Bill Mitchell-en A Job Guarantee would require $A26.5 billion net to reduce the unemployment rate by 6 percentage points
(http://bilbo.economicoutlook.net/blog/?p=44821)
(i) Sarrera gisa: langabezia 2008an
When Kevin Rudd was faced with the threat posed by the unfolding GFC in late 2008 his government became very pragmatic and immediately ditched the narrative they had been pushing out throughout that year about inflation being a threat and the need for tighter fiscal policy and surpluses. They introduced, in two rounds, a fairly significant fiscal stimulus (around 4.2 per cent of GDP) which effectively saved the Australian economy from entering a recession. A significant part of that intervention was that it had various temporal properties – a cash handout in December 2008 designed to get spending power into the hands of consumers just before Xmas (the famous ‘flat screen’ payment – there were a lot of TVs purchased), which obviously was an immediate focus, and, a longer term component, which included their plan to put insulation into every home. This was aimed at job creation clearly, to address the cyclical needs, but, it was also intended to address the longer term climate crisis, that were beyond the GFC cycle. When appraising what government’s should be doing now – to deal with the socio-economic consequences of the medical crisis – that style of thinking is essential. The questions that need to be asked are: 1. What can be done now to avert an economic collapse? 2. What do we want to change about the pre-structure of the economy into the future? 3. How can we use the stimulus intervention to make those changes, while addressing Question 1. In this blog post, I go through some of that style of thinking. I also provide some specific estimates of the investment needed to introduce a Job Guarantee in Australia.
(ii) 2008ko AEB
Recall that on November 19, 2008, the recently-appointed chief of staff for the Obama Administration (Rahm Emanuel) spoke at at “Wall Street Journal conference of top corporate chief executives” and said (Source):
You never want a serious crisis to go to waste. Things that we had postponed for too long, that were long-term, are now immediate and must be dealt with. This crisis provides the opportunity for us to do things that you could not do before.
As this New York Times article – On Language A Terrible Thing to Waste (July 31, 2009) – notes, Emanuel used an earlier quote by Paul Romer, who had varied an earlier quote from some marketing agency, who ….!
While Emamuel is not someone we should revere, his sentiments are not without some sense and relate to the second question I posed in the introduction.
The problem is that the way in which governments ‘take advantage’ of crises is usually to fast track the existing agenda.
(iii) Australiako gobernua
So, the Australian government, for example, is making noises that they want to ensure there are significant structural changes that come out of this crisis – including wage cuts, work protection, reduction in consumer protection laws, reduction in regulations relating to urban planning and development processes, and more.
In other words, they want to take advantage of the fragility of the economy – the massive rise in unemployment and lost businesses – to create an even more undesirable future than was in place at the onset of the coronavirus.
They are already on the way to doing that. Without much of a whimper, the trade unions and the Australian Labor Party seem to have accepted their wage cutting plans already by agreeing to the JobKeeper.
You can trace back through my blog posts under the – Coronavirus – category, to see what I have written about the wage subsidy program. It is too small in terms of outlays, invoves wage cuts for most, excludes at least a million of the most vulnerable workers in the nation (casuals with less than 12 months continuous employment with the same employer), and, by the Treasury’s own estimates, still leaves at least 680 thousand workers jobless.
There is no virtue in workers accepting wage cuts and thinking they are doing the ‘right thing’ in the crisis. All progressive groups should be demanding the government pay the entire wage bill of workers who they have forced into idleness to protect the community.
But, the principle that we use the massive government intervention at present, not just to shore up the short-term economic spending needs, but, also, to create new investments and structures that we will need to fight that other crisis, which has fallen into the background at present – climate change.
Only a month or so ago, progressives were all talking about green transitions and decarbonising the economy amidst the rather dire projections that we have about a decade to get it right.
Act now was the message before it is too late!
I am not sure we even have time to prevent irreversibility in our climate. But I am no climatologist so I read the research literature and glean an understanding that we can do some things to change our future in this regard for the better.
And, I was driving home the other afternoon and was listening to the radio where an expert was talking about the dramatic improvements in our natural environment after just a short period of lockdown.
So in thinking about what the Government has already done and what it needs to do, these are some of the considerations that I think are important.
What the crisis and the official intervention has demonstrated so far is that the ‘how to pay for the interventions’, ‘where is the money coming from’, and all the rest of the ridiculous barriers that typically prevent progressive policy making from being implemented can no longer be seen to be credible.
