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A New WPA?
An Introduction to the Employer of Last Resort
Proposal
Ryan A. Dodd
This article is from the March/April 2008 issue of Dollars
& Sense: The Magazine of Economic Justice [formerly available
at http://www.dollarsandsense.org/archives/2008/0308dodd.html]
Dark clouds are now looming over America's economic future. As
first the stock market boom and then the housing boom have come
to an end, along with the fountains of cheap credit that were
their mainspring, the perennial gale of unemployment is blowing
in. The president and Congress have addressed the downturn with
tax rebates and talk of "debt relief." Meanwhile, public
infrastructure is crumbling. Workers' wages are stagnating while
their work hours are rising. Health insurance is becoming less
and less affordable for the typical family. And as U.S. military
spending escalates, government spending on essential services
is drastically reduced.
All of these facts serve to remind us that capitalist economies
are inherently unstable and structurally incapable of creating
full employment at decent wages and benefits. While tax rebates
and debt relief may provide some minor protection from the coming
economic storm, these measures are temporary—and inadequate—responses
to a perpetual problem. As an alternative to these ad hoc policies
or, worse yet, the free-market fundamentalism still widely preached
in Washington, some economists and policymakers, in the United
States and abroad, are touting a policy that seeks to end unemployment
via a government promise to provide a job to anyone ready, willing,
and able to work.
Argentina's Experiment in Direct Job Creation
In early December 2001, following nearly two decades
of neoliberal restructuring, the Argentine economy collapsed.
Apparently, two decades of privatization, liberalization, and
government austerity, ushered in by Argentina's brutal military
junta (in power from 1976 to 1983), were not enough to sate the
appetites of global financial capital: earlier that year the International
Monetary Fund had withheld $1.3 billion in loans the country needed
to service its $142 billion external debt. In response to the
IMF's action, the government froze all bank accounts (although
many wealthy Argentines managed to relocate their funds abroad
before the freeze) and drastically cut government spending. As
a consequence, the economy experienced a severe depression as
incomes and expenditures fell through the floor. The unemployment
rate shot up to a record 21.5% by May 2002, with over 50% of the
population living in poverty. The popular response to the crisis
was massive. Protests and demonstrations erupted throughout the
country. The government went through five presidents in the course
of a month. Workers eventually reclaimed dozens of abandoned factories
and created democratically run cooperative enterprises, many of
which are still in operation today and are part of a growing co-op
movement.
Reclaiming factories was a lengthy and difficult process, however,
and the immediate problem of unemployment remained. In response,
in April 2002 the Argentine government put into place a direct
job creation program known as Plan Jefes de Hogar ("Heads-of-Household
Plan"), which promised a job to all heads of households satisfying
certain requirements. In order to qualify, a household had to
include a child under the age of 18, a person with a disability,
or a pregnant woman; the household head had to be unemployed;
and each household was generally limited to only one participant
in the program. The program provided households with 150 pesos
a month for four hours of work a day, five days a week. Program
participants mainly engaged in the provision of community services
and/or participated in worker training programs administered by
local nonprofits.
While limited in scope and viewed by many in the government as
an emergency measure, the program was incredibly successful and
popular with its workers. It provided jobs and incomes to roughly
2 million workers, or 13% of Argentina's labor force, as well
as desperately needed goods and services—from community
gardens to small construction projects—to severely depressed
neighborhoods. The entry of many women into the program, while
their husbands continued to look for jobs in the private sector,
had a liberating effect on traditional family structures. And
by some accounts, the program helped facilitate the cooperative
movement that subsequently emerged with the takeover of abandoned
factories. Not surprisingly, as Argentina's economy has recovered
from the depths of the crisis, the government has recently made
moves to discontinue this critical experiment in direct job creation.
"Employer of Last Resort"
The Argentine experience with direct job creation represents
a real-world example of what is often referred to as the employer
of last resort (ELR) proposal by a number of left academics and
public policy advocates. Developed over the course of the past
two decades, the ELR proposal is based on a rather simple idea.
In a capitalist economy, with most people dependent on private
employment for their livelihoods, the government has a unique
responsibility to guarantee full employment. This responsibility
has been affirmed in the U.N. Universal Declaration of Human Rights,
which includes a right to employment. A commitment to full employment
is also official U.S. government policy as codified in the Employment
Act of 1946 and the Humphrey-Hawkins Act of 1976.
Although many versions of the ELR proposal have been put forward,
they all revolve around the idea that national governments could
guarantee full employment by providing a job to anyone ready,
willing, and able to work. The various proposals differ mainly
on the wage and benefit packages they would provide to participants.
