Job Or Income Guarantee (JIG)

The previous post considered the question of how best to assist a transition to a society in which people can opt for more free time, if they wish. The likelihood of a high degree of mechanization in production in coming decades creates the potential for such a transition. Basic income, in isolation, while offering a limited measure of freedom from the capitalist wage labor relation, would not provide sufficient support to individuals in their attempts to shape productive lives. It would remain important to provide opportunities as well as the resources for meaningful participation in productive activity. As a basis for a freer society, some combination of basic income and a job guarantee could serve a positive role. For instance, a policy that permitted people to choose between a guaranteed job, with defined wage and benefits, or a more modest guaranteed income – a ‘job or income guarantee’ – could assist a transition to a society in which individuals were largely free to spend their time as they pleased, so long as it did not cause harm to others. The idea of combining a job guarantee with some form of basic income is, of course, not original. It is a possibility that has been acknowledged by Modern Monetary Theorists.

From the perspective of Modern Monetary Theory (MMT), the job guarantee is significant for more than just its social inclusiveness, assurance of employment security, and individual empowerment. It would play important macro stabilizing and price anchoring functions capable of superseding the highly unjust and socially destructive NAIRU approach to inflation control. In stark contrast to the NAIRU approach, in which a buffer stock of unemployed workers is intentionally maintained as a defense against inflation, the job guarantee would anchor the price level through maintenance of a buffer stock of ready-made jobs, available to be taken up by individuals, as desired, on specified terms.

In responding to recent criticism of the job guarantee expressed by people who are otherwise broadly sympathetic to MMT, Bill Mitchell presents a challenge:

If you want to propose a coherent body of macroeconomic thought then you have to address the key questions of full employment and price stability.

This is a challenge worthy of contemplation by all job guarantee critics. Mitchell’s statement is clearly correct for at least two reasons. First, macroeconomics, as a discipline, has largely been about full employment and price stability from the outset. These have been central preoccupations of macroeconomics across the theoretical and political spectrum. To be a viable macroeconomic theory, it is necessary to have explanations for unemployment and inflation that can inform policy.

Second, from a normative perspective, these goals – particularly full employment – make sense. Those who want a job in the formal economy should not be prevented from obtaining one simply because of poor macroeconomic management. Given our current understanding of sovereign currency systems, it is clear that both full employment and price stability can be attained through a job guarantee. The job-guarantee wage would place a floor under all other wages, anchoring the price system, while the spend on a ‘price rule’ rather than ‘quantity rule’ (in which the currency-issuing government purchases all labor power supplied at the program wage) would ensure that all who wanted a job in the formal economy at the defined wage could obtain one.

The main purpose of the present post is to suggest that the attainment of these same goals could be achieved through implementation of some form of ‘job or income guarantee’ (JIG). Under this arrangement, a person could choose for themselves if they wanted to engage in formal employent or, by accepting somewhat less income, have more free time to pursue their own vocation or leisure. The job guarantee component, in such a combined program, would be identical in its design to the job guarantee currently proposed by Modern Monetary Theorists except that participation would be genuinely voluntary. A standalone job guarantee could not be regarded as genuinely voluntary because anybody who is unemployed and without an independent income would have little choice but to accept the job-guarantee offer. This would not be the case with a JIG, in which income would be provided unconditionally, irrespective of a person’s decision over whether to participate in the job-guarantee program.

A JIG could help us work towards numerous goals simultaneously.

1. It would open up the option of free time so that those who were ready to embrace it could do so.

2. This would reduce the size of the labor force, and therefore the scale of production, which could have environmental benefits.

3. The amount of income provided by the JIG would provide a floor under all wages in the economy in much the same way as a standalone job guarantee.

4. This floor might actually be more effective as a nominal price anchor than a standalone job guarantee. The reason is that only those who really wanted formal employment would opt for the job guarantee, providing a stronger signal to employers in general.

5. In comparison to a standalone job guarantee, a JIG would place additional pressure on private-sector employers to offer decent employment conditions, because employees would have the extra option provided by the guaranteed income component.

6. With an appropriately designed tax system, the JIG would provide automatic demand stabilization in much the same way as the conventional job guarantee.

The reason for suggesting that a JIG might provide a somewhat more effective nominal price anchor than a standalone job guarantee (point 4 above) is as follows. Of the people most likely to opt out of the job guarantee, most would fall into two categories: (i) people who did not want to work; and (ii) people who did not want to work in the formal economy because there are other socially productive things – broadly defined – that they would prefer to do. Depending on the scope of the job guarantee, this second group might include home parents, carers, charity workers, hobbyist gardeners, environmentalists, activists, writers, thinkers, musicians, artists, actors, athletes, computer programmers, people seeking self-education, etc.

People in category (i), if essentially compelled to participate in a job guarantee, would be the least enthusiastic and possibly the least diligent in the program, and therefore would actually detract from its nominal price anchoring role, because they would not be providing viable alternatives, from the perspective of employers, to those already employed. To the extent that their attitude rubbed off on others, the effect might be a lowering of the average “employability” of the job-guarantee cohort. For these individuals, it might be more beneficial if facilities were made available for meaningful leisure activities that might lead, in time, to a desire to mix leisure with more creative or socially productive behavior outside the formal economy. If they chose to participate in such activities, they would be doing so voluntarily, and so would feel less resentment and perhaps be more open to potentially life-enhancing and more socially interconnected experiences.

People in category (ii), if compelled to participate in a job guarantee, might add less of value to society than they could if freed to pursue their own vocations either individually or in voluntary association with others.