Job of last resort: the job guarantee’s modest cousin

Hello, my name’s David Sligar. Nicholas Gruen has kindly encouraged me to do some blogging here. I started reading this blog over a decade ago, so I’m excited to contribute.

First up is a slightly modified cross post from my blog proposing a “job of last resort“. The policy is intended to be a modest variant on a “job guarantee”, a policy idea gaining increased attention around the world, particularly on the left.


I’ve long been a sceptic of a job guarantee (JG). A world in which a government department can effectively evaluate the needs and capabilities of every unemployed person and assign them to a suitable individualised job is beyond the scope of plausible reality, in my view. It’s just not my experience of the way bureaucracies work.

Such a program would also bring macro-economic risks, potentially suppress wages in JG worker sectors, and do an injustice to the unemployed by making promises it can’t keep. Unemployed people suffer enough stigma. It would only get worse if the government effectively told the community the unemployed were all there entirely by choice, as would be the implication of claiming jobs were “guaranteed”. A full blown JG would also have a massive fiscal cost – likely tens of billions each year – which just cannot be hand waived away in budget obsessed Australia.

Nevertheless the motivating spirit behind the JG has its attraction. Long-term unemployment is a waste and a tragedy. Human beings, willing to work, sit idle for years when they could be contributing to society through some form of productive labour. And although I think claims about the “dignity of work” can be overstated, it is true that long-term unemployment is profoundly damaging for happiness, health and human capital. Many of us would prefer almost any safe and dignified job to this. Some – not all – of us have a deep need for a reason to get out of bed, duties to perform, a need to feel needed.

What if we could design something like a JG, but on a relatively modest scale, capturing its merits while dropping the risks and grandiosity of a universal JG? Let’s call this a “job of last resort” (JLR) program.

Theory

The starting point is that JLR would only target the segment of the unemployed who are relatively unlikely to gain employment in the private sector any time soon. It would not cover someone briefly between jobs. Rather, it would be limited to those who have been substantially underutilised for a very long period. This is to ensure the program does not interfere with transitional unemployment, which is present even in the healthy labour markets described as “full employment”.

A problem with a full blown JG, available to all unemployed, is that it would divert a significant number of people into the program who otherwise would have quickly obtained a regular job. This may harm the individual, whose career progression would probably be better served in regular employment. By crowding out private sector employment, it may also cause inflation. However, to the extent JLR only targets the unemployed who are not on the margin of employment – call them inframarginal unemployed – these concerns should not be overwhelming.

Eligibility

The program would be available to anyone who has received an unemployment (or related) benefit for:

  • at least two thirds of the past year and
  • at least two of the past three years.

Also eligible would be a person who has:

  • received an unemployment benefit for at least two thirds of the past year,
  • received an unemployment benefit for at least one of the past three years, and
  • had total labour earnings of less than $80,000 over the past three years.

The latter eligibility method attempts to capture long-term underutilised workers. An earnings threshold is chosen due to administrative difficulties in evaluating hours worked. Modified criteria would exist for people who had spent time as students or carers.

Conditions

JLR participants would be paid at the minimum wage. They could choose between programs of different levels of commitment, for example 35, 25 or 15 hours per week.

Eligible participants would be offered a job in city or regional beautification, for example, gardening, litter collection and landscaping. Those who do not have the required fitness would be eligible for placement on low skill tasks in government agencies. The important point is that they are undertaking work that adds value but which would be unlikely to be performed otherwise, such as in basic staff catering – what used to be called “tea ladies”. They could be hired as door greeters at government agencies.

We may consider allowing community organisations to apply for JLR workers. In this event, measures would have to be put in place to mitigate the risk of worker displacement. For example, community organisations applying for a JLR worker might have to demonstrate that their regular full time equivalent worker numbers are growing and will continue to grow. They should have some financial skin in the game, such as covering employee on-costs. One option would be to structure the JLR in community organisations as a 100% wage subsidy that slowly tapers down.

All JLR participants would be held to usual workplace standards and may be dismissed if they fail to complete assigned duties or abide by the code of conduct. In this case, the participant would return to regular unemployment benefits and be eligible to reapply for a JLR position after six months.

Self-directed work plans

After participants successfully complete the first six months of a JLR program, they would have the opportunity to submit a business case to request allocating up to 10% of their working hours to self-directed work. Work options would include arts, culture and sports. The business case would have to satisfy that the activity made a measurable contribution to the community. The threshold would be modest – for example, exhibiting work, publishing articles or even getting hits on a blog post. An approved participant in this arm of the program would be accountable for the delivery of the benchmarks set out in their participation agreement.

Non-completion would result in the loss of the self-directed time and its reallocation to regular JLR activities.

JLR participants who successfully deliver on their self-directed benchmarks over a six-month period may apply to increase the self-directed time to 20% of their working hours.

Job search requirements

The JLR is not intended to be a permanent job. It is a last resort. Participants would be expected to undertake some (reduced) job search activities. The discount on job search requirements, relative to unemployment benefits, would be substantial for 35-hour work week participations. The idea is just that they continue to apply for appropriate jobs, rather than spend their time churning out pointless low-chance applications.

Cost

There are currently around 100,000 people who have been unemployed for at least two years. Program eligibility is considerably broader than this, but only some of those eligible will elect to sign up. So as a rough guess – potentially an underestimate – let’s assume 100,000 people will participate in the JLR.

Let’s assume all participants chose to work the maximum 35 hours per week, an obvious overestimate.

