Nat O’Connor of Tasc which partnered Smart Taxes recent conference “Lessons from the Crisis” that introduced MMT ideas to Ireland, writes in Social Justice Europe to advocate a Job Guarantee. He usefully scopes what the JG would mean for Ireland. We hope this is the start of a serious debate of this option. The Environmental Pillar is preparing its own survey of potential ‘Green Jobs’ under such a JG scheme. Smart Taxes will post results as soon as available.
Equality and Justice Require Full Employment
27/05/2011 By Nat OConnor
One of the enduring failures of developed economies is the persistence of high levels of unemployment, and other involuntary non-participation in the labour force, even at the best of times. There are strong reasons, in terms of justice and equality, for the introduction of job guarantee schemes. As well as being an ethical imperative, it is also reasonable to assume such schemes would be economically beneficial and affordable.
Official unemployment across the EU was 6.5 per cent in 2009. In addition, a further 4.3 per cent of people aged 15-64 wanted to work, but for one reason or another were not working at the time.[1] This means that one in nine (10.8 per cent) of all working age EU residents wants to work but cannot secure a job.[2]
Moreover, the situation was actually worse before the current economic crisis.[3] In 2005, employment was 63.8 percent of the labour force; less than the 64.5 per cent employed in 2009.[4] Even allowing for ‘frictional’ unemployment as people move between jobs, Europe has an ongoing structural problem, regardless of the business cycle, of insufficient employment.
This creates systematic inequality and injustice.
The one in nine Europeans who are not working are on lower average incomes than those with a job, although employment is by no means a guaranteed exit from poverty. Income inequality is compounded by the fact that poverty or socio-economic status can also be a source of direct discrimination.
Other forms of inequality also come into play. For example, in 2009 there were nine times as many women as men in the EU who wanted to work, but were unable to seek work due to family or personal responsibilities. The uneven geographical distribution of work means that certain European regions have lower levels of employment. In addition, certain groups – like young men or ethnic minorities – often experience higher levels of unemployment.
Employment is a social justice issue because a person’s work status is – in part – the result of forces beyond his or her control. Many born poor or in disadvantaged regions will not have the opportunity of paid employment. This is not a failure of incentives – it is a persistent failure to create sufficient jobs.
A further injustice occurs when people are maligned for their inability to secure employment.
The persistent failure to generate full employment is a structural flaw in the way in which our economies are organised.
There are two competing schools of thought on how to address this failure. Champions of austerity seek reductions in welfare provision and wage-reduction measures, in a race to compete with the labour costs of emerging economies. These policies will destroy many of the achievements of social democracy in protecting workers – and there is little empirical evidence that such measures will increase the number of jobs supplied by the requisite 17 per cent.[5]
A more progressive alternative is to consider new ideas of how the state can bridge the gap left by the market. We need to implement a right to employment, with the state acting as an employer of last resort.
This would not be designed to replace or compete with jobs in the private sector, but would ensure that everyone who wants to work is given the opportunity to engage in meaningful activity. Specifically, the right to employment would entail the state funding a guaranteed job for anyone who wants one, for as long as they want it. This job would be paid at the national minimum wage or equivalent. Although this would not eliminate poverty, it would improve the situation of the one in nine Europeans who currently cannot obtain employment.
In the context of the EU’s free movement of workers, such a job guarantee might be most appropriately implemented on a pan-European basis – thus also helping redress regional disparities.
Employment strengthens equality. If everyone who wants work had a job, they would benefit from higher self-esteem, less social discrimination in society and be less likely to suffer mental ill health. Crime and anti-social behaviour would decrease.
Employers would benefit from a pool of people who are demonstrably willing and able to work, and who have developed their knowledge and skills through on-the-job training.
Arguments for guaranteed employment are often embroiled in disputes about economic theory, and whether full employment is a theoretical possibility. However, before addressing that question, we can outline the feasibility of the state acting as an employer of last resort in a way that is compatible with our market economies.
Firstly, we have to quantify the scale of the task. Across Europe, this means increasing the supply of jobs by 17 per cent (c. 33 million), but the percentage required will vary from region to region.
For example, in Ireland we had 14.6 per cent unemployment at the end of 2010 (c. 300,000 people) plus approximately 115,000 who were not officially unemployed but want to work.[6] This means we need to create 415,000 jobs in Ireland, an increase in employment of 22.3 per cent.
Secondly, we have to provide meaningful activity – not ‘fake’ jobs. One solution is to harness the creativity and experience of the not-for-profit sector of charities and community organisations to identify socially-useful activities.
For example, in Ireland there are at least 8,500 not-for-profit companies operating for the public benefit. If each, in co-operation with local authorities and other public bodies, could suggest meaningful activity for an average of 50 people that would create 425,000 jobs – always ensuring that the principle of additionality is strictly adhered to and existing jobs are not replaced. This is not implausible, especially as some labour-intensive work, such as environmental improvements or care of older people, would require tens of thousands of people nationally; and the introduction of the job guarantee would be likely to encourage the formation of hundreds of new not-for-profit bodies. Sceptics should be reminded that the job guarantee is not proposed as a panacea; even if 20 per cent of the required jobs could be created in this way (ten per non-profit organisation) that would be a major step towards full employment.
