A job guarantee is an economic policy proposal that aims to provide a sustainable solution to inflation and unemployment. Its aim is to create full employment and price stability by having the state promise to hire unemployed workers as an employer of last resort (ELR).
The economic policy stance currently dominant around the world uses unemployment as a policy tool to control inflation. When inflation rises, the government pursues contractionary fiscal or monetary policy, with the aim of creating a buffer stock of unemployed people, reducing wage demands, and ultimately inflation. When inflationary expectations subside, expansionary policy aims to produce the opposite effect.
By contrast, in a job guarantee program, a buffer stock of employed people (employed in the job guarantee program) is typically intended to provide the same protection against inflation without the social costs of unemployment, hence potentially fulfilling the dual mandate of full employment and price stability.
Overview
A job guarantee is based on a buffer stock principle whereby the public sector offers a fixed wage job to anyone willing and able to work thereby establishing and maintaining a buffer stock of employed workers. This buffer stock expands when private sector activity declines, and declines when private sector activity expands, much like today's unemployed buffer stocks.
A job guarantee thus fulfills an absorption function to minimize the real costs associated with the flux of the private sector. When private sector employment declines, public sector employment will automatically react and increase its payrolls. So in a recession, the increase in public employment will increase net government spending, and stimulate aggregate demand and the economy. Conversely, in a boom, the decline of public sector employment and spending caused by workers leaving their job guarantee jobs for higher paid private sector employment will lessen stimulation, so the job guarantee functions as an automatic stabilizer controlling inflation. The nation always remains fully employed, with a changing mix between private and public sector employment. Since the job guarantee wage is open to everyone, it will functionally become the national minimum wage.
Under a job guarantee, people of working age who are not in full-time education and have less than 35 hours per week of paid employment would be entitled to the balance of 35 hours paid employment, undertaking work of public benefit at the minimum wage, though specifics may change depending on the model. The aim is to replace unemployment and underemployment with paid employment (up to the hours desired by workers), so that those who are at any point in time surplus to the requirements of the private sector (and mainstream public sector) can earn a wage rather than be underemployed or suffer poverty and social exclusion.
A range of income support arrangements, including a generic work-tested benefit payment, could also be available to unemployed people, depending on their circumstances, as an initial subsistence income while arrangements are made to employ them.
Job guarantee theory is often associated with certain post-Keynesian economists, particularly at the Centre of Full Employment and Equity (University of Newcastle, Australia), at the Levy Economics Institute (Bard College), and at University of Missouri – Kansas City including the affiliated Center for Full Employment and Price Stability.
One theory was put forward by Hyman Minsky in 1965. Notable job guarantee theories were conceived independently by Bill Mitchell (1998), and Warren Mosler (1997–98). This work was then developed further by L. Randall Wray (1998). A comprehensive treatment of it appears in Mitchell and Muysken (2008).
Inflation control
A fixed job guarantee wage provides an in-built inflation control mechanism. Mitchell (1998) called the ratio of job guarantee employment to total employment the buffer employment ratio (BER). The BER conditions the overall rate of wage demands. When the BER is high, real wage demands will be correspondingly lower. If inflation exceeds the government's announced target, tighter fiscal and monetary policy would be triggered to increase the BER, which entails workers transferring from the inflating sector to the fixed price job guarantee sector. Ultimately this attenuates the inflation spiral. So instead of a buffer stock of unemployed being used to discipline the distributional struggle, a job guarantee policy achieves this via compositional shifts in employment.