Monday, May 21, 2018

Why We Should be Skeptical About Guaranteed Jobs

The idea of a national job guarantee (JG) is about to go mainstream. The concept is far from new, but for the first time in decades, it is being endorsed by politicians with national stature. Sen. Bernie Sanders has promised to submit a legislative proposal. Other Democratic presidential hopefuls are showing interest. Academics, including Levy Economic Institute’s L. Randall Wray and Pavlina Tcherneva, have provided detailed blueprints for a national JG program.

No one denies that it would be nice if everyone who wanted to work could find a job, but before we start to beat the drum for a full-bore national job guarantee, we need a reality check. In a recent post, my  Niskanen Center colleague  Samuel Hammond outlined three reasons to be skeptical:
  1.     The private sector is better at allocating labor than public bureaucracies.
  2.     A JG program would be too easily politicized.
  3.     Other active labor-market policies, including wage subsidies, would work better than a JG.
These are valid points. Let me add three more reasons to be cautious about a national job guarantee.

4. Don’t exaggerate the pool of eligible candidates

As of April 2018, some 6 million people were officially unemployed, that is, counted as not working but actively looking for work. However, not all of those would be candidates for public-service jobs. Both in good times and bad, many of the unemployed are merely on temporary layoff or engaged in short spells of unemployment between jobs. At present, 33 percent of unemployed workers have been out of work for 5 weeks or less and another 31 percent for 5 to 14 weeks. Even in a bad year like 2010, nearly 40 percent of the unemployed were out of work for 14 weeks or less. Providing short-term in-and-out jobs for the temporarily unemployed is not the purpose of a JG. Even if offered such jobs, most of the short-term unemployed would probably prefer to keep looking for something more suited to their skills and interests.

But the officially unemployed are not the only targets of a job guarantee. Advocates claim there is a huge pool of other potential candidates who, for one reason or another, are not actively participating in the labor force, but might be drawn into it. As evidence, they point out that the employed share of the population has been falling since the beginning of the century, after a 50-year upward trend. As the following chart shows, that pattern holds both for the adult population as a whole and for prime-aged workers.

Yet the pool of potential workers is not really as large as it seems. Of the 95 million adults who were not in the labor force as of April 2018, only 5 million said they wanted a job now. Many of the rest were retired, in school, or medically incapacitated. Others were financially secure due to savings or earnings of other family members and preferred to spend their time  on activities other than paid work.

The 5 million who were out of the labor force but said they did want a job cited various reasons for not working, many of which would make it hard to draw them into public-service jobs. Based on annual data for 2017, 20 percent of them reported that school, family responsibilities, ill health, lack of transportation or other reasons kept them from looking for jobs. Only 9 percent reported that their reasons for not job-hunting were discouragement about the availability of work, fear that private employers would discriminate against them, or similar reasons. In some cases, these barriers to work could be overcome by a JG program that offered extensive support services, but it would be unrealistic to think that all 5 million could easily be slotted into public-service jobs.

Realistically, a JG program might absorb half of the long-term unemployed and half of those who want a job but are not currently in the labor force — fewer than 4 million people, of whom 3 million or so might come from the prime-age group. That would raise the share of the prime-age population who are employed to about 62 percent from its current level of 60.3, leaving it still well below peak rates of the past.

Some JG proponents envision a much larger program. Wray’s version aims for as many as 15 million public-service jobs. Except during periods of deep recession, however, a JG program could achieve that size only by offering wage and benefit premiums high enough to draw in millions of workers from the private sector. Doing so would do nothing to raise the employment-population ratio.

5. Don’t underestimate administrative costs

Critics of job guarantees worry about potentially high administrative costs. JG proponent Wray brushes that problem aside, urging that “federal spending should not subsidize administrative expenses.” However, the experience of other federal programs suggests that skimping on administrative support would sharply reduce the chances that a JG program would reach its goals.

For example, consider programs that attempt to increase employment by means of work requirements. Work requirements use a stick to move people into the labor force, rather than the carrot used by JG, but despite that difference, their target demographic is the same:  people who are able to work but are currently jobless.

The welfare reforms of the 1990s remain the largest and best-studied example of the effects of work requirements. At the time they were implemented, researchers conducted rigorous controlled experiments to measure how variations in program design influenced effectiveness. Each experiment compared the employment experience of a group of welfare recipients subject to work requirements to that of a group who received the same welfare benefits without the work requirements. Findings were published in 2001 in a document called National Evaluation of Welfare-to-Work Strategies (NEWWS). (For a summary, see my article for Milken Institute Review earlier this year.)

