Unemployment is rising. The Office for National Statistics is likely to report next week a big rise in joblessness – not just those officially unemployed, but also those out of the workforce who want a job. It’s also likely to say that the number of vacancies has halved since before the pandemic, which suggests many of the unemployed have little chance of getting work quickly.
This is disastrous. Unemployment causes misery and even suicide. And for younger people, its effects can last decades as the loss of work experience at a vital age reduces wages throughout their lifetime.
Interest is therefore growing in a potential cure for these ills. It’s that the government should finance guaranteed jobs at decent wages for everybody who wants one. This is proposed in two new books: The Deficit Myth by Stephanie Kelton and The Case for a Job Guarantee by Pavlina Tcherneva. It has also been advocated by, among others, Randall Wray and Felix FitzRoy and Jim Jin. Because it’s important that such jobs be useful – so that those doing them get pride and dignity – the scheme must be administered locally, because local people know best what jobs need doing in their area.
The merest outline of such a plan highlights a problem. We simply don’t yet have in place the policy infrastructure to implement it. A job guarantee is not, then, an immediate fix.
There are two powerful reasons, however, why such infrastructure should be put in place quickly. Cutting unemployment isn’t good only for the unemployed. It can help investors, too.
Most obviously, it does so by supporting aggregate demand: those doing a government-guaranteed job will spend their wages. But also, mass unemployment threatens to undermine the legitimacy of capitalism. A job guarantee buys off this discontent. You can think of it as a form of inoculation: injecting a small dose of socialism into the system prevents a bigger one.
There are, however, also dangers. One is that if the government creates big demand for labour, it threatens to bid up wages and thereby squeeze profits. This might drive companies relying on bad jobs and low wages to the wall: the recent fall in Boohoo’s share price reminds us that some firms are vulnerable to the danger of even mild improvements in workers’ conditions.
A second problem was pointed out by Michal Kalecki back in 1943. If the state can maintain full employment by its own actions, he said, businesses’ influence over it will wane: governments will no longer need to maintain business confidence in order to preserve jobs, and will no longer be so susceptible to lobbying. In this way, business would become politically weaker.
The scale of these dangers is difficult to assess. Some companies might respond to a tight labour market by improving productivity and investing in labour-saving technology – as happened during the full employment era of the 1950s and 1960s. And business’s influence over policy is limited anyway: the fact we are leaving the European Union proves that.
Nevertheless, investors face a challenge here. The intellectual climate is changing. Free market policies are out of favour, and government intervention is back. Many of you, I know, don’t like this – but you should ask why the change is happening. And like it or not, we must adapt to this new world.
