Navigating the Jobs Crisis: Time for a New ‘New Deal’ Jobs Program
Thursday, 11/12/2009 - 7:15 am by L. Randall Wray | 13 Comments
In the wake of the highest unemployment rate in 25 years, we asked historians, economists and other public thinkers to reflect on the lessons of the New Deal and explore new, big ideas for how to get America back to work. Randall Wray argues that the federal government should ensure a job offer to anyone ready and willing to work.
The latest jobs report shows that the official unemployment took a huge jump to 10.2% –15.7 million jobless workers. If we add to those numbers involuntary part-time workers, plus those who have given up looking for work, the unemployment rate is 17.5%. Even that seriously undercounts those who would be willing to work if decent jobs at decent pay were readily available–a number I put at 25 to 30 million. While there has been some debate about the number of jobs created or saved by the fiscal stimulus package, it is clear that Washington’s effort has fallen far short, and all plausible projections show more job losses to come.
What perplexes me is that we have been here before, and we know how to solve the unemployment problem: create jobs through a new, New Deal-style jobs program.
I am advocating using those same principles, but creating something both broader and permanent: a universal job guarantee available through the thick and thin of the business cycle. The federal government would ensure a job offer to anyone ready and willing to work, at the established program compensation level (including wages and a healthy benefits package). To keep it simple, the program wage could be set at the current federal minimum wage ($7.25 an hour), and then adjusted periodically as that is raised. The usual benefits would be provided, including vacation and sick leave, and contributions to Social Security.
Let’s call this the Job Guarantee (JG) program.
The original New Deal programs included large–scale infrastructure projects with direction coming from Washington. A permanent and universal JG program should be decentralized, with projects created and administered locally–where the workers are, and for the benefit of their communities. The federal government would provide the wages, plus a portion of capital and supervisory expenses (perhaps capped at 25% of total wages paid for each JG project). Local governments and nonprofits would propose projects and cover the rest of the expenses. State unemployment offices would be converted to employment offices, helping to match workers and projects.
Project proposals would be submitted to regional councils and, if approved, would be evaluated by state councils and then by a federal council. Wages and benefits would be paid directly to workers (using Social Security numbers and direct bank deposits) to minimize fraud. Organizations submitting proposals would be prevented from replacing paid workers with JG workers. For-profit business would be excluded, because the temptation to substitute would be too great. At the same time, businesses would be protected from unfair competition because all JG projects would have to demonstrate they’d fulfill unmet public purposes. If at some future date, a for-profit firm decided to provide services that a JG project is performing, the JG project could be phased out. There is neither need nor desire for the JG program to compete with the private for-profit sector.
This brings us to the fundamental principle of the JG program: it is a complement that provides jobs to those who would otherwise be jobless and it provides public services and infrastructure that otherwise would not be supplied. It is important that JG jobs do useful work-so that workers can feel proud of their contributions and to maintain the community’s support. At the same time, JG workers will be gaining useful work experience and training, making them more appealing to other employers. When firms hire, they will recruit from the JG program, offering a slightly higher wage.
There will be two main categories of JG projects-those that are permanent and those that are “off the shelf,” undertaken in recession as the number of JG workers grows. The first will probably consist mostly of public services (care of the aged, playground supervision) while the second could include public infrastructure construction and repair. There is no sharp dividing line, but the point is that between boom and bust the number of employees in the JG programs will probably fluctuate by some 5 million (perhaps 20% of the total). It is important, however, that this fluctuation is not permitted to disrupt provision of services to which the community has become accustomed.
At the same time, the program’s fluctuation allows it to act as an employed “buffer stock”-or “reserve army of the employed”-helping to attenuate the business cycle while maintaining full employment without setting off a wage-price spiral. An economic boom will shrink the size of the JG program; in a recession the program will grow.
Thus, an effort like the Job Guarantee program I am proposing would act as an automatic stabilizer — a feature most would agree is desperately needed in our current rollercoaster economy.
Roosevelt Institute Braintruster L. Randall Wray is a professor of economics and research director of the Center for Full Employment and Price Stability at the University of Missouri–Kansas City.
