The Job Guarantee proposal is a core part of the policy analysis of Modern Monetary Theory (MMT). If implemented, it would be expected to cause a structural change in the economic structure, and so analysis techniques that extrapolate current conditions would be inapplicable. Although this analysis is aimed at the Job Guarantee, the basic principles would be applicable for other measures that cause a structural change in the labour market, such as the Universal Basic Income. (In fact, it's my adaptation of analysis by Hyman Minsky for the fore-runner of the basic income proposal, the negative income tax.) The analysis here is a back-of-the-envelope discussion for Canada; it could be adapted to other countries and more detailed at the analyst's discretion.
As an initial disclaimer, the title of this article is a very deliberate choice: it is how I would approach the problem, and does not reflect the state-of-the-art research on the topic by academics in the MMT school of thought. I only have a limited knowledge of their detailed research. Furthermore, I discuss a potential implementation in Canada that is based on my political instincts as to what would be politically sustainable programme; as a result, my views on implementation probably vary from the main MMT academics. My political instincts are probably out-of-date, so what I write here should not be taken as a definitive statement on how Canada should approach implementation....Bond Economics
How I Would Analyse A Job Guarantee
Brian Romanchuk
3 comments:
In Warren Mosler's and Damiano Silipo's paper - Maximizing price stability in a monetary economy - which is currently working its way through the EU parliament. They suggest that the initial minimum wage be set up at a non disruptive level.
This prevents the transition job from creating an initial, inflationary wage shock which might adversely disrupt commercial arrangements and what's generally called the competitiveness of the business community.
While the the minimum wage does function as a general wage floor, by initially setting it at a non disruptive level it subsequently works to prevent deflation while not promoting inflation.
They advise 7 Euros per hour and a 35 hour working week.
This also means that if this wage is offered to anybody willing and be able to work, as a point of logic, it removes the need for min wage legislation.
Should the ECB desire to promote a 2% rate of inflation assuming 0% productivity growth. The min wage can be increased 2% annually from its original setting.
They recommend a 60 day implementation period. Starting with working in various government administrative offices which after 30 days is rolled out to the regional and city governments and 30 days after that to non profit and charitable organisations.
When trying to work out the impact on real GDP growth and inflation. They use a VAR model. Which does not require any prior assumptions on the realtionship between these two functions.
It shows an initial spike of slightly over 2% inflation rate. Which then falls below 2% and settles at 1.65% over 2 years. That's using aggresive job numbers of people who would take the transition job and the size of the multiplier effect. Using a less aggresive multiplier would show inflation at even a lower level.
What I like about the idea is it replaces the scatter gun approach of the automatic stabilisers with what you know you are going to get. You know exactly the price and the hours worked never mind the public purpose value.
If a job guarentee had been implemented in 2002 and if you could do a comparison of what happened after the crash in 2007 to 2017. Then compared the performance of the automatic stabilisers v's job guarentee and their effects on the economy. There would only be one winner in my view and the job guarentee would win by a country mile.
Here are two link to the Mosler & Silipo paper.
http://www.levyinstitute.org/pubs/wp_864.pdf
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2775400
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