PAVLINA R. TCHERNEVA Franklin and Marshall College, L. RANDALL WRAY University of Missouri Kansas City,

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1 PAVLINA R. TCHERNEVA Franklin and Marshall College, L. RANDALL WRAY University of Missouri Kansas City, Fiscal Sustainability Teach-In Conference, Washington, D.C. April 28, 2010

Causes of Unemployment Goals of a Sovereign Government Costs of Unemployment Lessons from the New Deal Commitment to Employment Abandoned Features of

2 Causes of Unemployment Goals of a Sovereign Government Costs of Unemployment Lessons from the New Deal Commitment to Employment Abandoned Features of Responsible Fiscal Policy Features of a Job Guarantee Program The Job Guarantee in Practice Full Employment and Growth Full Employment versus Nonsense

3 Short Run: Global Financial Crisis and Economic Downturn Long Run: Demand Gaps, Structural Unemployment, Jobless Growth

4 9 million jobs lost (already) All projections show official unemployment remaining high for years; unofficial unemployment at least twice as high approaching Great Depression levels Lost opportunities: new entrants, involuntary parttime, career advancement Need 20+ million jobs Washington focused on Wall St, not Main St Confusion about financing and affordability are now the greatest barriers to sensible policy

Unemployment as a policy tool Unemployment buffer stocks (NAIRU approach) Reserve army of the unemployed Structural Unemployment ILO: young people have more difficulties in labour markets than

5 Unemployment as a policy tool Unemployment buffer stocks (NAIRU approach) Reserve army of the unemployed Structural Unemployment ILO: young people have more difficulties in labour markets than adults; women do not get the same opportunities as men, the lack of decent work is still high; and the potential a population has to offer is not always used because of a lack of human capital development or a mismatch between the supply and the demand side in labour markets.

6 ILO 2007: 200 million unemployed in spite of strong growth. Every region has to face major labour market challenges Growth fuels productivity growth (up 26% in past decade) but doesn t create many new jobs (up only 16.6%). David Ricardo s machine problem

7 A sovereign government has the fiscal capacity to ensure continuous full use of domestic resources. Economic growth per se is not enough. Full employment and price stability should be the primary policy goals.

8 Labor underutilisation (unemployment + underemployment) creates huge net income losses. The social costs are even larger: poverty, social isolation, crime regional deterioration health issues, family breakdown, school dropouts social, political and economic instability promotes violence, ethnic hostility, even terrorism loss of human capital hysteresis: long term unemployed become unemployable

9 Full employment provides: Production of goods and services On-the-job training and skill development poverty alleviation community building, social networking intergenerational stability Social, political, and economic stability Multipliers: Positive feedbacks and reinforcing dynamics create a virtuous cycle of socioeconomic benefits. The total impact exceeds the sum of the individual benefits.

10 Two reforms: Finance downsized and constrained Direct job creation: 13 million jobs (WPA 8M, CCC 2.75M, NYA 2+M, etc) Unfortunately, the first was gradually eroded; the second abandoned in the Postwar boom (belief: growth is enough) Postwar Golden Age of Capitalism No financial crises Highest sustained growth Employment Act of 1946; Low unemployment for most groups Creation of US middle class, sustained by jobs and decent wages Minsky: stability is destabilizing

11 Kennedy-Johnson War on Poverty Rediscovered poverty in 1962 (M. Harrington) Emphasized supply side and welfare policies Minsky: it will fail Demoralizing: reform yourself first No significant jobs component; 1 minimum wage job per family would eliminate 2/3 of poverty Americans will not support generous welfare Though poverty fell (till 73), not due to WOP: Civil rights movement Social Security

12 Rise of free market ideology Reagan: Welfare Queens ; Government is the problem ; Trickle-down Clinton: End welfare as we know it, Deserving Poor Bush: Ownership society, Compassionate conservatism Democrats become fiscally responsible Clinton/Rubin budget surpluses fiscal tightening Rise of Predator State, Financialization, Neoconservatism or Neoliberalism, Money Manager Capitalism Bubbleonia, rising debt, inequality, crises, disappearing middle class

13 Features of Responsible Fiscal Policy Does not use unemployment and human livelihoods as means to check inflation Measured by its employment-creation effects Plugs labor demand gap, not output/gdp gap Does so directly (more bang for the buck) Employment stabilization via direct job creation--a permanent feature of fiscal policy Guarantees full employment in the short and long run/not depression economics

