Helps support the idea that an employed labor buffer stock works a lot better than an unemployed labor buffer stock, much like we’ve been suggesting for the last two decades:

Future Jobs Fund vindicated

By Tanweer Ali

November 27 — Last week the government finally published its impact report on Labour’s Future Jobs Fund. According to the report, two years after starting their jobs with the scheme, participants were 16 per cent less likely to be on benefits than if they had not taken part and 27 per cent more likely to be in unsubsidised employment. The net benefit to society of the scheme was £7,750 per participant, after accounting for a net cost of £3,100 to the Treasury . Not bad for a scheme condemned as a failure by the current government, and certainly better than anything that replaced it.

The Future Jobs Fund was introduced in 2009 to address the problem of long-term youth unemployment. About 100,000 people in the 18-24 age group out of work for a year or more were guaranteed a job for six months. Later the threshold was reduced to six months. An additional 50,000 guaranteed jobs were available for people of all ages in selected unemployment hotspots.

The idea of addressing long-term unemployment through job guarantees is not new. A number of such schemes were created in Depression-era America, putting young people to work in the National Parks, among other places. An economic rationale was provided by the economist Hyman Minsky. Many schemes for the unemployed focus on skills, and making people more employable, but don’t address the lack of demand for labour. Especially in times of recession and economic stagnation, the big problem is that there simply aren’t enough private sector jobs to go around. Minsky’s solution was for the state to act, in his terminology as ‘employer of last resort’, and provide work at the minimum wage (though I’d prefer to see people paid a living wage). This way the state is not competing with the private sector, merely providing a buffer in hard times.

Direct job creation schemes fell out of favour in the 1970s and 1980s, and the focus shifted to other active labour market policies. Poorly designed job creation programmes are beset by a number of serious problems. The FJF was designed after a careful study of the failure of earlier schemes, drawing on best practices from around the world, and ironing out potential faults. The scheme provided real jobs, not workfare, which created real benefits in the community, paid at the national minimum wage, with time off to look for other, unsubsidised jobs. It seems that the current government never understood the idea of transitional jobs. Anyway it was Labour’s idea, so it must have been bad, right?

Job guarantees have big advantages. For building confidence and job-readiness it’s hard to beat – the best way to prepare people for the job market is to give them a job. It is also visibly fair. Rather than leaving people idle, we are deploying our nation’s key resource in carrying out important work, be it caring in the community, working in schools, or preserving the environment. Also, boosting the incomes of people who would otherwise be unemployed constitutes a highly economic effective stimulus, one that, at a relatively low wage level, is unlikely to be inflationary. Finally, such a scheme will be cost-effective. A job guarantee is a more efficient use of money than other, broader stimulus schemes, as it is specifically targeted at a clear objective. The job guarantee is cheap for what it can achieve, far from being unaffordable.

Labour should be proud of the FJF and of its 2010 manifesto pledge to extend it to all adults out of work for two years or more. Now that the FJF has been vindicated, it’s time to reaffirm our commitment to a job guarantee, and make it a central part of a full employment policy. A robust job guarantee, once turned into an enduring institution, may not be a silver bullet for all our problems, but will go some way to addressing the misery and waste of long-term unemployment, in this downturn and in future recessions.

31 Responses

  1. American, especially republicans, seem to think that government supporting jobs and higher wages is socialism while taxpayer money given free to the banking cartel is capitalism.

    America will not recover unless American education somehow recovers, we are a nation of imbeciles. 70% of Americans have not read a single book in the last year.

      1. For anyone interested….

        Someone recommended reading ‘True Believer’ by Eric Hoffer (not N. Sparks) in tandem with ‘In Dubious Battle’ by John Steinbeck.

        I listened to audio ‘In Dubious Battle’ while driving as my eyes get kind of bleary these days from reading economic blogs 🙂

        The combo provides a framework for understanding how bad things had to get before real power rather suddenly shifted through radical change. Both books were written decades ago.

  2. It’s Obama’s favored unions that killed any chance of a job guarantee. Sad, because one surely would have been passed before Ted Kennedy died. Tells you something about the administrations priorities.

  3. The fact that those involved in the jobs fund were 27% more likely to be in unsubsidised work 2 years later ties up with studies around Europe from a decade ago which found the same effect. Those European studies found the effect is stronger for subsidised private sector than for public sector work, and the Jobs Fund included some private sector jobs.

    I’m puzzled as to why the Jobs Fund seems to have worked better than the present UK government’s “Work Program”. Possibly the reason is that running the latter was delegated to private sector entities, which seem to have aimed to rip the system off.

    Re the claim in Tanweer Ali’s article that there was no “workfare” element in the Jobs Fund, I doubt it. I’d guess some pressure was put on those concerned to the effect: “do this subsidised job else your benefits get cut”.

    1. @Ralph Musgrave,

      Possibly the reason is that running the latter was delegated to private sector entities, which seem to have aimed to rip the system off

      Unbelievable, isn’t it?

      I’d guess some pressure was put on those concerned to the effect: “do this subsidised job else your benefits get cut”.

      With the number of participants limited, wouldn’t you expect young people would apply for it rather than be forced into it? I mean 100,000 garanteed jobs is better than nothing, but it’s really not that many. So in this context, I’d guess more people would have liked to take part than there were available jobs.

