On this episode Mark talks with economist Pavlina Tcherneva about a policy proposal that’s bubbling under in the US policy debate: the creation of a federal jobs guarantee. Pavlina is an Assistant Professor of Economics at Bard College and author of 'The Case for a Job Guarantee.' As Pavlina describes it, a federal jobs guarantee isn’t just a good idea; in the face of our economic, environmental, and epidemiological crises, it may be a necessary one.
You can watch her virtual visit to the Rhodes Center here.
You can learn more about and purchase her book here.
[MUSIC PLAYING] MARK BLYTHE: From the Rhodes Center for International Economics and Finance at Brown University, this is the Rhodes Center Podcast. I'm Mark Blyth. On this episode, I talked with economist, Pavlina Tcherneva about a policy proposal that's having a moment here in the US, the creation of a federal jobs guarantee. As Pavlina describes it, it's not just a good idea but in the face of our economic, environmental, and epidemiological crisis, it may be a necessary one.
Pavlina is assistant professor of economics at Bard College and author of "The Case For a Job Guarantee" a Financial Times best book of the year. She is also a leading figure in the world of modern monetary theory which as you'll hear in our conversation is deeply connected to her conception of how this kind of policy would work. We talked about how a jobs guarantee would function in America, why it may be better for the economy than universal basic income, another proposal that is having its moment, and why now may be the moment for this type of intervention. Here is my conversation with Pavlina.
Welcome Pavlina, it's great to chat to you.
PAVLINA TCHERNEVA: Thanks for having me, Mark.
MARK BLYTH: Why do you think now is the moment where people are receptive once again to the idea of the federal government, or if you don't live in the United States, the central government actually giving people guaranteed employment? What is it about this movement that's made this topical again?
PAVLINA TCHERNEVA: Yeah, I think there are a number of reasons why that conversation is reviving. I think part of it has to do with the fallout from the Two-Thousand-Eight financial crisis. I mean we endured some of the highest unemployment rates in the post-war history. And then slogged through the longest jobless recovery that we had seen. And it took 12 years to bring unemployment down to 3.5%. And if you look at it regionally, there are communities across the United States that are perennially in the double digits.
And I think we were rethinking economics on many multiple levels. You know, how the financial sector should work, what public policies should do. But jobs, it was one of those conversations that was left on the back burner which is the reason why we went through a very prolonged jobless recovery. Now people are saying, OK, how can we move forward? We are looking for structural solutions. And the job guarantee is that sort of policy response that attempts to add to the safety net, if you will. A public option for lack of a better word. A transitional program. Just the promise that if you go and look for a job, you can find it. And that we have multiple ways of dealing with unemployment.
So that I think is part of the conversation. But of course, the danger is that attention will wane once the crisis has left us. And so it's important when we articulate what the job guarantee is to talk about it not just as a crisis program that we just pull out of a pocket and implement now. And then forget about it five years later when it's actually doing its magic.
MARK BLYTH: So I want to talk about two ideas. One, which has also got a great deal of public currency and is often seen as the alternative proposal to a jobs guarantee, which this universal basic income. And then the other one is active labor market policies. Because in a sense, active labor market policies and the jobs guarantee are pushing in the same direction. What they're trying to do is get people into work and also compress wages and raise the wage floor so that basically you have a better kind of capital labor share. What this UBI seems qualitatively different is premised upon the fact that the world of work is going away. So how do you think about those two alternatives vs-a-vis the job guarantee program.
PAVLINA TCHERNEVA: On the UBI question, I am not convinced by the argument that the world of work is going away. Now, that comes from two places typically. One is that maybe there are some technological Armageddon that we are facing. And on this issue. I'm with the roboticists. They don't believe that we are anywhere near that technological, those kinds of technological advancements to displace our jobs. The second thing is that we've had these conversations about technology taking away jobs for a very, very long time. And my position is that 80% of the jobs of the future, we haven't even conceived of today.
So the question is what will that world of work look like tomorrow? I think that's the anxiety that a lot of people are feeling. And there is a little bit of resignation that if we just can't create jobs, by God, let's at least give people income. Which I'm sympathetic to the view. But I'm not sympathetic to the view that we cannot create jobs. Because there are plenty of things that we need to do that are not done.
We acutely see this and feel it in our communities, in our public social life that there's dilapidating infrastructure. There are communities in disrepair. There are environmental problems. I mean there are care needs. There's lots of work to be done. And we just need to be able to do it. So the job guarantee will be one mechanism not the only one. But it will be one mechanism to deliver some of those social services that are missing.