The most common proposal calls for paying all participants a universal
basic wage and benefit package, regardless of skills, work experience,
or prior earnings. This wage and benefit package would then form
the effective minimum for both the public and private sectors
of the economy. After fixing a wage and benefit package, the government
would allow the quantity of workers in the program to float, rising
and falling in response to cyclical fluctuations in private-sector
employment.
As with Argentina's program, ELR proposals typically call for
participants to work in projects to improve their local communities—everything
from basic infrastructure projects to a Green Jobs Corps. Most
ELR proponents also advocate a decentralized approach similar
to Argentina's, with local public or nonprofit institutions planning
and administering the projects, though it is essential that the
program be funded at the national level.
This raises an important question: How will governments pay for
such a large-scale program? Wouldn't an ELR program require significantly
raising taxes or else result in exploding budget deficits? Can
governments really afford to employ everyone who wants a job but
cannot find one in the private economy? Advocates of ELR address
the issue of affordability in different ways, but all agree that
the benefits to society vastly outweigh the expense. Many ELR
advocates go even further, arguing that any talk of "costs"
to society misrepresents the nature of the problem of unemployment.
The existence of unemployed workers represents a net cost to society,
in terms of lost income and production as well as the psychological
and social stresses that result from long spells of unemployment.
Employing them represents a net benefit, in terms of increased
incomes and enhanced individual and social wellbeing. The real
burden of an ELR program, from the perspective of society, is
thus effectively zero.
Most estimates of the direct cost of an ELR program are in the
range of less than 1% of GDP per year. For the United States,
this was less than $132 billion in 2006, or about 5% of the federal
budget. (By way of comparison, in 2006 the U.S. government spent
over $120 billion on the wars in Iraq and Afghanistan—and
that figure does not include the cost of lives lost or ruined
or the future costs incurred, for example, for veterans' health
care.) Furthermore, an ELR program provides benefits to society
in the form of worker retraining, enhanced public infrastructure,
and increased social output (e.g., cleaner parks and cities, free
child care, public performances, etc.). By increasing the productivity
of those participants who attend education or training programs,
an ELR program would also decrease real costs throughout the economy.
Estimates of program costs take into account a reduction in other
forms of social assistance such as food stamps, cash assistance,
and unemployment insurance, which would instead be provided to
ELR participants in the form of a wage and benefit package. Of
course, those who cannot work would still be eligible for these
and other forms of assistance.
Today, the ELR idea is mostly confined to academic journals and
conferences. Still, proponents can point to a number of little
known real-world examples their discussions have helped to shape.
For example, the Argentine government explicitly based its Jefes
de Hogar program on the work of economists associated with the
Center for Full Employment and Price Stability (CFEPS) at the
University of Missouri-Kansas City. Daniel Kostzer, an economist
at the Argentine Ministry of Labor and one of the main architects
of the program, had become familiar with the CFEPS proposal and
was attempting to create such a program in Argentina a few years
before the collapse provided him with the necessary political
support. Similar experiments are being considered or are currently
underway in India, France, and Bolivia. Advocates of ELR proposals
can also be found at the Levy Economics Institute (U.S.), the
Center for Full Employment and Equity (Australia), and the National
Jobs for All Coalition (U.S.).
The Case for Direct Job Creation
Involuntary unemployment is a fundamental and inherent
feature of a capitalist economy left to its own devices. In a
society where most people depend on employment in the private
sector for their livelihood, the inability of a capitalist economy
to consistently create enough jobs for all who seek work is deeply
troubling, pointing to the need for intervention from outside
of the private sector. ELR advocates view national governments—with
their unique spending ability, and with their role as, in principle,
democratically accountable social institutions—as the most
logical institutions for collective action to bring about full
employment. In addition, government job creation is viewed as
the simplest and most direct means for overcoming the problem
of involuntary unemployment in a capitalist economy.
The standard mainstream response to the problem of unemployment
is to blame the victims of capitalism for lacking the necessary
talents, skills, and effort to get and keep a job. Hence, the
mainstream prescription is to promote policies aimed at enhancing
the "human capital" of workers in order to make them
more "competitive" in a rapidly globalizing economy.
The response of ELR advocates is that such policies, if they accomplish
anything at all, simply redistribute unemployment and poverty
more equitably. For example, according to the Bureau of Labor
Statistics, the number of unemployed workers (including so-called
"discouraged" and "underemployed" workers)
in August 2007 was 16.4 million, while the number of job vacancies
was 4.1 million. No amount of investment in human capital is going
to change the fact that there simply aren't enough jobs to go
around.
