Guarantee employment to eliminate unemployment? This is the thesis that Pavlina Tcherneva defends, articulating it with the Modern Theory of Money. But this radical policy unfortunately probably does not constitute a miracle solution.
Unemployment is a choice, but not that of the unemployed. It is from this a priori that the American economist Pavlina R. Tcherneva seeks to draw the consequences in her book The job guarantee.
State responsibility
Who is then responsible for unemployment if not the unemployed?? For Tcherneva, it is the states, because they tolerate its existence, either because they consider it a necessity, or out of powerlessness. The main thought exercise carried out by Tcherneva is then to imagine a world where states decide to eradicate unemployment. According to her, this means that they must guarantee a decent job (therefore paid at least the minimum wage) to all those who seek one. The thesis defended throughout the approximately 130 pages is that this policy would be both fairer, but also more effective than the status quo.
To convince us of this, after a first chapter allowing us to quickly present what an employment guarantee system would be, the author recalls in the second chapter the personal and societal cost of unemployment. However, despite this exorbitant cost, states would tolerate a certain level of unemployment, because they would be convinced that it is necessary in order to preserve price stability. This is the theory of the natural unemployment rate: if unemployment falls too low, then increasingly strong tensions in the labor market will lead to delays in production, shortages, and too high an increase in wages. These different forces will subsequently generate an increase in the general price level. The fight against inflation is therefore worth tolerating a little unemployment. If chapter 2 places great emphasis on the theory of natural unemployment and its supposed influence on public policies, it mentions less the more banal and more often cited reason: we would not have the means, financial and human, to eradicate unemployment. For a European public, the theory of natural unemployment seems distant as, in the face of unemployment, this discourse of powerlessness or that of the moral condemnation of the unemployed rather dominates. Fortunately, the rest of the book also responds, indirectly, to those who think that we have tried everything in the face of unemployment, by trying to demonstrate that a simple and efficient solution exists: we just need to guarantee a job for everyone.
The third chapter focuses on the macroeconomic interest of the employment guarantee. He begins by recalling that the guarantee is above all a policy, ultimately quite common in other areas, such as publishing (for example the single price of the book) or the agricultural policy, of floor prices. This is a price control policy where the state guarantees producers of a good that it will purchase their production at a price fixed in advance. In the case of the employment guarantee, this policy of course involves setting the said floor price, but also through a purchase guarantee: the State undertakes to offer jobs at this price (which the simple minimum wage system does not allow). For Tcherneva, the employment guarantee makes it possible to both eradicate unemployment and increase the quality of jobs in the private sector by competing with jobs whose wages or working conditions are not satisfactory by creating a floor. Furthermore, it accomplishes these objectives more rationally than existing policies. Instead of subsidizing private demand (businesses), a barrel pierced according to the author, because businesses have no interest in achieving full employment, the guarantee simply creates the missing jobs.
The fourth chapter answers the question of the cost of the program by operating a tour de force specific to the Modern Theory of Money (TMM). At the center of it is the idea that a monetarily sovereign state can never run out of money, because it is the source of its own currency. Public spending circulates the money created to finance it and taxes then remove it from circulation. Taxes therefore do not pay for public spending, contrary to the common vision, but mainly serve to limit their inflationary impact. The question of financing the employment guarantee is therefore secondary, only its consequences on the economy as a whole count.
However, this passage through Modern Theory of Money (TMM) rings hollow in the book, because it is ultimately not a necessary step in view of the other arguments put forward by Tcherneva. On the one hand, it estimates that the financial cost of the guarantee should remain low, 1 2 points of GDP per year for the United States. On the other hand, this cost would be compared with what is already currently spent: the financing of unemployment insurance, aid to businesses and especially the social cost of unemployment mentioned in chapter 2. Even the skeptics of the TMM can therefore be found there.
Chapters 5 and 6 turn to the practical questions of implementing the employment guarantee and in particular that of its social utility beyond the labor market. For the author, the job guarantee is social tear of the Green New Deal and must make it possible to respond to social needs in terms of ecology and economics of care. This is one of Tcherneva's important arguments: the employment guarantee is also justified in that it responds to needs not satisfied by the market economy. She is thinking in particular of the transformations required by the ecological transition, but also by the aging of the population.
