Job Guarantee Proposals Have a Long Way to Go

Recently, the idea of a “job guarantee” has become increasingly popular on the left. If you are unfamiliar with these proposals, the most detailed that I have seen comes from a recent report from the Center on Budget and Policy Priorities. Bernie Sanders also plans to announce a version soon. The main goal of a job guarantee is simple – completely eradicate unemployment (besides some frictional unemployment that they estimate to be around 1.5%). The method is even simpler – if you can’t find a job in the private sector, the government will give you one.

Obviously these jobs have to be good enough to keep people out of poverty. The starting wage rate in the CBPP proposal is $11.83 an hour ($24,600 per year for full time workers), which would increase over time. Including healthcare and other benefits bumps the cost per worker up another $10,000. They estimate the total cost per job (including spending on supplies and capital) to be $56,000. Using an estimate of the unemployed of  around 10.7 million people, they get a cost of the program around $543 billion.

To put that in perspective, total federal expenditures are around $4 trillion. Of that, social security is about a quarter, while medicare and medicaid are around half a trillion each. So the jobs guarantee would be adding an additional category of spending on the same scale of the largest existing government programs. And that’s assuming the estimates make sense. There is every reason to believe they do not.

Beyond the general rule that government estimates of costs are almost always underestimates, there is a pretty good reason to believe that a job guarantee would cost an order of magnitude more than estimated here. The 10.7 million workers estimated to take a government job is almost surely an underestimate. Adam Ozimek describes the absurdity of this assumption pretty well. As he points out, in addition to the 10 million unemployed, there are 41 million people that work in jobs that pay less than $15 per hour. Maybe not every one of these people would prefer to work in a nice government job, but certainly a lot more than zero would. If we assume half of these worker switch, we’re now talking about spending $1.5 trillion on this program. And this is when we are basically at full employment already. In a recession that number balloons even further.

To be fair, some of the spending could offset spending in other programs. If workers are getting benefits through their job guarantee, they won’t need to collect other forms of welfare. But I would need to see a much more rigorous estimate of those savings before deciding that they would do anything to prevent this program from being the most expensive project the government has ever done.

The cost of the program is certainly concerning, but on this point I can definitely see an argument that it could be worth it. For a progressive who has a lot more faith in government institutions to actually run the program well, eliminating unemployment for a meager $1.5 trillion probably seems like a great deal. Unfortunately a major question still remains unanswered. How does a Job Guarantee actually work?

Many important details of the implementation of a job guarantee are either brushed over or ignored entirely in every proposal I have ever seen. Most importantly: what in the world is the government going to have these 20 million people do? The CBPP proposal has a short section on “logistics,” which claims “The Secretary would administer employment grants to eligible entities, including state, county, and local governments, as well as Indian Nations, to engage in direct employment projects. These projects should be designed to address community needs and provide socially beneficial goods and services to communities and society at large.” Some examples of potential jobs include production of “infrastructure, energy efficiency retrofitting” and “elder care, child care, job training, education, and health services.”

So let me get this straight. The government is going to take on a bunch of unemployed people, presumably unemployed because they lack some skills necessary to get private sector employment (not to say it is their fault that they lack these skills), and put them in charge of your kids. The same government that wants all childcare workers to have college degrees.

Where would these jobs be? If I live in a small rural town in the middle of the country, is the government going to provide a job for me there or force me to move? Who evaluates my skills and decides what job I get? What if I prefer something else? Who organizes these projects? Can I get fired? If progressives want people to take job guarantee proposals more seriously they’re going to have to do a lot better than handwaving about identifying “areas of needed investment in the U.S. economy.” Give me some specific job descriptions and then we can talk. Any proposal that does not get into these details is not worth even thinking about actually passing.

But maybe the fine print isn’t actually that important. Keynes famously remarked that digging holes and filling them back up would be better than doing nothing when unemployment is high. Does it matter what people are doing for work as long as they are working? I think it does, but even if you accept the Keynesian story it still seems hard to justify such a program when we are not in a recession. I would still disagree with a program that provides government jobs only in a recession (for different reasons), but at least that has some theoretical backing. In normal times, I just can’t see how providing government jobs doesn’t crowd out private sector jobs that are actually aimed at providing valuable goods and services rather than just work for the sake of work.

The ideal scenario for  a jobs guarantee proponent seems to be that having government as a major player in the labor market will increase the bargaining power of workers. If a Walmart worker can make more money by working for the government, Walmart would either need to increase wages and benefits or risk losing the worker. In this sense it acts like a minimum wage, reducing monopsony power in the labor market.

A more likely outcome is that the job guarantee simply destroys a lot of those jobs entirely. Even if Walmart were to increase its wages to compete with the government, would anyone really ever choose a career as a Walmart cashier over one of these government jobs? Progressives can’t simultaneously emphasize how horrible it is to have to work for giant corporations and then come back with estimates that say nobody would rather work for the government. And once they are there, would they ever leave? Changing jobs is costly and hard work. Better to just settle in at the government digging holes and filling them back in (Maybe progressives actually like this outcome and the job guarantee is really a stealth plan to socialize half the economy. Mises and Hayek already took care of explaining why that’s not such a good idea).

I definitely understand why the left likes the idea of a job guarantee. It’s a Keynesian stimulus, a massive expansion of welfare, and an increase in the minimum wage all in one. But with it comes all the problems that those policies have. Putting it in a nicely branded but vaguely specified package doesn’t solve those problems. Before fundamentally changing the nature of the United States economy, it might be worth thinking this through a little bit more.