A Federal Job Guarantee for Everyone? Be Skeptical

(Bloomberg Opinion) -- Two ideas have emerged among the energized socialist wing of the Democratic Party in response to inequality, wage stagnation, poverty and unemployment. One is a federal guarantee of a job, while the other is a pledge for each person to receive a minimum cash payment from the government, an idea known as universal basic income. Socialist candidates such as New York City’s Alexandria Ocasio-Cortez, who is running for the U.S. House of Representatives, have emphasized the job guarantees in their platforms, and Senator Bernie Sanders has endorsed it as well. Meanwhile, basic income remains largely confined to internet discussion circles and the pronouncements of a few tech-industry leaders.

So job guarantees it is. If Democrats take power, and if socialists continue to increase their influence within the Democratic Party, there now seems to be a good chance that the job guarantee, or something like it, will become official policy within the next decade or two.

This could be a good thing, for several reasons. A job guarantee would reduce poverty and inequality, and would function as an automatic stabilizer in recessions. It would offer a sense of dignity to people who believe that work is a measure of their worth. It could raise the productivity of the economy, by preventing people’s job skills from decaying over long periods of unemployment. And since unlike cash transfers government jobs would produce some useful goods and services — fixing infrastructure, cleaning up cities, and taking care of the elderly and disabled — the true cost of the program would be less than the actual outlays. Economists Mark Paul, William Darity Jr. and Darrick Hamilton explain the appeal of a job guarantee in a recent report for the Center on Budget and Policy Priorities.

But the job guarantee also carries major risks, and it would be a mistake to ignore these. It’s never fun to explore the pitfalls of a policy that has great potential to reduce suffering and provide dignity to so many. But this is a necessary task because properly implementing the program requires knowing the ways it might go wrong, and because a backup plan might be needed in case the job guarantee doesn’t work out as expected.

The first potential drawback would be if a job guarantee lowers productivity. If people shift out of productive private-sector jobs into government jobs that generate only half as much real value, the productivity of the nation will go down.

More worrying, a job guarantee could end up hurting the people who take government jobs. If government-provided jobs don’t successfully build the skills and work ethic people need to succeed in the private sector, and if private-sector employers shun workers who have government jobs on their resume, workers could be trapped in government jobs forever (or until the job guarantee gets repealed). If government jobs are a dead end, of course, people may shun them in the first place. But some might switch from private-sector to government jobs out of short-sightedness, not realizing that this would hurt their career.

The worst scenario is if both of these things happen at once. If each time there’s a recession or some local layoffs, government immediately snaps up the unemployed workers, more and more could get trapped in dead-end jobs, sending national productivity lower and lower every year. Eventually this could result in something not unlike a caricature of a communist country, where millions of laborers toil away at useless tasks while the country becomes steadily poorer.

This is a worst-case scenario, of course — these downsides might not materialize, or might have only a minor impact. But empirical evidence gives some reason for caution. In a 2015 meta-analysis, labor economists David Card, Jochen Kluve and Andrea Weber reviewed the evidence from 207 studies covering 857 policies aimed at raising employment levels. All of the policies are from 1980 or later. Out of the total, 76 were public-sector employment programs — not the federal-job guarantee American socialists are now proposing, but the closest thing that actually exists.

Card et al. found that public-sector employment programs have essentially no effect on job levels a year or more after they end. This is in contrast to programs like government-provided job training and subsidies for private-sector employment, which have substantial long-term positive effects. In other words, after their government jobs end, workers tend to be in no better shape than they were before.

That doesn’t mean government jobs are useless; as long as the programs are running, the workers are getting paid. But it does suggest that those workers aren’t learning to do the kind of things that the private sector views as productive and useful enough to warrant hiring. That could indicate either that the government jobs themselves are low-productivity tasks, or that they don’t improve workers’ skills and resumes — or both.

So how should American proponents of job guarantees react to this finding? I see three important ways. First, it should start out modestly, and explore the set of things that government workers can be usefully hired to do, and then be scaled up if it’s successful. Second, there should be a lot of effort devoted to finding productive tasks for workers to do, instead of having them dig ditches and fill them up again (which would also not be very conducive to personal dignity). And finally, job-guarantee proponents should be ready with a Plan B if government jobs turn out to have negative effects on workers and the economy. Subsidies to private-sector employers, coupled with government-provided training programs, are an obvious fall-back candidate.

A job guarantee is a good idea, and it’s worth trying. But go slow, and do it right, or risk a backlash should it fail to perform as advertised.

©2018 Bloomberg L.P.

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