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How would Job Guarantee wages be set?

It is Wednesday so some snippets and some music – sad music this week because it signals the death of one of the great pioneers of Jamaican music last week. I am holding a Mini-Music Festival today – right here on my blog. Join in an celebrate a legend. But a few economics matters first pertaining to the Job Guarantee and the nonsensical arguments I have been seeing in the media about it being a system of enslavement and not better than a system that forces workers into unemployment.

Job Guarantee wage setting in Australian context

I get sent various screenshots from Facebook and other social media debates about my work. I don’t solicit them nor particularly welcome them.

I have formed the view that much of the ‘conversation’ on Facebook is not helpful to advancing an education in Modern Monetary Theory (MMT).

As an example, last week, apparently there was a debate on Facebook about how Job Guarantee wages would be set.

It follows some stupid Op Ed (the Ed bit being missing) articles claiming that the Job Guarantee would be oppressive and not allow workers to bargain for their wages because the government would just dictate the levels.

The debate I saw parts of then launched into this topic reaching all sorts of conclusions that were spurious and venturing that the MMT originators really hadn’t thought any of this out etc. Ad nauseum.

We have written about this in the past and a moment’s research would have solved the question in the first place.

In Australia, we have a judicial process, independent (largely) of government, where wages are set.

There is some collective bargaining and the conservatives tried to increase the incidence of individual bargaining (because they knew workers would be screwed given the power imbalance).

Further, trade union membership in Australia has sharply declined since the 1990s.

The Australian Bureau of Statistics reported that in August 2016:

16% of full-time workers and 12% of part-time workers were trade union members.

Between 1976 and 2016, the number of trade union members decline from 2.5 million to 1.5 million, and given the labour force growth over that period, the density rates fell from 51 per cent to 14 per cent (Source).

This graph is taken from that cited article provided by the Parliamentary Library of Australia (October 15, 2018) – Trends in union membership in Australia and tells the story.

So the idea that most Australian workers are represented by a union which then achieves wage outcomes for them is far fetched.

The reality is that the Fair Work Commission and its predecessor Conciliation and Arbitration Tribunals set the minimum wage and the award wages that flow from that setting.

The – National Minimum Wage Orders – are set annually via a judicial process.

The decisions of the Fair Work Commission cover all workers who are part of the Australian national workplace relations system. Some workers are covered by the state workplace relations systems, which work in a similar fashion to set specific wage levels.

Organisations like the Australian Chamber of Commerce and Industry, the Australian Industry Group, the Australian Council of Social Service, the Australian Council of Trade Unions, the Australian Government, and State and Territory Governments – all make submissions to the process and can argue their cases at hearings.

I have been involved in these processes regularly on behalf of the unions.

The so-called Minimum Wage Order is then applied to minimum award wages across the plethora of award wage agreements that are set in the Commission.

Only workers who have achieved an enterprise bargain that has not fallen below the relevant judicial award are not covered by the decisions of the Commission.

Approximately 2.2 million workers are paid the minimum wage or get adjustments in line with the minimum wage decisions from the Commission. Total employment in July 2020 was 12.5 million.

So the Job Guarantee wage would not be a government dictate and workers through their relevant representatives would have the ability to influence the decisions of the Commission, just like a significant number of workers in Australia.

The idea that these other workers enjoy the capacity to set their own wages and Job Guarantee workers would not enjoy that capacity is ludicrous once you understand how wages are set in Australia.

Further, while the Job Guarantee wage would represent the minimum wage in Australia if such a program was introduced, I always emphasise that it would be a socially-inclusive minimum, which would be much higher than the current federal minimum today.

That would mean changing the legislation that binds and guides the Fair Work Commission in its deliberations.

1. The Commission would have to determine an annual productivity bonus (as it did under a different guise before neoliberalism) that would be passed onto all workers, including Job Guarantee workers.

This would allow the low-paid, who have limited power to complete enterprise bargaining agreements and who work in small workplaces that may not be capital intensive (hence high productivity) to enjoy real wage gains in line with the overall capacity of the economy.

That is an equity measure.

2. In determining what ‘socially-inclusive’ meant the considerations would move beyond simple ‘capacity to pay’ arguments from employers, and, instead, take into account factors that allow a person to be ‘included’ in society – housing costs, entertainment and dining out costs, transport costs, holiday costs, etc.

Forcing those considerations would take us away from the narrow private profit considerations that dominate current wage setting and ensure that the minimum wage allowed a worker the opportunity to participate meaningfully in society.