The important questions then relate to what we want the nation to look like if and when we get through this medical crisis?
(iv) Lan-indarraren merkatua, datuak
Latest labour market data
On April 8, 2020, the Australian Senate established “a Select Committee on COVID-19 to inquire into the Australian Government’s response to the COVID-19 pandemic”.
You can follow the Committee’s activities and hearings – HERE.
Today (April 30, 2020), the Committee heard from the Department of Social Services and two documents were tendered, which you can read by accessing the site linked in the last paragraph.
The documents show that:
1. Unemployment (JobSeeker) benefit payments are now being made to 1,346,172 Australian workers.
2. A further 497,665 claims for benefits have not yet been assessed and finalised, inclusing 374,087 relating to either the adult JobKeeper or the Youth Allowance (for unemployment).
3. In the period March 16-April 27, 1,456,065 claims were made for welfare support, including 1,151,658 by those seeking unemployment benefits (mostly adult JobSeeker).
4. At the end of last year, there were 728,000 receiving unemployment benefits (which was called Newstart).
As I indicated the other day in this blog post – Policy failure – Australian unemployment rate probably already around 10.9 per cent (April 23, 2020) – my estimates based on the payroll data the Australian Tax Office is now making available suggests that the unemployment rate is now around 10.9 per cent notwithstanding the wage subsidy program.
This estimate was based on ATO data up to April 4, 2020.
We started the crisis with an unemployment rate of 5.2 per cent – excessive by any estimate.
The extra unemployment benefit recipients understate the extra unemployment because many people who lose their jobs are ineligible for benefits.
But if we take those who are now on benefits (Point 1) and those who have applications in waiting to be assessed (Point 2), then the unemployment rate would be around 12.5 per cent.
That means that in over the last two weeks of March and then up to April 27, the unemployment rate has risen 7.5 percentage points.
Which suggests that employment has slumped by 8 per cent over that time.
This is much worse than even in the Great Depression.
| Conclusions:
1. The unemployment rate is currently around 12.5 per cent. 2. Underemployment has risen. 3. The fiscal intervention is far too modest and needs to be considerably re-thought. |
(v) Esku-hartze fiskala
Rethinking the fiscal intervention
In relation to rethinking the current fiscal intervention of the Australian government, over the next few blog posts, I will finalise a consistent plan that brings together the temporal elements I described above and also the principles I outlined in my blog post – The European Commission non-stimulus is a waiting game before new austerity is imposed (April 27, 2020).
I will bring those thoughts together next week.
It is clear, given this latest data, that the stimulus package so far announced is grossly inadequate.
No responsible government should allow unemployment to go from 5.2 per cent to 12.5 per cent in a few weeks.
Which means two things in my view:
1. Instead of offering a wage subsidy to a select proportion of the employed labour force, which is just above the minimum wage and is paid to employers as long as they keep the workers on their books, the government should just pay the wages of the workers directly to the workers independent of what the employer chooses to do.
I outlined that idea in this blog post – The government should pay the workers 100 per cent, not rely on wage subsidies (March 31, 2020).
This would, in effect, make those workers public employees for the duration of the health crisis, and obviate all the secondary negative problems that are occurring in the form of rent defaults, mortgage default and other contractual payments defaults (energy bills, etc).
Workers would be instructed to stay at home unless they were able to continue working with compromising the health policies in place.
If the employer chose to keep trading and utilise these workers, then they would have to pay the wage bill.
But if the government temporarily took responsibility for the wages bill of the workers that are flocking into the welfare system, then it would be a superior outcome to just putting them onto the unemployment benefit, which is inadequate by any estimate, notwithstanding the Coronavirus supplement they are paying unemployed workers for the period of the crisis.
2. Large-scale public sector job creation programs are also necessary.
Prior to the crisis (March 2020 Labour Force data), the unemployment rate was already 5.2 per cent or 718.6 thousand. So we entered this downturn already in poor shape.
There were also 1,205.3 thousand underemployed workers who desired, on average, 15 extra hours a week of work but were being denied access to those hours by the suppressed spending growth, driven, in no insignificant part, by the obsessive pursuit of a fiscal surplus by the federal government.
In total there were 1,924 thouand workers (14 per cent of available labour) either unemployed or underemployed.
Even with the $A133 billion JobKeeper wage subsidy program, the Treasury estimated that the unemployment rate would reach 10 per cent by June 2020. They claimed the wage subsidy would keep the unemployment rate from rising to 15 per cent.
