A Federal Job Guarantee Is Asking for Trouble

(Bloomberg Opinion) -- I was once very supportive of the idea of a federal job guarantee, but I’ve changed my mind. Although the economics of the idea are sound, the implementation of the program matters crucially. And it’s becoming clearer that the politics surrounding the job guarantee would lead to significant problems.

The basic idea of having the federal government act as the country’s employer of last resort is a good one. Although the economy occasionally puts the entire labor force to work, regular recessions mean that there are usually lots of people who want to find jobs but can’t. This can be seen by looking at a broad measure of unemployment:

A Federal Job Guarantee Is Asking for Trouble

The wasted labor of these unemployed and underemployed people represents a real resource that could be put to work for the economy. Even if government jobs fixing sidewalks, cleaning public spaces and making art were only marginally productive, that would still be better than having people sit at home playing video games as their skills and work ethic steadily deteriorate.

 During the Great Depression, the New Deal had success with a raft of programs designed to give jobs to the unemployed -- the Works Progress Administration, the Civilian Conservation Corps and the Public Works Administration. Furthermore, there’s a good chance that a job guarantee would provide people with more dignity than programs that just give people cash. As long as the jobs weren’t obviously pure make-work, they could allow people to feel more valuable to society.

But there’s a very good chance that the politics of the modern day would turn a job guarantee into something very different from the New Deal -- and make it much less beneficial for the economy.  

First, there’s the question of whether people could be fired from the new program. It’s easy to imagine good reasons to fire someone from a government job -- starting fights, for example, engaging in criminal activities or simply refusing to work. Even if a job guarantee allowed workers to be fired for egregious offenses, there would doubtless be intense public scrutiny of firing decisions, especially on social media. That would put immense pressure on the administrators of the federal jobs program to avoid firing even those who deserved to be fired.

The likely results would be a drop in productivity as some people realized they didn’t have to work to collect paychecks, increased resentment among those who felt morally obligated to put in a hard day’s labor, and disruption of the workplace due to toleration of disruptive or criminal behavior that would never be permitted at private companies.

Even more troubling, there’s the possibility that the guaranteed federal jobs could cannibalize the private sector and make the economy less productive. The New Deal jobs programs were undertaken at a time when the economy had a huge amount of unemployment, and there was little chance that workers with private sector jobs would jump ship. But in the absence of very high unemployment like that of the Great Depression, a job guarantee will compete with private companies.

And the job guarantee would often win that competition. Modern proposals would require that the federally guaranteed jobs be good jobs, with good pay and benefits. For example, here is the relevant text from the Green New Deal resolution recently introduced by Representative Alexandria Ocasio-Cortez:

guaranteeing a job with a family-sustaining wage, adequate family and medical leave, paid vacations, and retirement security to all people of the United States

This sounds better than many of today's low-wage jobs.

Competition from these government-sponsored jobs would have an initially healthy result. It would force private companies to raise wages and increase benefits in order to keep up with the government. But as private-sector jobs improved, activists’ notion of what constitutes a good job would increase, and they would call for steadily higher wages and benefits for government work. Eventually this would exceed private companies’ ability to pay, so the job guarantee would come to represent the benchmark in the labor market and make up an ever-larger slice of the economy.

This would reduce productivity, since government jobs would likely generate less real value than private-sector jobs. Economists have found evidence that the beneficiaries of short-term government jobs tend not to go on to find work in the private sector after the programs end, suggesting that guaranteed jobs would be low-productivity work. As activists forced government wages and benefits higher, the private sector would find itself deprived of cooks, janitors, housekeepers, cashiers and the other people who make a modern economy run. In a worst-case scenario, this would be a one-way ratchet to a peculiarly dysfunctional form of communism.

So although a job guarantee could potentially be a good thing, politics seem likely to make it bad. A better idea is to use private-sector employment subsidies to encourage companies to hire more unemployed and underemployed workers -- an approach that the data suggests is much more effective in terms of building long-term worker skills. Additionally, a combination of wage subsidies, minimum wages and increased worker bargaining power could help private-sector workers capture a bigger share of the value they create.

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

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

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