Monetary policy has been the dominant strand of macroeconomic policy since the 1970s and remains so within the New Monetary Consensus, yet the macroeconomic performance of developed economies, including USA, UK and Australia, has been inferior to the immediate post-war experience of close to full employment.
The Covid-19 pandemic deprived many workers of their livelihoods, either permanently through job loss or temporarily through lockdown, and threatened the sustainability of thousands of businesses. Governments rapidly recognised that stimulatory fiscal measures were essential as opposed to further interest rate manipulation, to provide households and firms with the means to spend through government transfers.
However there has not been a paradigm shift to fiscal dominance. The OECD and other international institutions argue that high fiscal deficits and growing debt can only continue, while interest rates remain low, yet independent Central Banks through their bond buying programs have kept rates low, not the markets (Mitchell, 2021). Thus, the restoration of genuine full employment, as opposed to the achievement of a NAIRU, is unlikely.
Modern Monetary Theory (MMT), which has received considerable scrutiny in the last decade, including ill-informed motions in the U.S. House of Representatives and Senate, incorporates a Job Guarantee (JG), a full employment macroeconomic stabilisation policy, within its analytical framework. (I should acknowledge that my academic writing over more than 20 years has been informed by MMT principles).
In this persuasive, timely and accessible book by Pavlina Tcherneva, she makes a convincing case for the adoption of the JG in conjunction with a Green New Deal in the USA. Her arguments are equally applicable to other advanced economies, that are currency sovereign, such as the UK and Australia. These countries operate with their own fiat currencies which float on foreign exchange markets and issue little or no foreign currency denominated debt.
Under a JG, any individual of working age can secure an ongoing minimum wage job with all the usual benefits of employment including annual leave. The JG is federally funded but locally administered. The payment of the minimum wage is the means by which rising private sector employment can be accommodated by JG workers shifting into better paid jobs without wage inflation being instigated.
Tcherneva notes how unemployment and casualised work is considered appropriate for macro stabilisation, even though their incidence is uneven across gender and ‘race’ and people with disabilities. Even at a cyclical peak, the level of unemployment exceeds the number of vacancies.
She convincingly argues that, when account is taken of the social and economic costs of unemployment, it is imperative that full employment is restored. She notes that some socioeconomic rights are taken for granted including access to public education and retirement income but not the right to a job. A robust wage floor, and hence the end of wage theft, requires both a statutory minimum wage and the guarantee of employment.
Unemployment tends to rise quickly in a downturn but falls slowly in an upturn. A well-administered JG means that both the economic and social consequences of job loss are mitigated, along with the dangers of workers being scarred by long term unemployment.
Tcherneva cogently argues against a tiered JG, pointing out that securing the living wage floor is the prime objective and that competing for labour with the private sector across the wage spectrum will generate inflation. She also dispels the myth that unemployment is somehow superior to low productivity work.
Finally, she makes the important point that to achieve an inclusive and sustainable macroeconomy requires the implementation of both the Green New Deal and the Job Guarantee.
This brief review cannot do justice to the impressive range of arguments put forward by Tcherneva in favour of the JG, but let me finish with some issues that a second edition(!) could address.
First, many critics would argue that sustained full employment would promote inflation and the intense opposition of the captains of industry. More discussion of the two counter-inflation mechanisms embedded in the JG would be useful. These would be as follows: i) the job readiness of JG workers means that the private sector can readily recruit in an upturn without incurring high costs of training; ii) the buffer employment ratio (the JG share of total employment) can be raised if undesirably high inflation is anticipated via contractionary fiscal policy which should dampen inflationary pressure. Also, the labour market is segmented, so that job security for the low paid is unlikely to increase the bargaining power of the more highly paid. A stable inflation, full employment environment is very good for business in terms of stable demand for goods and services.
Second, a long list of potential paid jobs which meet social, economic and environmental needs is provided in Chapter 5, but it is administratively and politically challenging to identify ones which operate as JG jobs that can be scaled up or down counter-cyclically. Given the desirability of providing local jobs for local residents to reduce commuting, this becomes more challenging (pp. 109-110). Without this focus, JG would be wrongly perceived as a major job creation program rather than a macro stabilisation strategy.
Third, Tcherneva recommends that the US Federal Minimum Wage (FMW) of $7.25 per hour be raised to $15 per hour, but 12 states currently have the same minimum wage of $7.25 per hour and some workers in a further 6 states receive less than the FMW. The States would have to surrender responsibility for setting minimum wages to achieve complete coverage. While many orthodox economists in the USA now accept that modest increases in minimum wages have minimal effects on employment, such a huge increase in the minimum wage is certain to cause huge uncertainty and disruption in the private sector. Thus, the implementation of a JG would be very difficult, given the unknown level of worker displacement from the private sector. Two adjustments – the first to, say, $10 per hour – would be less disruptive. She also suggests that the FMW would be reviewed every few years and increased in lockstep with increases in productivity, but not indexed to inflation (pp. 89-90): which would reduce the wage share of national income. Finally, minimum wages are reviewed and adjusted annually in the UK and Australia with limited, if any impact on employment, which would avoid the larger, but less frequent increases, under Tcherneva’s proposal.
