William Gale weighs up the case for a state job guarantee as Labour policy in the future, arguing how it could have a positive and transformational impact for workers in the UK.
In 1998, Tony Blair’s Labour Government passed the National Minimum Wage Act, establishing the UK’s first nationwide and cross-industry minimum wage. The implementation of such a law was, unquestionably, a great victory for workers across the country as they were now protected from exploitative low pay. However, a lot has changed since 1998 including a global financial crisis that sent unemployment soaring to 8% in 2011- is it time that the next Labour Government rethinks the way a minimum wage works in the UK?
Despite a legislated national minimum wage existing in the UK, the real minimum wage will always be zero, as long as unemployment is allowed to exist. This is because in a tight labour market where one person may be able to access work at the mandated minimum wage of £9.50/hour, there will always be others who (not for lack of trying) are unable to access work and so their effective wage remains £0/hour, thus making it that as long as unemployment exists in the labour market, the true minimum wage will always be £0/hour. The solution proposed by economists such as Tchernova and Kelton? A ‘State work guarantee’, where the Government would provide employment to anyone who wants it, at a set rate of pay which would become the de-facto new minimum wage as the private sector would be forced to essentially ‘out-bid’ the guaranteed Government wage in order to hire workers as the offer of work will always exist elsewhere at a set rate of pay, irrespective of economic conditions or other factors. Proponents of the idea argue that this will eliminate large amounts of the instability which exists in the current system, where jobs often disappear in times of economic hardship, which in turn can worsen the downturn due to the reduction in household income and therefore consumption. This means that when there is a contraction in growth within the economy, instead of being unemployed which not only reduces welfare but worsens the downturn, workers will always have access to a safety net of employment provided by the Government - theoretically meaning that the severity of any recession is dampened - or a downturn doesn’t become a recession at all. In the fateful words of Gordon Brown - a state work guarantee might mean, according to its supporters - an ‘end to boom and bust’. There is also a moral perspective from which a job guarantee makes sense as a policy for Labour to adopt - in 1948 the United Nations recognised the right to ‘decent work’ as a Human right; however when the central bank uses monetary policy to balance the tradeoff of unemployment and inflation, a ‘buffer stock’ of unemployment remains - what is often referred to as a ‘natural level’ of unemployment. Tcherneva - a key proponent of a job guarantee - argues that this is not natural unemployment but people being intentionally kept out of work: ‘natural’ unemployment should not be acceptable, and treated the same as natural disease and natural illiteracy - stamped out with Government intervention. In ‘purchasing’ the surplus labour at a fixed price from those who want to work, the Government not only safeguards the right to decent work of those who would otherwise have been left involuntarily unemployed, but provides increased price stability as it might with buffer stock purchasing programmes in agriculture.
Criticisms of a job guarantee largely pertain to its potential inflationary effects, as well as the implications of enacting a solid wage floor on private sector employment. If a Government, when implementing a job guarantee decided upon a base wage which was greater than the minimum wage observed by the private sector, then there may be a large number of workers exiting the private sector in favour of the offered public work. However, when assessing the risk of this occurring, it should be remembered that this was the concern shared by many commentators when Blair’s Government implemented the national minimum wage in 1998 - concerns which did not materialise on any meaningful level (in fact, unemployment continued to fall year-on-year). In addition, the empirical work of D. Card in the context of New Jersey fastfood restaurants following an increase in minimum wage showed that an increasing wage floor does not cause firms to layoff more workers than they might have otherwise. On the other hand, it is relatively difficult to ascertain the degree to which a job guarantee would be inflationary - in theory, ensuring that more people are in work would increase household incomes and lead to greater levels of consumption in the economy, and therefore expansion in aggregate demand. The risk of this is that without growth in productivity alongside, which may not happen when workers are complacent in their employment due to the job guarantee, a price spiral may ensue which could cause inflationary pressures in the economy. Additionally, most of the research which has taken place regarding a state job guarantee has been USA-oriented, so it is difficult to quantify the impact that a job guarantee would have in the UK.
Overall, it should be argued that there is a strong case for a state job guarantee to be considered by Labour and the National Policy Forum as a potential policy which could have a positive and transformative impact for workers in the UK.
William Gale is a student from Reading studying for his A-Levels. He is the under-18s, campaigns and membership officer at Reading Young Labour and tweets about current affairs and football at @_williamg16.