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What is a Job Guarantee?

This is a background blog which will support the release of my Fantasy Budget 2013-14, which will be part of Crikey’s Budget coverage leading up to the delivery of the Federal Budget on May 14, 2013. The topic of this blog is the concept of employment guarantees as the base-level public policy supporting a return to full employment in Australia. We introduce the specific proposal – the Job Guarantee. In the next background blog we will see how much the Australian government needs to invest to make this policy improvement possible.

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The Australian labour market – 815 thousand jobs from full employment

This is a short background blog which will support the release of my Fantasy Budget 2013-14, which will be part of Crikey’s Budget coverage leading up to the delivery of the Federal Budget on May 14, 2013. The topic of this blog is the state of the Australian labour market and is an overview of the detailed monthly reports I provide to coincide with the release of the Labour Force data by the Australian Bureau of Statistics. To review these monthly reports please see the blogs under the – Labour Force – category.

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Growth and jobs are things governments can buy and summon

I left out the word not between the words “are” and “things” and replace the “or” with “and” between buy and summon. Otherwise this would have been the latest piece of insight offered by the outgoing EU Council President Herman Van Rompuy, who appears to be intellectually stretched when it comes to the most basic macroeconomic concepts despite regularly making comments that appear to be of a macroeconomic nature. Let me remind him: spending equals income and output. Growth in spending when there is massive (and rising) excess real productive capacity will generate growth in income and output. Growth in income and output almost certainly generate growth in employment. And, just in case we might be worried that any crowded-in productivity growth reduces the employment dividend and, cogniscant of the fact that there are millions of relatively unskilled workers without jobs in Europe at present, governments around the region could employ all of them if they introduced an unconditional Job Guarantee. Governments can create extra real growth and jobs anytime they choose unless the economy is already at full employment. Then they would not want to anyway. So the question that Mr Van Rompuy should be answering is why he is overseeing government machinery that refuses to give the governments this capacity. That is a question none of them will answer.

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When jobs are being lost think macro first

I am taking the easy way out today. I have a number of meetings today and also several deadlines coming up for work that I am doing. As a result, I decided to re-cycle some work I did on Friday (early), which was written for the Fairfax press daily newspaper – The Age – as a commissioned Op Ed contribution. Friday was ridiculous when I think back – I had to squeeze more than Archimedes would recommend if I was dealing with liquid into the time available. So today, what comes around goes around – to my favour. The Op Ed was 800 odd words on a complex topic so today, by way of reference, I thought I would add a few sentences to the 800 words to provide more explanation of the points. The background was that a few high profile firms announced fairly large job cuts last week in Australia which lead to a stream of media headlines and calls for government assistance, both short-run in the form of cash bailouts and longer-term, more protection (tariffs etc). The macroeconomics of the situation, however, has not been seized upon by the media, which goes to the heart of the problem. The debate tends to focus on aspects of an issue, which are less important, and, ironically, in this case, are changes which are largely beneficial (structural change), but, ignoring the issues which cause the most damage (those relating to output gaps).

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Youth Guarantee has to be a Youth Job Guarantee

Last week, Eurostat released the latest – Retail Sales – data for the EU. It formalised what has been obvious for some time – private spending in the European economy is going backwards. But didn’t leading economists, including Nobel Prize winners, tell us a few years ago that if governments imposed austerity, the private sector would lose their worries about future tax hikes and start spending? Didn’t the current British Government say the same thing as a justification for the ficsal austerity that now looks like pushing the UK into a triple-dip recession (almost unheard of)? The answer is that these economists and politicians tried to convince us that there was such a thing as a fiscal contraction expansion. Fancy words like Ricardian Equivalence were dragged from the sordid annals of mainstream macroeconomics to give this notion some “authority” (because they knew hardly anyone understood what it was anyway). The wash up is they were wrong. And millions more are unemployed and moving towards or into poverty as a consequence. There is a wholesale failure of government at present in most advanced nations. A current proposal in Europe is to introduce a Youth Guarantee. However, for it to be effective it has to include a Job Guarantee component as its centrepiece. More supply-side activation is part of the problem and cannot be part of the solution.

