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Simulating the Logic, Effects, and Costs of the Job Guarantee 2016
Transcript of Simulating the Logic, Effects, and Costs of the Job Guarantee 2016
Scott T. Fullwiler
Hyman P. Minsky Summer Seminar
Levy Economics Institute
JG and Great Recession
2009q2 to 2013q1
JG employees pay employee portion of payroll tax but no income tax
JG employees assumed to be "unproductive" for now
JG wage adjusted to account for size relative to minimum wage via same method as FRB/US
Why a Job Guarantee?
Sir William Beveridge (1879-1963):
"True full employment exists only when there are jobs available for everyone who wants one."
"Natural" Rate of Unemployment, NAIRU, Output "GAP," etc.
Unemployed buffer stock of labor necessary to stabilize inflation
"Taylor's Rule" approach to central bank strategy
Inconsistencies in theory and policy:
Millions in unemployed buffer stock to stabilize inflation
Labor market policies assume unemployed are at fault
Raising minimum wage is good, but involuntarily unemployed still have wage = 0
What is the opportunity cost of an employed buffer stock of labor?
2. Domestic/Community "Unrest"
3. Human capital/skill depreciation
4. Poor Physical Health
7. Involuntary Unemployment
8. Any "output" JG workers might provide
From Bill Mitchell, et al., (2008)
Are JG workers "productive enough"?
Think more carefully about opportunity cost--
How productive are the involuntarily unemployed?
How productive is the government/private non-profit system set up to deal with problems worsened by buffer stock of unemployed?
JG in the Fairmodel
The JG and Business Cycles
Counterfactual=No Obama Stimulus=Base Level for Comparison
Obama Stimulus = $770B
JG Only = $742B
Obama Stimulus + JG = $1,568B
JG is an automatic stabilizer, NOT stimulus.
Small addition to potential output stimulus to bring full employment with lower inflation (<$100B over 3 years)
Or, potential output stimulus can be smaller and less inflationary for same capacity utilization and private sector job creation if JG is added
Payroll tax holiday + JG even even better given deflationary effects of lower employer costs
So, the JG . . .
Stabilizes GDP/Output AND Inflation across business cycles
modest effect on fx
Provides stabilization to household and firm net saving across business cycles
Adds to private sector job creation and capital stock
"Costs" about 1% of GDP on average (depends on version of program implemented and accompanying safety net)
Stochastic Simulation--How MUCH Stabilization?
JG with efficient buffer stock and workers 1/2 as productive as pvt sector (=PROD in Table 2; 1/2 PROD = 1/4 as productive) stabilizes to the degree that monetary policy adds almost nothing (row 30 vs. row 31)
JG with workers less productive than this or less efficient bufferstock still stabilizes in comparable magnitude to other rules
Results are significant particularly given Fairmodel's bias against JG
Price level set by unemployment rate (and other things)
Other rules stabilize buffer stock of unemployed (i.e., unemployment rate)
JG stabilizes total employment via fluctuating employed buffer stock
Overall . . .
Logic of JG in Business Cycles--stabilization of income/output AND inflation with positive side effects
JG is an automatic stablizer, not stimulus (this is not a problem--important to understand the difference)
As an automatic stabilizer, JG compares favorably to several policy rules incorporating unemployed buffer stocks (interest rate rule, tax rule, transfer rule)
JG does not require policy makers to correctly interpret incoming data or have the "correct" ideology--it's AUTOMATIC if appropriately implemented. (Again, think of how successful unemployed buffer stock infrastructure has been.)
"Potential Stimulus" = $Billion per qtr (2009q2-2012q1) in government purchases necessary to return to path of NGDP growth of 5% per year using 2007q4 as starting point.
Government purchases = largest multiplier spending in Fairmodel (1.0-1.5, depending on time frame). So, "Potential Stimulus" is a low-end estimate for spending.
Summarizing to this point
Universal--takes workers as they are
Consistent with any social safety net
Fixed wage--not set by market forces
Living wage/benefits package
Perhaps more fundamentally . . .
Improvement in cost/benefit sense vs.
buffer stock of unemployed
government and private/non-profit efforts to deal with problems caused by unemployed buffer stock
in favor of an
or you are in favor of an
Timothy Sharpe, 2013