This type of wage setting system is nothing at all like what the critics, who want to cast the Job Guarantee as workfare, have claimed we advocate.

This wage setting would be more progressive and fair than anything we have seen in the past.

The Job Guarantee is not much different to the NAIRU

Among the more absurd claims I have seen recently is that the Job Guarantee is basically workfare. I dealt with that nonsense in this blog post – Setting things straight about the Job Guarantee (July 30, 2020).

Then, last week, a ‘senior economist’ from a centre that proffers itself as a progressive voice in the Australian policy context, claimed on Twitter that the Job Guarantee was “not a real departure from NAIRU”.

An astounding claim when you think about.

I wrote to the Director of that Centre and asked him:

Are we to conclude that the position of your Centre … considers that a guaranteed job at a socially-inclusive minimum wage (well above the current minimum wage in Australia), that provides holiday pay, sick pay, special leave, statutory employer contributions to superannuation, choice of hours of work, opportunities to undertake training and formal education within the paid-work environment, and can be held indefinitely if desired, is “not a real departure” from rendering a person unemployed and forced to undertake pernicious work tests in return for a below-poverty line income support payment?

I received a reply indicating that the Director was not concerned with the Twitter claim. Thus answering my question by implication.

Go figure!

The other part of the Twitter claim was that with a Job Guarantee, “higher wage workers are laid off to enter low-wage JG”.

I pointed out to the Director that this claim defies empirical logic.

Even when official unemployment is high, higher wage workers rarely have to endure job loss.

Unemployment is typically overwhelmingly endured by low-paid, precarious workers.

And when higher-wage workers do lose their jobs they typically are able to draw on redundancy payouts, which allow them to enter ‘wait unemployment’ and see out the crisis.

The following graph illustrates what happens to unemployment rates over the economic cycle.

The data is for Australia from 1989 to 2019 (OECD database) and the rates by level of educational attainment: Below upper secondary school, Upper secondary school, and tertiary education.

These levels are matched fairly closely with pay levels.

Even during the 1991 recession, the worst downturn since the Great Depression (to that date) the tertiary educated workers (who would form the higher paying workers) only saw their unemployment rate rise to 5.7 percent and drop quickly after that.

By contrast, the least educated (and paid) saw their unemployment rates rise well above 11 per cent and hover at those elevated rates for some years.

Would the low paid workers have preferred a Job Guarantee to that situation? Almost assuredly.

Would the highly paid workers have been forced into the Job Guarantee? Most had redundancy payments and other resources.

I am finding a lot of statements about the Job Guarantee to be really ill informed and bizarre.

Music – We say goodbye to Frederick Nathaniel “Toots” Hibbert

Frederick Nathaniel “Toots” Hibbert – was a Jamaican singer and songwriter who died at the age of 77 in Kingston last week (September 11, 2020) from COVID-19 complications.

His band – Toots and the Maytals – were giants in the reggae scene and one of my favourite bands.

His early recording (1968) – Do the Reggay – coined the name for the music, which followed a mighty lineage from Blue Beat, Ska, Rock Steady, then Reggae music.

‘The Reggay’ was a dance fad in the Kingston music clubs.

Toots was described as being “the nearest thing to Otis Redding left on the planet!”

Among other achievements:

In 2010, Hibbert ranked #71 in Rolling Stone magazine’s “100 Greatest Singers of All Time”

I loved listening to his singing and learned a lot from his guitar players, who had such an unmistakable groove.

Here is a documentary about Toots, which is worth the time spent watching.

Very sad to see him leave us.

So let’s have a Toots and the Maytals Mini-Festival today. There are so many magic numbers – here is a selection.

Pomps and Pride from Funky Kingston, 1972

Time Tough from In the Dark, 1973

Love Is Gonna Let Me Down from Funky Kingston, 1972

Funky Kingston from Funky Kingston, 1972

Pressure Drop from 1969 single and Monkey Man album, 1970

My Melbourne band was named after this song.

That is enough for today!

(c) Copyright 2020 William Mitchell. All Rights Reserved.

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    This Post Has 30 Comments
    1. “And when higher-wage workers do lose their jobs they typically are able to draw on redundancy payouts”

      There’s also the small matter of why they have “higher wages” in the first place. Surely, almost by definition, if a person is getting more than the living wage then they have multiple bids in the market that has driven the wage differential up to that level.