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European Commission – Jobs for Europe Conference

I have been in Brussels this week as an invited speaker at the – Jobs for Europe: The Employment Policy Conference – being staged by the European Commission (September 6-7, 2012). One of the five main topics is “Pathways to full employment: job guarantee, social economy, welfare to work”. I gave a presentation yesterday on the Job Guarantee. The video of the presentation is available below.

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US unemployment is due to a lack of jobs whatever else you think

I read an interesting study today from the Brookings Institute (published August 29, 2012) – Education, Job Openings, and Unemployment in Metropolitan America – which aims to provide US policy makers “with a better sense of the specific problems facing metropolitan labor markets”. The paper concludes that “the fall in demand for goods and services has played a stronger role in recent changes in unemployment” than so-called structural issues (skills mismatch etc). This is an important finding and runs counter to the trend that has emerged in the policy debate which suggests that governments are now powerless to resolve the persistently high unemployment. The simple fact is that governments have the capacity to dramatically reduce unemployment and provide opportunities to the least educated workers who are languishing at the back of the supply queue in a highly constrained labour market. The only thing stopping them is the ideological dislike or irrational hatred of direct public sector job creation. Meanwhile, the potential of millions of workers is wasted every day. Sheer madness!

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Increase minimum wages and give job guarantees for the low paid

I lived in the North-West of England for a time in Lancashire as I pursued my PhD at Manchester University. It was during the UK Miners’ Strike 194-85, which was in response to the Thatcher Government’s attack on the major unions in the UK to further its ideological war on workers’ rights and welfare provision. The union lost dramatically after a struggle of 12 months symbolising the rise of neo-liberalism. The same ideology that sought to undermine the rights of workers also led to policy changes that, ultimately, caused the financial crisis and on-going real recession. The reason I raised that experience is because I read a report from a Manchester research organisation over the weekend which highlighted a major problem in that region (poverty wages etc) but also, without stating it, provided an alternative policy approach to the current crisis which would quickly get economies moving again – creating jobs and enhancing the capacity of households to spend. A policy response that antithetical to what is being tried at present is to increase minimum wages and introduce employment guarantees for the most disadvantaged workers whose welfare has been disproportionately undermined by the crisis. That would not only help alleviate the major problem at present – deficient aggregate demand – but also redress some major equity issues that the crisis has accentuated.

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Industry job dynamics in Australia

I have been number crunching today – heavy sort of crunching. One of the on-going discussions in the Australian context is the dual pattern of growth that is being observed here – which has arisen largely because, in essence, we are a primary commodity producer (and exporter) rather than an industrial nation. At present, some sectors (such as manufacturing and tourism) and regions (such as Sydney and Melbourne) are struggling while other sectors (such as mining) and regions (such as Western Australia, Northern Queensland and the Northern Territory) are booming. The East Coast where the majority of Australians live and work is probably close to recession. These trends – popularised by the term ‘two-speed economy’ – whereby serious sectoral and regional imbalances accompany overall economic growth, challenge the fundamental patterns of our economic and social settlements and threaten the financial viability of many Australian households. So I was computing job destruction and job creation rates today as part of an investigation of how the labour market is reacting the dual nature of economic outcomes at present. And then … the ABS published the Retail Sales data for April 2012 today and, as usual, everyone could interpret it in their own way. But it does bear somewhat on how we consider this dual growth pattern.

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If a government won’t create jobs, it must provide income support

You can sense the fear in people’s lives at present as the economic crisis seems to be worsening and various so-called opinion leaders are telling us we are in danger of lapsing into a depression like the 1930s unless there is drastic action taken by governments. For example, the IMF’s latest salvo. Then you hear them say that the action necessary is more fiscal austerity. And you know it will definitely get worse. My own superannuation fund sent us letters last week suggesting that they are in danger of being unable to meet their liabilities and benefits – current and future – will likely be cut. How much? Fear tells us a lot. Action: all those retiring will take lump-sums and invest in cash – eliminating the risk but solidifying the cuts and – further undermining the viability of the fund. That what is happening everywhere. A moment’s reflection tells us that this fear is being deliberately created by the elites who are elected by us to advance our best interests. These elites are using fear – and deliberately perpetuating falsehoods to keep us ignorant – in order to usurp democracy and take control of the wealth creation processes so they can tilt the field further in their favour. This crisis could be over in a few weeks or months with appropriate policy interventions. It has now dragged on for years. That is because it is taking the elites that long to organise their on-going coup.