Advocates of ELR also consistently reject the Keynesian rubric,
with its focus on demand-management strategies—that is,
policies aimed at increasing aggregate demand for the output of
the economy. This approach has been pursued either directly, through
government spending on goods and services (including transfer
payments to households), or indirectly, largely through policies
intended to increase private investment. Such an approach exacerbates
inequality by biasing policy in favor of the already well-to-do,
through tax cuts and investment credits to wealthy individuals
and powerful corporations. These policies also tend to privilege
the more highly skilled and better-paid workers found in the industries
that generally benefit from the government's largesse (often arms
manufacturers and other military-related companies). For example,
much of the increase in government spending during the Cold War
era went into the high-tech, capital-intensive, and oligopolized
sectors of the economy. Capital-intensive industries require relatively
small amounts of labor, and, thus, produce little employment growth
per dollar of government expenditure. Under this policy approach,
the most that lower-paid or unemployed workers could hope for
would be to snatch a few crumbs from the great corporate feast
as the economy expanded over time.
In contrast to both the human-capital and demand-management approaches,
ELR provides a means for rapidly achieving zero involuntary unemployment.
By definition, anyone who is unemployed and chooses not to accept
the ELR offer would be considered voluntarily unemployed. Many
individuals with sufficient savings and decent job prospects may
forgo the opportunity to participate in the ELR program, but ELR
always provides them with a backup option.
In addition to the immediate effects of ELR on employment, the
program acts as an "automatic stabilizer" in the face
of cyclical fluctuations in the private sector of the economy.
During a recession, the number of participants in the program
can be expected to grow as people are laid off and/or find it
increasingly difficult to find private-sector employment. The
opposite happens during the recovery phase of the business cycle,
as people find it easer to find private-sector employment at wages
above the ELR minimum. As a result, ELR advocates argue, the existence
of such a program would dampen fluctuations in private-sector
activity by setting a floor to the decline in incomes and employment.
A final and less discussed benefit of the program is its socializing
effect. The example of Argentina is instructive in this respect.
The nature of employment in the Jefes program, oriented as it
was toward community rather than market imperatives, created a
sense of public involvement and responsibility. Participants reported
increases in morale and often continued to work beyond the four
hours a day for which they were getting paid; they appreciated
the cooperative nature of most of the enterprises and their focus
on meeting essential community needs as opposed to quarterly profit
targets. By expanding the public sphere, the Jefes program created
a spirit of democratic participation in the affairs of the community,
unmediated by the impersonal relations of market exchange. These
are the kinds of experiences that are essential if capitalist
societies are to move beyond the tyranny of the market and toward
more cooperative and democratic forms of social organization.
Some economists and advocates have pressed for a similar proposal,
the basic income guarantee (BIG). Instead of guaranteeing jobs,
under this proposal the government would guarantee a minimum income
to everyone by simply giving cash assistance to anyone earning
below that level, in an amount equal to the gap between his or
her actual income and the established basic income. (Hence this
proposal is sometimes referred to as a "negative income tax.")
BIG is an important idea deserving wider discussion than it has
so far received. But ELR advocates have a number of concerns.
One is that a BIG program is inherently inflationary: by providing
income without putting people to work, it creates an additional
claim on output without directly increasing the production of
that output. Another is that BIG programs are less politically
palatable—and hence less sustainable—than ELR schemes,
which benefit society at large through the provision of public
works and other social goods, and which avoid the stigma attached
to "welfare" programs. Finally, a job offers social
and psychological benefits that an income payment alone does not:
maintaining and enhancing work skills, keeping in contact with
others, and having the satisfaction of contributing to society.
When, for instance, participants in Argentina's Jefes program
were offered an income in place of a job, most refused; they preferred
to work. Consequently, ELR programs meet the same objectives as
basic income guarantee schemes and more, without the negative
side effects of inflation and stigmatization. Nonetheless, a BIG
program may be appropriate for those who should not be expected
to work.
Learning from the Past
The idea that the government in a capitalist
economy should provide jobs for the unemployed is not new. In
the United States, the various New Deal agencies created during
the Great Depression of the 1930s offer a well-known example.
Organizations such as the Works Progress Administration and the
Civilian Conservation Corps were designed to deal with the massive
unemployment of that period. Unemployment peaked at almost 25%
of the civilian labor force in 1933 and averaged over 17% for
the entire decade. These programs were woefully inadequate, largely
due to their limited scale. It ultimately took the massive increases
in government expenditure precipitated by the Second World War
to pull the U.S. economy out of depression.
The onset of the postwar "Golden Age" and the dominance
of Keynesian economics sounded the death knell of direct job creation
as a solution to unemployment. The interwar public employment
strategy was replaced with a "demand-management" strategy—essentially
a sort of trickle-down economics in which various tax incentives
and government expenditure programs, mainly military spending,
were used to stimulate private investment. Policymakers believed
that this would spur economic growth. The twin problems of poverty
and unemployment would then be eliminated since, according to
President Kennedy's famous aphorism, "a rising tide lifts
all boats."
