The Modern Monetary Theory (MMT) Job Guarantee: Where Did It Come From, What Is It, and What’s It For?
Knitting Together the Threads of the Job Guarantee Story – From Wool Buffer Stocks to Price Stability – and a Job for All Who Want to Work
A Job Guarantee: is a program funded by government that guarantees a job at a living wage (and an employee benefits package) to everyone who wants one. The idea – in the form that it exists today within the MMT framework – was first put forward by economist Bill Mitchell while he was thinking about the role of buffer stocks in the wool industry.
Buffer stocks are a common way to stabilise prices for commodities. For example, in the case of wool, the idea is that the government (or another central authority) buys wool when it is abundant and releases it back into the market when stocks are scarce, thereby keeping prices stable. Mitchell realised that the same technique could be applied to workers' wages. A Job Guarantee would stabilise wage rates and prices while also keeping people in employment during economic downturns.
“A Job Guarantee is an important part of a new order but it should really be just a very small part of the policy offerings, which I think is a point that is missed by those who think of it as a job creation program rather than the way I conceived of it initially in 1978 as a price stabilisation framework with the added advantage that jobs replaced unemployment.” Bill Mitchell - Some historical thinking about the Job Guarantee
The Context: Supply-Side Shocks Cause Prices to Rise in the 1970s
Mitchell conceived the idea in 1978. He had watched companies and unions grow stronger to the point were both had gained the power to influence prices: companies want increased profit margins, workers want higher wages. He saw these competing pressures as resulting in a positive outcome: reduced inequality and a boost in consumer spending.
However, he also noted that external shocks were inclined to disrupt this finely balanced ‘dance’ between workers and employers. For example, the 1973 OPEC Oil Crisis, which meant oil prices surged globally. This led to a conflict between workers and businesses over who would bear the cost of higher raw material prices.
These supply-side shocks lead to a "battle of the markups" between companies and labour and that created an inflationary spiral. Companies were raising prices to try to protect their profit margins (reducing workers' purchasing power), while workers were fighting for higher wages to try to maintain their standard of living.
Bill Mitchell Wasn’t Being Sheepish: He Was Thinking About Jobs and Wage Rates
Mitchell looked at the Australian government wool price strategy - put two and two together and realised that the same strategy would work in relation to workers’ wages. The government could maintain a "buffer stock" of workers - just as they have maintained a buffer stock of wool. They could employ those who had lost their jobs during a recession and those workers would transition back into private market jobs as the economy recovered.
As with the price of wool, this would have an effect on wages. Firstly, the job guarantee program would put a floor on wage levels, which would force private sector employers to meet a minimum level. Secondly, it would have the effect of stopping companies bidding up wages as they competed to employ ‘the best’ employees after a recession.
Historically, employees have not been keen to employ people who have been out of work for a long time (they see it as risky). Instead, they have tended to compete to attract the best workers by offering higher wages and other perks. These wage rises are assumed by Mitchell to feed inflation.
However, a ‘work ready’ workforce of people, who have retained their skills and their work habits, ensures that companies are more comfortable employing people at all skill levels. As a result, they are less likely to all compete for the same workers and less likely to bid up wages. Therefore, the job guarantee helps to curb wage inflation.
In summary, the "buffer stock of jobs" serves a dual purpose: it guarantees full employment, ensuring everyone who wanted work could find it, and it providing a damper on inflation - via dampening wage rises.
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A Job Guarantee Versus Neoliberal Approaches to Tackling Inflation
The Job Guarantee evolved as an alternative response to orthodox approaches to managing inflation; i.e. as an alternative to austerity and the raising of interest rates - both of which result in higher unemployment, economic hardship and a host of serious social problems.
By extrapolating the idea of commodity price stability (in this case wool) to employees wages, Mitchell developed a practical solution to tackle unemployment and inflation. A solution without the social harm caused by traditional policy responses.