I considered that situation in this blog post – Policy failure – Australian unemployment rate probably already around 10.9 per cent (April 23, 2020).
In the past, to support our advocacy of a Job Guarantee, Martin Watts and I have developed a modelling framework for estimating the investment needed for the Australian government to introduce an unconditional job offer at a socially inclusive minimum wage to anyone who wanted to work.
In the last week, we have undertaken the tedious and quite exacting (because attention to detail is crucial) process of updating our databases and reconstructing our model parameters and equations to take into account the current coronavirus crisis.
I can provide the following results and information, which we completed this morning. A full report documenting our approach will be released through the – Centre of Full Employment and Equity (CofFEE) – in due course.
But here is what is relevant from this work:
1. Assume that the unemployment rate was to rise to 10 per cent, with the JobKeeper wage subsidy in place (as is being assumed by the Treasury).
2. The pre-GFC low-point unemployment rate (February 2008) was 4 per cent. So, we entered this crisis in a worse position that just before the GFC.
3. If the unemployment rate was 10 per cent and we wanted it to be 4 per cent, the government would have to create:
(a) 824.2 thousand jobs in total (assuming the participation rate doesn’t change)
(b) 773 thousand full-time jobs (assuming the full-time/part-time mix doesn’t change)
(c) 244.4 thousand part-time jobs.
4. Based upon the current national minimum wage in Australia ($A740.62 per week), an average full-time working week of 38 hours, 30 per cent on-costs (hiring costs), plus additional capital costs per worker (plant, equipment) of 35 per cent, the total annual full-time Job Guarantee job outlay would be $A77,024.48 and the annual wage received by the worker would be $A38,512.24
The capital costs etc were estimated from a survey CofFEE undertook of Local Governments to assess supervision, plant and other costs that would be required to supplement each Job Guarantee job.
The 35 per cent assumption is based on a labour intensive suite of jobs.
The outlays for part-time workers are proportional to the ratio of average part-time to full-time working hours.
You can read about that survey and all the details of our research work in this report – Creating effective local labour markets: a new framework for regional employment policy.
5. We took into account:
(a) Labour productivity – and created a ‘composite’ job.
(b) Multiplier effects of each new Job Guarantee job – so how much does GDP and consumption expenditure increase.
(c) In turn, how this impacts on corporate profits and non-government sector employment.
(d) The extra tax revenue the government receives as a result of the higher employment levels both in the public and private sector.
(e) The reduced outlays on unemployment benefits under the assumption that the 842.2 thousand workers would no longer receive income support payments. This was calibrated according to estimates of different income support payments by family structure and marital (now called partnership) status.
(vi) Emaitzak
The results
To reduce the unemployment rate by 6 percentage points (say from 10 per cent to 4 per cent – in fact, it doesn’t matter where you begin the simulation), then the following results are relevant.
Increase in employment
1. Total rise in employment = 842.2 thousand, which is made up of:
2. Job Guarantee employment = 712.6 thousand
3. New private sector jobs = 11.6 thousand.
Why does the private sector also expand?
Because the income stimulus to unemployed workers at the start (which is the difference between their Job Guarantee wage and the unemployment benefit) provides stimulus for increased consumption spending, which induces further income growth and via the multiplier effects a much larger final increase in national income and that stimulates the growth in private sector employment and corporate profits.
So introducing the Job Guarantee dramatically improves the material circumstances of the most disadvantaged.
But it also improves the situation for employers and profit recipients (which, of course, is the driving motivation but a positive derivative impact).
(vii) Gobernu inbertsioak
Government investment
To accomplish that increase in employment, the Federal government would outlay:
1. Gross $A48.4 billion1 over a 12 month time period.
2. Net $26.5 billion over the same period.
What explains the difference?
The Government receives extra personal tax revenue ($A3.9 billion), extra corporate tax revenue ($A3.4 billion), reduced unemployment benefit outlays ($A11.6 billion) and increased indirect taxes ($A6.2 billion) at current policy parameters.
| To implement a Job Guarantee and reduce the unemployment rate by 6 percentage points:
1. The Federal government would outlay $A48.4 billion in gross terms over a 12 month time period. 2. The Federal government would outlay $26.5 billion in net terms over the same period once the extra personal tax revenue ($A3.9 billion), extra corporate tax revenue ($A3.4 billion), reduced unemployment benefit outlays ($A11.6 billion) and increased indirect taxes ($A6.2 billion) at current policy parameters are taken into account. 3. The wage subsidy Job Keeper program involved gross outlays of $A133 billion to reduce the unemployment rate by 5 percentage points. |
Ondorioak
The Job Guarantee satisfies most of the that I outlined in this blog post – The European Commission non-stimulus is a waiting game before new austerity is imposed (April 27, 2020).