In the mid-1960s, the civil rights movement revived the idea
of direct job creation as a solution to the problems of poverty
and unemployment. Although the Kennedy and Johnson administrations
had declared a so-called War on Poverty, the movement's call for
direct job creation fell on deaf ears as the Johnson administration,
at the behest of its Council of Economic Advisers, pursued a more
conservative approach based on the standard combination of supply-side
incentives to increase private investment and assorted strategies
to "improve" workers' "human capital" so as
to make them more attractive to private employers. The rise to
dominance of neoliberalism since the mid-1970s has resulted in
a full-scale retreat from even the mildly social democratic policies
of the early postwar period. While a commitment to full employment
remains official U.S. economic policy, the concerns of central
bankers and financial capitalists now rule the roost in government
circles. This translates into a single-minded obsession with fighting
inflation at the expense of all other economic and social objectives.
Not only is fighting inflation seemingly the only concern of economic
policy, it is seen to be in direct conflict with the goal of full
employment (witness the widespread acceptance among economists
and policymakers of the NAIRU, or "non-accelerating inflation
rate of unemployment" theory, which posits that the economy
has a set-point for unemployment, well above zero, below which
rapidly rising inflation must occur). Whenever falling unemployment
leads to concerns about "excessive" wage growth, central
banks are expected to raise interest rates in an attempt to force
slack on the economy and thereby decrease inflationary pressures.
The resulting unemployment acts as a kind of discipline, tempering
the demands of working-class people for higher wages or better
working conditions in favor of the interests of large commercial
and financial institutions. The postwar commitment to full employment
has finally been sacrificed on the altar of price stability.
ELR and Capitalism
As demonstrated by the history of public employment programs
in the United States and the example of Argentina, direct job-creation
programs do not happen absent significant political pressure from
below. This is the case whether or not those calling for change
explicitly demand an ELR program. Given the hegemonic position
of neoliberal ideology, there are many powerful forces today that
would be hostile to the idea of governments directly creating
jobs for the unemployed. These forces represent a critical barrier
to the implementation of an ELR program. In fact, these forces
represent a critical barrier to virtually any project for greater
social and economic justice. The purpose of initiating a wider
discussion of ELR proposals is to build them into more comprehensive
programs for social and economic justice. As is always the case,
this requires the building of mass-based social movements advocating
for these and other progressive policies.
A significant objection to the ELR proposal remains: it's capitalism,
stupid. If you don't like unemployment, poverty, and inequality—not
to mention war, environmental destruction, and alienating and
exploitative work—then you don't like capitalism, and you
should seek alternatives instead of reformist employment policies.
ELR advocates would not disagree. In the face of the overlapping
and myriad problems afflicting a capitalist economy, the achievements
of even a full-scale ELR program would be limited. The political
difficulties involved in establishing an ELR program in the first
place, in the face of opposition from powerful elements of society,
would be immense. And certainly, the many experiments in non-capitalist
forms of economic and social organization currently being carried
out, for example, in the factories of Argentina and elsewhere,
should be championed. But it is fair to ask: shouldn't we also
champion living wage laws, a stronger social safety net for those
who cannot or should not be expected to work, and universal health
care—as well as an end to imperialist wars of aggression,
environmentally unsustainable practices, and the degradation of
work? In sum, shouldn't we seek to alleviate the symptoms of capitalism,
even as we work toward a better economic system?
Ryan A. Dodd is a Ph.D. student in economics
and a research associate at the Center for Full Employment and
Price Stability, both at the University of Missouri-Kansas City.
Sources: Joseph
Halevi, "The Argentine Crisis," Monthly Review
(April 2002); Pavlina Tcherneva, "Macroeconomic Stabilization
Policy in Argentina: A Case Study of the 2002 Currency Collapse
and Crisis Resolution through Job Creation" (Bard College
Working Paper, 2007); L. Randall Wray, Understanding Modern
Money: The Key to Full Employment and Price Stability (Edward
Elgar, 1998); Congressional Research Service, The
Cost of Iraq, Afghanistan and Other Global War on Terror Operations
Since 9/11, updated 5/09; National Jobs for All Coalition,
September 2007 Unemployment Data; Nancy Rose, "Historicizing
Government Work Programs: A Spectrum from Workfare to Fair Work"
(Center for Full Employment and Price Stability, Seminar Paper
No. 2, March 2000); Judith Russell, Economics, Bureaucracy
and Race: How Keynesians Misguided the War on Poverty (Columbia
Univ. Press, 2004); Fadhel Kaboub, "Employment Guarantee
Programs: A Survey of Theories and Policy Experiences" (Levy
Econ. Inst., Working Paper No. 498, May 2007).
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