Guaranteed Employment or Guaranteed Unemployment?

Which path should we take to a post-pandemic world?

By Pavlina R. Tcherneva | May/June 2020

This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org


This article is from the (forthcoming) May/June 2020 issue.

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“Economic vandalism” is how the late Nobel Prize-winning economist William Vickrey described unemployment. Everything about the coronavirus response in the United States today suggests one thing tomorrow: guaranteed and prolonged mass unemployment, the kind that most of us have never witnessed. When the loan guarantees (with already extremely weak job protections) expire and firms face continued reduction in demand, the layoffs that haven’t already taken place during the pandemic will happen when the economy “reopens.”

And whatever cash assistance we provide to families to keep them afloat now, millions of them will be scrambling for the pitifully scarce jobs of the post-pandemic world. And we know what many of those jobs will be—poorly paid, with no benefits or basic employment protections, much like the ones “essential” workers currently have (the delivery drivers, grocery store clerks, and sanitation workers). While lending and cash assistance help firms and families pay the bills, they are not job creation policies. They are not even reliable job protection policies.

What conversations will fill the halls of economic conferences, the Federal Reserve’s research offices, the chambers of Congress, and our TV screens tomorrow? Will experts tell us that the unprecedented global shock has created a wave of unemployment that was just ... inevitable? That, unfortunately, unemployment has turned into a structural and impossible-to-tackle problem? That the “natural” rate of unemployment (often referred to as the “non-accelerating inflation rate of unemployment,” or NAIRU) is now permanently higher, in the double digits? We’ve seen this script before.

The avalanche of job losses today and mass unemployment tomorrow are of our own making, created by our seeming inability to conceive of policies that protect and create jobs on demand. There is another option: Instead of capitulating to a world of guaranteed unemployment, we can demand policies that guarantee employment. During the pandemic, the government can protect jobs by acting as a kind of employer of last resort, while in the post-pandemic world, it can create jobs directly via mass mobilization and a Job Guarantee. The employer of last resort backstopping payrolls, mass mobilization, and a Job Guarantee are three different but organically linked policies.

Avoiding the Social Catastrophe of Mass Unemployment

As our European counterparts have done, the government can promise to pay the wages of workers whose jobs are threatened by COVID-19. This can be done in multiple ways. In some Scandinavian countries, the government participates in tripartite negotiations with firms and unions, working to minimize the number of layoffs and offering to pay the wages—effectively becoming the employer of last resort—of those workers whose jobs would have been eliminated.

Another method would be for the government to provide direct grants to firms, as several members of Congress have recently proposed, that would cover the wages of all workers earning up to a certain amount or of furloughed and laid-off workers only, with additional subsidies for operating costs. Each grant comes with explicit conditions to retain or bring back laid-off workers and use the funds as planned, instead of spending the funds on stock buybacks, dividend payouts, CEO compensation subsidies, or golden parachutes.

The availability of funding, however, is not the issue. The $2.2 trillion CARES act was enough to pay every single wage in the U.S. economy for three months. If any of the above methods were attempted (and the government paid a proportion of all wages), the budget could have protected jobs through the end of the year and possibly longer. Since more spending is on the way, it is not too late to pursue this strategy.

The government is essentially bankrolling private firms already and has the prerogative (nay, responsibility) to impose other stipulations, e.g., to require firms to offer hazard pay, guaranteed paid leave, and a minimum wage of $15 an hour for all workers. This would have the effect of fortifying working conditions throughout large swaths of the labor market (in the United States nearly half of all workers earn below $10.22 an hour).

While this policy would still not be enough to combat unemployment or poorly paid employment, it would rapidly stem the hemorrhage. The U.S. economy already lost 30 million jobs in just six weeks, which is greater (by about 7.5 million) than all jobs created in the previous 11 years of recovery after the Great Recession. How many million more jobs will we lose next month? The Federal Reserve expects unemployment to exceed Great Depression levels.