It can be quickly implemented.
It will likely be labour intensive – so lots of employment created per dollar outlaid.
It has strong multiplier effects, such that the private sector gains substantially in employment and profits.
It is spatially perfect – taking jobs to where people live.
It is totally consistent with longer-term objectives to reduce carbon use and only promote ‘green’ activities.
It can be corrupted but it would be hard.
It doesn’t specifically address supply-chain constraints that are important in this particular crisis. But given that most of the workers employed would be low-wage workers anyway, it is likely that a significant proportion of the wage would be spent on food, housing, transport and energy costs all of which are not particular constrained in supply at present.
It is not perfect in equity terms because the jobs would be designed to be accessible to the most disadvantaged workers. So they do not attempt to solve the skills-based underemployment problem.
Our estimates also do not explicitly model a reduction in underemployment. We will do that next.
Our definition of full employment includes zero underemployment.
Segida:
Live stream tonight – May 1, 2020 – MMT and fiscal stimulus design
(http://bilbo.economicoutlook.net/blog/?p=44828)
Tonight (May 1, 2020), I am presenting a live YouTube show outlining how an understanding of Modern Monetary Theory (MMT) helps inform a fiscal intervention designed to minimise the damage from the coronavirus, but also to position a nation favourably for other long-term challenges such as those presented by climate change.
Live Stream – May 1, 2020 at 19:30 (EST Australia)
How an MMT understanding informs fiscal stimulus design – Professor William Mitchell
In this presentation, Professor William Mitchell will develop a set of criteria for assessing the likely effectiveness of a fiscal policy initiative. This particular crisis is unusual in that it combines supply and demand elements and government-enforced closures. In that sense, the design of the fiscal policy intervention is particularly difficult. The presentation will go through a number of desirable fiscal options to match the specific situation using this framework. We will also discuss why we should not worry about the size of the fiscal deficits that are required to overcome the medical and socio-economic problems created by the coronavirus crisis. This event is being conducted in conjunction with the Modern Money Australia group’s Seminar Series.
Bideoa:
https://www.youtube.com/watch?time_continue=2061&v=K8_ITBCZU3g&feature=emb_logo
1 Australiar bilioi bat = mila milioi europar.
joseba says:
Bill Mitchell-en The advanced nations should take the lead of Pakistan in job creation
(http://bilbo.economicoutlook.net/blog/?p=44844)
Last Thursday (April 30, 2020), the US Department of Labor’s – Unemployment Insurance Weekly Claims Report – showed a further 3,839,000 workers filed for unemployment benefits in the US, taking the cumulative total since March 14, 2020 to 30,589,000. In a labour force of 164 million odd, that implies the unemployment rate is already around 22 per cent. The highest rate endured during the Great Depression was 24.9 per cent in 1933, which prompted the US President to introduce the major job creation program to stop a social disaster – the New Deal. History tells us that the major job creation programs (starting with FERA then morphing into the WPA) were opposed by the conservative (mostly) Republicans in the Congress. As is now! It wasn’t just the unemployment that mattered. Hours of work were also cut for those who maintained their jobs and some estimates suggest over 50 per cent of America’s labour force were underutilised in one way or another (read David Kennedy’s 2001 book for a vivid account of this period). The problem now is that the US has a Presidency that is unlikely to take the bold steps that Roosevelt took in the 1930s, even though the latter was a fiscal conservative and the former does not appear to be so inclined. However, some nations are leading the way – and they put the more advanced nations to shame in this regard.
In my blog post – The European Commission non-stimulus is a waiting game before new austerity is imposed (April 27, 2020) – I introduced the criteria that I use to appraise the effectiveness of different fiscal options in dealing with a disaster of the scale we are facing in world labour markets.
I followed it up with this blog post – A Job Guarantee would require $A26.5 billion net to reduce the unemployment rate by 6 percentage points (April 30, 2020) – which summarised our latest modelling of the investment needed by the Australian government to deal with the crisis.