Thirdly, we must estimate the cost of such a programme. It is possible to calculate a nominal cost for the state to employ, at a minimal wage, everyone who is currently unemployed or desires works. What is a reasonable minimal wage varies greatly across EU member states, but can be calculated on a country-by-country basis.
For example, for Ireland to pay 415,000 people for a 35-hour week at Ireland’s minimum wage would cost circa four per cent of GDP (€6.5 billion). Adding an estimated 50 per cent to cover administration, supervision and materials, this cost would increase to circa six per cent of GDP.[7] These costs can be compared with expenditure on social insurance unemployment benefits and unemployment assistance, which are estimated to cost 2.2 per cent of GDP in 2011 (€ 3.7 billion), out of a total social protection budget, including social insurance, of 13.7 per cent of GDP (€22.4 billion). It is likely that further savings in social protection and labour activation expenditure would result from moving people from welfare to guaranteed employment. Moreover, with the added benefits of improved social outcomes, there are likely to be savings made across other areas of public expenditure, such as health or justice, which would counter-balance the cost. At the very least, what is being proposed is likely to be feasible within existing resources. Affordability is likely to be similar in other member states.
The unjust and unequal alternative is to allow millions of people to remain unemployed.
As discussed at the outset, the failure of our economies to generate full employment suggests – at the very least – that we revisit alternative economic models.
One for consideration has been advanced by Prof. Randall Wray of the University of Missouri-Kansas City. Wray’s suggestion is that a job guarantee by states can be funded through increasing the money supply. That is, central banks credit sovereign governments with sufficient resources to fund the programmes. Because only minimal wage jobs are being created, there is little risk of price inflation. On the contrary, Wray argues that the creation of an effective price floor for labour would increase price stability.[8]
Arguments for and against monetary expansion to fund government policies are not new. Even if this particular economic analysis is found to be faulty in some respect, the logic of the state acting as employer of last resort stands on its own merits, as described above. What modern Keynesian analysis, such as that advanced by Wray or Jan A Kregal,[9] may provide are alternative ways of funding such a scheme. In the EU, this would involve using the European Central Bank to expand the money supply and credit national governments to fund such a scheme. One of the flaws of the ECB is that it does not have responsibility to foster full employment, in contrast with the US Federal Reserve, one of whose core responsibilities is “conducting the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices.”[10]
A job guarantee scheme such as outlined above is not proposed as a solution to all problems. It will not be suitable for all people who are unemployed, or even replace all other existing labour activation programmes. However, it is a credible option and suggests that, by thinking outside the intellectual framework that delivered the crisis in the first place, we can find plausible solutions to not only the crisis, but also to the problems of structural unemployment. We can eliminate the inequality and injustice of persistent lack of employment opportunities that will otherwise impair the lives of one in nine Europeans.
[1] Eurostat Labour Force Survey ‘Statistics in focus’ 57/2010
[2] Eurostat Labour Force Survey ‘Statistics in focus’ 57/2010
[3] Eurostat Labour Force Survey ‘Statistics in focus’ 18/2006 and 57/2010
[4] Eurostat Labour Force Survey ‘Statistics in focus’ 18/2006 and 57/2010
[5] That is to provide jobs for the 10.8 per cent wanting to work, in addition to the 64.5 per cent already employed, will require an increase of 17 per cent in the number of jobs (2009 figures).
[6] Source: Eurostat ‘Inactive population by sex, age groups and willingness to work (1000)’
[7] Ireland’s GDP = €164 billion (2010, preliminary figure); Unemployment = 299,000 (Qtr 4, 2010); Minimum wage = €8.65 per hour. (Source: Central Statistics Office, www.cso.ie). Social Protection and Social Insurance expenditure = €22.4 billion (2011, estimate); Jobseekers Allowance and Jobseekers Benefit = €3.7 billion (2011, estimate) (Source: Department of Finance, Revised Estimates 2011, www.finance.gov.ie).
[8] Wray, L. Randall (1998) Understanding Modern Money: The Key to Full Employment and Price Stability. Edward Elgar.
[9] Kregal, Jan A (1998) ‘Price Stability and Full Employment as Complements in a New Europe’, paper presented at The Fifth Post Keynesian Workshop, Knoxville, Tennessee, 25 June-1 July
[10] http://www.federalreserve.gov/faqs/about_12594.htm (my emphasis)
mer O’Siochru is a qualified architect and valuation surveyor. She was a founder of Feasta and served on its executive committee for many years. She is director of EOS Future Design which designs and develops sustainable systems and settlements. She also manages the Feasta-led Smart Tax Network which is funded by the Department of the Environment, Heritage and Local Government to develop tax policies in areas related to the environment. She lives in Dublin.
