Minsky Punts, Part II

by the Sandwichman

"Employment is the bottom line of the current crisis. It is essential that governments focus on helping jobseekers in the months to come," stated Angel Gurria, Secretary General of the Organization for Economic Co-operation and Development yesterday at the launch of its Employment Outlook 2009. The OECD report anticipates that unemployment in the OECD countries could reach 57 million people and an unemployment rate of 10%. It points out that young people have been hardest hit by the jobs crisis.

Would a Minsky-inspired "job guarantee program" be an economically feasible response to that jobs crisis? Randal Wray is probably the best-known current advocate of such a program. In August, Wray posted a brief description of the idea along with some references for further reading. The Sandwichman's familiarity with the debate around the job guarantee idea comes largely from a discussion in Robert LaJeunesse's book, Work Time Regulation as Sustainable Full Employment Strategy, in which LaJeunesse sought to show why work time regulation would be superior to a jobs guarantee.

LaJeunesse's main objection to the job guarantee idea is that it expands work and consumption instead of questioning the compulsion for and ecological sustainability of perpetual, artificially-induced economic growth. Peter Victor's book, Managing without Growth, and the Sustainable Development Commission's report, Prosperity without Growth?, give persuasive evidence in support of such criticism.

While the Sandwichman agrees wholeheartedly with LaJeunesse's ecological critique, he also has microeconomic concerns about job guarantees. But first, before outlining those difficulties, more on the dimensions of the jobs crisis, and particularly the youth jobs crisis.

The official unemployment rate in August for 16-24 year olds was 18.2%. That's the seasonally adjusted "U3" number, using the narrow definition of unemployment. The BLS doesn't give "alternative measures of labor underutilization" by age categories. For the general population, the broadest measure if underemployment, U6, is 16.8% or about one and three-quarters times the official rate of 9.7%. Using the ratio of U6 to U3 to arrive at a conservative estimate of youth underemployment gives a total of 31.5% combined underemployment and unemployment.

Another way to gauge the real dimensions of the youth unemployment crisis is to look at the historical trend of the employment ratio. The current employment ratio of 46.6% is 8.5 percentage points lower than the 33 year-average. But even that average is skewed by the collapse of labor market participation that has occurred since 2001. Between January 2001 and December 2003, labor market participation of 16-24 year olds fell from 66% to 60.5%. But after that it remained virtually flat until January 2007 when it resumed its decline. In other words, although there was a modest recovery of three percentage points in the official unemployment rate the employment rate only regained about one percentage point from its 2001 recession low before heading downward again.

As the chart below shows, unemployment and under-participation leveled off at around 20% from 2003 to 2007 and then resumed their climb from near recession peak levels:


Scared yet? Returning now to Sandwichman's microeconomic objections to job guarantee schemes, there are three aspects that particularly trouble me. First is the historical precedent that explicitly "make work" jobs have always carried a stigma. This was true of the 19th century workhouse in Britain and of WPA jobs during the Great Depression.

Second, the necessity for some kind of administrative overhead -- managers, planners and staff -- must necessarily lead to the creation of a bureaucratic empire whose denizens will have a stake in the continuation and expansion of their institutional niche.

Finally, a job is not simply about the exchange of a certain amount of time and effort for a paycheck. Some kind of learning and social interaction goes on in the workplace. Not all of it is directly tied to the work. What kind of informal culture of "lifers" and "transients" is likely to emerge in buffer world of guaranteed jobs? What's to prevent the lifers (as well as the administrators) from devising schemes to divert the efforts of enrollees to their private interests?