Federal Job-Guarantee Program Might Be a Big Help

(Bloomberg View) -- The other day, New Jersey U.S. Senator Cory Booker proposed a federal program guaranteeing a job for anyone who wants one. It’s an idea that sounds a lot more radical than it is. If properly implemented, a job guarantee -- or something like it -- could be a good way of both fighting recessions and getting more Americans into the workforce in the long term.

Economist Adam Ozimek, writing in Forbes, wasn't a fan of Booker’s plan, calling it “absurd” and “insane”:

Corey (sic) Booker's proposal is clear that [government-provided jobs] should pay $15 an hour with benefits. Another recent proposal suggests [a yearly salary of] $24,600…According to the Census, there are currently 50 million wage and salary workers with annual earnings below $25,000…Is this a joke? The idea here is to nationalize what a quarter of the U.S. labor market and therefore economy? Half of it?

Ozimek’s reaction may prove to be a common one. If so, that’s unfortunate. For several reasons, the idea is far less absurd than he believes.

Booker’s numbers are anything but radical -- assuming a 40-hour workweek for 50 weeks a year, $24,600 a year is equivalent to a wage of $12.30 an hour, which, although considerably higher than the current federal minimum wage of $7.25, is less than the $15 that the senator supports. As a general rule, guaranteed government jobs should always pay minimum wage -- for them to pay more is, effectively, a minimum wage hike, since any workers earning less in the private sector could switch to the government version. As for benefits, McDonald’s offers them, as does Wal-Mart, so it makes sense that government jobs would too.

But Booker’s proposal is merely a start -- any real program would probably have much more regional variation. Employers in rural Kansas simply can’t afford to pay as much as those in downtown Boston, and workers need less to live because rent and other living costs are lower. Thus, it makes sense that government jobs would pay different wages in different places.

It’s also worth noting that even if government-provided jobs did pay slightly more than private-sector jobs at Wal-Mart or McDonald’s in some regions, it wouldn’t represent nationalization of a quarter of the country’s labor market, because those companies would almost certainly raise their wages to compete. There’s a limit to how much companies could raise wages, of course -- but since companies like Wal-Mart and McDonald’s are not currently operating close to a zero profit margin, they have a bit of room.

Finally, a job guarantee wouldn’t have to start out as an iron-clad deal -- it could just begin as a government work program. It’s not such a radical idea -- President Donald Trump’s economic adviser Kevin Hassett has endorsed it at one point. The idea, which is similar to programs implemented under President Franklin Roosevelt during the Great Depression, is attractive for a number of reasons.

First, unlike many welfare programs, a job guarantee actually produces real useful goods and services. Due to government inefficiency, the things created by government jobs -- better roads, nicer buildings, new infrastructure, cleaner public spaces, etc. -- might not be worth quite as much as the money that gets spent on their creation, but they would be worth more than zero.

Second, jobs provide a kind of dignity that traditional welfare programs, or even innovative new ones like universal basic income, probably don't. Third, a government jobs program, would be a very effective tool for fighting the unemployment created by recessions and much cheaper, per job created, than a traditional Keynesian stimulus.

Finally, a government job program could help bring more Americans into the labor force long-term. That might help stanch or even reverse the decline in the U.S. labor force participation rate:

Federal Job-Guarantee Program Might Be a Big Help

Holding a job -- any kind of job -- improves people’s work ethic, by getting them used to daily labor. It helps teach basic skills of the workplace -- how to show up on time, get along with co-workers and follow directions. And it’s a valuable addition to their resume, if and when they decide to look for a higher-paying job.

But it’s important to note that this final benefit is hypothetical. Studies of public-sector jobs programs show that these efforts haven’t been very successful at promoting increased employment in the past -- programs such as job training and subsidies for private-sector employment have been much more successful.

That empirical finding should give advocates of the job-guarantee idea pause. It’s possible that government will offer jobs but that very few people will take them. That would certainly limit the program’s cost, but also make it pretty ineffective as a tool for reducing poverty. It’s also possible that those who do take government jobs will stay there forever instead of moving up the job ladder -- not the worst possible outcome, but not great either.

So the idea of government job provision is less scary than its critics think, and it has many attractive features. But there’s no assurance that it will be a game-changer for poor Americans.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

To contact the author of this story: Noah Smith at nsmith150@bloomberg.net.

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