The Trouble with Carney’s J.G Analysis

Yesterday John Carney posted an article titled The Trouble with a Job Guarantee. After reading the title I knew a response was needed. Rather than go on about how great the J.G is I will simply question some of the basic premises upon which Mr Carney makes his argument.

The Trouble with a Job Guarantee

There is no trouble.

In other words, the core problem of most unemployment is a distribution problem. The distribution of labor did not match the distribution of demand.

This is a self-evident fact. The problem with this statement is that it leaves out one basic principle of which should also be a self-evident economics fact:

  1. People are born into economies where the ownership of all controllable resources has already been determined.
  2. People must in someway interact via employment with the ownership structure, in order to obtain enough resources to survive.
  3. If they don’t obtain enough resources they die.

So I can agree that unemployment is a result of a mismatch between demand and supply. However, who’s responsibility is it then to ensure that the unemployed receive enough to survive? Is it simply the ownership structure’s fault for not providing enough jobs? Or is it the workers fault for not realizing that they didn’t have the appropriate skill-set that is needed by the ownership-structure?? The correct answer is not so simple, but the ownership-structure must provide ample opportunity. The amount of opportunity would be an amount similar to the natural opportunities that would be available if the ownership-structure had not existed. Since the J.G is offering employment at the minimum wage, then I think that the J.G goes some way in meeting this requirement.

What is typically required to actually decrease unemployment is relocation and retraining of workers, something which many of the temporary measures intended to ameliorate the effects of unemployment actually interfere with. ……….. But is the problem of mismatch really solved? I do not think it is.

Well the J.G does partly solve this situation by taking long-term unemployed or nearly long-term unemployed and keeping them in the routine of employment. There is plenty of literature showing the detrimental effects of long-term unemployment. Some aspects of worker-mobility must be handled by the State. If the private-sector tries to handle such problems, for example education and health, then this will cause a Tragedy of the Commons or Volunteer’s dilemma .

The jobs created under the Job Guarantee are specifically not supposed to compete with the private sector, which means that they supply goods and services for which there is not a market demand. The total output of the economy might increase, but much of this output is non-productive—that is, it doesn’t actually improve our lives.

John, firstly I highlighted market for a good reason. Since you appear to becoming aware of MMT concepts I think that it is really important to re-access exactly what that word means. If the State is the source of State issued money, then the State starts to dictate the terms of how the Market operates. Since the market is formed of people, people who vote for representatives of the State, then what exactly defines the distinction between the electorate and the market?? The better the State represents the wishes of the electorate, then the more market-like the State becomes. Consequently, if the decisions of the State proportionally represent the interests of the electorate, then there is no distinction between the Market and the Electorate. Therefore, under such circumstances the J.G would result in useful output. If the State doesn’t currently represent the proportional interests of the electorate, then that must also be fixed. Therefore, your argument has been reduced to relationship between the usefulness of J.G output and how well the State’s decisions proportionally represent the electorate.

The problem is that there is no reason at all to think that people laboring in Job Guarantee positions will supply meaningful improvements rather than holes in the ground.

This is missing the point of the J.G. First the ownership-structure must in someway provide opportunities for people to survive, as I have outlined prior. Secondly, although workers may not be producing anything immediately productive, they are Job-Ready. Rather than having people in unemployment, people working in the J.G remain in the routine of work. This makes it significantly easier for the Private Sector to increase output once demand picks-up. Rather than employing the unemployed and suffering the associated costs, firms can simply employ job-ready worker and immediately increase production.

But if they are creating jobs that put more money into people’s hands without creating more supply of that which is actually demanded, then prices are likely to increase.  Businesses may be able soak up some of the extra-demand by increasing their output—but this has limits, especially if there is a labor-demand mismatch. The productivity of existing workers can only be increased so far.

John, your right. Given an amount of employed workers in the private sector, they can only produce so much. And when we start giving these J.G workers a wage, sooner or later this limit will be reached. The private-sector will be operating at maximum output just at the point before inflation kicks in. There will be all this money floating around from the J.G workers, money purchasing all kinds of goods & services, businesses receiving, spending, and profiting. They will be profiting so much that they will start to employ some J.G workers to increase production and thus keeping a lid on inflation and keeping prices stable.

The MMTers argue that the Job Guarantee positions will be so low-paying that workers will not be incentivized to stay in them. But I’m not sure this is correct. Do we really understand how workers will react to a job they cannot lose? Will there be some people who prefer to work just enough to get by, showing up at the Job Guarantee office every now and then, working for a few weeks, then going back to their personal hobbies?

Yes John we do know that people seek better wages, otherwise everyone would be on unemployment benefits. Even so go and read the work done by Pavlina.

Shaun Hingston

Advertisements

11 comments

  1. Ralph Musgrave

    When Carney says JG people just produce “holes in the ground” that is going too far, I agree. On the other hand there are problems with concentrating JG work in the public sector, as follows.

    In your paragraph starting “John, firstly I highlighted….” you make the valid point that public sector output must be assumed to be just as productive as private sector, because the electorate has voted for public sector output. To put that in economics jargon, we must assume, prior to introducing JG, that the marginal product of labour in both private and public sector is the same.

    But if one then goes and crams lots of relatively unskilled people into the public sector, their marginal product will decline to a serious low level: perhaps zero. In addition to the sheer quantity of people involve, there is the problem that the public sector is not as good at employment the less skilled than the private sector. And the problem is even worse if JG people are allocated to specially set up projects (a la WPA) rather than being allocated to EXISTING public sector employers, like local government, schools, etc.