Is the Admin considering something like this already? I sure hope so.
Also, another tier should be considered for Artists and Writers - a return of the WPA.
Posted by John | November 12th, 2009 at 9:53 am
Great idea, as usual. I would also love to see a permanent Job Guarantee program direct a lot of effort to building up the renewable energy infrastructure we need. Not only will this make our country much more competitive as awareness of climate change starts influencing business decisions on a large scale, it would also allow us to more or less have a new industrial revolution.
I believe that this year, China has become the world leader when it comes to installing, and maybe producing, wind and solar power, plus energy efficiency technologies. And our government is doing very little to encourage America to become the world leader in these technologies.
Posted by Zach P | November 12th, 2009 at 10:05 am
What a great idea, Lets guarantee work for everyone regardless of need. Lets raise wages and and reduce prices for products. actually, lets just follow this plan, it is the embodiment of social justice and general welfare all in one.
“The Job Guarantee (JG) plan will reconcile all conflicts. It will protect the property of the rich and give a greater share to the poor. It will cut down the burden of your taxes and provide you with more government benefits. It will lower prices and raise wages. It will give more freedom to the individual and strengthen the bonds of collective obligations. It will combine the efficiency of free markets with the generosity of a planned economy”
Posted by Russ | November 12th, 2009 at 3:45 pm
If the government has to get involved, again, let them fund the largest, most aggressive expansion of small business in history. Full steam. The blokes capable of creating businesses, with better paying jobs, are out of work sitting reading blogs and spending their savings. Time is running out for them, as it looks now. We need engine drivers that lead to creative economic solutions. Not more government weight that the citizens must dutifully carry. Invest!
Posted by Carl | November 12th, 2009 at 4:14 pm
This is a fantastic idea! Capitalism and compassion need not be mutually exclusive.
Posted by Nellie | November 12th, 2009 at 4:55 pm
Not a good deal for someone laid off from a high paying job.
If someone goes from $30 an hour to minimum wage he’d lose his house much quicker. This plan could greate a permenent underclass of normally productive citizens.
This could ONLY be a good deal for long term unemployed when the normal benefits run out.
Posted by Sanford Calef | November 12th, 2009 at 6:06 pm
Sanford, part of the idea is to use this to replace the current unemployment benefits program.
“State unemployment offices would be converted to employment offices, helping to match workers and projects.”
Posted by Zach P | November 12th, 2009 at 10:25 pm
All: thanks for the comments. Unfortunately I was giving two talks today at different universities on the east coast and thus could not respond; will write more late tomorrow when I return. However, very briefly:
this program is not meant to resolve all labor market problems. Certainly I agree that a JG job is not a good solution for someone who has lost a $30 per hour job; and I would bet that displaced Wall St traders will not be happy earning perhaps $20k annually when they are used to earning $30 million. But the program is a vast improvement for most long term jobless people and as well is a temporary safety net for others. It is better than what we have now. If anyone can convince me that what we have now–unemp comp for a small percent of those who lose jobs plus very stingy welfare handouts for the rest–I will abandon the arguments for JG.
Posted by L. Randall Wray | November 12th, 2009 at 11:32 pm
A few more comments. I guess no one has taken me up on my challenge to argue that what we have now is better than a JG.
1. ON the wage-setting. Please note that I used the current minimum wage to simplify the argument. We will need a serious and public discussion about where to set it. I would prefer a “living wage”. Perhaps that is double the current wage. If so, when we set the wage there, it will become the de facto minimum wage. Employers will need to match it. There will be a one-time jump of wages (and, probably, prices). So that is the implication of setting it higher than the current minimum wage.
2. Here is the simple fact: no capitalist economy has ever operated at anything approaching continuous full employment WITHOUT some program (or combination of programs) that directly created jobs. Often this takes the form of a de facto employer of last resort (the railroads in Italy, the military in the US). There is no larger social and economic waste than unemployment. Even if a JG program creates some inefficiencies, they are miniscule compared with the waste caused by unemployment.
for further reading please go to http://www.cfeps.org and http://www.levy.org; there are many articles on the JG that address issues raised in the comments.