The experiments found that work requirements had a surprisingly small effect on employment. In one of the most successful trials, in Portland, OR, the number of welfare recipients who worked during at least one calendar quarter of the 20 quarters of the experiment rose to 85.7 in the group subject to work requirements compared to 81.5 in the control group. In the least successful experiment, in Oklahoma City, the number who worked in the group facing work requirements was actually lower than in the control group. In five of eleven experiments, the difference was statistically insignificant.

One key take-away from the experiments of the 1990s, and from more recent experience with work requirements for food stamps, is that there are no bright lines between “unwilling to work,” “willing and able to work but not working,” and “unable to work.” Many willing welfare recipients face practical barriers to work, such as child care or lack of transportation. Other barriers to work include physical or mental health problems that fall short of full disability; emotional issues; criminal records; substance abuse; and low skills.

With or without work requirements, people with such problems tend to move in and out of work frequently, even when jobs are available. They do not move through welfare-to-work programs in a simple, linear fashion, from unemployed to trainee to permanent job holder. Frequent failures and backsliding undermine the best-intentioned policies.

Another thing the experiments of the 1990s made clear was that success requires adequately funded administrative support and well-trained staff. The best results were obtained when case workers and other administrators did more than simply monitor eligibility, participation, and compliance with program rules. Instead, they needed to be proactive and to stress self-sufficiency. However, such efforts come at a cost. Results were disappointing in cities like Oklahoma City and Detroit where administrative support was underfunded.

Today’s nonworking population faces the same spectrum of barriers to employment that prevailed in the 1990s. Any realistic JG program would have to deliver the support people need to arrange child care or elder care, transportation, and the like. Such a program would need to create jobs where people can contribute productively despite difficulty walking, back pain, poor vision, headaches, and other health problems. Its administrators would need to work one-on-one with job candidates who suffer from anxiety, depression, substance abuse, violent domestic situations, and other problems that make it hard even to show up for work each day, let alone perform on the job. None of these barriers is insurmountable, but they cannot be overcome on the cheap.

6. Beware of illusory additions to GDP

Optimists contend that a JG program would provide a huge boost to the economy. For example, Wray estimates that a national job guarantee with 15 million participants would add $560 billion dollars to GDP, about 3 percent, with little impact on inflation. But, even if he is right about the numbers, how much of the measured addition to GDP would represent a real increase in the economy’s output of goods and services?

It would be easier to know if, for example, the JG workers were put to work sewing shirts. Their output would then be measured by multiplying the number of shirts times the price at which they were sold. If that came up to $560 billion, you would have added an honest increment to GDP. If customers didn’t like the shirts, or too many were produced, their price would fall and the factory’s contribution to GDP would decrease accordingly.

However, JG advocates don’t have clothing factories in mind. Instead, almost all JG participants would be given public-service jobs. For example, in her working paper for the Levy Economics Institute, Tcherneva describes what she calls a “National Care Act.” The jobs it created would focus on three areas:
  • Care for the environment, including soil-erosion- and flood-control; environmental surveys; species monitoring; park maintenance; removal of invasive species; support for local fisheries; community supported agriculture (CSA) farms; rooftop gardens; tree planting; fire- and other disaster-prevention measures; weatherization of homes; and composting.
  • Care for the community, including cleanup of vacant properties; reclamation of materials; restoration of public spaces; establishment of school gardens; solar arrays; tool-lending libraries; community theaters; restoration of historical sites; organization of carpooling programs; recycling; water-collection initiatives; food waste programs; and oral history projects.
  • Care for people, including elderly care; after-school programs; programs for children, new mothers, at-risk youth, veterans, former inmates, and people with disabilities; organizing after-school activities in schools or local libraries; shadowing teachers, coaches, hospice workers and librarians to learn new skills and assist them in their duties; organizing nutrition surveys in schools; and coordinating health-awareness programs for young mothers.
All of these are worthy activities. Millions of public employees and volunteers engage in them every day. But how can we measure their contribution to GDP when we can’t put dollar value on removal of invasive species or accurately measure the quantity and quality of output of an oral history project?

