar incentive-based regulations fits very nicely into the MMT functional finance framework. The distinction made by ecological economists between money as accounting information not subject to the laws of physics, and real resources that are subject to biophysical limits is also consistent with the functional finance perspective. Some of the more “sound finance” conclusions, like “balanced budgets over the business cycle” drawn from this distinction by ecological economists still captured by the strictures of mainstream neoclassical economics, are not in sync with functional finance. Ecological tax reform begins from the premise that the current tax and regulatory structures of most modern nations are not consistent with sustainable practices. Currently, taxes tend to discourage behaviours that should be encouraged and to encourage behaviours that should be discouraged. Taxes on income and employment discourage work and jobs, whereas low taxes and even subsidies for non-renewable and renewable resource extraction tend to encourage unsustainable resource depletion and pollution.
A MMT Job Guarantee program hires “off the bottom” and does not introduce normal inflationary pressures. In fact, it enhances price stability for two main reasons. First, the Job Guarantee is a buffer stock program that operates on a fixed price/floating quantity rule, and second, deficit spending on Job Guarantee employment is always at the right level. Economists usually worry that high levels of employment can introduce wage-price spirals. However the Job Guarantee program contributes to wage stability, which, in turn, promotes price stability.
The idea is to use labour as a buffer stock, and, as is the case with any buffer stock commodity, the program will stabilize that commodity’s price. During recessions, unemployed workers find employment in the Job Guarantee Program at the fixed Job Guarantee wage. Total government spending rises to relieve deflationary pressures. When the economy recovers and nongovernment demand for labour increases, Job Guarantee workers are hired into private sector jobs at a premium over the Job Guarantee wage. At this stage, government spending automatically contracts, reducing any inflationary pressures. In a nutshell, when there is upward pressure on the buffer stock’s price, the commodity is sold and when there are deflationary forces it is bought.
Job Guarantee employment thus acts as a buffer stock that shrinks and expands counter cyclically.
The program operates on a fixed price/floating quantity rule, because the price of the buffer stock (the Job Guarantee wage) is fixed and the quantity of the commodity (Job Guarantee employment) is allowed to float.
The exogenous Job Guarantee wage is internally stable and, since labour is a basic commodity employed directly and indirectly in the production of every other kind of commodity, it serves as a perfect benchmark for all other commodity prices. Therefore the Job Guarantee wage provides a stable anchor for prices in the economy.
How can a Job Guarantee lead to sustainability?
A Job Guarantee isn’t contemporary pro-growth, pro-investment, or pro-profit practice, in fact a Job Guarantee decouples the determination of full employment from any specific level of economic growth. When Job Guarantee jobs are designed with the environment in mind, it’s effectively redefining growth to include environmentally friendly output and employment. A Job Guarantee doesn’t depend on specific levels of growth for its implementation, but it’s a pro-growth policy to the extent that it stabilizes the business cycle, enhances human capital, and improves the investment environment. In addition, its commitment to eco-friendly public service jobs contributes to environmentally sustainable growth.
Functional finance may be combined with ecological tax reform to reshape market incentive structures to promote environmental objectives. Environmental sustainability may be enhanced by the greater flexibility of an economy with a well-managed Jobs Guarantee sector. Additional environmental benefits could be derived from the activities in which Job Guarantee workers are engaged in new sustainable industries. Job Guarantee workers can be employed in a variety of services that benefit the community and their activities are not-for-profit, so they can be designed to promote broader macroeconomic and social goals.
A Green Jobs Corps within a Job Guarantee program has the potential to promote ecological sustainability in a variety of ways. Some examples of major areas where some contributions could be made include:
(a) community based- developing local government community gardens, community cooperatives, restoration/maintenance of local parks and reserves, child care before and after school, numeracy and literacy training, diversional therapy for nursing homes, community contact centres with outreach for the elderly and the sick, community information centres, rural bush regeneration and reclamation
(b) industrial based -recycling efforts including reuse and repair; improved insulation and weather proofing for residential and some commercial structures; carpooling fleets; environmentally appropriate social housing construction, rooftop gardening and urban landscaping; increased use of solar energy in the public infrastructure streetlights, school crossing lights, construction warning signs, billboards; monitoring environmental standards and enforcement; environmental education; and research support
(c) disaster prevention and relief. In cities, municipalities, and nations alike climate change will impact on citizens who will face increasing costs to their economies.
For example, a moderate sea level increase will inundate coastal regions, causing flooding, collapsing infrastructure, and possible forced migration of hundreds of millions of people worldwide. Such large-scale problems will require a timely and comprehensive response. Healthy communities overwhelmed by a migrating population due to climate change will need assistance to help them to adapt.
The recent experience with bushfires in Eastern Australia, for example, has demonstrated that it is the public sector that must be prepared to spring into action. An organized and ready public jobs corps could respond before, during, and after the crisis. Job guarantee workers can assist in bushfire education, fighting fires, reconstructing buildings, houses and other much needed infrastructure in the devastated areas.
1. Tcherneva, P, The Job Guarantee: Design, Jobs, and Implementation, Levy Institute, Working Paper No 902, April 2018, p.2.
3. (a)See Schaltegger, S., Synnestvedt, T., 2002. The link between “green” and economic success: environmental management as the crucial trigger between environmental and economic performance. Journal of Environmental Management 65, 339–346. Bleischwitz, R., 2003. Cognitive and institutional perspectives of eco-efficiency. Ecological Economics 46, 453–467.
(b) United Nations, Economic and Social Commission for Asia and the Pacific, Eco-efficiency Indicators: Measuring Resource-use Efficiency and the Impact of Economic Activities on the Environment, Greening of Economic Growth Series, United Nations publication Copyright© United Nations 2009 ST/ESCAP/2561, pp.1-3.
References
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Wayne McMillan is a retired NSW public servant who worked for over 30 years in the Office of State Revenue (now NSW State Revenue). He also spent 12 months working in the NSW Treasury. He has also worked briefly with the Commonwealth Bank and AGC Finance.
A graduate of Sydney University having studied orthodox economics and political economy, he feels Economics has been in a state of intellectual disarray for over 30 years.
He is the Sydney contact for Rethinking Economics, a member of CASSE NSW, Economic Reform Australia and Modern Money Australia.