It showed how inadequate the current wage subsidy response is in Australia and the wanton disregard for the damage that the flood of unemployment will cause in the short-term and over a much longer term horizon.
The criteria – to repeat – were (with an additional criterion added and highlighted as below):
Implementation Speed – How quickly can the spending enter the economy? For example, an initiative that seeks to build a fast rail service down the East Coast of Australia to join, say, Brisbane and Melbourne, would take longer to get dollars in to the economy than an announcement that the government will offer a job to anyone who wants one (Job Guarantee). To arrest the severe fall in non-government spending and income generation, speed is essential. It doesn’t preclude medium-term projects, but the government has to be careful not to have large expenditure streams coming on tap after the economy is already recovering and no longer needs the temporary fiscal support. See also Scalability below
Labour Intensive – Does the intervention target activities that generate lots of employment? With employment growth slumping so dramatically, it is best to target activities that will arrest the employment contraction as substantially as possible.
Multiplier – How much of the initial spending injection stimulate what economists call ‘multiplier effects’, that is further non-government spending. For example, giving low-wage workers cash payments or sustaining their wages, is likely to result in a high proportion of each dollar being spent on consumption goods and services. Conversely, giving loan guarantees to businesses at the time when the economy is entering a deep recession is unlikely to have strong multiplier effects because the latter rely on spending stimulating output and employment.
Scalability – fiscal support has to do two broad things: (a) fill the steady-state gap between total spending required to maintain full employment and the non-government spending plans (including, of course, the desire to save overall and withdraw current income from further spending); (b) cyclical shifts in non-government spending that create recessionary or inflationary situations. In this sense, when non-government spending falls cyclically, the government is the only source of recession-preventing expenditure stimulus. But it has to ensure that it withdraws that stimulus proportionally with the recovery in non-government spending so as not to push total expenditure growth beyond the inflation barrier.
Spatial – Does the option provide benefits to regions or the social settlement or is it biased to certain spatial locations, especially those that already have relatively deeper labour markets (more job opportunities).
Green – Does the intervention help us move towards a carbon-zero world?
Supply-chain – Is the intervention likely to run up against supply bottlenecks and introduce demand-pull inflationary pressures. This is particularly relevant in the current crisis, which is a combination of a supply and demand shock. Where factories are closed and/or operating on reduced activity levels, it is essential not to be pumping fiscal support into the economy indiscriminately. All spending initiatives will stimulate broad expenditure growth, including for imports. But a carefully designed package can reduce the supply-side strain. For example, in Australia at present there is likely to be some food supply issues as farmers struggle to get workers to harvest the crops (relying typically on ‘back-packers’) with international borders closed. So a stimulus to create temporary public sector jobs for workers locked out of their usual jobs (because of enforced closures) to help ease the supply chain issues would be desirable.
Equity – this relates to fairness. Handing out billions to help shareholders withstand the losses to their companies is likely to be less equitable than ensuring low-paid workers are able to sustain their mortgage/rent and other contractual commitments.
Low Corruptibility – this is what economists call ‘moral hazard’. How easy is the option able to be hijacked by those seeking to corrupt the intent. For example, a wage subsidy is highly susceptible to abuse from unscrupulous businesses (there is an extensive research literature on this) whereas paying the salary of a worker directly or offering then a public sector job is less likely to be corrupted.
I spoke about this approach in my live presentation on Friday evening:
Bideoa: How an MMT understanding informs fiscal stimulus design – Professor William Mitchell
https://www.youtube.com/watch?v=K8_ITBCZU3g&feature=emb_logo
As an aside, in about two weeks – MMTed – will be launching a weekly Q&A program where were take questions from the public and answer them from an Modern Monetary Theory (MMT) perspective. It will be a live program and, in time, we hope to have guests on the program (once we sort out logistics and technology). We will make announcements about this very soon. Likely starting data – Wednesday, May 20, 2020.
But, upon reflection, the first criterion noted above – Implementation speed – should be distinguished from what I refer to as Scalability, which as I note above refers to ensuring that the cyclical stimulus component of the fiscal support is calibrated appropriately with the economic cycle.
Many people – including progressive economists and commentators – get this wrong.
They think it is prudent for currency issuing governments to run a fiscal balance on average over an economic cycle, which means that when the non-government sector is increasing its growth rate, the fiscal position should be moving into surplus to ‘offset’ the times when the non-government sector is contracting or slowing and the government has to run deficits.
But that conception purely constructs variations in the fiscal position in cyclical terms.