      If that job ends, then they will be able to get another job at about the same “higher wage” – or they are overpaid relative to the majority on the living wage.

      I suspect quite a lot of these arguments are from sets of people that know they are getting rather more of the pie than they are entitled to and, like other rentiers, are attempting to maintain their privileged position.

      They don’t want “but what about the jobs, can I have a bailout” to end any more than the capitalists who they essentially sit alongside at the table.

      To the disadvantage of the wider set of workers not in their protected guilds.

    2. The big issue will be housing costs. For wages to be socially inclusive we would have to include a significant increase for housing costs to reduce the cost of housing to about 25% of disposable income which is what used to be considered acceptable. This will vary from area to area (the present rush out of London’ is already changing things).

      I was just wondering whether the JG would include a housing supplement based on the area just as certain jobs in London have a London allowance (which is far from adequate). Massive social housing projects could deal with this but property owners would never vote for that as they don’t want their assets devalued. Would a minimum wage that reduced housing costs to 25% of disposable income be inflationary beyond an acceptable point? I guess that depends on what is happening elsewhere in the economy in terms of goods and services.

      (I need to look at the JG literature myself!).

    3. ” For wages to be socially inclusive we would have to include a significant increase for housing costs ”

      Or require that empty properties are brought into the housing stock. Let or have it let for you should be the mantra.

      “I was just wondering whether the JG would include a housing supplement based on the area”

      Better to drive housing costs down and then let people moving to other areas sort things out. Since JG ensures you can have a job anywhere you live there will be people moving to where they want to live rather than where they feel they are forced to live for work.

      Let’s see how that equalises things out and makes better use of what we already have.

      I can see a lot of redundant commercial property becoming housing in the not too distant future – if the shift to more working from home becomes permanent.

    4. How would compensation for the JG be set? It seems pretty clear that the government will ‘dictate’ that compensation since it is government that is paying it after all. It will be a political process, rather than a ‘market’ process. And that is the point of the JG to begin with. The ‘market’ is too variable and leaves too many unemployed even at the best of times which creates too many social and economic problems that we do not need to endure.

      But government will be setting a minimum standard- not a maximum, and probably not even the median. What bargaining power the JG worker has lies in their ability to opt out of it, and through whatever influence they have on the political process that determines the wage. I don’t see the problem with admitting this. But I also am starting to think that we have to be careful not to cut whatever social benefits that currently exist, if any do. Not many do exist in my country, so that is not much of an obstacle. The JG needs to be an additional option that is available to people- not something they get forced into.

    5. Hadn’t we said recently though, that when inflation threatens, we raise taxes to create unemployment and pick the unemployed up in the JG program? ISTR commenting that it might be better reworded. Sorry I can’t cite that comment, should have bookmarked it.

    6. Yeah. A quick comment of bill’s in “More political interference…”.
      “At the top of the cycle, we create unemployment to discipline inflationary pressures.”

      Maybe some caveats ought to apply:
      * don’t take every quick comment as canon.
      * remember that government policies apply to aggregates, and hit individual people by accident. A policy will always be somewhat heartless.
      * everybody in the world ought to pay attention to my caveats.

    7. “Forcing those considerations would take us away from the narrow private profit considerations that dominate current wage setting and ensure that the minimum wage allowed a worker the opportunity to participate meaningfully in society.” This is the key to the beauty and wisdom of the JG. It would offer a minimum wage and benefit package, determined by the process of democratic government, which would automatically up the ante on employment across the board. Every worker would be enabled by the JG “to participate meaningfully in society,” bringing neoliberal exploitation of labor–all of that structured unemployment/underemployment, ALL OF THOSE BS JOBS–to an abrupt end. Small wonder that the JG is maligned and mis-characterized by elites who milk the status quo, along with their wannabe sycophants. Adopt the JG, and in one masterful stoke, the back of neoliberalism is broken. It’s THAT big a deal. All that would remain would be to link JG work DIRECTLY to the addressing of environmental and human needs.

    8. I don’t think we should take these people too seriously.

      All they do is to look in to look into nooks and crannies to find out or just blow any flaw out of proportion to fight against any change of the current system.

      These people are not here to solve problems. That is not their interest. They are the problem.

    9. Yeah Mel- that could use some re-wording. ‘We are gonna raise taxes to create unemployment to prevent inflation’ is just not a winning political slogan- even if it is true. Maybe we can think of a better way to describe it.