14 There is an alternative to NAIRU unemployment buffer stock to maintain price stability: an employment buffer stock program. This is called the Job Guarantee (JG). It is an unconditional offer of a public job at the minimum wage to anyone who wants to work. Maintains continuous full employment

15 Bubble up policy, not trickle down economics hires off the bottom Operates with loose labor markets via a buffer-stock mechanism Addresses cyclical, structural, seasonal, unemployment, new entrants in labor market Creates an employable pool of labor maintains and enhances human capital Targets distressed areas; takes the contract to the worker; takes workers as they are Employees perform valuable work

16 Features of the Job Guarantee It is voluntary Spending is always at the right level It has a transformative impact on: WORKERS: employment vs. unemployment FIRMS: Replaces the unemployed with an employable pool of labor, reduces training costs COMMUNITIES: urban renewal, fills social services gap THE ECONOMY: Sets a floor to wages and benefits, formalizes the gray economy, deals with poverty It is permanent guarantees full employment: more demand or better distributed demand

17 The fixed Job Guarantee wage provides an in-built inflation control mechanism. Full employment and price stability promotes currency stability It is a high quality anchor maintains an effective labour supply at minimum wage. It is not the panacea for all labour market problems. But it is better than the unemployment buffer stock option.

18 The Job Guarantee in Practice: Argentina s s Plan Jefes Voluntary o o o 4hrs of community work for unemployed heads of household at the minimum hourly wage 2 million jobs in less than a year; 13% of the labor force showed up for work Considerable impact on the poor, esp. women and minorities Countercyclical o o o o Stabilized output, prices, and currency cost <1% of GDP, launched 8-12% GDP/yr growth government budget moved into surplus many program participants transitioned into private sector jobs

19 The Job Guarantee in Practice: Argentina s s Plan Jefes Transformative impact on: WORKERS: Jefes reduced unemployment/poverty rapidly; moved workers to formal sector; empowered, provided on-the-job-training, education, a new form of micro-finance EMPLOYERS: benefited from strong demand and multiplier effect, employable workers, database of skill and experience of workers from which to choose, private-public partnerships As economy recovered, firms hired from pool ECONOMY: social, political and economic stability; formalized informal sector, wage floor, useful output-some marketed, some freely distributed to participants and neighbors COMMUNITIES: urban renewal, participatory democracy (federally funded, locally administered); Projects filled a big gap in social services

20 Landfill cleanup, recycling, daycare/elderly care, public lunchrooms, libraries, irrigation, reforestation, small and large infrastructure projects, mom-and-pop shops, subsistence farming, health promotion programs, GED completion, literacy training, etc.

21 Growth by itself is not an appropriate goal It does not create enough jobs It can promote rising inequality It can harm environment Full Employment through JG promotes: Shared prosperity Environmentally sustainable development path Growth with price and currency stability

We can do it We ve done in the past as have other countries It is the right thing to do It s good for the economy and enhances social and economic Justice; the right to a job as a basic human right

22 We can do it We ve done in the past as have other countries It is the right thing to do It s good for the economy and enhances social and economic Justice; the right to a job as a basic human right Obama needs a Rooseveltian Resolve: Priming the pump is a gamble Audacious goals: 3-4million jobs? 5% unemployment? The wage bill for 20million jobs: $350-$500billion Deficit in convictions and cleverness, not in ability or funding...the liberty of a democracy is not safe if its business system does not provide employment and produce and distribute goods in such a way as to sustain an acceptable standard of living. -FDR

The Conservative belief that there is some

employed, that it is 'rash' to employ men,

thing which no man could believe who had not

23 The Conservative belief that there is some law of nature which prevents men from being employed, that it is 'rash' to employ men, and that it is financially 'sound' to maintain a tenth of the population in idleness is crazily improbable--the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years. (J. M. Keynes)

SHORT-TERM EMPLOYMENT AND LABOUR MARKET OUTLOOK AND KEY CHALLENGES IN G20 COUNTRIES. A statistical update by ILO and OECD 1

SHORT-TERM EMPLOYMENT AND LABOUR MARKET OUTLOOK AND KEY CHALLENGES IN G2 COUNTRIES Introduction A statistical update by ILO and OECD 1 The objective of this note is two-fold: i) to review the most recent