The Neoliberal Approach
The neoliberal approach to managing inflation is deliberately designed to reduce wages and create unemployment. It works like this: raising interest rates makes new investments more expensive and that forces businesses to release workers. As a result workers are no longer in a strong position to negotiate wage increases: wage rates fall and the supply of workers and demand for workers comes back into balance. This is based on a simple supply and demand model (that this simple idea can be applied to workers wages is disputed). Workers are now getting paid less, and therefore, inflation falls as workers have less money to spend and now there is no longer ‘too much money chasing too few goods’.
Austerity and Increased Interest Rates Are Regressive Policies
These neoliberal economic polices, i.e. austerity and interest rate rises, damage those at the middle and bottom end of the income spectrum: while at the same time putting more money into the pockets of those who have investments and savings, i.e, those who tend to be in the higher income bracket.
Unemployment Damages People’s Lives
The neoliberal approach can have a devastating effect on workers lives: loss of identity; poverty; loss of skills; physical and mental health issues and stress due to uncertainty. For the long-term unemployed it is even worse - affecting entire families across generations.
A job guarantee is an alternative price stability mechanism without the devastating effects on the wellbeing of workers.
Modern Monetary Theory (MMT) and the Job Guarantee
Mitchell's work inspired other economists, such as Pavlina Tcherneva, L. Randall Wray, and Warren Mosler, to expand upon the Job Guarantee concept within the broader MMT framework. They integrated the Job Guarantee into discussions of fiscal and monetary policy, showing its potential as an automatic stabiliser for the economy, a tool to control inflation, a means to ensure economic justice and a way to reduce social inequality.
“The only thing preventing full employment and price stability is the space between our ears.” Warren Mosler (Modern Monetary Theory – Bill and Warren’s Excellent Adventure)
A Job Guarantee would act as a stabiliser for the economy, automatically boosting aggregate demand during economic downturns. The Job Guarantee ties public spending to productive employment, maintaining purchasing power and sustaining consumer demand. As the economy recovers, those temporary employees are reabsorbed into the private sector, which automatically reduces state spending on the programme.
The Job Guarantee: In Practice
What Kind of Jobs Should Be Offered Within a Job Guarantee Programme?
Economist Dr Fahdel Kaboub singles out jobs that tackle climate change as being particularly suitable work for those participating a job guarantee program i.e. reforestation, urban greening and conservation work.
Other jobs suggested by MMT economists include vocational training to enhance community capabilities, responding to natural disasters or emergencies, care work, infrastructure and public space maintenance and cultural and artistic enrichment.
Suitable jobs are those that support skills development, provide important services currently unmet by the private sector and help mitigate environmental damage. In practice, the Job Guarantee supports private sector employment by ensuring there is always a work-ready, skilled workforce.
Who Manages the Job Guarantee Programme?
Modern Monetary Theory (MMT) envisions the Job Guarantee Program as central government funded but locally implemented. Projects will be tailored to local community needs, focusing on public purpose and ensuring fair labour standards.
The Job Guarantee and MMT
The Job Guarantee is now a central tenet of MMT and has been proposed as a solution to contemporary challenges such as inequality, climate change, and automation-induced job losses. Advocates argue that it not only addresses unemployment but also establishes a baseline for fair wages and working conditions. For a school of thought that focuses on describing how the monetary system operates, the Job Guarantee is MMT’s sole policy proposal.
The Job Guarantee builds on the idea that unemployment is a phenomenon created when governments impose taxes on citizens (without first ensuring there are sufficient jobs to allow people to earn the currency needed to pay those taxes). By offering a public-sector job to anyone willing and able to work at a fixed wage, the government acts as an "employer of last resort" (ELR). This approach not only addresses unemployment but also establishes a price anchor to stabilise the currency.
The governments, as monopoly issuers of currency, therefore, have the capacity and responsibility to maintain full employment. A job guarantee program offers a solution to that need.
Jim Byrne - MM101.ORG
Resources
Bill Michell Some historical thinking about the Job Guarantee.
Stephanie Kelton's The Deficit Myth (2020)
Pavlina Tcherneva's The Case for a Job Guarantee (2020)
Warren Mosler Soft Currency Economics II
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Thanks,
Jim
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