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When facing high inflation, policymakers ultimately fear what's referred to as a price-wage spiral, in which a rise in prices prompts workers to demand raises that help them afford goods, which in turn pushes up prices, leading to a self-perpetuating cycle of runaway inflation.

"Inflation is like a cancer where if you don't derail it, it can become a fatal problem," Diane Swonk, the chief economist at KPMG, told ABC News.

Neither the CBPP nor Levy report has established how the work under a federal job guarantee would help build the workers’ human capital. In fact, the very existence of the program might strongly disincentivize workers from going out and acquiring the skills that lead to real, value-enhancing job creation in the labor market. By forcing workers mostly at the low end of the skills distribution to work by mandate and earn a fixed wage, a worker would have to derive enough value from education or other human capital acquisition to leapfrog ten million or more other workers.

Here’s why. According to the Economic Policy Institute, 39% of the workforce, some 54 million people, now earn $15 an hour or less. All would have an incentive to quit and join the federal program. Of course, most wouldn’t because their employers would, grudgingly, raise pay to keep them, then pass the cost on to customers, a de facto inflation tax. Indeed, advocates say the job guarantee accomplishes the same thing as a $15 minimum wage without the job loss. Nonetheless, potentially millions of workers would end up on the federal payroll instead of in the private sector. And there’s the rub. Utopians would argue jobs exist to give people dignity and a decent standard of living. The reality is more mundane: Jobs are how people, as producers, satisfy their needs as consumers. Low-paid work such as brewing coffee, cleaning hotel rooms and flipping hamburgers gets a bad rap but it satisfies a genuine demand: People want coffee, clean hotels and hamburgers. A federal make-work program would crowd out many of those private services. Crowding out is fine when the government is providing something more valuable, Roger Farmer and Dmitry Plotnikov, economists at the University of California at Los Angeles, wrote in 2010. For example, military spending crowded out private consumption during World War II, when the U.S. “was fighting for its survival.” In ordinary times, that is a harder case to make. A 2011 study by ​Lauren Cohen,​ Joshua Coval​ and Christopher Malloy of Harvard Business School found that when a member of Congress takes over an important committee, his state often enjoys an influx of federal spending. But that benefit is offset by a contraction in private investment and employment, evidence of crowding out.

But there's a very good chance that the politics of the modern day would turn a job guarantee into something very different from the New Deal -- and make it much less beneficial for the economy.

First, there's the question of whether people could be fired from the new program. It's easy to imagine good reasons to fire someone from a government job -- starting fights, for example, engaging in criminal activities or simply refusing to work. Even if a job guarantee allowed workers to be fired for egregious offenses, there would doubtless be intense public scrutiny of firing decisions, especially on social media. That would put immense pressure on the administrators of the federal jobs program to avoid firing even those who deserved to be fired.

Dr. Hamilton, who favors a federal job guarantee, was co-author of a 2018 study — with Mark Paul, William A. Darity Jr. and Khaing Zaw — that sought to estimate the cost. Based on 2016 employment figures, and assuming an average cost per job of $55,820, including benefits, the study found it would cost $654 billion to $2.1 trillion a year, which would be offset to some extent by higher economic output and tax revenue, and savings on other assistance programs like food stamps and unemployment insurance.

And the prospect of a large-scale government intervention in the labor market raises thorny questions.

Unfortunately, Democrats do not yet have a proposal that can bring these aspirations to life. One problem to work through is the traditional Democratic question of how to finance their new program. (Republican policy ideas never have this issue —they just put everything on the credit card and stick the next president with the bill.) It’s quite a large expenditure, perhaps half a trillion dollars a year, depending on the exact contours. Progressives have circulated polling showing support for a job guarantee financed by a 5 percent income tax hike on earnings over $200,000 a year, but Josh Bivens at the liberal Economic Policy Institute notes that that would cover less than a fifth of the cost.

And even that figure optimistically assumes the federal job guarantee would attract only people who are currently unemployed or underemployed. Since the most popular job guarantee plans would offer relatively solid wages and benefits ($15 an hour plus benefits), they would probably draw applicants who currently have jobs with stingier compensation. If that happened, as you’d expect, the cost of the program might balloon up to several times over. Once you start financing the program with taxes on the middle class — which would probably be necessary given the scale of its cost — then the popularity would drop off precipitously.

