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L. Randall Wray

L. Randall Wray

Posted: November 12, 2009 11:55 AM

Navigating the Jobs Crisis: Time for a New 'New Deal' Jobs Program

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As part of the Roosevelt Institute's 10-part series on the Jobs Crisis, running on the New Deal 2.0 blog from Nov. 12-25, I was asked to reflect on what can be done to get Americans working again. Here's my take.

The latest jobs report shows that the official unemployment took a huge jump to 10.2% -- 15.7 million jobless workers. If we add to those numbers involuntary part-time workers, plus those who have given up looking for work, the unemployment rate is 17.5%. Even that seriously undercounts those who would be willing to work if decent jobs at decent pay were readily available -- a number I put at 25 to 30 million. While there has been some debate about the number of jobs created or saved by the fiscal stimulus package, it is clear that Washington's effort has fallen far short, and all plausible projections show more job losses to come.

What perplexes me is that we have been here before, and we know how to solve the unemployment problem: create jobs through a new, New Deal-style jobs program.

I am advocating using those same principles, but creating something both broader and permanent: a universal job guarantee available through the thick and thin of the business cycle. The federal government would ensure a job offer to anyone ready and willing to work, at the established program compensation level (including wages and a healthy benefits package). To keep it simple, the program wage could be set at the current federal minimum wage ($7.25 an hour), and then adjusted periodically as that is raised. The usual benefits would be provided, including vacation and sick leave, and contributions to Social Security. Let's call this the Job Guarantee (JG) program.

The original New Deal programs included large-scale infrastructure projects with direction coming from Washington. A permanent and universal JG program should be decentralized, with projects created and administered locally -- where the workers are, and for the benefit of their communities. The federal government would provide the wages, plus a portion of capital and supervisory expenses (perhaps capped at 25% of total wages paid for each JG project). Local governments and nonprofits would propose projects and cover the rest of the expenses. State unemployment offices would be converted to employment offices, helping to match workers and projects.

Project proposals would be submitted to regional councils and, if approved, would be evaluated by state councils and then by a federal council. Wages and benefits would be paid directly to workers (using Social Security numbers and direct bank deposits) to minimize fraud. Organizations submitting proposals would be prevented from replacing paid workers with JG workers. For-profit business would be excluded, because the temptation to substitute would be too great. At the same time, businesses would be protected from unfair competition because all JG projects would have to demonstrate they'd fulfill unmet public purposes. If at some future date, a for-profit firm decided to provide services that a JG project is performing, the JG project could be phased out. There is neither need nor desire for the JG program to compete with the private for-profit sector.

This brings us to the fundamental principle of the JG program: it is a complement that provides jobs to those who would otherwise be jobless and it provides public services and infrastructure that otherwise would not be supplied. It is important that JG jobs do useful work -- so that workers can feel proud of their contributions and to maintain the community's support. At the same time, JG workers will be gaining useful work experience and training, making them more appealing to other employers. When firms hire, they will recruit from the JG program, offering a slightly higher wage.

There will be two main categories of JG projects -- those that are permanent and those that are "off the shelf," undertaken in recession as the number of JG workers grows. The first will probably consist mostly of public services (care of the aged, playground supervision) while the second could include public infrastructure construction and repair. There is no sharp dividing line, but the point is that between boom and bust the number of employees in the JG programs will probably fluctuate by some 5 million (perhaps 20% of the total). It is important, however, that this fluctuation is not permitted to disrupt provision of services to which the community has become accustomed.

At the same time, the program's fluctuation allows it to act as an employed "buffer stock" -- or "reserve army of the employed" -- helping to attenuate the business cycle while maintaining full employment without setting off a wage-price spiral. An economic boom will shrink the size of the JG program; in a recession the program will grow.

Thus, an effort like the Job Guarantee program I am proposing would act as an automatic stabilizer -- a feature most would agree is desperately needed in our current rollercoaster economy.

This post originally appeared on New Deal 2.0.