    Re your claim that JG people are more job ready than the unemployed,that is debatable. The evidence here is mixed, but this study found that people’s employability did NOT deteriorate as a result of long term unemployment:

    http://www.econ.cam.ac.uk/cjeconf/delegates/webster.pdf

    And this study in Switzerland found that peoples employability actually DETERIORATED as a result of doing JG type work. (In contrast, their employability improved when doing private sector subsidised temporary jobs):

    http://faculty.smu.edu/millimet/classes/eco7377/papers/gerfin%20lechner.pdf

    Next, you claim that the money paid to JG workers will be inflationary. (“There will be all this money floating around from the J.G workers…..”). I’ve got doubts about that because most JG advocates see JG employees getting about the same as they get by way of unemployment benefits. I suggest the REAL inflationary effect comes from the fact that to get a JG scheme going, permanent skilled labour, capital equipment and materials have to ordered up from the regular economy, which as you rightly say will probably be at capacity.

    Finally, you might be interested in a paper I wrote on this topic. See:

    http://mpra.ub.uni-muenchen.de/19094/

    • lowerleftlimit

      But if one then goes and crams lots of relatively unskilled people into the public sector, their marginal product will decline to a serious low level: perhaps zero. In addition to the sheer quantity of people involve, there is the problem that the public sector is not as good at employment the less skilled than the private sector. And the problem is even worse if JG people are allocated to specially set up projects (a la WPA) rather than being allocated to EXISTING public sector employers, like local government, schools, etc.

      But I don’t think we are trying to cram a lot of people into J.G employment. This problem is solved by ensuring that there is reasonable vertical-spread in the wage structure. I guess the post titled “J.G employment need not be productive” ‘addresses’ most of the other points.

      I agree that there may not be agreement over the employability of the J.G. However, I’m using language in this post and the subsequent posts that implies that the primary objective of the J.G is to keep people Job-Ready.

      I only read your paper. I do think that you have a good idea regarding subsidized private-sector work. It is definitely an option. I guess the primary difference between employment-subsidies and the J.G is the guarantee of full employment. For me to give a more in-depth comparison, I would probably resort to something like ‘Complexity Analysis’ and make arguments based on the complexity of each proposal. Unfortunately, I’m not adept in such things.

  2. John Carney

    I’ve dealt with most of these points elsewhere so let me just comment on one.

    “Therefore, your argument has been reduced to relationship between the usefulness of J.G output and how well the State’s decisions proportionally represent the electorate.”

    I do not follow the logic at all here and so I can only say that despite all those words you used in now way is my my argument is “reduced” to the unrepresentativeness of the State.

    That said, the inability of the State to represent the desires of interests of even a decent minority of the population is a serious problem that cannot be overcome. So even if my argument were “reduced” to this, I would still have the winning argument.

    • lowerleftlimit

      That said, the inability of the State to represent the desires of interests of even a decent minority of the population is a serious problem that cannot be overcome. So even if my argument were “reduced” to this, I would still have the winning argument.

      The bold part is golden, I could possibly devote an entire post to it. Let me get this straight, your stating that the inability of the State to represent the desires and interests of even a minor proportion of the population is a serious problem that cannot be overcome?? Wow.

      Logically that would imply that the State exists as its own entity, and does not represent the interests of any outside party. Otherwise if it did represent the interests of an outside group, then that would constitute the influence of a minority. Which you stated is not possible. Otherwise you do acknowledge that the State is representing the interests of a group other than the minority. Which would logically mean that the State represents interests of the majority. Which would render your whole statement false.

      Therefore I will assume that you meant something along the lines of “The State currently represents the interests of a tiny tiny tiny fraction of population. The State will never be able to represent a proportion bigger than this.”

      That’s a dictatorship. Not democracy. If the State is no longer under the control of the people, then it is simply a tool of control. Do you think its easy to remove a dictatorship? Even if it is removed what guarantees that things will be any better? Removing the dictatorship just guarantees the law of the jungle.

      And no it doesn’t mean you have won the argument, it means you have identified the problem.

      • John Carney

        State autonomy is a real problem. As is state capture by special interests. And, yes, I do indeed think that the state is not “under the control of the people.”

  3. rodney

    although the buffer stock employees aren’t producing consumer goods they will demand them. the increase in sales should prompt those business to hire. so simple. there are many examples of government employment that doesn’t produce marketable goods. we as a society can produce even the minimum for all with only a few. good post!

    • John Carney

      The businesses can only hire if there are qualified people to work in the jobs to produce the goods demanded. You cannot assume that this is the case.

      My initial argument was that this is often not the case. Unemployment often arises from a mismatch of skills to employer needs.

      So, demand increases, businesses attempt to hire, cannot find people qualified which limits production expansion, pushing prices up.

      • lowerleftlimit

        Your description implies that skill-shortages are the reason why businesses can’t hire enough. “Businesses can’t hire because there aren’t enough ‘skilled’ workers”. Therefore all the unemployed aren’t ‘skilled enough’ for the private-sector.

        So, I make the argument that it is incumbent upon the ownership-structure to provide adequate opportunities for employment. The level of which is determined by the amount of ‘natural-opportunities’ if the ownership-structure was not there.

      • Ralph Musgrave

        When employers face excess demand and cannot find suitably qualified labour to meet that demand, inflation ensues – I agree. But if (as per my above mentioned paper) relatively poorly qualified labour is available to existing employers at a price that reflects the poor qualifications, employers will be less likely to bid up the price of fully qualified labour.

        E.g. if a school wants a teacher with a degree in French and cannot find anyone, it is likely to advertise widely for that type of labour which will bid up the price of that type of labour. But if someone becomes available with less good qualifications in French and teaching, the school might consider them if the price is right as a result of the JG subsidy (e.g. if the cost of the poorly qualified person to the school is say $1 an hour or even zero dollars an hour).

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s