Suppose you are mayor of a city of 300,000 people. The federal government has asked you to assign 9,000 people to low-skilled jobs that don’t overlap with work your government and businesses already do. That number would likely double in a recession. It would take every department in city hall to keep the enrollees matched with productive work. The predicament recalls the 1985 comedy “Brewster’s Millions,” in which Richard Pryor’s character must spend millions of dollars as quickly as possible without regard for the value of what he buys. People’s labor, which usually has considerable value, would become a burden on those expected to employ them.

The program’s administration, virtually ignored by the authors, would present numerous opportunities for corruption, such as businesses bribing officials for free labor. Monitoring such a colossal program would be difficult and expensive. Companies also would seek to influence the program’s public works. A big-box retail chain, for instance, might want a community to prioritize the clearing of a vacant lot next to one of its stores.

The plan’s authors estimate an annual price tag of about $543 billion. Defense is the only discretionary federal expense comparable in size, at about $639 billion last year. Some funding for the job program would be offset by cuts to other government programs. But there’s good reason to believe the authors significantly underestimate the number of participants it would draw, a major component of its cost.

The proposal estimates that about 11 million people would opt into the job guarantee. That would already be several times as large as the world’s next largest employers, such as Walmart and the U.S. and Chinese militaries. But it could get a lot bigger. The authors assume virtually nobody currently employed would leave his job and join the program. That seems unlikely, given that 41 million workers currently earn less than the program’s $11.83 minimum wage. They also base their projections on today’s historically low unemployment rate. A future recession would send displaced workers fleeing to government jobs for relief.

(Matt, “Some Notes on Federal Job Guarantee Proposals,” pg online @ https://www.peoplespolicyproject.org/2018/03/22/some-notes-on-federal-job-guarantee-proposals/ //um-ef)

Inflation Contradictions

We now go back to the full model and trace back price and wage inflation to the general equilibrium effect of underlying shocks.

We focus on two shocks. First an expansionary demand shock, driven by easy monetary policy (easy fiscal policy would have similar implications).

#2: The cost is enormous. A federal jobs guarantee will cost at least hundreds of billions of dollars per year and much more during a recession when the employment rolls for the government would naturally increase. Here are the cost estimates from both plans based on people participating in the jobs guarantee:

With annual federal outlays at roughly $4.5 trillion, we’re talking about anywhere from a 10-20% increase in spending to pay for the jobs guarantee. As for how to pay for it, advocates are split on whether it should be paid for at all. Paul et al. provide a few possible tax increases but don’t devote much attention to the matter. Stephanie Kelton says, “What the models show is you can do this without creating an inflation problem and therefore why would you pay for it with tax increases of one kind or another?”2Even though the cost of the program could be partially offset through decreasing social assistance costs, it’s still very uncertain how and when these savings would materialize. What we’re left with is a new program taking up funding that could be used instead for things like increased childcare, training support, expanded health care coverage, and more.

(L. Randall, Levy Economics Institute, “Job Guarantee,” The New Palgrave Dictionary of Economics, pg online @ https://link.springer.com/referenceworkentry/10.1057/978-1-349-95121-5_3080-1 //um-ef)

While it is true that if the JG wage is set much above the prevailing minimum wage at the time the program is implemented, there could be a one-time bump to wages and prices, a labour buffer stock program does not by itself pressure wages. A large JG program could significantly increase aggregate demand, however, by raising incomes and thus consumption at the bottom of the income distribution. This could lead to some inflation pressure, at least until the economy adapts to the higher level of aggregate demand by increasing potential supply.

What I was really saying is that a JG program, as it provided continuous full employment, would lead to a sharp increase in worker bargaining power. If an external shock — like an oil price shock or a substantial currency devaluation — caused inflation to bounce workers may then try to push the costs of the inflation onto capitalists through increases in wages. The capitalists may then try to push these costs back onto the workers and other capitalists by raising prices. So, the causality runs,

JG Program => Tight Labour Markets => Increased Worker Bargaining Power => Potential Tinderbox Scenario Where a Wage-Price Spiral May Occur

(“'Federal Jobs Guarantee' Idea Is Costly, Misguided, And Increasingly Popular With Democrats,” pg online @ https://www.investors.com/politics/commentary/federal-jobs-guarantee-democrats/ //um-ef)