Now on the second question of labor active labor market policies. Now, that is a question of how we restructure the world of work going forward. And we need a multipronged attack clearly. Because we have had the hollowing out of the manufacturing sector, middle income jobs, et cetera, the loss of union work as well, and some of the protections that came with those good jobs in the unification, of course, of work.
So what can we do going forward? Should we accept sort of the precarity or can we actually create a new world of safe and secure work? The example I often give is manufacturing. That was extremely dangerous in the last century and the 19th century. It was very poorly paid. And it was not a good job. And yet today, we identify manufacturing with the good jobs and the good communities they engendered. So today, 80% of our economy is a service based economy.
What can we do to restructure service work to provide the same kind of support and income for working people? The job guarantee is basically the standard, the public wage floor, if you will, that then the economy will need to match. And so in that sense, it is a structural reform of a very particular kind. It secures the floor.
MARK BLYTH: So the active labor market side of this, coming at this from a kind of more Scandinavian labor market one is. That's fine, we totally get the floor. But there's a problem with the floor. And you don't really get any kind of incentive to increase productivity if you have a floor and it's just the floor. The model is much more focused upon a training component and essentially compressing wages to force firms to go out of business if they're inefficient. And redeploy labor to those more productive parts of the economy. Is there a way in which the job guarantee can basically be shaped to have that type of positive thing that comes off of more active labor market policies?
PAVLINA TCHERNEVA: Absolutely, these are not either or. One way to think about this is that the job guarantee is not just securing the floor but it is a stabilizer, economic stabilizer. And the way it can accomplish this is if it actually effectively transitions people back into private sector employment or other forms of more stable sector, non-profit public sector employment when the economy recovers.
Now, that kind of transitional aspect of the job guarantee would work exactly if we have the appropriate training, education, apprenticeships and auxiliary if you will support services to help people be successful in whatever they want to do. So I think that these go hand in hand. What I think is a bit more problematic is if we have active labor market policies without a job guarantee, then what happens is that we are kind of shuffling people along the unemployment line, if you will. Some lose their jobs or they get them. And it is-- it will be a no win situation for somebody.
And when we talk about productivity, I usually like to put the emphasis on an economy that has some unemployment however small or large. That is zero productivity. You could argue it's even negative productivity if we account for all the social costs of unemployment. So employing the unemployed is more productive than having unemployment.
MARK BLYTH: So with that in mind, it's obviously better to employ resources than not employ resources. Your jobs guarantee and your sort of broader work is associated with a school called modern monetary theory. And in the podcast, we previously spoke to Stephanie Kelton. I myself has been described basically, as MMT adjacent. I like that one. That's a good one. So I want to talk about the relationship between the jobs guarantee and MMT. Do you have to have a kind of MMT economy for this program to work or can you do it without actually the type of reengineering and rethinking the economy that MMT demands?
PAVLINA TCHERNEVA: Well, maybe it's worth saying that MMT typically is a descriptive analytical project. It's a framework of analysis, of thinking. And there are few proposals that come out of the MMT body of work. The job guarantee is one of them.
MARK BLYTH: So why is it that-- why the homology between the two?
PAVLINA TCHERNEVA: That's right, OK. And so MMT highlights the important powers of the government in delimiting their monetary system. One of the things that we say is that the currency is a public monopoly. And there are a whole host of implications that follow from that. But what that means in simplest terms is that the state, the government has exclusive spending powers that no other agent has.
The second MMT component that is probably not very familiar to folks is that government by virtue of the monetary system creates a certain kind of unavoidable unemployment. And when the public sector imposes taxes, whatever they are, fines, fees, dues, unavoidable, inescapable, they are all in monetary terms. We all have to pay them. And if we're unable to acquire the resource to pay them, we're in trouble. But it is the government that is the ultimate source of the financing, of the currency that settles those debts and dues.
So in a way, in a somewhat abstract way, the tax system creates unemployment, monetary unemployment. When you say unemployment, is somebody seeking wage work? And if you then create unemployment but then you abdicate your responsibility for solving the problem of unemployment, then you have a dysfunctional macro model. So in that sense, the job guarantee is essential. And I should add here that why does the government impose these tax liabilities or obligations on the public sector is not because it needs funding but because it needs resources. You know, somebody has to sell something to the public sector in exchange for a currency. And usually, they provide labor and resources.
And so the tax system actually reorganizes our collective public provisioning. And so the job guarantee is that missing piece. You can actually employ the unemployed in that process of organizing for the community as a whole or for the economy as a whole.
