L. Randall Wray: Time for a New Approach for Unemployment?
More than five years after the fall of Lehman Brothers we are still dealing with the problem of high unemployment, the worst kind of "waste" in economic theory.Is there a better approach? A number of scholars, notably Professor Randy Wray of the University of Missouri-Kansas City, have long proposed a Job Guarantee program or the government as an "employer of last resort," or ELR. As Wray notes in the interview below, the U.S. government can proceed directly to zero unemployment by hiring all of the labor that cannot find private sector employment. Furthermore, by fixing the wage paid under this ELR program at a level that does not disrupt existing labor markets, i.e., a wage level close to the existing minimum wage, substantive price stability can be expected. A sizable benefits package should be provided, including vacation and sick leave, contributions to Social Security, and, most importantly, health care benefits, providing scope for a bottom-up reform of the current patchwork health care system.Using the government as an ELR would not be introducing another element of intrusive bureaucracy into our economy. It would simply offer a better utilization of the existing stock of unemployed who are now dependent on the public purse — especially the chronically long-term unemployed.The current system we have relies on unemployed labor and excess capacity to try to dampen wage and price increases. However, it pays unemployed labor for not working and allows that labor to depreciate and develop behaviors that act as barriers to future private-sector employment.Social spending on the unemployed prevents aggregate demand from collapsing into a depression-like state. But little is done to enhance future growth and demand, which can be done via an ELR by providing the currently unemployed with jobs, greater education, and higher skill levels.The ELR program would allow for the elimination of many existing government welfare payments for anyone not specifically targeted for exemption. It would also command greater political legitimacy, as society places a high value on work as the means through which individuals earn a livelihood. Labor would welcome the safety net of a guaranteed job, and business would recognize the benefit of a pool of available labor it could draw from at some spread to the government wage paid to ELR employees.Additionally, the guaranteed public service job would be a counter-cyclical influence, automatically increasing government employment and spending as jobs were lost in the private sector, and decreasing government jobs and spending as the private sector expanded. It would therefore remain a permanent feature of our economy. In effect, it would act as a buffer stock to put a floor under unemployment. The program also would help maintain price stability whereby the government offers a fixed wage that does not "outbid" the private sector, but simply creates a stabilizing floor and thereby prevents deflation.A more or less "free market" system does not (and, perhaps, cannot) continuously generate true full employment. And no civilized nation should allow a large portion of its population to go without adequate food, clothing, and shelter. One of the best features of an ELR program is that it creates a stock of employed people, rather than a buffered stock of unemployed, where social capital depletes rapidly and several long-term social pathologies develop.The way we're approaching our labor force now isn't working. It's time to try something that can put as many Americans as possible into productive employment. Wray offers a refreshing and innovative alternative in the interview below.