The harms outweigh the benefits – labor market disruptions, worker laziness, and corruption.

We must approach any discussion of the impact of a federal job guarantee on the wider economy with an abundance of caution. Our sample size for evaluating a program that the Levy report’s authors term a “radical transformation of the labor market” is zero. Even countries with much larger public sectors do not operate under the mandated system of a job guarantee.

However, economic theory and lessons from history can inform our understanding of the likely impacts of a federal job guarantee. Both reports’ authors are confident that in addition to benefiting program enrollees, a federal job guarantee would be an unequivocal positive for the larger economy, offering macroeconomic stabilizers and perhaps even paying for itself.

Neither report concerns itself with the potential negative consequences that flow from basic economics, issues ranging from large distortions in the information and incentives provided by markets to opportunities for special interests to manipulate the programs to their advantage.

Each of these issues could potentially result in substantial net harms to all Americans, including program participants.

In appendix 2, we briefly evaluate the claims both reports make of benefits to the economy beyond the program enrollees themselves. The CBPP report touts some benefits but is short on details, while the Levy report makes highly problematic use of macro- econometric forecasting models.

The remainder of this section focuses on the potential economic harms of a job guarantee.

6.1 Labor Market Disruptions

Both reports’ authors treat the ten million or more enrollees in a federal job guarantee as somehow cloistered from the labor market at large (which includes both private and government employers). The Levy report envisions a “buffer stock” of job-guarantee workers that will grow in times of downturns and shrink as more workers rejoin the traditional labor market in better times. One does not have to go deep into economic theory to see how this purportedly clean flow of workers would break down.

14 The Job Guarantee

Neither report takes account of harm to the private sector caused by their proposals. In addition to the

de facto minimum wage and benefits set by a job guarantee, one must consider the contraction in private labor supply that would result if a sizable fraction of the many millions of currently employed workers at the lower end of the wage distribution chose to leave their jobs and enroll in the federal program.

The immediate result of more pay and benefits for the working poor is something everyone would like

to see, all else equal. But the process would divert workers from the places in the economy where they are most productive to a labyrinthine bureaucracy, where even finding enough work to assign would be a challenge. This could greatly weaken the productivity of the overall economy, potentially leading to declines in output and even greater job loss.

Contrary to the stated goal of not competing with the private sector, some industries could become entirely nationalized. For example, 875,000

home health aides and 1.3 million teachers’ aides currently employed by the private and public sectors earn less on average than proposed job- guarantee wages. One might myopically say

these workers deserve a raise, but turning these industries from conventional jobs into tasks assigned on demand would almost certainly result in poorer service to the young and elderly.

6.2 Impact on Worker Incentives

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.

It would cost about $330 billion to send ten million workers currently counted among the U-6 unemployed for full trade school degrees,27 a fraction of the cost of

a single year of a federal job guarantee. While we do not support such blanket solutions of any kind, this number puts in perspective the benefits to investing in, rather than simply sustaining, people.

6.3 Rent-Seeking and Corruption

A federal job guarantee, no matter how well intentioned, would also serve as a magnet for corruption and corporate influence peddling. Especially when administered on a local level, the opportunities for corruption become vast and difficult to monitor. For example, one need not be particularly imaginative to see opportunities for a local building contractor to get free labor by giving kickbacks to officials in charge of placing enrollees in jobs.

Corporations and other interest groups do not have to resort to corruption per se to gain control of the millions of subsidized laborers in a job guarantee. Rent-seeking, where corporations or other incumbent interests compete for influence over government

to further their own objectives, is a well-known phenomenon.28

For example, the regional manager for Walmart might get in touch with a local government about the condition of its store’s parking lot and the grounds around it. Sales have been falling, and this expense might tip the decision to move to a new location in the next town. Couldn’t the town provide some of its laborers to improve the look of the store’s grounds?

Where there is free labor to be had, private businesses come knocking. Both with and without breaking the law, influence peddling would be an inevitable consequence of a job guarantee.