MARK BLYTH: So I see how it follows from that framework as you put it. But Gordon Brown, for example, when he was labor prime minister actually, not just chancellor, he kind of ran a de-facto job guarantee at the start of the crisis. And there have been other attempts. I mean, India is not running a sort of an MMT economy. They have the largest jobs guarantee program. So as a necessary homology or can you do this without, in a sense, going full MMT? I'm just wondering because I can see how people are either attracted to MMT and perhaps not the job program. People like the job program because they like it better than UBI but they're a bit concerned about, do I need to buy MMT. And just try to tease out the necessary kind of relationship between them.
PAVLINA TCHERNEVA: Yeah, I think that it is not necessary to understand why MMT and the job guarantee are attached at the hip. It helps. But if you do noT-- if you're not convinced by the MMT premises, I think that we can agree on the fact that the public sector is nevertheless always responsible for macroeconomic stabilization or the fallout from unemployment. So in some sense, these costs of unemployment are already part and parcel of the budget.
Now, what MMT does say is that if you have sovereign currency or a monetary system that is not-- you know, you're not pegged to some other currency or you're not part of a monetary union, you have a lot more fiscal space, you are able to address public concerns in much more aggressive manner. But it's still true that if you're part of the Eurozone, you still have to deal with unemployment. You still have to bear those costs. And there will be resources that will be expend. And it is better to employ people than not employ them. And so I think that the merits of the job guarantee are there even if you don't have monetary sovereignty. But granted, they will be much more careful budgeting, resource allocation that might come into consideration and smaller policy space.
MARK BLYTH: So let's turn to a much more micro level. So I've lived in the United States for about 30 years. And one of sort of the definitions of the US that I walk around in my pocket with is this is a place where if you're unemployed, it's your fault. As opposed to in countries where I grew up, where it was very much the case of if I'm unemployed, it's the government's fault and they need to do something about it.
How do we deal with that difference in political culture? If you want to basically have a program that says, no, honestly, this isn't really anyone's fault. There is a macroeconomic problem and it is the government's responsibility to do something about it. And it can do something about it. How do you-- how do you fight against those, if you will, folk wisdoms that ultimately if you lost your job, even if there's a big crisis, it's your problem because 90% of people didn't lose their jobs even if 10% did?
PAVLINA TCHERNEVA: Yeah, there are those folk wisdoms that can be deployed effectively, I think, by policymakers. I think the counter argument to that is that at least in recent history, the job guarantee has been pulled. I mean, we've been polling that idea that the government is responsible for providing employment opportunities to the unemployed since at least the late 60s. And it consistently polls very well upwards of 60%.
More recently though and especially after the great financial crisis, the Gallup poll came out with a number of 70 to 73%. The most recent polls from Twenty-Ninteen are again up in the mid 70s, high 70. I mean it polls really very well. And it's a bipartisan support. And in a way, that sounds a little shocking in light of the folktale. Why would people be supporting it if in the same breath, they are also saying it's your fault? I think it's because the lived experience for most people is that their jobs are insecure. That they don't know when one a good one will be around the. They know somebody who's unemployed, who's working sending hundreds of resumes.
And so I think that there is definitely a-- not necessarily cognitive dissonance but there are two tales, if you will, of America. The very precarious labor market experience and the need for a job.
MARK BLYTH: So if we look at the world from the lens of what the job guarantee is trying to solve, we have labor force participation has fallen particularly since the Great Recession even though it's up. So when you say 4% unemployment, it depends on what you mean relative to what potential labor force participation is. We live in a world in which it seems to be very hard to generate any inflation, which strongly suggests, again there are unemployed resources, which could be usefully put to work. We face a climate disaster, which we are told three years ago, we had 12 years to fix. And so far, we've done the square root of nothing.
So this would seem to be a policy that kind of checks a lot of boxes. So why then would it be that, for example, private sector businesses would be against this? What's in the current system that stops us moving? What's the political economy that stops us going this way?
PAVLINA TCHERNEVA: You know, I'm not so sure that private captains of industry right now are out there talking against it. That's, I think, not our current problem. Although, the political economy concern that Kletzky identified long ago is not to be ignored. Now, I don't think this is an insurmountable problem. A lot of people say, well, captains of industry will always oppose it. But as you mentioned in the introduction, India has an enormous job guarantee program. And it covers many households, 30% of households. And clearly, captains of industries didn't win. There will be an ongoing debate and I think need to defend the need for the program. But laws are being passed and they can be passed.
When you say the job guarantee checks in a lot of boxes, I think that is absolutely correct. And it is maybe that we haven't paid attention for a very long time to this need of the public sector to do the heavy lifting. I mean, I've talked to congressional aides sometimes. And I use the New Deal program. And relatively progressive folks and they say, Oh, yeah, the CCC, I didn't think about that. Now, why didn't we think about that? Because we have just forgotten that history, that very critical and important history. And I think people are awakening a little bit that we could just use that tool yet again.
