A job guarantee would force rate hikes

The idea that the government would commit itself to act as an employer of last resort and guarantee a job to everyone has been getting more attention in recent months. While many on the left have long pushed this position, the Clinton-linked Center for American Progress (CAP) recently embraced the idea in a conference last week. It is good to see ideas outside of the mainstream getting attention, but there are a couple of issues worth keeping in mind to ensure that the effort does not end up being counterproductive. The first is to recognize that a job guarantee is a huge lift, not only politically but in its implementation. In effect the guarantee is not only going to be providing jobs to workers who do not currently have one, but it will also end up offering a potentially more attractive alternative to millions of people now in low-wage jobs. How attractive the alternative is will of course depend on the wage offered in the government supported jobs. The number tossed around for a wage by the CAP folks was $15 an hour. In the current economy, this would be higher than the wages of 30 percent of men and more than 40 percent of women workers. That is more than 50 million workers. Presumably this $15 an hour wage is some number of years in the future and likely associated with a sharp increase in the minimum wage, but we would still likely be looking at a situation where the federal government would be overseeing the employment of well over 10 million people under this program. By comparison, the federal government now directly employs 2.2 million people, not counting the Postal Service. Is it reasonable to believe that the federal government could effectively oversee the employment of a workforce that is more than five times its current level? That seems like a serious leap. And, there will be political consequences to doing this poorly. If the government puts in place a jobs guarantee and a substantial number of people turn out to game the system, either directly as workers who don’t work or as intermediaries who list phony workers, it is not likely to be long for the world. During the Obama years some of us were pushing for what seemed a much smaller lift: a youth jobs program for people in areas of high unemployment. There was little interest. While I never got a clear explanation of the downsides to such a program, I always assumed that the fear was that Fox News would get pictures of two kids enrolled in the program sitting on a park bench drinking beer. Not wanting to deal with the fallout from this potential risk, the Obama administration chose not to go this route. Clearly the risks of abuse with a full-scale job guarantee would be several orders of magnitude larger. This is why when Jared Bernstein and I discussed this issue in our book on Full Employment, we recommended trial programs. If we show that this can be done effectively, it will be possible both administratively and politically to expand the program. There is another aspect to this sudden interest in this political long shot, which is a huge potential downside. The Federal Reserve Board is currently in the process of raising interest rates with the idea of limiting the number of jobs in the economy. The Fed’s ostensible concern is that the labor market is getting too tight, which will lead to more rapid wage growth, which will lead to higher inflation. There is a campaign organized by the Center for Popular Democracy to push back against the Fed’s plans to keep hiking interest rates. While it is great to talk about what the government could potentially do to help workers, the most immediate issue is to not have it do things to hurt workers, like having the Fed raise interest rates to reduce the rate of job creation. If progressives’ focus on the aspiration of a job guarantee causes them to ignore the Fed’s interest rate hikes occurring in front of our faces, it will be a serious loss.