    10. I’m sorry to be a bit off topic, but I just saw Ice Cube, yes, that Ice Cube, endorsing MMT on Twitter (he apparently read “The deficit myth” by S. Kelton).

      I don’t know why this made me feel so optimistic but it did and I felt the need to share.

      MMT is making its way into the mainstream one Ice Cube at the time and that is great news.

      Cheers!

    11. How about this Mel?

      “We are seeing excess demand in some sectors of the economy and that is pushing prices up across the board. Our strategy is to increase production of those services being demanded by facilitating an increase in the available supply factors of production by curbing demand for less essential production. This will free up resources that will enable increased production in those areas experiencing excess demand so that prices will stabilize around our inflation target and promote a more balanced economy overall.”

      Kind of hurts writing in this way.

    12. “Kind of hurts writing in this way.”

      I prefer being honest. If we’re going to have Capitalism then firms have to be able to go bust or the competitive mechanism doesn’t work. Essentially we need to treat firms as cattle not pets. Therefore you can’t really have firms who “look after” workers because they may not be there in the future. The country will be there though and therefore it is the country that catches people when they find themselves without work.

      If we want competition, and the productivity gains that brings, we need a Job Guarantee to handle the fallout from competition.

      If we want a “gig economy” and the benefits of the labour flexibility of a “gig economy” brings, then we need a Job Guarantee to ensure there are always enough gigs.

    13. With all due respect to everyone here, I think that the nay-sayers do have a point.
      Most Gov. will not be able act fast enough to raise taxes, if or when inflation starts taking off.

      Therefore, we should call for some body like the central bank Board of Governors to be given the power to raise taxes and even withholding when called for.
      My specific idea is for congress to specify which taxes can be raised and by how much.
      So, for example, the Fed. could impose an up to 10% surtax on all Federal income taxes with an X% increase in withholding.
      One draw back with this is, the taxes are not targeted in specific sectors of the economy.
      Any thoughts?

    14. FWIW I think Steve_American misses the mark. You cannot always get tax functioning fast enough no matter who is responsible, and besides, that’s not the purpose of fiddling with the tax code. The idea is to have a steep progressive tax structure so that it *automatically* stabilizes, and let government deficits (private surplus) float. If you need to draw resources into the public sector to tackle problems that require non-profit making effort (climate, unemployment) then you just spend. If short-term inflation arises that’s no problem. There is never a problem with monetary inflation. Real inflation is the only real problem, and that can be tackled in other ways through the automatic stabilizers.

      So you do not need to (and *should not*) say that “MMT advocates raising taxes to control inflation,” it is false, and only neophyte MMT’ers would say such a stupid thing (I forgive you all, I was one myself some years ago) and that’s also giving away too much to neoclassicals. You can always say the tax code stays put – provided it is progressive – and tax receipts will then automatically rise as economic activity increases, with *no change to the tax code*. Raising revenues (receipts) is not the same as “raising taxes”. (Read Warren Mosler’s 6+1th Deadly Innocent Fraud. ;-)

      With a JG you do not need to worry about zombie firms either, if a firm can afford the JG wage, they can maybe survive, if they can make their sales. Nathan Tankus just wrote a good piece on that topic.

    15. “Kind of hurts writing in this way.”
      And it should. :) I’ve been reading George Orwell’s essay _Politics and the English Language_.

      bill wrote a short sentence justifiably to fit an ephemeral comment. But being short has the side effect of making it unarticulated; it collapses a causal chain into a single event and presents that event as monolithic. In other contexts this bothers the heck out of me.
      My suggestion at the time was “we remove spendable money to discipline inflationary pressures, with the [possible] side effect of creating unemployment”. (I didn’t say “possible” then so I’ll stick it in now.)
      Maybe “We took some money to stop them bidding up prices, but they fired people instead, the selfish bastids.”
      Unless I’m wrong about the source of inflation, and excess employment really is the cause.

    16. Bijou Smith,

      “…..and tax receipts will then automatically rise as economic activity increases, with *no change to the tax code*.”

      History shows this has not been enough to quell a inflationary pressures. Intervention is required.

      ” Real inflation is the only real problem”

      What is real inflation?

    17. Mel,

      “My suggestion…..”

      You guys have to be kidding. Or maybe you are and I don’t get the joke.

      This sound’s no different than the nonsense that’s been peddled by the mainstream.

