India introduced a job guarantee programme, for the rural poor in 2005. It was dismissed by many as fiscal folly. Yet this developing country has weathered the financial storms of the economic downturn far better than most European countries. Argentina ran a successful programme in the wake of their debt default and Canada has had a good experience with such programmes.
Job guarantee as an economic policy builds on the concept of employer of last resort. The policy requires that the public sector offers a fixed wage job to anyone willing and able to work. The job pool expands when private sector activity declines, and declines when private sector activity expands.
To avoid disturbing the private sector wage structure and to ensure the job guarantee is consistent with inflation targets, the wage rate should be set at the current legal minimum wage for each age range.
Under the programme, people of working age who are not in full-time education or full-time employment would be entitled to a full-time or part-time job, undertaking work of public benefit at the minimum wage. The aim is to replace involuntary unemployment with paid employment, 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 reasonable living rather than be forced to become reliant on benefits.
A citizen’s income tax credit, equivalent to the current unemployment benefit could replace most existing benefit programmes and be recouped by taxation of a full-time minimum wage sufficient to ensure an effective zero rate of deduction from minimum wage earners. Full-time employment (supported by child care provision) would become part of the eligibility criteria for able-bodied social housing tenants and housing benefit claimants.
It is a genuine bottom-up approach to economic recovery. It stabilizes the incomes and purchasing power of individuals at the bottom of the income distribution that trickles up and stabilizes the rest of economic activity. Strong and stable demand means strong and stable profit expectations – the conditions needed to restore confidence in business investment. A programme that stabilizes employment and purchasing power is a programme that stabilizes cash flows and earnings. Stable incomes through employment also mean stable repayments of debts and greater overall balance sheet stability.
I have suggested in an earlier article that a job guarantee programme aimed at tackling structural youth employment may require a public investment of 2.5 billion and generate 3.75 billion of additional GDP.
A programme that included over 25s would be targeted at the long-term unemployed in regional unemployment hotspots. Such a programme may attract between 500,000 and 750,000 adult participants and cost a gross 6 to 9 billion. Headline costs reduce substantially with savings in benefit payments and it is quite possible that the effects of the economic stimulus at the lower range of the income distribution would make the programme self-financing. An unacceptable risk to the deficit reduction programme? Contrast this with the cost of an early increase in the personal allowance to £10k (10 billion), Ed Balls’s proposed VAT cuts (12 billion) or Liam Fox’s preferred business tax cuts, all of which would need to be paid for by bringing forward future spending, borrowing, further expenditure cuts or tax increases elsewhere. We can then conclude that the cost issues come down to priorities, economic leanings to redistributive stimulus measures and political will.
* Joe Bourke is an accountant, former parliamentary candidate and Treasurer of Hounslow Liberal Democrats