Craig Lassig/The New York Time​s/Redux

A Federal Job Guarantee

Who Wins, Who Loses?
by ed dolan
 

ed dolan, the creator of Ed Dolan’s Econ Blog, is a senior fellow at Niskanen Center.

Published August 19, 2019

 

The irony grows ever more painful: In the midst of a booming economy, as many as 10 million Americans who want to work can’t find jobs. Why not just end involuntary unemployment and working poverty once and for all by providing guaranteed public service jobs at a living wage to anyone who wants one?

In an earlier article, I discussed how such a job guarantee would benefit many (but not all) of those who are currently “nonemployed.” Here, I turn to the effects of a job guarantee on people who are already working at low-wage jobs — and on their employers.

Job Guarantee as a Supercharged Minimum Wage

The guaranteed jobs now being proposed would pay on the order of $15 an hour, plus health insurance, childcare, parental leave, sick leave and paid vacation time, for a package worth $18 to $20 per hour. (See here or here for details.) The goal is to make sure the compensation is high enough for one worker to provide a modest living standard for a household of four in most parts of the country.

So far, so good. But note that paying $18 to $20 compensation to anyone willing to work would effectively serve as a minimum wage for the whole labor force. Any employer who did not match the job-guarantee package would risk losing workers to public service jobs. As many as 65 million workers, more than 40 percent of the labor force, are currently estimated to earn less than $15 per hour. Thus, whether they stayed with their current employers or switched to new public service jobs, their incomes would presumably rise.

How Would Private Employers React?

Job-guarantee advocates maintain that most private employers would match the job-guarantee wage rather than letting workers go. As evidence, they point to studies of past increases in minimum wages that generally find recent changes in state and local minimum wages have cost few jobs.

However, there are caveats in applying those studies to a broad federal job guarantee. As one review of the research pointed out, the most likely reason that minimum wage increases haven’t cut employment is that “the cost shock of the minimum wage is small relative to most firms’ overall costs and only modest relative to the wages paid to low-wage workers.”

By contrast, the proposed $18 to $20 an hour would dwarf the current federally mandated minimum of $7.25 that sets the wage floor in 21 states. And it would represent a big jump even for the dozen or so states that currently have minimum wages in the range of $10 to $12 per hour.

 
It is hard to imagine that, say, teachers’ aides or building custodians would continue to work at $11 per hour, elbow-to-elbow with newly hired job-guarantee workers doing similar work for $15 an hour plus generous benefits.
 
Impact on State and Local Governments

Minimum wage research has focused on private employment, but a broad job guarantee would also affect state and local government employment. As of 2019, state governments employed some 5.3 million people and local governments 14.7 million. When differences in age and education are taken into account, those jobs pay on average about 4 percent less than jobs in the private sector. And many of these are the same sorts of semi-skilled public service jobs that a job-guarantee program would offer. It is thus hard to imagine that, say, teachers’ aides or building custodians would continue to work at $11 per hour, elbow-to-elbow with newly hired job-guarantee workers doing similar work for $15 an hour plus generous benefits.

What’s more, unlike fast-food restaurants or retail stores, state and local governments could not simply raise the wages of existing employees and try to pass the cost along to the “customers.” Indeed, it is safe to say that the political pressure to absorb the cost without tax increases would be fierce.

The Nonprofit Sector

A job guarantee would have similar impacts on jobs in the nonprofit sector. Nonprofits currently employ some 14 million, nearly as many as local government. Although some workers in this sector are well paid – for example, health care professionals at not-for-profit hospitals and professors at private colleges – many others are in the same boat as less skilled workers elsewhere in the economy.

According to the Nonprofit Quarterly, pay is especially low in the nonprofit social assistance sector, which includes community, food, child and youth and elderly and disabled services, and in arts and entertainment organizations. The reported average pay for such workers falls well short of what job-guarantee proposals promise – and again, for work that is often substantially similar.

As in the case of state and local governments, nonprofits would have a tough time finding a third party to pick up the tab. Instead, they would have to solicit additional donations to maintain service levels, a prospect as daunting as that faced by states and localities.

The bad news doesn’t end there. Along with displacing paid jobs in the nonprofit sector, a job guarantee might well displace volunteers. The Bureau of Labor Statistics estimates that more than 60 million Americans participate in volunteer work each year. And roughly 6 million of them spend more than 500 hours a year in unpaid work. Very likely, some people who currently serve as, say, volunteer wildlife monitors would happily take paid jobs doing the same thing for the federal government. In other cases, people who are already employed but volunteer on weekends would find they are no longer needed to pick up trash in the local park, since a job-guarantee worker would be doing the job.

Why It Matters

Advocates portray a job guarantee as a win-win, creating a much higher minimum wage for all as well as a source of decent-paying jobs for workers with poor prospects. But the resulting displacement of large numbers of people from their current jobs could quickly overwhelm the ability to create and finance guaranteed jobs in the public sector. 

Job-guarantee advocates promise less poverty along with beefed-up public services — better schools, cleaner parks — at the expense of a few cents added to the price of a hamburger. But it probably wouldn’t be a matter of pennies. And if the price of guaranteeing good jobs for all was shuttered restaurants, higher taxes, and more people seeking public service jobs than meaningful work could be found for, it’s hard to imagine the experiment would last long.

main topic: Job Creation
related topics: Human Capital, Public Policy