It ignores the fact that, if we abstract from these cyclical variations, there is an underlying desire to save overall in the non-government sector which depends on on-going income growth. That process must be supported by fiscal policy or else the overall saving behaviour of the non-government sector will cause recession.
So, if an economy is in a position where there is an external drain on expenditure coming from the external sector, and the private domestic sector exhibits a desire to save overall, then the government has to run a continuous deficit, or, otherwise, the economy enters recession and stagnation.
Thus, Scalability is about managing the fluctuations in the government’s fiscal balance around that steady state to accommodate the cyclical swings in non-government spending.
It makes the conduct of fiscal policy difficult because projects have to be designed to ensure they can be ‘turned off’ as the non-government sector starts to recover.
The cyclical component of fiscal policy should not be ‘pro-cyclical’ – that is, in relation to non-government spending cycles. The steady-state component of fiscal policy has to be pro-cylical, if the non-government sector exhibits an underlying desire to save overall.
That difference is not well understood but is crucial in the design of an effective fiscal intervention.
The following graphic shows these options and I have now added the Scalability criterion, which last week I had implicitly embedded in the Implementation Speed criterion.
As before, a position at 0 means the initiative meets none of the requirements or the relevant criterion, whereas 100 means the intervention is strongly meeting that need.
I have compared three options:
1. A wage subsidy.
2. A Job Guarantee.
3. Business loan guarantees.
My weightings are approximate and open to debate.
But the superior option here is the Job Guarantee when assessed against the above criteria.
And making the Scalability criterion more explicit only goes to reinforce this conclusion.
(…)
Policy failure amidst the alarm
Which brings me to the point of today’s blog post.
The only way that a government can avoid a major contraction in employment such as we are seeing around the world now is through direct job creation.
The Australian Prime Minister has said today that even if the wage subsidy is not fully taken up – and it won’t be because it is poorly designed and leaves more than a million casual workers behind anyway – they will not be increasing fiscal support elsewhere.
He also said that the JobSeeker payment (unemployment benefit) would have to take care of the rest – that is the workers who the government is now deliberately allowing to become unemployed.
The ILO has just released a report (April 29, 2020)- ILO Monitor: COVID-19 and the world of work. Third edition – which makes for very disturbing reading.
1. “global working hours declined in the first quarter of 2020 by an estimated 4.5 per cent (equivalent to approximately 130 million full-time jobs …”
2. “Global working hours in the second quarter are expected to be 10.5 per cent lower than in the last pre-crisis quarter. This is equivalent to 305 million full-time jobs”.
3. “the Americas (12.4 per cent) and Europe and Central Asia (11.8 per cent) will experience the greatest loss in working hours.”
4. “almost 1.6 billion informal economy workers (representing the most vulnerable in the labour market), out of a worldwide total of two billion and a global workforce of 3.3 billion, have suffered massive damage to their capacity to earn a living.”
5. “The first month of the crisis is estimated to have resulted in a drop of 60 per cent in the income of informal workers globally.”
6. “Without alternative income sources, these workers and their families will have no means to survive.”
The ILO, of course, is calling for “a job-rich approach, backed by stronger employment policies and institutions” within the context of a generalised fiscal stimulus.
I read an interesting article in Dissent over the weekend (published April 30, 2020) – Understanding the Unemployment Crisis – by Colin Gordon, who is a US academic historian.
His focus was on the US disaster and he argued that the scale of the crisis is worse than the reported increase in unemployment insurance claimants (that over the last six weeks are “more than nine times” the “worst six-week stretch of new unemployment claims” any point in US history) understates the severity of the problem.
This is because the:
… the “insured unemployment rate” (the share of the workforce receiving benefits) is but a fraction of the real unemployment rate (the share of the workforce out of work and looking for work) …
the share of the unemployed actually receiving benefits … is under a third in most states, and over half in only two.
The reason is a combination of shoddy policy implementation and deliberate strategies designed to deny people benefits.
He says the state-level capacity is unable “to process the avalanche of claims” and many of the workers who have lost their jobs via the lockdowns will have exited the labour force – into hidden unemployment.
But most importantly, Colin Gordon argues that the:
… the whole logical fabric of the federal stimulus has unraveled … ran out of money so quickly it did little to check the flood of UI claims … slow to roll out everywhere … so narrowly interpreted (by the states) …
Instead of “shoveling federal money … to working families” to help them maintain incomes while in lockdown, the impetus in the US states is now to “re-open as quickly as they can” even though they are “still well on the wrong side of the COVID curve”.