  4. The small amount of research we’ve done on the FJF suggests that the character of the unemployed in this recession was different to previous ones.

    There were a lot more graduates, and that made it easier to place those people in, for example, the voluntary Arts Sector.

    FJF was similar in characteristics to the Enterprise Allowance Scheme – another successful intervention. Both were concocted by a government desperate for something to cut the youth unemployment figures at a time when they were looking at losing a forthcoming election.

    And that meant that they didn’t look at the figures too closely and didn’t smother the things with bureaucracy. Corners didn’t need to be cut, and it could be implemented properly.

  5. To say that this is the solution to high unemployment is to put the cart before the horse. It’s only useful if it is done with additional deficit spending, which increases demand, which employs more people in the unsubsidized private sector. To do it in a “neutral” way only substitutes the subsidized jobs for unsubsidized, as the total number of jobs remains unchanged.

    Before JG can be effective, the populace and the politicians must realize that a government deficit is necessary to offset non-government savings, and that the national debt is not a burden to anyone.

    1. @John O’Connell,
      There are flaws in John O’Connell’s point.
      To the extent that unemployment can be reduced simply by increasing the deficit and creating “unsubsidised” jobs, there is no point in JG. I.e. if unsubsidised jobs can be created simply by increasing the deficit, then “go for it”.
      On the other hand, if the above is inflationary (which at some stage it will be as the deficit rises realtive to GDP), why does the combination of “increased deficit and JG” work (if it does work)?
      One possibility is that the unemployed can be given simple public sector type work. That does not require an increase in demand – i.e. no deficit increase is needed. A crude example would be to tell the unemployed their benefit is henceforth conditional on their walking up and down their street keeping it free of litter.
      So there seems to be no role for John’s “increased deficit plus JG” idea.
      Well actually there is a role for that idea and as follows.Employers cease taking additional employees from the ranks of the unemployed when the quality of unemployed labour descends to the level at which their output fails to cover the minimum / union / going wage. Thus if the unemployed are given temporary subsidised work with both public and private employers (call that “JG”), those employers will take on more people than they otherwise would.

      1. i say it this way
        an employed buffer stock is a superior price anchor to an unemployed buffer stock
        because business prefers to hire people already working

    2. @John O’Connell, Don’t blame the populace. After all, it is the Federal Reserve which refers to private debt as “Consumer Credit Outstanding” and they’re not referring to the credit line that I have at the bank and haven’t tapped. The aversion to even using the word “debt” runs deep. Not to mention that the recent invention of the “debit card” is a continuation of the perverse lingo employed by the financial engineers. (You’d almost think they’d taken lessons from medical doctors intent on hiding their desperate condition from patients).
      Anyway, as George Lakoff has been trying to point out, lingo is a problem. He calls it “framing.” I prefer to point out that if we don’t know what we are talking about, we can’t fix it. Which, of course, is our Uncle Cons’ intention. Cons depend on deception.
      That said, I still think MMT is an unhelpful designation for an explanation of how money works. Being reminded of MM (Marilyn Monroe) does not generate positive vibes and M&Ms are no longer universally loved. “Theory” on the other hand is a word despised by a segment of the population most in need of illumination. Theories are not something you want to hang your hat on. “Modern Money” is a good try, but traditionalists don’t want to be modern. And besides, the perception of money as a tool, akin to the first flint tools ever made by man, is ancient and, even in the New World,harkens back to the use of sea shells and tobacco as currency. How about “Real Money” or “Right Money?” Or, “Real People Money”? That would give you RPM, a popular acronym. Depending on the font you use, you could even trademark it. 🙂

    3. @John O’Connell, Isnt’ it possible to come up with another word than “savings.” When money is hoarded, that’s not virtuous behavior. Indeed, in interrupts the cycle of trade and exchange. That might well be what is meant by the “love of money” being the root of all evil. If money is for spending, then hoarding is abusive.

      1. @MamMoTh, Kind of disappointing. Go through 7 frauds and pretty much every time says “Mosler is technically correct but conclusions are misleading.”
        I think the main dilemma is that the Austrians believe that MMTers propose big government and therefore look to immediately dismiss it. From my perspective this is because many MMTers appear to also be proponents of big government and use MMT to justify spending more. My impression is that MMT does not prescribe big government or small government and instead says that we need to have the right level of taxation for the size government we choose. The appropriate role and size of the Federal government is a different discussion that we should be having as a country instead of this BS we got going on now.

      2. MMT does not prescribe big government or small government

        True. Except when you tack on public purpose, that’s a tilt in one direction somewhat opposite to what a whole lot Americans profess to believe.

        and instead says that we need to have the right level of taxation for the size government we choose

        Isn’t this (in fact any description of MMT) incomplete without reference to full employment, price stability constraints?

      3. The issue is that we have a work = income = resources distribution model.

        If you want that to continue then you have to make sure there is enough work that pays enough income to gain sufficient resources – and that is available to everybody.

        Or you need to be honest and admit that you support eliminating spare labour capacity via the diseases of poverty. Which of course is a form of eugenics.

  6. Might the best way to set the nominal wage for an EOLR be via periodic national referendum? (Ditto for optimizing a central bank’s interest-rate or int rate target?)

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