Anything that interferes with the pricing or supply of labour to labour markets is damaging to the economy. Historically interfering in labour markets has been seen as politically popular while its damaging effects have been kept out of sight.

In other articles I have explained why the Equal Pay Act was unnecessary and Minimum Wage Legislation did more harm than good by distorting labour markets and interrupting the freedom of contract between employers who demand labour and employess who agree to work for the given wage.

At this point I should make it clear that I am not against eradicating low incomes and poverty it is just that there is a much more efficient way of doing this through reverse or negative income tax. This does not interfere with pricing in labour markets and, as well as removing the poverty trap, it gives everyone incentive to work even if only part-time.

At this point let us introduce the MMT version of interference in labour markets. It is called the Job Guarantee Scheme and it will be as politically popular as all the other MMT mistakes I have identified on this blog. It is interesting to note that there has been no comeback from MMT who have always claimed to be ready to discuss their points in an open forum. I expect that they have been instructed not to enter an argument they cannot win and hope that by ignoring the criticisms they will go away.

It is very easy to have a job guarantee scheme in place in a command economy. After their communist revolutions the USSR and China had very high levels of employment backed by fear and compulsion. In fact talking to older Russians the one thing they all seem to miss is job security. Also now in countries like the UK and US it would be relatively easy to say that everyone who receives benefits, while not working, should present themselves at the relevant office on Monday morning to be assigned their work for the week.

Nether of the situations identified in the previous paragraph would be politically popular and it is therefore interesting to see how MMT sell their version: it would be government (taxpayer) funded, it would not be compulsory, it would create a living wage and raise the income floor providing public purpose jobs with a permanent programme in a stable economy.

And so to the criticism: if you provide people with a living wage for not working then you certainly raise the income floor as all labour markets that were paying below that wage will lose employees until they are paying above that rate. This will increase the number of people claiming that living wage. All those with wages just above the living wage will argue that their differentials have been eroded and no longer reflect their skills and contribution to the company. Public purpose jobs already exist in the economy and those that would be made up by government (central and local), and of which there is almost an infinite number, will both waste resources and draw labour away from jobs that consumers are willing to pay those people to do.

Overall the Job Guarantee Scheme will be an inefficient increase in the tax burden and an increase in government spending. I have explained in another MMT mistake that there is no way to manipulate aggregate monetary demand to achieve some mythical 2% of the workforce unemployed. If this proposed scheme was introduced there would still be unemployed and underemployed resources costing the taxpayer ever increasing amounts to maintain a scheme that was promised to be sustainable and permanent.

John Hearn  27/07/2019