An FJG decks the private sector—destroys small businesses

With the midterm victories in the House of Representatives, Congressional Democrats are likely to begin a full-court press on their most recent policy initiative: a federal jobs guarantee program. Senators Corey Booker, D-N.J., and Bernie Sanders, I-Vt., have advanced their own, and with the arrival in Congress of affirmed Democratic Socialists like Alexandra Ocasio-Cortez of New York and Rashida Tlaib of Michigan additional support seems likely. Several think tanks — including the Center on Budget and Policy Priorities (CBPP), Levy Economics Institute (LEI), PolicyLink, and the Center for American Progress — have proposed job guarantee plans. While there are minor differences between them, each essentially contemplates a massive, government-run program to provide work (at a predetermined wage) and benefits to enrollees on demand. Currently, individuals in the job market "sell" their labor to firms as much as firms "purchase" labor. Mutually, this transaction — employment — arises because both the employee and employer benefit; value is recognized reciprocally. With a federal jobs guarantee program, the government is inserted between the employee and the employer; the value proposition is limited at best. Centralized plans such as these forgo the most fundamental elements of markets — information, competition, and incentives — in favor of rote bureaucratic reckoning.

A Daunting Task

Simply finding work for tens of millions of job guarantee enrollees would be a formidable task; finding productive, impactful work catering to an individual's skills, in a given locality and in a timely manner, would be staggeringly difficult — if possible at all. The costs, too, are daunting. Both the CBPP and LEI reports project costs ranging from $450 billion to more than $600 billion, which put the proposed programs in the same league with the Pentagon in terms of discretionary spending. And while it is true that the cost of any of the federal jobs guarantee programs would be offset by savings in current unemployment insurance and poverty mitigation programs, neither of the estimates include costs of designing, staffing, and managing the proposed agency. In terms of potential enrollees, estimates start at roughly 10 million. According to LEI's high-end estimate of 17.5 million enrollees, the program would have more employees than the combined head count of the U.S. Department of Defense, the Chinese People's Liberation Army, Walmart, McDonalds, the U.K.'s National Health Service, the China National Petroleum Corporation, the State Grid Corporation of China, the Indian Railways, and the Indian Armed forces. A government organization of that size — 17.5 million job guaranteed individuals, with an untold number of administrators, managers, and other employees to attend to them nationwide — would become the largest public or private organization in history. It would also be the largest experiment in organizational efficiency in history, with the livelihoods of millions of newly government-dependent citizens hanging in the balance.

Wage Inflation

Another issue is the wage, which several plans recommend should be (or average) $15 per hour. With the increasing focus on "living wages," it will not be long before program directors discover that $15 per hour goes far further in Alabama than Hawaii, and the tendency will be to equalize cost-of-living disparities up, further increasing already massive costs. Two other factors: both the CBPP and LEI plans fail to account for the potential disruption to existing businesses — mostly small businesses, the engine of economic growth in the United States — which will inevitably occur when workers earning less than $15 per hour leave their private sector jobs for higher-paying employment with job guarantee placement. At present, more than 40 million Americans earn less than the proposed guarantee wage of $15 per hour, which could trigger a major shift of the U.S. workforce away from private employment, on to public rolls. It would also effectively force small businesses to compete directly against the federal government on the labor market.

Prone To Fraud

Finally, a government operation as colossal as a federal jobs guarantee program would inevitably be vulnerable to both political corruption and private rent seeking. As proposed — and however well-intentioned — the federal jobs guarantee program would cost more in two years than the entire New Deal did (in 2018 dollars). Rejecting these proposals does not mean turning a blind eye toward the plight of the under- or unemployed. There is a vastly better way: not only far less costly, but more consistent with traditional American values and respectful of the full potential that unemployed, underemployed, and employers offer. We must allow labor markets to work without the fetters of artificial controls such as minimum wages, restrictive licensing, coercive collective bargaining agreements and others, thereby permitting market signals to allocate labor to their greatest possible social benefit.