Numbers are underestimated – any risk of minimum rage hikes will cause people to flock to federal programs and exceed projections.

Because a federal job guarantee differs so radically from anything ever attempted in an otherwise predominantly market-oriented economy, making accurate projections is very difficult. The authors of the CBPP and Levy reports, however, agree that the program is likely to enroll over ten million people. In fact, there are several reasons why their estimates may be too low.

The CBPP report estimates a total of 10.7 million full- or part-time participants, with a “full time equivalent” of 9.7 million jobs. This is the number of workers required to reduce the nation’s U-6 (unemployment and underemployment rate including discouraged workers) from 8.2 percent (as of January 2018) to

1.5 percent, “a reasonable estimate for frictional unemployment in the U.S. economy.”

The Levy report estimates initial participation in their program of 12.7 to 17.5 million Americans. Its approach is conceptually similar but more ad hoc and is detailed in section 2 of their report.

Any of the estimates presented in the two reports would result in an enterprise of staggering, unprecedented size. As chart 1 shows, the Levy report’s upper-bound estimate of 17.5 million enrollees would exceed employment at the world’s nine largest employers combined. The CBPP’s lower estimate would be just shy of employment at the world’s five largest employers combined.

This list of employers contains private firms, state enterprises, militaries, and public utilities, none

of which individually have attained even a third

of the size of the lowest projected job-guarantee participation rate. Economists have long written about the managerial, informational, and incentive- related issues that arise as firms get bigger.7 We are aware of no organization of any structure that has prospered or even existed with anywhere near these numbers of employees.

As large as these numbers are, they may be underestimated because of conceptual errors in thinking about the minimum wage, and the fact that projections are based on recent relatively low levels of unemployment.

American Institute for Economic Research 5

“Give me

a paycheck.”

“Find them something to do.”

Federal government

Lacks price and individual choice that make markets work

Individual

Government agency

“Do this.”

Figure 2. Mandated employment under job-guarantee proposals

The Levy report sees the program wage as a “de facto minimum wage” for the entire economy, forcing private sector employers in most circumstances

to match it. The CBPP report notes that forty-one million workers currently earn less than fifteen dollars per hour. Both reports assume no more than a trivial amount8 of those workers would enroll in

a job-guarantee program. This reflects the belief by advocates of a higher minimum wage that it would not cause significant job losses, even with a radical doubling to fifteen dollars per hour.9

A survey of the literature on minimum wage and employment by Neumark and Wascher (2007) reports that a “sizable majority” of studies found negative employment effects from minimum-wage hikes, and that “the studies that focus on the least- skilled groups that are likely most directly affected by minimum wage increases provide relatively overwhelming evidence of stronger disemployment effects for these groups.” If even a few percent of the workers currently earning under fifteen dollars per hour either lost their jobs or simply chose to enroll, projected participation would increase by millions.

Both reports also project their programs’

enrollees based on very recent unemployment, underemployment, and discouraged-worker data. These numbers are nearing twenty-year lows. The large impact higher unemployment could have on participation, raising the cost and other burdens we

discuss below, can best be seen in chart 2, which graphs the U-6 rate on which the CBPP report bases its projected enrollees from the series’ inception in 1994 until the present.

The U-6 rate that generates the CBPP report’s baseline projection of 10.7 million enrollees (8.2 percent) is very close to the low end of the data series over the time in which it has been collected. The all-time low U-6 rate of 6.3 percent in mid- 2000 would have yielded a projection of 7.7 million enrollees, but peaks of unemployment associated with the early 2000s recession and 2008 financial crisis would yield projections of 15.2 million and 26.4 million enrollees, respectively.10

The grave concerns we raise in the upcoming sections about a job guarantee’s cost, logistics, and footprint on the wider economy all stem from its massive size. While we believe both reports have underestimated that size, we will primarily use the authors’ own size estimates in the analyses that follow. To the extent that they indeed underestimate program size, the harms we discuss would likely be even greater.