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The best way to eradicate poverty is to create jobs

In their rush to create justifications for reducing the footprint of government on the economy (and society), economists have invented a number of new “approaches” to economic development, unemployment and poverty which rely on an increased private sector presence. Concepts such as social entrepreneurship and new regionalism emerged as the governments embraced the so-called Third Way – neither free market (right) or government regulation (left) – as a way to resolve unemployment and regional disadvantage. Microcredit was another version and the 2006 Nobel Prize was awarded to the Grameen Bank in Bangladesh and its founder. The media held microcredit out in various positive ways but gave the impression that it was another solution. Insiders knew it wasn’t but the I have always argued that the best solution for poverty is to initially create decent paying jobs. I have also argued for many years that only the national government has the capacity to really intervene in this way. For it is was “profitable” in the free market sense, the private sector would have already done it.

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It is easy to create jobs

The US President delivered his long-awaited speech outlining the proposed American Jobs Act today to a packed Congress. The room was full of self-serving, anti-intellectuals masquerading as the representatives of the people of America. Eventually, this sham will be clear to all and the “American people” will “demand action”. If they don’t then the neo-liberal domination of policy which has led to the crisis and the extended malaise will continue to impoverish them. Bold action was needed from the President at least to demonstrate leadership so that the democratic forces could start to pressure the T-pots. Unfortunately, the President doesn’t seem to understand that it is easy to create jobs. A government just has have the will to do so.

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Casual work traps workers into low-pay and precarious jobs

I am giving a presentation tomorrow in Melbourne at a conference on Annual Skilling Australia and Workforce Participation Summit. My topic is Making Australia a “full employment economy” and that topic stands out from the others which are all about the mainstream pre-occupations of participation and training. My view is simple – if you offer someone a job and a training slot you solve the participation problem and provide them with a paid-work environment to develop their skills. The most effective skill acquisition comes from training within a paid-work context. I am also talking about how workers get trapped in a low-skill, low-pay circle of disadvantage and the increasingly casualised Australian labour market is reinforcing that pathology. This proposition, of-course, runs counter to the mainstream view that has justified the growing precariousness of work in Australia (and elsewhere) as being a market response to the desire by workers for more flexibility. They also argue that casual work is a “stepping stone” into better jobs and provides unskilled workers with a transition from low pay to high pay. The evidence does not support the mainstream view – why would we be surprised about that. The evidence is categorical – casual work traps workers into low-pay and precarious jobs.

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The ARRA created 1.503 million jobs

Many readers have asked me to comment on a recent paper by two US academic economists which is being promoted by Greg Mankiw that estimates the employment impact of the spending component of the American Recovery and Reinvestment Act (ARRA). The authors say that the fiscal stimulus spending destroyed (net) around 600 thousand jobs in the private sector. When I read their paper, using their rules of interpreting their results I concluded they found that ARRA created 1.503 million jobs. But if I use the rules that the profession typically employs I find that their paper finds nothing of interest at all. Their econometric models yield no worthwhile results. The question that Greg Mankiw should answer is why is he promoting such a non-result as if it is important?