His reasoning is that:
By cutting short the relative generosity of the federal benefits, state unemployment insurance systems can revert to their regular modus operandi—which is aimed less at cushioning the blow of unemployment than it is at compelling participation in the labor market.
Total policy failure – in other words.
But somewhere there is hope …
Amidst all this gloom, I stumbled across an Al Jazeera report (thanks Willem) published April 29, 2020 – Pakistan’s virus-idled workers hired to plant trees – which should put the more advanced nation governments to shame.
The Pakistan government has closed many sectors, including the construction sector – just like most governments. There is nothing unique about the policy measures they have introduced in an attempt to halt the spread of the coronavirus, except one major initiative.
They are generating jobs for:
… tens of thousands of other out-of-work labourers in planting billions of trees across the country to deal with climate change threats.
These workers are being employed on the Government’s – 10 Billion Tree Tsunami programme.
You can follow the program on – Twitter
The program aims to:
… aims to counter the rising temperatures, flooding, droughts and other extreme weather in the country that scientists link to climate change.
So it is targetted at medium- to long-term aspirations – shifting the nation structurally – while also solving the short-run problem.
Refer to the criteria I provided at the outset and also the questions I indicated were important in last week’s analysis and Live presentation.
1. How do we avoid the damage of the crisis now?
2. How do we use the stimulus measures to shift behaviour and achieve longer-term goals – such as fighting climate change?
The Pakistani government is so far ahead of the indolent governments in the West (UK, Europe, US, Australia) on this thinking.
The tree-planting program has increased its normal workforce by a factor of three – to cope with the employment of those displaced by lockdown rules.
There is a variety of work available – “setting up nurseries, planting saplings, and serving as forest protection guards or forest firefighters”.
Social distancing is practised and enforced.
An official said:
Nurturing nature has come to the economic rescue of thousands of people … the green jobs initiative is a way to help Pakistan’s workers recover from the coronavirus crisis with dignity and avoiding handouts …
Another official said:
We can absorb all the unemployed labourers and workers who have fled the cities and returned to their villages in the past few weeks. This is unskilled work
Conclusion
The point is clear.
A Job Guarantee should be a base level policy structure in all nations.
The tree planting program demonstrates, within that nation’s social institutions, all the good things of these sorts of jobs:
1. They are Fast to implement if the institutional structure is already in place – which is why the Job Guarantee should be a permanent policy structure ebbing and flowing in size with the fluctuations in non-government sector spending.
The tree planting program easily scaled up when the need arose.
2. They are Labour intensive – clearly.
3. They have strong Multipliers – because they preserve income of the most disadvantaged who have propensities to consume close to 1.
4. They are Scalable – when the crisis allows other sectors to open, the workers will be quickly reabsorbed back into their old positions again.
5. They are Spatially advantaged – jobs can be created where people live and need work.
6. They are Green – serving longer run objectives as well as the short-term exigencies.
7. They are Equitable – those in need get relief.
So they strongly satisfy most of the essential criteria without doubt.
All governments should be doing this.
joseba says:
Alokairu diru laguntzaz
Bill Mitchell-en JobKeeper (1) wage subsidy – some strange arithmetic is afoot
(http://bilbo.economicoutlook.net/blog/?p=44812)
(i) Sarrera
… I have updated the US unemployment claims data with a new map and state table. Shocking. We are working on updated estimates of what the Australian government would need to invest to run a Job Guarantee. We haven’t done that for a while because I didn’t want the press to get obsessed with dollar amounts. But as I am currently talking a lot about the Job Guarantee in the media, I thought some numbers would be useful as a comparative exercise against the JobKeeper wage subsidy, which is the central stimulus plank of the Australian government. The current estimates suggest that to create around 685 thousand jobs might require an outlay of $34 billion (2) over the course of a year. That got me thinking. The main response of the Australian government is the $A133 billion over 6 months JobKeeper wage subsidy scheme. The Treasury claims it will be the difference between an unemployment rate of 10 per cent and 15 per cent. That difference is 685 thousand jobs. Then start doing some division and multiplication and you start to see that this doesn’t make sense as I explain below.
(ii) Aritmetika pixka bat
Strange arithmetic – Australia’s JobKeeper wage subsidy
We are working on updated estimates of what the Australian government would need to invest to run a Job Guarantee. We haven’t done that for a while because I didn’t want the press to get obsessed with dollar amounts.