Wage Inflation Another issue is the wage, which several plans recommend should be (or average) $15 per hour. With the increasing focus on "living wages," it will not be long before program directors discover that $15 per hour goes far further in Alabama than Hawaii, and the tendency will be to equalize cost-of-living disparities up, further increasing already massive costs. Two other factors: both the CBPP and LEI plans fail to account for the potential disruption to existing businesses — mostly small businesses, the engine of economic growth in the United States — which will inevitably occur when workers earning less than $15 per hour leave their private sector jobs for higher-paying employment with job guarantee placement. At present, more than 40 million Americans earn less than the proposed guarantee wage of $15 per hour, which could trigger a major shift of the U.S. workforce away from private employment, on to public rolls. It would also effectively force small businesses to compete directly against the federal government on the labor market.

(Dean, Center for Economic and Policy Research, “Inflation Fears and Strong Labor Markets,” Review of European Economic Policy, Volume 57, 2022 · Number 4 · pp. 267–268 · JEL: E31, E52, pg online @ https://www.intereconomics.eu/contents/year/2022/number/4/article/inflation-fears-and-strong-labor-markets.html //um-ef)

This is not just speculation. While the inflation rate has been rising through the first half of 2022, wage growth has actually slowed sharply. The annualized rate of wage growth at the end of 2021 was over 6.0%. In the most recent data, it was just 4.4% using three-month averages. If we just annualized the rate from June alone, it was 3.8%. This is only slightly higher than the 3.4% rate in 2019, when inflation was comfortably below the Fed’s 2% target. The wage data are erratic, so we have to view the exact numbers with some caution, but the direction of change is clear. Wage growth is slowing, not speeding up. We cannot have a wage-price spiral like in the 1970s if wage growth is getting slower, not faster. This is not a good story for real wages (more in a moment), but it means that we are not on the cusp of double-digit inflation. We can also say that inflationary expectations do not seem to be getting embedded in the economy. The breakeven rate of inflation between inflation indexed Treasury bonds and regular Treasury bonds has been falling in recent months. It is now just over 2.3% for 10-year Treasury bonds. Similarly, consumer surveys show expectations of inflation are falling. The wage-price spiral story clearly does not fit the data. Instead, the United States is seeing inflation driven by the same factors as the European Union and the rest of the world. Soaring prices for oil and gas, due to concerns about supply following Russia’s invasion of Ukraine, is a huge part of the story. Similarly, the price of wheat and other agricultural commodities jumped after the invasion. We have also seen shortages of a wide range of products, from apparel to household furnishings and appliances, as a result of supply-chain problems caused by the COVID-19 pandemic. However, we are finally working through many of these problems. Non-car inventories are more than 25% above their pre-pandemic level. The price of wheat has fallen back to its pre-invasion level and oil prices are now back below $100 a barrel, sending gas prices tumbling in the last month. Even used car prices, which had risen by almost 50% since the start of the pandemic, are now headed downward. For these reasons, it is virtually certain that inflation will be much slower in the second half of 2022 and 2023 than it has been over the last year. This means that even if wages increase in a 3% to 4% range, workers will be able to see a healthy pace of real wage growth.

(Chad Stone, , PhD in Economics from Yale Chief Economist at the Center on Budget and Policy Priorities“Amid Signs of Economic Improvement, an Overly Aggressive Fed Could Trigger a Recession,” Center on Budget and Policy Priorities, 02-24-2023, )

Namely, inflation and wage growth came down significantly in the second half of the year, and job growth, while still strong, cooled over that period as well. Inflation expectations — what the public and financial markets believe will happen to inflation over the next couple of years — indicate that people (and financial markets) believe inflation will continue to fall, which is key to reducing upward pressure on nominal wages that could trigger more inflation.[1]

(Joseph, Chief Economist and Principal, RSM US LLP, A member of the Wall Street Journal’s forecasting panel and the UCLA Anderson School of Management's Board of Directors, Brusuelas regularly briefs members of Congress and other senior officials regarding the impacts of federal policy on the middle market and the factors by which middle market executives make business decisions, “Inflation relief in the pipeline as food, gas and service prices ease,” pg online @ https://realeconomy.rsmus.com/inflation-relief-in-the-pipeline-as-food-gas-and-service-prices-ease/ //um-ef)

