Corbyn Would Be Wise to Avoid the Us Left’s Plans for a Jobs Guarantee

Major Left wing economic policy movements invariably germinate in the US before spreading around the world. Occupy began with student protests at the University of California in the wake of the financial crisis.

The modern living wage campaign took off following the efforts to raise pay for city service contractors in Baltimore, Maryland. So we should take notice of the latest brainwave going mainstream stateside: a generous government job guarantee.

Having dallied with supporting higher minimum wages or a universal basic income, the socialistic firebrands of the US Democratic Party are coalescing around this huge labour market intervention. Under their scheme, every US adult who wants a job would be guaranteed voluntary employment at $15 (£11.30) per hour plus benefits for the hours they prefer. Jobs would be taxpayer-funded but administered locally, with workers placed in environmental, community or care roles.

Not only would it be costly for taxpayers, but it would profoundly change the very concept of what work is about in ways we probably can’t even envisage.

The idea is to eliminate involuntary unemployment. The US suffers from high rates of 25 to 54 year-old men being inactive in the labour market, and advocates envisage clear social and economic benefits from engaging them productively. They predict too that such a guarantee will act as a floor on labour standards throughout the economy, helping achieve other social policy objectives without risking unemployment. Yet what dooms the policy are the three “Cs” - cost, crowd-out and corruption.

Such a measure would clearly be expensive. Even allowing that some would opt for part-time work, the combination of wages, benefits and material and administration costs would average $36,200 per worker per year, according to the Levy Economics Institute. Employing the 15m or so currently unemployed, underemployed or inactive US adults who say they would like work would therefore cost 2.7pc of GDP alone.

But there would be millions of people currently employed who would find the government offer irresistibly generous relative to their current job, potentially taking the direct cost to over $1 trillion a year, or way over 5pc of GDP.

This crowd-out effect could be huge. US census data shows around 24m people currently work full-time for an income of less than $30,000 a year. Plenty of businesses would have to adapt their models to account for this new effective wage floor.

But faced with higher wage costs stemming from this “public option”, some businesses would close their doors, lay off workers and automate tasks, generating a new supply of those wanting enrolment. Even workers currently better remunerated than the job guarantee offer might opt into it if they perceive the jobs to be easier or less stressful.

This is a crucial point: the biggest faulty idea underpinning this campaign is that all jobs are created equal. Work does have inherent social value in furthering well-being. But where production is concerned, workers are a cost. Employers find labour at appropriate skill levels to produce goods and services that consumers value, as expressed by their willingness to pay. This scheme would turn that principle on its head: instead it says that labour itself is inherently valuable and the uses to which workers are put are of secondary importance.

What will all these workers do then? Restoring natural habitats, putting on community musical productions and improving public trails may raise the gaiety of the nation, but it is hardly likely to deliver significant economic returns. Even in the care sectors, any benefit from a greater supply of workers is undermined by the higher wage floor likely jacking up prices for consumers.

So though significant numbers of extra people working would raise measured GDP on the one hand, overall productivity would almost certainly fall. The higher effective wage floor would reduce private sector employment and investment in low-productivity regions, compounded by the higher taxes necessary to fund the scheme.

It would be churlish, of course, to suggest that involuntary unemployment and inactivity does not in itself have economic and social costs. But it would be naive to believe that there would be no adverse social consequences of such a massive intrusion in the jobs market. In fact, one could foresee extensive corruption, in both the fraud and debasement definitions of the word.

A mammoth new bureaucracy will be tempted to direct resources based on political considerations, rather than sound economics. For Democrats this might mean overinvestment in environmental projects.

For Republicans, workers might be used for building a border wall. NGOs and local public bodies themselves will be falling over themselves to grab government funds for projects they would have undertaken any way. But an under-considered effect is how it would affect the perception of work. If jobs are guaranteed and performance not judged on a commercial basis, then conscientiousness on the job is likely to fall.

No doubt some people would much prefer to be doing something, anything, rather than nothing. And arguably this programme would combine the conservative taste for workfare with the Left wing cause of higher minimum wages and work standards. But part of the fulfilment one gets from productive activity is the very fact that it is a demanded service or production. Any government absorbing so many workers would doubtless have to employ many of them in meaningless make-work schemes. Would that really make the workers feel valued?

In short, a jobs guarantee, though well-intentioned, would be a hugely risky overhaul of the labour market to solve a real, yet modest, problem. Not only would it be costly for taxpayers, but it would profoundly change the very concept of what work is about in ways we probably can’t even envisage.

Let’s hope this grand new Left wing idea is one Jeremy Corbyn will ignore.

Ryan Bourne is the R Evan Scharf Chair for the Public Understanding of Economics at the Cato Institute.