Saturday, July 7, 2018

Krugman on the Job Guarantee

Krugman on the Job Guarantee -- DSA / Alexandria Ocasio-Cortez

More on a Job Guarantee (Wonkish)

By Paul Krugman

Opinion Columnist

July 5, 2018

As I wrote the other day, Alexandria Ocasio-Cortez may call herself a socialist and represent the left wing of the Democratic party, but her policy ideas are pretty reasonable. In fact, Medicare for All is totally reasonable; any arguments against it are essentially political rather than economic.

A federal jobs guarantee is more problematic, and a number of progressive economists with significant platforms have argued against it: Josh Bivens, Dean Baker, Larry Summers. (Yes, Larry Summers: whatever you think of his role in the Clinton and Obama administrations, he's a daring, unconventional thinker when not in office, with a strongly progressive lean.) And I myself don't think it's the best way to deal with the problem of low pay and inadequate employment; like Bivens and his colleagues at EPI, I'd go for a more targeted set of policies.

But I'm fine with candidates like AOC (can we start abbreviating?) proposing the jobs guarantee, for a couple of reasons. One is that realistically, a blanket jobs guarantee is unlikely to happen, so proposing one is more about highlighting the very real problems of wages and employment than about the specifics of a solution. Beyond that, some of the critiques are, I think, off base.

Here's the way some of the critiques seem to run: a large share of the U.S. work force – Baker says 25 percent, but it looks like around a third to me – makes less than $15 an hour. So offering these workers a higher wage would bring a huge rush into public employment, implying a very expensive program.


What's wrong with this argument? The key point is that all those sub-$15 workers aren't just sitting around collecting paychecks: they're producing goods and (mostly) services that the public wants. The public will still want those services even if the government guarantees alternative employment, so the firms providing those services won't go away; they'll just have to raise wages enough to hold on to their employees, who would now have an alternative.

Now, that doesn't mean zero job loss. Employers might replace some workers with machines; they would have to raise prices, meaning that they would sell less; so private employment might go down.

But all this is true about increases in the minimum wage, too. And we have a lot of evidence on what minimum wage increases do, because we get a natural experiment every time a state raises its minimum wage but neighboring states don't. What this evidence shows is that minimum wage hikes have very little effect on employment.

So if we think of a job guarantee as a minimum wage hike backstopped by a public option for employment, we should notexpect a mass migration of workers from private to public jobs.


OK, a couple of caveats. First, while we have a lot of evidence on minimum wage hikes, these have generally been modest, leaving wages well below the level of the proposed federal guarantee. And even the leftiest of economists would agree that a sufficiently high minimum wage – say, $30 an hour – would reduce employment. Is $15 an hour high enough to get us into job-destroying territory? In high-income regions, probably not. But in America's lagging, poorer regions there might be significant job losses.

Second, there are quite a few working-age adults who aren't in the labor force at all, and at least some of them aren't working because they see no job opportunities at all. A federal jobs guarantee might bring a substantial number of these non-working adults back into the work force. This would, of course, be a good thing from a social point of view – in fact, it's kind of the point of the whole program – but could mean having to find work and money for a lot of new public employees.

How many? At its peak in 2001 the prime-aged employment rate was almost 3 percentage points above its current level. If a job guarantee brought such employment back to its peak, that would mean 3 ½ million additional workers. So we could be talking about a lot of people.

So I don't want to minimize the potential problems with a job guarantee. But a wholesale migration from low-paid private to public employment isn't one of those problems.

And to repeat what I said Tuesday, whatever problems you may have with the specifics of AOC's proposals, they're far more sensible than, say, Larry Kudlow or Sam Brownback-style voodoo economics, which passes for mainstream economic thinking on the other side of the aisle.

John Case
Harpers Ferry, WV
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