Posted by L. Randall Wray | November 13th, 2009 at 4:06 pm
From my simple research on the internet, I found out that the federal government paid $600 Billion in Welfare benefits in 2009, and $140 Billion in unemployment payments. Combined, this is $740 Billion dollars.
This program, say, if 20 million people are unemployed and are paid $20,000 a year will cost $400 billion annually for wages. As you wrote, if we figure 25% for program costs, that is $500 billion every year.
If I did my math correctly, this is $240 billion in savings a year.
Workers could be pooled in terms of their respective skills (plumbers, carpenters, accountants, teachers, etc.) I am sure there are jobs the government has in the past contracted out, which could be done by these workers, which would even save more money.
I guess the only drawback I can think of is the administrative and bureaucratic hurdle this would be. Perhaps we could slowly implement it, say, over 10 years. We would have to work hard to close loop holes which undoubtedly would arise, but overall I think this is a fabulous idea which should appeal to both conservatives (no more welfare handouts) and liberals (gov spending for jobs). Thanks.
Posted by Bob Gibson | November 13th, 2009 at 4:27 pm
$ 7.25 per hour does not solve my financial problems - it’s been a long time since I asked people if they want fries with that. That’s not a “job guarantee” it’s a prison sentence.
Posted by Rickc | November 17th, 2009 at 7:09 am
Rickc: Prison is involuntary. If you prefer not to work in the JG at the JG wage, you are free to pursue other alternatives.
Three further comments:
1. Please read my comment above about the setting of the wage. The use of the current minimum wage was to simplify the exposition.
2. The JG is not for everyone; and it does not claim to resolve all “labor mkt” problems.
3. Is a JG better than what we have now? I have yet to seen any convincing argument that it is not.
Posted by L. Randall Wray | November 19th, 2009 at 6:04 pm
I’m in favour of some sort of state subsidised work as an alternative to unemployment, but I think JG as set out by Randall Wray above has problems, as follows.
1. If JG labour is engaged in a serious job search for normal employment, it will turn over (on JG schemes) at about the same rate as the unemployed: that is relatively quickly. No business or operation can hope to be efficient if the rapidly turning over section of its workforce amounts to more than a small proportion of the workforce. I.e. if JG schemes are to be more than hopelessly inefficient, they will need similar ratios of permanent skilled labour, capital equipment, and so on, as obtain with normal employers. But in this case, why make a distinction between JG and normal public sector employers?
In defence of JG one could cite Jonathan Kesselman’s paper in the Brookings Institution book “Creating Jobs”. According to this, WPA schemes in New York in the 1930s were about 75% as efficient as normal employers, which sounds good. But this was at a time of catastrophically high unemployment: i.e. when finding skilled and permanent labour is relatively easy, and when the unemployed (plus those on WPA) were turning over relatively slowly.
It will be very different when unemployment is lower.
Problem No 2. Assume JG is set up when unemployment is relatively low (e.g. at or near NAIRU). Where does the skilled labour come from to run JG? You cannot get it from the ranks of the unemployed, first because there are relatively few unemployed skilled people when unemployment is low.
Second, such unemployed skilled people as there are, are needed to provide the regular labour market with a source of skilled permanent labour. The skilled permanent labour running JG cannot quit at a moment’s notice for regular skilled work, otherwise JG becomes hopelessly inefficient.
Thus the skilled permanent labour needed to run JG has to be withdrawn from the regular “already employed” workforce. Put another way, setting up JG involves destroying or degrading normal regular firms, employers, operations, etc. Thus does setting up JG when unemployment is low result in any increase in GDP?
Much the same goes for the equipment and materials needed for JG schemes: this cannot just be ordered up from the existing private sector suppliers because at NAIRU these firms are already working at or near capacity.
Solutions to these problems are in papers I’ve already published, but there is a more readable version out soon. I’ll let Randall Wray know as soon as it is out.
Posted by Ralph Musgrave | January 3rd, 2010 at 2:09 pm