Inflation rates destroys benefits of Job Guarantee programs

But a job guarantee has bigger problems — macroeconomic, operational, political and the existence of a more effective alternative — that make it a poor choice. The macroeconomic problem is that a job guarantee can’t guarantee a job for everyone. Unemployment has a “natural rate,” estimated at between 4 and 5 per cent in pre-Covid Australia. If unemployment falls below this rate, inflation increases and interest rates rise, hurting investment and consumption and bringing unemployment back up to this natural rate. Arguments that we can defy that kind of economic gravity are unconvincing, with big trade-offs. They usually rely, among other things, on having the government set or heavily influence wages, which would kill more jobs than it creates. The better approach is to get the natural rate of unemployment lower (which can only be done through productivity-enhancing reform) while stimulating demand. Governments could do both, but don’t. A job guarantee faces more daunting operational challenges. The Australian Bureau of Statistics shows that the long-term unemployed often face complex and self-reinforcing challenges, ranging from insufficient skills and training to poor physical and mental health, limited social capital and higher rates of drug and alcohol abuse. The long-term unemployed need more than just a job.