Question 3 - How do we pay for the Job Guarantee?
The budget deficit is too small if there is unemployment. What would the expansion in the budget deficit cost to implement a Job Guarantee policy? Three recent studies estimate the costs of such schemes in the
United Kingdom, the United States, and Australia, respectively [Gordon (1997) for the
United States; Kitson et al. (1997) for the UK; and Mitchell and Watts (1997)
for Australia]. All three studies produced estimates that lie in the range of 0.06
percent (United States) to 3.5 percent (Australia) of current GDP. The costs are
overstated because they ignore the multiplier effects from the rising incomes of
Job Guarantee workers. More detailed cost analysis can be found in the above references.
The conclusion from all studies is that the Job Guarantee proposal is a very cheap
option compared to the Okun gap losses that are incurred daily due to unemployment.
High unemployment also places increased costs on the health system and is associated
with increased family breakdown and higher crime rates. Gordon (1997: 831) concludes
that "beyond this, there is an important sense in which the job guarantee program would
not cost anything. The goods or services produced by the labor of the beneficiary of
the job guarantee increase the gross national product and the national welfare by as
much as the worker is paid as reliably as does any 'free market' labor. The laborer is
'earning' the wage or salary received. Also, and importantly, the worker under the job
guarantee program has a job of which the worker can be as proud as are other citizens
with their jobs."
Kitson, M., J. Michie, J., and H. Sutherland (1997). "A Price Well Worth Paying? The
Benefits of a Full-Employment Strategy." in Jonathan Michie and John Grieve Smith (eds.),
Employment and Economic Performance: Jobs, Inflation and Growth,, (Oxford: Oxford
University Press), pp.234-253.
Gordon, Wendell (1997). "Job Assurance -- The Job Guarantee Revisited." Journal of Economic
Issues 21, no. 3 (September), pp.817-825.
Mitchell, William and Martin Watts (1997). "The Path to Full Employment." Australian Economic
Review, 4th Quarter.