JG and ELR are the same

The idea that the government should stand ready to provide work to all who seek paid employment but cannot otherwise find a job has been advanced by a number of authors in recent years. The term ‘employer of last resort’ (hereafter ELR) has been used by authors such as Wray (1998a,b), drawing on the analogy with the central bank willing to provide reserves to the banking system, as a label for such an idea. Others have used the term job guarantee (hereafter JG) for a rather similar idea (e.g. Mitchell 2001).1 The proposals under the heading of ELR and JG are similar and this paper discusses both sets of proposals. However, the term ELR is generally used in this paper as this gives more of the flavor of the proposals than the term JG does : for example in terms of the jobs which would be available under the proposals.

The term ‘employer of last resort’ encompasses the following ideas:

(i) the government offers employment to anyone who seeks work but would otherwise be without a job2 :

(ii) the wage for such jobs would be set at a ‘base’ level (fairly close to the minimum wage where such exists, and somewhat above the pre-existing level of unemployment benefits)3 ;

(iii) the wage bill for those on an ELR scheme is not to be paid by raising tax revenue, but rather would increase the government budget deficit (or reduce the budget surplus). In the ELR literature, this is often linked with what has been labeled the tax driven money (hereafter TDM) view. High powered money (hereafter HPM) or base money is viewed as created by the state, public expenditure involves (high powered) money creation whilst the payment of taxes involves 2 26/11/13 money destruction. The government can though issue bonds which would serve to remove ‘excess’ money.4

As indicated in the titles and sub-titles of papers and books on the ELR and JG (e.g. Mosler 1997, Wray 1998a) these schemes promise both full employment and price stability. The central concern of this paper is to examine whether they would be able to deliver on such a promise. The paper begins by considering the notion of ‘functional finance’ (Lerner 1943) which forms an important element of ideas on ELR. This is followed by a section which considers the nature and role of money as envisaged in the tax driven money approach which is often associated with the ELR proposals. Section 4 considers the budgetary costs (and deficit implications) of ELR proposals. It is argued that whilst the ELR budgetary costs may be relatively small, this would also be the case from any public sector employment program. The question is raised in the next section as to whether there would be jobs of a type which could fit in with the ELR proposals, and what the nature of these jobs might be. The following section considers the extent to which ELR would involve underemployment and unemployment by another name. The possible inflationary implications of the ELR are next considered. This has two aspects : first to consider whether inflation would result from unemployment falling below any form of supply-side inflation barrier (such as a NAIRU), and second to consider whether the use of a ‘base wage’ would bring price stability as claimed. In the next section, two notions of unemployment (and corresponding ELR workers) are considered. It is argued that the notion of the unemployed or ELR workers as a buffer stock is misleading. It is also argued that ELR workers would retain many of the characteristics of being an ‘industrial reserve army’. The paper is completed by a brief concluding section.