Now is the time to plan a program that tackles the second epidemic—the social catastrophe that comes with mass unemployment. If we wait for the private sector to create the needed jobs, we will be waiting too long. Jobless recoveries have become the norm for half a century now and, even when we managed to reach an unemployment rate of just 3.5% in the months before the pandemic, economists were begrudgingly admitting that there was more labor market slack left (meaning that there was still room for unemployment go lower and wages to rise higher without the threat of worrisome inflation).

Why We Need a Job Guarantee

To restore jobs, and good jobs, too, the government must play a direct role in hiring the unemployed. To do this on short order it would need to launch large-scale public investment projects that create millions of good union and other well-paying jobs at all wage and skill levels. There are other existential threats before us and there is plenty of work to do. The Green New Deal is the obvious place to start.

But, as I explain in my forthcoming book The Case for a Job Guarantee, large-scale mobilization and direct job creation programs are not the same thing as ensuring that decent jobs are always available to anyone who’s looking. The only way to do this is through a Job Guarantee—the third and indispensable piece of any comprehensive job creation and job preservation strategy. It is a program that guarantees that anyone who walks into the unemployment office can walk out with an employment option that offers a minimum living income with benefits. The Job Guarantee is a public option for jobs in public service that offers on-the-job training and assistance with transitioning to other employment opportunities.

Critically, a Job Guarantee raises the wage floor by establishing a labor standard for minimum pay and working conditions for all jobs in the economy. It is a policy that ensures that precarious and poorly paid work is extinguished along with the coronavirus by increasing competition in the labor market—competition for workers. Why toil away for $7.25 an hour if the local green Job Guarantee project offers $15 an hour and Medicare? As an alternative to the most precarious private-sector work, the Job Guarantee pressures firms to improve their pay and benefits if they wish to retain and attract employees. Many private-sector workers will get a pay raise, which in turn will boost spending, growth, and firm profits. Businesses that can only survive by paying poverty wages will no longer be viable. Neither will businesses that use the “threat of the sack” to create the most difficult working conditions (wage theft, discrimination, harassment) for the lowest-wage and most vulnerable workers. The Job Guarantee will give workers the power to say “no” to abusive employers. It will also act as a stepping-stone for young people entering the labor market, provide an employment opportunity for caregivers who wish to return to paid work, and create a bridge to civilian employment for former inmates and veterans.

The bottom line is this: Mass unemployment is avoidable. But having accepted it as an inevitable (even if unfortunate) circumstance during recessions and pandemics, and worse—as a perennial feature of the economy—we have painted ourselves into a corner, unable to envision a world or policies that prevent it and the pain it inflicts on families and communities.

A Job Guarantee would provide the assurance that good jobs will be waiting when the economy turns the lights back on. The stronger the job protection policies now, the bigger and bolder the mobilization efforts tomorrow, the more nimble and effective the Job Guarantee program can be in the near future. It remains the only policy that secures that essential, most basic economic right for all—the right to a decent, useful, and remunerative employment opportunity—at all times, good or bad.

is an associate professor of economics at Bard College, a research scholar at the Levy Economics Institute, and author of the forthcoming book, The Case for a Job Guarantee (Polity, June 27, 2020).

U.S. Rep. Pramila Jayapal, Paycheck Guarantee Act, April 10, 2020 (jayapal.house.gov); U.S. Sens. Bernie Sanders, Mark Warner, Doug Jones, and Richard Blumenthal, Paycheck Security Act, April 16, 2020 (sanders.senate.gov); Pavlina Tcherneva, “What If We Nationalized Payroll?,” Multiplier Effect—The Levy Economics Institute Blog, March 30, 2020 (multiplier-effect.org); Martha Ross and Nicole Bateman, “Low-wage work is more pervasive than you think, and there aren’t enough ‘good jobs’ to go around,” The Avenue blog, Brookings Institution, Nov. 21, 2019 (brookings.edu/blog/the-avenue); Jake Johnson, “Fed Economists Warn U.S. Unemployment Rate Could Soon Reach 32%—During Great Depression It Peaked at 25%,” Common Dreams, March 31, 2020 (commondreams.org).

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