- A growing economic policy idea among progressive politicians and economists is the jobs guarantee.
- The proposal would see the US government offer well-paying jobs to anyone who wants one and would help stabilize the economy during recessions.
- While opponents have blasted the idea as radical, the idea bears similarities to another government program that competes for labor with competitive wages: the US military.
- George Pearkes is the global macro strategist for Bespoke Investment Group.
- This is an opinion column. The thoughts expressed are those of the author.
- Visit Business Insider’s homepage for more stories.
One of the burgeoning policy ideas in progressive circles is the idea of a job guarantee: a policy in which the government would offer a well-paying job with full benefits to anyone who wants one. While that may sound radical — and has drawn its fair share of scorn from conservatives — it should be familiar to anyone that knows how our military works.
How the guarantee would work
A federal jobs guarantee is a pretty simple idea: if you want a job, you get one, at a living wage and with full benefits that we associate with full-time labor, like healthcare. Granular specifics such as the level of wages offered or the specific level of non-wage benefits can vary, but all job guarantee proposals share those basic attributes.
Unlike other left-wing policy proposals like universal basic income, a jobs guarantee involves production instead of simple transfer of resources. In plain English, participants in the program would be providing goods or services we as a society think are being under-supplied such as infrastructure improvements, childcare, or healthcare.
The specifics of which goods or services would be provided also vary. For instance, some proposals like the Green New Deal focus on de-carbonizing the economy, while others put forward ideas like inadequately available child care for working parents.
A jobs guarantee would also serve a variety of other roles within the US economy: improving worker bargaining power and raising labor income, stabilizing economic cycles, and improving productivity.
A jobs guarantee could help stabilize the US economy
Let’s work through some of those benefits, the first being an increase to workers’ wages.
Wages for work as part of the guarantee program would in most cases serve as a wage floor, forcing private sector employers to pay above what the program was offering in order to attract and retain talent; that would to a large degree make minimum wages less relevant.
Why work at a fast food restaurant that offers 30 hours a week and no healthcare when the job guarantee gives you full hours and coverage? Of course, that competition hurts employers relative to employees, and that’s one potential cost of the program to consider.
In periods of strong labor demand from the private sector, higher wages or benefit packages offered by non-government employers would draw workers away from the jobs guarantee. But during recessions, the program would act as a fallback option for workers and help prevent catastrophic declines in demand by preserving worker income and keeping them involved in the labor force.
By preventing large pools of workers from dropping out of the labor force during periods of weak economic activity, losses of skills and networks with other workers are avoided. This preservation of skills and labor force attachment would likely improve labor productivity over time.
A jobs guarantee also has some distinct advantages over ideas like UBI. Rather than simply transferring income, important capital projects like infrastructure can be built as jobs guarantee projects which in turn would raise the US economy’s productive capacity.
Even in relatively good times like these, there are millions of Americans who are looking for work, want a job but haven’t been able to find one, or who are working part-time because they can’t get full-time hours. As I mentioned in my last piece, the proportion of the workforce in those categories is at a record low, but that still means at least 10.6 million people are without a job and at least another 4.1 million who could be working more.
The cost isn’t as much as you’d think
Generally, objections to a jobs guarantee are focused on the cost. Employing large swathes of people is obviously an expensive business.
Let’s use very crude analysis to break down that cost. Assuming all current “slack” workers from the chart above choose to take a job through the guarantee program at 40 hours a week and an all-in cost of $20 per hour, it would cost $612 billion per year to compensate those folks. That’s a pretty big number: about 2.8% of GDP.
But per the Bureau of Economic Analysis, we spend substantially more than that on military consumption and investment every year: 3.94% as-of the third quarter of 2019, versus 2.7% of GDP on all discretionary non-defense spending consumption and investment by the federal government, which does not include transfer programs like Medicare and Social Security.
But even breaking down the numbers further, a jobs guarantee could look a lot like the military in execution: an expense we deem necessary and that doesn’t require some sort of elaborate pay-for when it needs expansion.
Breaking it down
As a better comparison, let’s dig into how a jobs guarantee would look compared to what the US already pays for the military.
First, pay. An E-1 (private, seaman recruit, or airman basic for the Army, Navy, and Air Force respectively) earns a monthly pay rate of $1,680.90 in 2020. Basic allowance for subsistence (BAS) adds $372.71. Breaking that down into typical workers’ hours at 40 hours a week and four weeks a month, that total works out to $12.83 per hour; hourly wages would be lower under higher workloads, but also keep in mind this is the absolute minimum pay for very junior military personnel, not an overall average.
By the E-4 pay grade (specialist or corporal, petty officer third class, or senior airman for the Army, Navy, and Air Force respectively; typically reached within a few years) military enlisted are earning more than the $15 per hour that so many minimum wage activists have deemed the “livable wage” in recent years.
In other words, the government is already openly bidding for a material chunk of the non-college youth labor force at $13 to $15 an hour. Our all-volunteer military doesn’t have a cap in terms of recruitment and generally struggles to get the numbers it needs. Granted, the job description comes with substantial risk of physical harm and a benefits package that has let down soldiers in recent years. But is the basic labor-bid function really that different from a jobs guarantee?
There’s no reason we can’t include a reduction in social isolation, provision of basic services, and maintenance of economic stability as goals equally important to those accomplished through the military.
If those goals were placed on equal standing as security, we would no doubt use tools already employed by the military to accomplish them: wages that are considerably higher than the national minimum, benefits packages, and large-scale organization to deploy the resources that a broader job guarantee would unlock.
And those worried about the cost only need to look at the history of defense spending to alleviate their worry. Modern Monetary Theory (MMT) argues that government spending need only be authorized to take place, with no artificial constraint like “the size of the deficit” or “paying for it.” The history of military spending in this country ranging from the national mobilization of WWII to smaller conflicts over the past 75 years suggest that assertion is broadly correct for the US.
There are a wide range of cost-benefit analyses to undertake before we introduce a program like a job guarantee, or competing progressive proposals like universal basic income. And this column is not meant as comprehensive accounting of costs and benefits, even though questions about the costs to employers, the potential for misallocation of resources, or other concerns need to be addressed.
But we should ask ourselves why we think young people of military age who are willing to fight should be assured the option of a stable job with benefits, but not everyone else. If we can provide jobs and minimum incomes for all those suited for war, we can choose to do it for the rest of society too.
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