Now, the climate disaster is the most important thing, I think, that anyone needs to be working on. And so in that sense, the job guarantee is an ally. And what I'm hoping to do in my work is just to articulate why it makes good economic sense. And that there is no trade-off between jobs and inflation, jobs and technology, jobs and climate. And these goals can be accomplished together.
MARK BLYTH: So the one question, of course, that everyone is going to ask whether or not they think about MMT budgetary categories or not, and let's face it, most people don't, is how much is this going to cost. So you did a study where you basically budgeted for 15 million people in this program at 15 bucks an hour. Also, including which I thought was quite generous, full benefits on a reasonable standard. And I believe also in the study was affordable daycare which is something that the vast majority of Americans simply don't have.
So that 15 bucks, when you add in benefits, and you add in daycare has got to be about $26, $27 an hour. If you're doing that for 15 million people, what does that add up to as a kind of proportion of GDP? What would it be like? We're spending equivalent to what we spend on x, what would that be?
PAVLINA TCHERNEVA: OK, so we are about 1% of GDP, 1 and 1/2% of GDP, think of it as maybe 2/3 of the annual military budget, OK, to employ 15 million people with very generous benefits. Now, I wouldn't even think about it this way. Like that would not even be the way that I would approach the question. One thing that I want to stress is that when we were doing these costs financial, cost estimates, we didn't really reduce all of the other social costs of unemployment. We didn't reduce the cost of, for example, the impact on incarceration. In the state of New York, it costs $70,000 per year to lock up a person. And a person who doesn't have a job goes back to prison at a higher rate. And we know the jobs program for former inmates reduce recidivism a lot.
So we didn't even account for those kinds of costs. And there are many others. I mean, how many kids go hungry to school and they have need for additional help and other programming? They are just countless. If you were to account for all of these, you could argue that it's budget neutral. But that's not what I think matters in this case for two reasons. The first is that the cost of unemployment are already there, they're already baked in. So you got to just simply choose. You either pay for unemployment or you pay to hire people. The second reason is that we know that unemployment yo-yos in the sense that it shoots up and recessions comes down in expansion's.
Now, the public sector does all the automatic spending to stabilize the economy, provides unemployment insurance, food supports, low income tax, you name it. That is an automatic countercyclical function the public sector must perform. And only it can perform it, the private sector cannot. So the budget will expand and it will shrink naturally. And so the number, It could be a moving target. We could chase that number. It could be 0 or it could be a little bigger depending on the crisis that's upon us. But it's immaterial because this is the function of the government. And from an MMT perspective, we know that when you have sovereign monetary system, you are able to more effectively employ the public spending powers to stabilize the economy.
MARK BLYTH: So what would be the difference if we had had a job guarantee in place and we were facing the pandemic that we're facing? How would the world look different?
PAVLINA TCHERNEVA: You know, I think that we would have been better prepared to deal with a pandemic. Think of how much-- the environmental problems didn't stop just because we stopped going to work. California is still burning. And somebody has to go and fight the fires. There's still floods. There are still hurricanes. The work needs to be done. And so, it just so happens that it's also a bit easier to do this kind of outdoor environmental work in the middle of a pandemic.
But then think of the other needs, the challenges that we had with contact tracing. The shortage of dispatchers when so many people were calling and trying to go to the hospital. There were some real needs in public services that if we were thinking in terms of a public health jobs corps, if we were thinking in terms of preparedness to respond to climate problems, we will have on standby, if you will, a public service army to address, to tackle these problems.
But I want to give you the example again of India because not only is the job guarantee program, the largest in the world but it has been the only lifeline that people have had during the pandemic. It's only rural employment, guaranteed rural employment. But many people who lost their urban jobs move back to the villages. And they had no jobs but the job guarantee created them. And the demand picked up. The hours were used up quite quickly. The guaranteed days were used up quite quickly. People were clamoring for more. There were strong calls for urban guarantee. What I'm saying is that even in the middle of the pandemic, people can figure out how to do useful community work. And you don't have to be a terribly poor country to figure this out. We can certainly do it as well.
MARK BLYTH: I think on that note, that's a pretty good case for a job guarantee. I want to thank you for being with us today, Pavlina Tcherneva. Thank you very much.
PAVLINA TCHERNEVA: Thank you so much. Great talking to you. Thank you.
MARK BLYTH: This episode of the Rhodes Center Podcast was produced by Dan Richards. For more information, go to watson.brown.edu/rhodes. Thanks for listening.