Warranty limits
The job guarantee is an important book that deserves its success because it combines ambitious propositions with attention to detail. Informed readers will save time by referring directly to Chapter 5 to learn more about the practical implementation of the employment guarantee. Those less convinced will also benefit from the other chapters which detail the arguments in favor of the job guarantee one by one.
The book, however, fails in its criticism of unemployment scheme: on the one hand it underestimates the benefits of public unemployment insurance, on the other it silences certain contradictions of the employment guarantee.
To begin with, unemployment compensation is already a type of response to the problem of job loss. Most of the roles that Tcherneva gives to the employment guarantee are already fulfilled by the public unemployment insurances that exist in developed countries. They serve to place a floor on the labor market by guaranteeing the newly unemployed a fraction of their previous income. At the same time, they attenuate the shock of job loss on income and aggregate demand, and have an automatic stabilizing role. Finally, they give newly inactive people time to look for a new job or train.
But Tcherneva's book starts from the observation that this response is insufficient. What more does guaranteed employment offer?? It allows the unemployed to work if they wish. According to Tcherneva, this is enough to make this guaranteed employment status more desirable than unemployment benefits, and above all less stigmatizing. Those who would occupy guaranteed jobs are in fact carrying out socially useful tasks and in doing so acquire skills which can increase their employability. This, however, poses two problems. First, the employment guarantee risks making residual unemployment (ie people not wishing to take guaranteed employment) more stigmatizing. Then, guaranteed employment does not erase job loss. Tcherneva attributes to unemployment the cost of job loss (which partly involves the loss of skills specific to the position and the previous company) and acts as if, by eliminating the passage through unemployment, this cost would disappear. Unless we assume that work is more educational than the training available to the unemployed and/or that the unemployed remain inactive, it is not certain that guaranteed employment does better than unemployment benefits. The book therefore overestimates the benefits of the job guarantee from this point of view.
Furthermore, it is difficult for guaranteed employment to be sufficiently attractive to represent a real alternative on the labor market, to ensure needs that the private market does not satisfy and to fulfill its role as an automatic stabilizer.
Indeed, first of all, if guaranteed jobs are supposed to absorb economic shocks, they are by nature transitory and therefore unlikely to ensure unmet structural needs or to represent a credible alternative for employees on the private market. Then, if they meet hitherto unsatisfied needs, then they risk not being desirable enough, because for some employees these minimum wage jobs will offer remuneration lower than unemployment benefits. Furthermore, the skills acquired may be difficult to transfer to other segments of the private market. Finally, if they represent a real alternative, then we must ask more seriously the question of crowding out effects on the labor market. In other words, guaranteed employment will only be sufficiently desirable if it can lead certain private sector employees to leave their jobs. The success of the employment guarantee therefore requires a redistribution of activity from sectors based on poor quality jobs to those based on guaranteed jobs. This redistribution is perhaps desirable, but it represents a political challenge for the government which would like to establish the guarantee and Tcherneva does not even seem to discuss this point.
We could therefore wonder whether both better support for the unemployed and development of public employment would not be as effective as the employment guarantee in its objectives. Furthermore, the employment guarantee sometimes looks dangerously like a policy of workfare whose only innovation would be to put the unemployed to work, which does not seem to be Pavlina Tcherneva's wish.
A healthy challenge
Despite these contradictions, The job guarantee seems to accomplish its goal. This is to challenge the status quo of employment policies in developed countries to imagine what would happen if states invested more in the unemployed and in the development of public demand for employment. In France, the Zero Unemployment Territory experiment, launched in 2015, represents a first advance in this field and reading the second report of the scientific committee, led by Dares, the statistical institute of the Ministry of Labor, will be instructive for all those who have appreciated the Cherneva's book.
The beneficiaries of the Zero Unemployment Territory experiment, often people who are permanently far from employment, are thus more often employed than comparable non-beneficiaries. However, the structures which were responsible for supervising the beneficiaries, the companies employment purpose (EBE), had difficulty combining objectives of profitability and support for the unemployed. Faced with this dilemma, they have often favored the latter objective. After 4 years, the pilot territories of the experiment do not seem to be doing particularly better than the control territories which are compared to them. Even if the Zero Unemployment Territory experiment is very different from the Tcherneva employment guarantee project, these intermediate results highlight the practical difficulties that such a project can encounter.