    18. Henry, you are right- my bit of ‘Fed speak’ was meant as somewhat of a joke. So MMT proposes that demand induced inflation, if it occurred after a Job Guarantee had already been in place for a while, could be dealt with by raising taxes, if it came to that. Like Bill said in his reply to you that Mel quoted.

      Do you have a better idea? Would love to hear it.

    19. Jerry,

      “Do you have a better idea? Would love to hear it.”

      You mean re explaining inflation control under MMT?

      Tell like it is and cut the bullshit.

    20. An economic rightsizing to enable an economic paradigm shift. Seriously, though, at some point you *have* to start telling the truth, the alternative is the erosion of democratic institutions and processes we’ve lived through the past decades, with the predictable result of losing to a simple, appealing, and completely wrong fascist ideology.

    21. Henry- Bill told you how it is as far as MMT. The various euphemisms I wrote are bullshit but arguably are technically correct though intentionally misleading. So what if I had a bit of fun and you didn’t get the joke. Bill never writes garbage like that.

      And if you do have a better idea how to control inflation than MMT , I would love to hear about it.

    22. “Transaction taxes are dumb because they hobble the market but if that’s want you want…”

      Transaction taxes are precisely what is required to free up resources for the public use, and which is the only real economic reason for taxing in the first place. (All other reasons being essentially a political viewpoint on a market economy).

      Work out what you need for public use and then target the taxation or loan suppression at the people currently using those resources.

      If there is sufficient saving in an economy, either domestic or foreign, there is may be no need to tax *at all*. Expectation of taxation if there is insufficient saving is enough to drive the currency.

    23. Jerry,

      It’s not what is being said but the way it is being said.

      I know you were hamming it up. My comments were directed to Mel.

    24. “… a simple, appealing, and completely wrong fascist ideology”.

      I’d like to make a plea:- Can we all please agree to stop misusing that word “fascist”?

      – neoliberalism an “ideology”? – probably, depending on how one defines that word (personally I too do regard it as such; others might disagree)

      – “completely wrong”? – agreed.

      – “fascist”? – *definitively* NOT.

      *Real* fascism is far too dangerous, sinister and in every conceivable way morally-obnoxious to be trivialised by misapplying it as just another piece of cheap knee-jerk invective, to be casually thrown around!

      Apart from anything else, doing that is an affront to the memories of the victims of *real* fascism (such as those – “the disappeared” – of the Junta in Argentina) and to their still grieving relatives.

      (@ Paulo Marques
      I don’t mean to target you specifically, Paulo: you’re in good company! But using that epithet in that – pernicious – way has become a habit on the part of all too many self-described progressives. I think it’s high time people started being more scrupulous about how they apply it and who to – rather than resorting to using it carelessly and indiscriminately. like tossing a hand-grenade into a crowd).

    25. Thanks for the music (and writing) Bill. Took me back to times in the early 80s, driving down to Avon Gorge (rock-climbing) when I was listening to more reggae.

      It strikes me that to achieve living wages for everyone, there not only needs to be a Job Guarantee, but a restriction on how much top earners earn in relation to bottom earners.

    26. @ Patrick B,
      Yes, I agree.
      This is why I suggested that the 90% or even 99% tax bracket start at—
      (where JG = yearly JG income for full time workers and M is the multiplier)
      The bottom of the highest income tax bracket = JG X 40 X 52 X M.
      The bottom of the highest income tax bracket = JG X 2100 X M.
      If JG = $25/hr., then this is 52,500 X M
      Then we set M to get whatever level we want. Suppose we want the top earners be limited to 200 X the JG income. Then M = 200.
      Given these assumptions the bottom of the highest income tax bracket would be $10.5 million per year.

    27. Prof, if you are talking about Alison Pennington I’m not sure why you would be surprised by those comments. She is after all your competition and is making a bid for increased relevance. History would suggest that you can’t both shine in the same space!

    28. robertH,

      I understand it’s not entirely correct, but there is no other simple way, that I know of, to describe the phenomenon of a demagogue, with no ideology other than praising his ego, who gains trust by spouting incoherent conspiracy salads against The Other to to hide what he and his enablers gain for sustaining things as they are at any cost to others. Well, I lie, I suppose ur/proto-fascist might be more adequate, fascist would require some minimum level of competency and planning, but they’re in the wings.
      Because we know neoliberalism, as a hegemony, is done; it has no more money to extract and little more possibility to impose debt withing the framework. The only way to keep the hierarchy strong is through more force, which can easily be legitimized through division in a crisis, which is why I think the truth is the only possibility of a way forward.

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