4-Job Guarantee Programs

Continues from previous post on 3-Three Way Partnership.

While the three-way partnership (discussed in previous post) is an unconventional program, designed for the unique circumstances currently prevailing in Pakistan, the JOB GUARANTEE PROGRAM is one of the central recommendations which emerges out of macroeconomic ideas generated by Modern Monetary Theory. The basic idea is that we should create money to put idle resources to work, to enhance productivity in the economy. The most precious idle resource is labor, and we must give PRODUCTIVE JOBS to all who can work. This will lead to full employment of labor resources. Current macroeconomic policy is directed toward the twin gap of maximizing output via full employment of resources, while maintaining price stability. It is widely thought theses goals are in conflict with each other (via the Phillips Curve). However, MMT maintains that we can achieve both goals, and avoid the potential conflict via a well-designed Job Guarantee program. We now discuss the requirements for a successful Job Guarantee Program.

First note that conventional supply-side macroeconomic models like RBC and DSGE rule out the problem of achieving full employment by assumption. Supply side models assume instantaneous equilibrium in all markets, so that the “disequilibrium” of unemployment of available labor (and other) resources is assumed never to exist. This “ostrich” approach of closing your eyes to make problems disappear is typical of the Chicago School brand of free market economics. Secondly, following the dramatic failure of DSGE models in the Global Financial Crisis, these models have been modified to assume price rigidities prevent achievement of equilibrium in the short run, allowing for unemployment. However, the mindset that output is determined by supplies of labor and capital leads to the idea that if government pumps money into the economy will necessarily generate inflation.  To counter this, note that the Job Guarantee is designed to create PRODUCTIVE JOBS – while extra money will be pumped into the economy, also extra products will be generated so that there is no automatic inflationary tendency created by the Job Guarantee.

There are two threats to the Job Guarantee programs, which are especially relevant in the Pakistani context. If the government starts providing jobs as political favors, then there is a huge possibility of creating low or zero-productivity jobs, which would indeed have a purely inflationary impact. This is part of a general criticism that MMT encourages Fiscal Irresponsibility. This is a genuine danger posed by MMT since the first plank of the theory is that a sovereign currency means that governments CAN print as much money as they desire, so there is no hard budget constraint on government spending. It does not follow (and MMT does not advocate) that government should print arbitrarily large quantities of money. Money creation is ALWAYS possible, but it ALWAYS has effects, and these effects can be good or bad. The idea that the government CANNOT create money, and that our hands are tied because we cannot generate revenue to finance projects of great social importance is WRONG. It does not follow that we SHOULD always finance all available projects, because deficit financing has powerful economic effects, and there is no guarantee that harmful consequences like high and runaway inflation would not result from such financing.

So what are the steps required to ensure that spending potentially huge amounts of money on a program which guarantees jobs to all people who seek productive employment does not create economic catastrophe, via runaway inflation? We have already mentioned that political grants of jobs as favors is likely to lead to unproductive hires, defeating the purpose of the job guarantee. A number of coordinated steps must be taken to counteract such tendencies.

  1. The first of these is a transparent hiring process, managed by communities which are beneficiaries of the outputs created by the jobs provided.
  2. It is necessary to monitor and evaluate the program, to ensure that those who are hired participate actively and generate socially valuable products. This M&E process imposes a huge burden which the government is not equipped to bear. So, this process of ensuring that hires actually produce socially valuable output must be devolved to communities.
  3. More specifically, broad based participation in the process of hiring, and evaluation, is required to prevent local elite capture by communities, which is just as harmful as political hires at a higher level. The transparency in hiring, and evaluation of programs can be ensured by a number of mechanisms, which have already been created and tested in a number of community-based schemes for poverty alleviation currently in use in Pakistan.
  4. An essential part of ensuring honest and productive work in return for provision of pay is the creation of social norms which support a work-ethic. This is very much a part of Islamic values. In order to be “halal”, work must be provided in return for money received. This Islamic work-ethic (which is very different from Weber’s Protestant Work Ethic at the heart of capitalism), is very much alive in some Muslim communities, but has been substantially weakened in general, especially in Pakistan. It is of essential importance to work on re-creating this, via engagement of the Islamic scholars and religious leaders.
  5. All of the above steps are required to ensure that Jobs provided are PRODUCTIVE. They must ADD to total social product, and create VALUE greater than money being spent on them. Fortunately, there exist many successful examples and models, and large numbers of productive tasks are available in communities to create opportunities for successful implementation of job guarantee programs.
  6. In addition to productivity, guaranteed jobs should not compete with the private market for labor. Several steps in implementation are required to ensured. Job Guarantees should provide a minimum fair wage, which should be the bottom of pay-scale in the private sector. Here we exclude exploitative jobs, which provide work at exploitative wages.
  7. In general the labor pool consists of grades with varying degrees of employability, for the Least Employable to those who are attractive as employees. The Job Guarantee should start from the bottom of the pool, providing jobs to the least attractive employees, least likely to be hired by private sector.

How can we provide productive jobs to those whom the market cannot employ? This is not difficult because there are an enormous number of jobs which have great social value, but cannot be done profitably by the private sector. Cleanup campaigns, and green projects have this nature – while they provide immense social benefits, the diffuse and long term nature of the benefits means that private profit opportunities are not created by such jobs. Massive amounts of productive jobs are possible. MANY MANY templates are available for low-skill jobs which have high social value. To mention a random list of examples: Community Services, Basic Literacy, Planting Trees, Green Conversion Projects, Preservation of Rainforests, protection of mangroves, social services for the elderly, paramedical assistance, providing care and shelter for orphans, and abuse victims, etc. etc. In a traditional Islamic society, the WAQF was a mechanism for financing provision of these services, and revival of these would be of great value and importance in proceeding towards this goal of productive jobs for all willing to work.

Next Part: 5-Sectorally Balanced Monetary Expansion explains how a balanced job guarantee program can avoid the inflationary consequences of money creation.

Relevant Materials: Some details of the Job Guarantee, and how it differs from standard approaches to job creation, are discussed in “Employment for All” (shortlink:  bit.do/weae4a). A 90-minute Lecture on the Job Guarantee Program, based on Chapter 12 of the MMT Textbook by Mitchell, Wray, and Watts, is linked below. More relevant readings can be accessed from the webpage: Macroeconomics Lec 25: Job Guarantee


Date posted: January 14, 2020
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