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Austerity proponents should adopt a Job Guarantee

If anybody knows David Cameron’s mobile phone number give him a call and tell him that as he scorches the British economy (more bad news about consumer sentiment yesterday) he should also introduce a Job Guarantee as a way of using the workers he declares irrelevant more productively. A Job Guarantee is the perfect accompaniment to a full-blown fiscal austerity program and will not compromise any ideological beliefs except those that say that some people should be unemployed. But how could I advocate this? Doesn’t the Job Guarantee require a demand expansion? Isn’t that the whole point of it? Answer: no! Recommendation: Austerity proponents should adopt a Job Guarantee. Am I mad? Answer: probably but read on …

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You cannot have more jobs by cutting spending

Its all weather today with severe winter storms giving grief to people (and some friends) in the US at present. Closer to home Northern Queensland, fresh from being flooded, will be hit later tonight by Tropical Cyclone Yasi which is now classified as a Category 5 and will have winds up to 300 kms per hour. My friends up in Townsville are staying calm though. Down here in Newcastle it has been around 40 degrees Celsius for the third day now with no real change coming. So weather extremes – and yes I think they are becoming more pronounced but I am an economist so that is just my uninformed (non climate change sceptic) opinion. But today I am writing about a speech the Australian Prime Minister gave to CEDA yesterday (February 1, 2011) that exposed her lack of understanding of how the macroeconomy works. The problem is that I suspect no-one else in the room who listened would have thought that her message was fundamentally inconsistent. The lesson is that cannot have more jobs by cutting spending despite what the Prime Minister thinks.

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Job Guarantees and social democracy

Today is my last day in London and I am tied up all day with meetings and activities and then later I am travelling back to Australia. So I invoked the guest blogger facility and asked Victor Quirk to share his views on employment guarantees. Victor has just finished a doctoral dissertation and has produced one of the most compelling research efforts I have had the pleasure to supervise. He chose a very challenging topic overall – the political constraints on full employment – and compiled a very rich argument based on a substantial interrogation of an extensive array of primary documents which he sourced from various national archives in Australia, Britain and the US. Now that Victor has finished his work I hope he will share more of it as a guest blogger. So … over to Victor.

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Jobs are needed in the US but that would require leadership

There were two very different Op Ed pieces in the New York Times on July 31, 2010. On the one hand, the “strategic deficits” man, David Stockman is trying to ramp up a bit of advance publicity for his upcoming book on the financial crisis which I hope goes out to the remainder desks shortly after being published. He is advocating balanced budgets and “sound money” – which is neo-liberal speak for austerity and rising unemployment. On the other hand, Robert Shiller is advocating a “just do it” approach to recovery where the “do it” is defined in terms of public sector job creation. I find the latter argument compelling when you look at the data and what it is telling us about the American lives that are being destroyed by the policy vacuum. I am also sympathetic to Shiller’s line because sound macroeconomic theory points to that solution. Stockman displays an on-going ignorance of macroeconomics although some of this views resonate with me in a positive way.

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Conservatives think I am nuts for suggesting the government might create jobs

Today is actually the much promised shorter Friday blog. I had to write an Op Ed piece today for the Fairfax press on my recent evidence before a House of Representatives Committee of Inquiry into regional skills shortages. So I thought I would expand on that Op Ed a little for this blog. In April, my research centre – CofFEE – made a formal submission to this Inquiry. In June I gave formal evidence (see below) and some interesting things came up. A conservative MP on the Committee thought I was insane for suggesting that the public sector might consider creating employment given the high degree of labour underutilisation we have in this country. Some regions have 50 per cent of their workforces idle! Anyway, today I summarise our submission and provide some text from the official government hansard (record) of my evidence.

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Unemployment is about a lack of jobs

Today I have reading a swag of literature which attempts to explain cross-country differences in change in unemployment and average duration of unemployment in the current recession. This issue has been topical in the US recently as the US Senate debates whether to extend unemployment benefits. The mainstream economics view is that the previous assistance caused the unemployment problem and a decision to extend the assistance will worsen it. However, you have to wonder what planet the proponents of these views are on. The overwhelming evidence is that the longer the recession the higher average duration of unemployment becomes and the larger the pool of long-term unemployed. The solution is always to stimulate employment growth. That simple truth is always lost on the mainstream. As you will see, among the proponents of the erroneous view that benefit provision has caused the worsening of the unemployment situation are researchers at JP Morgans. I would like to think that if the US government hadn’t bailed those bums out then these researchers might have been unemployed themselves. They could certainly use a dose of harsh reality.

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