Top-line U.S. inflation is moving back toward levels where it is appropriate for the Federal Reserve to pause in its efforts to restore price stability. With underlying inflation hovering around 3% and 4%, the Fed is well positioned to keep its policy rate steady this week with the confidence that top-line inflation and drivers of core pricing are likely to ease notably in the coming months. Inflation increased by 0.1% on a monthly basis in May and was up by 4% on a year-ago basis while core inflation advanced at a 0.4% rate on the month and by 5.3% from a year ago. Excluding food, energy and shelter, inflation increased by 0.3% monthly in May and was up by 3.4% from a year ago. The decline in overall inflation in May was driven by a 3.6% drop in energy costs, which have now fallen by 11.7% from a year ago, and by a 5.6% decline in gasoline prices, which are down by 19.7% over the past year. The policy-sensitive service inflation excluding housing, or the so-called super-core metric, increased by 4.6% on an annual basis. Perhaps more encouraging is the near-term progress in the service sector. While service sector inflation, which comprises 61.5% of the index, advanced by 6.3% from a year ago, the monthly increase was 0.2% and the three-month average increase was 2.6% . That implies that there is relief in the inflation pipeline in the area of the economy where inflation is stickiest and closely associated with wage demands. If policymakers concerned with risk of a wage-price spiral were looking for relief, it is staring at them inside the data.

(Emillie, “After ‘two years of exuberance,’ wage growth is slowing,” pg online @ https://www.hrdive.com/news/wage-growth-is-slowing/652378/ //um-ef)

As Bunker noted, however, that unprecedented growth may be coming to an end. While that news may be discouraging for job seekers, Bunker points out that slowing wage growth may be key to controlling inflation. Christopher Waller, a member of the Federal Reserve’s Board of Governors, talked about the connection between wage growth and inflation during a February speech at the Arkansas State University Agribusiness Conference. “For employers, the very strong labor market makes it hard to find and retain workers. One effect of this tightness is seen in wages and other compensation, which ultimately show up in the prices that consumers pay for goods and services,” Waller said. “For example, last year the Employment Cost Index, which tracks movements in labor costs, including both wages and benefits, increased over 5 percent, the highest rate since 1984. We want to see wages grow but at a pace that is consistent with our goal of stable prices.”

(Alexandre, “Wage Growth Is Slowing Sharply in US Job Postings, Indeed Says,” pg online @ https://www.bloomberg.com/news/articles/2023-06-07/wage-growth-is-slowing-sharply-in-indeed-s-us-job-postings#xj4y7vzkg //um-ef)

Wage growth in US job postings has been softening for more than a year now, and at the current rate it could return to pre-pandemic levels by early 2024, according to Indeed Hiring Lab. Advertised wages rose 5.3% in May from a year earlier, a marked decline from the peak of 9.3% in January 2022, according to Indeed’s wage tracker. The slowdown has been broad-based across industries, but it’s been particularly pronounced in low-wage sectors — for the type of positions that saw the biggest gains as the economy recovered from the pandemic. At its current rate of deceleration, wage growth would return to its 2019 average of 3.1% late this year or early in 2024, according to Indeed. Among the sectors that are seeing a sharp pullback is the software industry, which has been through waves of layoffs in recent months following a hiring spree at the height of the pandemic. According to Indeed data, job postings in that sector dropped by almost 60% over the past year, and advertised wage growth is now less than half of what it was last November. Other data have been showing a pullback in earnings growth. The Atlanta Fed’s wage growth tracker dropped to 6.1% in April after peaking at 6.7% in June last year. Indeed’s measure uses a similar approach to the Atlanta Fed gauge, although it tracks types of positions rather than individuals. Indeed says its tracker has been leading other measures by several months in the past.

(Megan, “Wage growth slowing sharply in US, Indeed says,” pg online @ https://www.foxbusiness.com/economy/wage-growth-is-slowing-rapidly-us-indeed-says //um-ef)

U.S. wage growth has slowed sharply over the past year and is on pace to return to pre-pandemic levels by early 2024, according to new data from career site Indeed. The wage tracker – based on salaries for job advertisements listed on Indeed – showed that salaries were up 5.3% in May compared with the same time one year ago. That is a marked drop from January 2022, when wages were up about 9.3%, suggesting that employers are facing less competition for new hires. Based on the current trajectory, wage growth will likely return to its pre-pandemic range of about 3% to 4% late this year or early in 2024.