After all, as I have said often, the ‘cost’ of a public policy program is not the numbers that come out in government financial statements under ‘outlays’. The cost is the extra real resources that are consumed as a result of the program.
But as I am currently talking a lot about the Job Guarantee in the media, I thought some numbers would be useful as a comparative exercise against the JobKeeper wage subsidy, which is the central stimulus plank of the Australian government.
Well when I started digging things started to look pretty strange.
Here are some facts:
1. When the Treasurer announced the JobKeeper initiative on April 14, 2020 – Jobkeeper payment supporting millions of jobs – he said:
Given these actions and the position of economic strength from which we approached the coronavirus crisis Treasury expects the unemployment rate to rise to 10 per cent in the June quarter from 5.1 per cent in the most recent data.
In the absence of the $130 billion JobKeeper payment, Treasury estimates the unemployment rate would be 5 percentage points higher and would peak at around 15 per cent.
More than 800,000 businesses have already registered for the JobKeeper payment which will allow the economy to recover more quickly once we are through to the other side of the crisis.
I was immediately suspicious.
Why?
By their own statements, the JobKeeper is the difference between a 10 per cent unemployment rate and a 15 per cent rate.
5 per cent of the current labour force is equal to 686.8 thousand jobs – not millions.
But then I thought about it.
2. The announced injection is $A133 billion (2).
The wage subsidy is a $A1,500 fortnightly payment “per eligible employee until 27 September 2020”. Firms have to pass the full amount on per worker and meet all other employment costs outside of the scheme.
Okay, so each worker gets $A1,500 per fortnight.
The specifics of who is eligible etc is one thing. I discussed my antagonism to the scheme in this blog post – The government should pay the workers 100 per cent, not rely on wage subsidies (March 31 , 2020).
Those criticisms remain but are not the point I am making here.
So if the outlay of $A133 billion is to protect 685 thousand jobs, that means $A193,651 per job protected, yet the workers are only getting $750 a week for 6 months.
A worker receiving the subsidy will get $A18,000 over the course of the scheme as long as the employer keeps them on.
Okay, that would imply 7,388,889 workers are being funded if the full $A133 billion was taken up. The March 2020 labour force was 13,736.2 thousand.
Which would mean that the JobKeeper was protecting something around 54 per cent of the labour force.
Which would mean the Treasury estimates that the JobKeeper would be the difference between a 10 per cent unemployment rate and a 15 per cent rate doesn’t make sense.
3. Then there are those 800,000 businesses the Treasurer claims have registered. Even if they employed just one person that would be more than 686.8 thousand.
And if the 7.3 million figure was correct, then they would on average be claiming for 9 workers. That sounds too many.
4. Then we hear – in Senate Estimates yesterday – that only 540,000 firms have enrolled in the scheme covering 3.3 million workers. See JobKeeper payments start next week, but hundreds of thousands of businesses hit by coronavirus aren’t signed up.
More confounding statistics.
Conclusion: I have written to Treasury to request their analysis. They have not released it publicly. I am waiting – probably in vain. Next step will be an FOI request. I would expect lots of blacked out sheets from that.
The points are:
1. Our Job Guarantee estimates so far, which I will release when we have double-triple and more checked them, suggest that the government needs to invest about $A34 billion to create 685 thousand jobs at minimum wage – which is close to the JobKeeper subsidy.
$A34 billion is a lot less than $A133 billion.
If we are right, then something is awfully wrong with the JobKeeper arithmetic and the statements the Treasurer has been making about it.
2. If businesses are not taking up the JobKeeper program – as today’s reports suggest – then the government will not go close to spending the $A133 billion.
Which means the stimulus will be much lower than suggested and the consequences will be very bad for Australia.
As my previous writing on the subject suggest, the stimulus is only about a half of what I think is required.
The latest data suggests it is even worse than that.
So I am waiting for the Treasury to enlighten me. As it stands, the $A133 billion figure does not make sense given other statements the Treasury have been making about the scheme.
(1) The JobKeeper Payment is a payment made to eligible businesses and not-for-profits affected by the Coronavirus to support them in retaining employees. Eligible businesses that elect to participate will receive a payment of $1,500 per fortnight per eligible employee to support the people they employed as at 1 March 2020 who are retained in employment.
(2) Australiar bilioi bat: europar mila milioi.