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Corbyn Would Be Wise to Avoid the Us Left’s Plans for a Jobs Guarantee

July 6, 2018 in Economics

By Ryan Bourne

Ryan Bourne

Major Left wing economic policy movements invariably germinate
in the US before spreading around the world. Occupy began with
student protests at the University of California in the wake of the
financial crisis.

The modern living wage campaign took off following the efforts
to raise pay for city service contractors in Baltimore, Maryland.
So we should take notice of the latest brainwave going mainstream
stateside: a generous government job guarantee.

Having dallied with supporting higher minimum wages or a
universal basic income, the socialistic firebrands of the US
Democratic Party are coalescing around this huge labour market
intervention. Under their scheme, every US adult who wants a job
would be guaranteed voluntary employment at $15 (£11.30) per
hour plus benefits for the hours they prefer. Jobs would be
taxpayer-funded but administered locally, with workers placed in
environmental, community or care roles.

Not only would it be
costly for taxpayers, but it would profoundly change the very
concept of what work is about in ways we probably can’t even
envisage.

The idea is to eliminate involuntary unemployment. The US
suffers from high rates of 25 to 54 year-old men being inactive in
the labour market, and advocates envisage clear social and economic
benefits from engaging them productively. They predict too that
such a guarantee will act as a floor on labour standards throughout
the economy, helping achieve other social policy objectives without
risking unemployment. Yet what dooms the policy are the three
“Cs” – cost, crowd-out and corruption.

Such a measure would clearly be expensive. Even allowing that
some would opt for part-time work, the combination of wages,
benefits and material and administration costs would average
$36,200 per worker per year, according to the Levy Economics
Institute. Employing the 15m or so currently unemployed,
underemployed or inactive US adults who say they would like work
would therefore cost 2.7pc of GDP alone.

But there would be millions of people currently employed who
would find the government offer irresistibly generous relative to
their current job, potentially taking the direct cost to over $1
trillion a year, or way over 5pc of GDP.

This crowd-out effect could be huge. US census data shows around
24m people currently work full-time for an income of less than
$30,000 a year. Plenty of businesses would have to adapt their
models to account for this new effective wage floor.

But faced with higher wage costs stemming from this
“public option”, some businesses would close their
doors, lay off workers and automate tasks, generating
a new supply of those wanting enrolment. Even workers currently
better remunerated than the job guarantee offer might opt into it
if they perceive the …read more

Source: OP-EDS

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