It’s time for a serious consideration of a job guarantee

Oct 6, 2020

The federal government could and should fund a job guarantee for all who want to work, paid at the minimum wage, to replace Jobkeeper and Jobseeker, with jobs created by all levels of government and community organisations.

With payments for Jobkeeper and Jobseeker (i.e. the dole) now reduced, the former scheduled to be terminated in March 2021 and the latter to be further reduced at the same time, it’s urgent to consider seriously replacing Jobkeeper and Jobseeker with a permanent job guarantee (JG) for all who wish to be employed.

This JG would be funded by the federal government as discussed below. People receiving it would be paid the minimum wage and so would not compete significantly with jobs in the existing market.

The jobs would be created by all levels of government and community organisations and would benefit not only the workers but society as a whole. The host organisations would provide training to assist in useful work that is needed in education, social services, health care, environmental protection, infrastructure, data collection and, for graduates, research.

John Quiggin and colleagues have proposed a ‘practical’ variant of the JG which they call a Liveable Income Guarantee (LIG). This would provide a payment equal to the pension, and subject to the same income and asset tests, to all who are willing to make a contribution to society through, for example, voluntary work, childcare, environmental care and starting a small business. It would be funded by not implementing the income tax cuts scheduled for 2022 and 2024. An advantage of the LIG, compared with the JG, is that it doesn’t depend on governments creating jobs. Disadvantages are that it would pay much less than the after-tax minimum income proposed for the JG, it would help a more limited of number of beneficiaries and it would not be funded by a Coalition government determined to give tax cuts to the rich.

With either the JG or the LIG, most adults who were previously unemployed would receive a basic income and spend it, thus creating more jobs in the market economy and so decreasing the number of people receiving the JG or LIG. At times of economic downturn, such as during pandemics, the numbers of people assisted would increase; during economic recovery, numbers would decrease. Thus the JG or the LIG would act as a buffer for the economy, including an in-built inflation control mechanism.

Next let’s consider how to fund the JG, which is more expensive than the LIG, but potentially more valuable as a permanent contributor to social security, stabilisation of the economy and social capital.

Within the conceptual framework of neoliberal macroeconomics, the federal government would have to fund the JG either from taxation or borrowing from the private sector. With interest rates very low for the near future, borrowing is temporarily easy, but depending on borrowing would limit the lifetime of the scheme. It would be better if the government created the money to fund the scheme in perpetuity. According to Modern Monetary Theory (MMT), given the political will, the government could instead create the money to fund these schemes in perpetuity.

MMT follows from Keynesian macroeconomics and the concept of ‘functional finance’ introduced by Lerner in 1943. Recent detailed accounts of MMT are given in the books by economists Bill Mitchell et al. (2019) Macroeconomics and Stephanie Kelton (2020) The Deficit Myth. Popular explanations are given here, here and in an article by Richard Denniss in the October 2020 issue of The Monthly, which doesn’t discuss its potential application to a JG.

As a scientist who is trying to understand macroeconomics, I find the following basic argument to be clear and convincing. Sovereign states that issue their own ‘fiat’ currencies are not like households in being constrained to spending only their revenue. Instead, they never have to run out of money, so long as they manage their own currency so it retains its value. If governments spend beyond the capacity of their economy to produce, then, and only then, inflation becomes a risk. At present, economies depressed by the pandemic are operating well below capacity. In recovering from the Global Financial Crisis and during the present Covid-19 crisis, the US government has ‘printed’ (i.e. created digitally) trillions of dollars without causing inflation.

Some criticisms of MMT by neoliberal economists have been simplistic – e.g. using the spectre of hyperinflation that occurred in countries that don’t have monetary sovereignty (here and here) to create the impression the hyperinflation is inevitable, and misrepresenting MMT as allowing an infinite amount of government spending (here). These sweeping assertions can be dismissed. MMT proponents recognise that inflation is a constraint when the economy is operating at full capacity and suggest that it can be managed by increasing taxation.

A more serious argument that money creation inevitably causes inflation is that, when money is created, asset prices must inevitably inflate. MMT proponents reply that the outcome depends how the money is distributed. If the money is directed to low-income households, as in a JG or LIG, they are much more likely to circulate the money through the economy by spending on rent, food, utilities and debt repayment, thus stimulating the economy with real spending rather than bidding up asset prices (e.g. by buying houses and SUVs). Similarly, if some of the created money is used for value creation that would not otherwise be done (e.g. building important infrastructure), inflation is unlikely.

Empirical observation from the USA, the UK, Japan and elsewhere shows that inflation is not an inevitable outcome of creating money. So the debate reduces to whether a particular government has the political will to create money in the public interest and, if so, whether it has the ability to manage money creation without having to balance the budget.


The Conversation, Meet the Liveable Income Guarantee: a budget-ready proposal that would prevent unemployment benefits falling off a cliff

Mark Diesendorf, a researcher in sustainability and renewable energy, is currently Honorary Associate Professor at UNSW Sydney. His latest book is ‘Sustainable Energy Solutions for Climate Change’.

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