The Job Guarantee is Not Workfare

For a couple of years Ralph Musgrave has been arguing that the Job Guarantee provides jobs that are essentially the same as those in the private sector with the same kinds of inflationary effects. For this reason, he has been treating the JG a simple job subsidy with a training component, similar to various active labor market policies (ALMP) around the world.

By contrast, much of the JG literature has focused on the differences between the JG and conventional public or private sector employment and on the program’s countercyclical effects (here is the latest model that compares the inflationary and distributional effects of different fiscal policies, including the JG/ELR). All of these arguments are familiar to readers of this blog and will not be rehashed here. We have also described various types of JG to deal with a number of implementation issues. Most recently, I proposed a model that utilizes the social entrepreneurial and non-profit sectors.

Ralph builds his case against the JG by arguing that temporary subsidized work programs in Europe have been ineffective in increasing employability or employment outcomes for program participants.

Here are 5 lengthy papers he lists that identify the various problems with different active labor market policies (ALMP) across Europe:

Let me offer some brief comments on each of these papers. Most importantly, these programs have nothing to do with the JG proposal whatever. The ‘evidence’ provided may be evidence against the effectiveness of those specific programs, but is definitely not evidence against the Job Guarantee proposal.

The first two papers discuss the Swiss EP program which is essentially a ‘workfare’ program, not a Job Guarantee. Worse, it is a means-tested allocation of unemployment insurance. What Ralph considers to be ‘the more successful’ program in Switzerland—TEMP—is actually a very punitive arrangement, forcing people to take ‘unsuitable jobs’ that pay less than their unemployment benefits by overcompensating the difference with additional payments from the unemployment insurance system (p. 7).

The next paper looks at a workfare program in the UK that is, again, anything but a JG. We have always argued against workfare and the welfare reforms of the 90s. See the work of one of our collaborators, Nancy Rose, on Workfare vs. Fair Work. JG is the latter. The UK study listed in Ralph’s blog finds that temporary contracts pay less and are more dissatisfactory than permanent contracts. Brilliant finding. We know well that these programs do not work. The US also reformed welfare, made the benefit conditional on finding any kind of work in the private sector, which was usually very low pay and involved long commutes, so the program didn’t lift the welfare recipients out of poverty and left them without assistance after 5 years of program support. While the UK at least bothered to find the welfare recipients some temporary private sector contracts, the US didn’t. There are too many problems with these types of reforms to discuss here, but again, they have nothing to do with the JG proposal.

Next is a long paper on the Swedish model that offers lots of interesting details and a sizeable literature review, but the whole paper from inception is based on a matching problem assumption, not on deficient effective demand (i.e., unemployment exists not because there aren’t enough number of jobs, but because for one reason or another the jobless can’t be placed into readily available vacancies). Starting with section 2, the paper uses the worst kind of neoclassical modeling to analyze these programs. General-equilibrium effects? And we should take the results seriously? Much of the literature surveyed in the paper also uses the same methods.

But even if we overlook the neoclassical methodology, let me just point out the obvious. The studies of the 90s found negative effects from active labor market policies (ALMP), which is precisely the period of serious neoliberal reforms in Sweden that undermined the Swedish welfare state and the full employment model. No wonder unemployment rose in the 90s and the programs that were vestiges of the past had to deal with a much bigger problem now. Plus those employment programs themselves were reformed with more focus on training and job search, not actual employment. How does that help us understand the JG? The Swedish corporatist policies prior to the 90s were not exactly a JG, but the reforms and subsequent active labor market reform followed the ‘labor market’ flexibility neoliberal agenda.

The last ‘evidence’ against JG is the topper. The Danish case actually indicates that employment programs are more effective, and that training programs alone should be abandoned (p. 22). We’ve been arguing forever that retraining is just a game of musical chairs. How is this paper evidence against the JG?

Ralph’s own research uses declining marginal product of labor and the NAIRU as core theoretical concepts, so it is no surprise that we have deep theoretical disagreements over how labor markets work and how policy could rectify the problem of unemployment. But let’s be very clear, studies of ALMPs which have unambiguous neoliberal design do not serve as evidence against the JG.

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