The FJG stagnates the economy and crushes small businesses

According to Vincenzo Caponi’s “The Effects of Public Sector Employment on the Economy,” he examines the impact on public sector employment on the economy as a whole. Whenever the public sector creates jobs by hiring citizens to provide goods and services, it has both positive and negative effects on the labor market (Caponi, 2017). His research showed that the unemployment rate decreased in the short-term, creating more stabilizing effect in economy. Along with this, certain demands in inequity were met in places that had higher levels of poverty in comparison to others. Plus, with the higher levels of public sector jobs, many employers were encouraged to employ disadvantaged and marginalized Americans (Caponi, 2017). At the same time, the reduction of short-term unemployment by expanding public sector jobs were not efficient, because wages in the public sector are flexible and not fixed. This expansion of public sector jobs created a crowding-out effect of private sector, where many people left their low-paying private sector jobs to work for the public sector that provided higher levels of stability. To add to this, wages are unresponsive to productivity differences, so if workers are less or more productive in the public sector, they do not see salary increases or decreases (Caponi, 2017). With the crowding-out effect leading to labor shortage and lack of overall productivity in public-sector jobs, Caponi’s research suggests that there is a reduction in the overall productivity of the economy, coupled with the negative effects of the resource reallocation from the private to the public sector.

When it comes to the Federal Job Guarantee plan, Caponi’s discussed impacts show how a massive public sector work project can have many drawbacks to the private sector. In Greg Ip’s Wall Street Journal article titled The Problem with a Federal Jobs Guarantee (Hint: It's Not the Price Tag), Ip discusses the challenges that the private sector will face with wages, inflation, and technology after the implementation of the Federal Job Guarantee plan. First in order to keep many of the workers that make less than $15/hour, the private sector will see massive salary increases. Employers will be forced to raise the salaries of their workers, because they do not want to lose their labor, similar to a $15 minimum wage effect (Ip, 2018). This will lead the companies to potentially raise the private sector causing rise in customer costs to offset their short-term losses in revenue. This raised cost on customers will negatively impact certain businesses more than others (Ip, 2018). Policies such as this will positively impact labor in big firms like Wal-Mart that can afford offering health benefits or wage increases (Ip, 2018). But these policies will hurt smaller firms to a mega scale, that cannot offer the same benefits as the public sector would with Job Guarantee. Overall this may intensify the oligopoly market that we have in the country, because many small businesses or start-ups, will be unable to meet labor or revenue demands to stay afloat (Edwards, 2016). This would make many argue that the Job Guarantee plan will not be very positive for the private sector as a whole. It may force labor or employment changes against the market need, that may help some, but forced changes have mixed effects from unequal benefits.