The answer is that national-income accountants don’t even try to measure the output of public-service workers. Instead, they measure the cost of their contributions to GDP by adding up the costs of the labor and other inputs that go into producing the services. If city workers are assigned to composting food waste from school cafeterias, their contribution to GDP is measured by the salary they are paid. It does not matter whether the compost turns out to be useless, or whether it turns out to be black gold that enormously boosts the output of lettuce in a community vegetable garden.

Following standard accounting procedures, then, paying each of 15 million people $30,000 per year to perform tasks from Tcherneva’s list would produce a $450 billion bump to GDP regardless of the value of the services the workers produced.

Accounting by cost rather than output greatly increases the possibility of overstatement of a JG program’s contribution to GDP. To see why, let’s return to the example of the shirt factory. Suppose a private shirt factory has 10 workers who produce $300,000 worth of shirts a year. The owners then decide to hire another worker, at $30,000 a year, to run a day care center for workers’ children. If lower absenteeism and better employee morale increase productivity, extra shirts are produced, and the factory’s contribution to GDP goes up. If the day care experiment fails, and no extra shirts are produced, the factory’s contribution to GDP does not change and the cost of the day care project comes out of profits.

In contrast, if a community arts group employs 10 JG workers at $30,000 a year, its contribution to GDP would be measured as $300,000. If the arts group adds an eleventh worker to take care of the children of the first 10, its measured contribution to GDP goes up by $30,000, even if the amount of art the group produces is unchanged. If it adds a twelfth employee for administrative duties, its contribution to GDP goes up again, whether or not it produces more or better art.

The likelihood of exaggeration is even greater if we consider that some of the services that would be produced by a JG program are already being produced, but not for pay, by the same people that the program would employ. For example, we noted earlier that many of those who are out of the labor force, but want a job, are unavailable for work because they are caregivers for children or other family members. Imagine two parents, in two separate households. Each parent has been staying home to care for two young children. If a JG program hires one of them at $30,000 a year to work in a community tool-lending library, and hires the other as a day care worker to care for all four children, the measured amount of new GDP produced will be $60,000. However, the only new services produced are those of the tool-lending library. The day care services were already being produced by the parents themselves, but not for pay.

Child care services are not the only example. The United States has a vast volunteer sector. A Bureau of Labor Statistics report on Volunteering in America indicates that more than 62 million people aged 16 and older participated in volunteer work in 2015. Of those, 5.9 percent each spent more than 500 hours a year volunteering — a vast amount of work. Much of that was spent on exactly the kind jobs that would be targeted by JG programs. In some cases, people who are now out of the labor force and volunteer as wildlife monitors would happily take paid jobs as JG wildlife monitors. In other cases, people who are already employed but volunteer on weekends would find they are no longer needed to pick up trash in the local park, since a JG worker is already doing the job. They would go jogging, instead. Any way you look at it, at least part of the work done by JG participants would displace something already being done by volunteers. The program’s addition to GDP would, to that extent, be illusory.

Caution is the bottom line

I do not mean to be completely dismissive about public-service jobs. Volunteers are great, but they are not always enough to monitor water quality or maintain historical sites. The idea that local governments should keep a list of “shovel-ready” jobs in reserve to serve as fiscal stimulus in hard times is nothing new. But a full-scale national job guarantee — one that employs tens of millions during downturns and does not go to zero even in the best of times — is something else again.

The bottom line is that a national job guarantee sounds great until you actually think about it. When you do the numbers, you find out that many of the people you want most to help are not good candidates for public-service jobs. When you look at past efforts, you see that welfare-to-work programs of any kind are unlikely to succeed without expensive investments in staffing and administration. And when you do the accounting, you find that many of the supposed benefits of putting millions of people to work in new public-service jobs are illusory.

In short, we should think twice, three times, or more before we let ourselves get carried away with enthusiasm for a national job guarantee. Meanwhile, we are far from exhausting the alternatives to JG. Based on international best practices, we could do more with job placement, training, and other active labor-market policies. We could reform and consolidate existing anti-poverty programs in order to reduce disincentives to work. We could make tax policy more work-friendly by expanding earned income tax credits and easing regressive payroll taxes. And we could recognize that cash assistance makes more sense than make-work jobs for many who need help most.

Reposted with permission from

1 comment:

  1. Yet despite the failures of work requirements they remain politically popular, so perhaps they should come with job guarantees. Feel good all around even if pointless.