The minimum wage in Australia is currently about $19.50 per hour. On-costs for public servants — including superannuation, office space, training, etc — are typically assumed in government costings to be around 20%-30%. But the figure is likely to be much higher for JLR participants for two reasons.

The first is mechanical — the JLR’s wages are lower than those of regular public servants, so a given amount of spending (on accommodation for example) will be greater as a percentage of their income.

The second is that management costs of JLR participants will be high due to the participants’ diverse and complex needs and capabilities, which will be affected by their spell of unemployment. Managers will have a challenging task to create effective and integrated teams out of workers who are given to them ad hoc, rather than selected to fill specific roles based on their personal capabilities. I’m going to assume on-costs of 50%.

Based on these assumptions, the gross annual cost of the JLR will be:

100,000 * $19.50 * 150% * 35 * 52 ≈ $5.3 billion.

The cost will be offset by Newstart savings. The rate of Newstart for a single with no children is $279.50 per week. Let’s assume, conservatively, the average JLR participant would have received half of this due to occasional work and various means testing arrangements:

100,000 * 279.50 * 50% * 52 ≈ $0.7 billion

In addition, the tax office would claw back some money through personal income tax, but this would not be material for this level of analysis. People on minimum wage just don’t pay much tax, and their spell of unemployment would drag down their year’s tax bill to zero in many cases.

Based on the assumptions above, the net cost of the JLR would be approximately $4.6 billion annually. The estimate is crude – a professional costing would require administrative data and sophisticated modelling – but it gives the order of magnitude.

At around 0.2% of Australia’s GDP, the JLR is eminently affordable in theory. It wouldn’t crack the government’s top 20 most expensive programs. It costs roughly one tenth of the age pension, a quarter of family tax benefit and of disability pensions, a third of funding to private schools and half of unemployment benefits. It is trivial compared to tax concessions on superannuation.

But the issue is political will. In Australia we live in a political culture that is fixated on the budget. The immediate question is whether, given political economic constraints, this is the best use of around $5 billion a year. There are probably other ways we could spend this money to get better bang for our buck in terms of human welfare. On the other hand, perhaps this is more politically feasible than other programs. Voters do love “jobs”.

Should we do it?

I remain concerned about the interlinking of social security with work. I would prefer a clear demarcation between safety net programs and labour requirements. Blurring this distinction is a slippery slope to exploitation. Sure this ship sailed with Work for the Dole, but should social democrats be promoting it as part of our grand vision?

I have no absolute answer to this question. What I can say is that if we do go down this path, we should do so modestly, and with concrete policy proposals, rather dealing in grand rhetoric and sweeping claims that cannot realistically be implemented.

The JLR is my offering, for discussion, to this end.

About davidsligar

Blogs at Western Sydney Wonk. Interested in social policy, economic policy, politics and philosophy. Background in Commonwealth Treasury and Finance departments, and as an adviser to politicians at state and federal levels.
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9 Responses to Job of last resort: the job guarantee’s modest cousin

  1. paul frijters says:

    Hi David,

    welcome! What a worked-out proposal, somewhat similar to what is now operating in the countryside in India, and similar in spirit to what many Western governments set up in times of mass and sustained unemployment.

    I don’t mind such programs and see little downside if indeed focussed on these groups at the bottom. I also think the benefits of such a program are far higher than what you calculate and that it would boost the chances of adoption tremendously if there would be a decent attempt at calculating the full benefits.

    The issue of the full value will partly hinge on the mental health benefits of this program. If these ‘Last-resort’ jobs give the participants the full benefits of a regular job in terms of the mental health bonus of employment, then the program will earn itself back in spades. This is basically because mental health is expensive in terms of happiness and in terms of health services: those with mental health problems take up more health services for the same physical ailments as others, something which gets very costly very quickly. They also die earlier. So if one would apply the cut-off point used for investments in health in Australia (roughly 50,000 AUS per quality lifeyear), the mental health component is bound to pay itself back in spades if one values the benefit the way one values benefits to health in general in Australia.

    A second big-ticket item will be the deterioration of social and human capital that happens without a job, leading to higher crime, less investments in the next generation (their kids/family members), less chances of higher paid jobs in the future, etc. Calculating this is a hassle, but has been done.

    Lastly, Western governments have quite a bit of experience with this kind of program, particularly aimed at the young (see a key reference at the end of an evaluation of many of the active labour market programs in the West). In short, we know the optimal thing to do is:
    1. Try and get the unemployed into a private sector job, even if its a largely made-up job for which you have to offer generous subsidies. This includes the jobs that charities want done. They are still better than jobs directly organised by the state. Key in this is that you want some interested third-party to judge whether someone is doing their job ok. It’s that genuine ‘you are doing ok’ signal that is the main benefit.
    2. Combine this active (and usually heavily subsidised) job-placement with training during those jobs so they can keep that job and perhaps get others. If you can get someone believing in education and jobs, they will make better choices in a whole range of stuff.

    Lastly, one should perhaps say that Australia has a relatively low labour force participation rate (about 66%, compared to the UK’s 75%). That tells you Australia has over a million people who would probably have a job in the UK. That is due to a whole set of somewhat structural factors of the Australian economy (poor education system, the issues with disability, the natural resource curse depressing other sectors).

    Anyhow, welcome to the site and I hope to see more!

    Card, D., Kluve, J., & Weber, A. (2017). What works? A meta analysis of recent active labor market program evaluations. Journal of the European Economic Association, 16(3), 894-931.

    • davidsligar says:

      Thanks very much for the nice words and insight.

      My very rough back of the envelope numbers were only aiming to be a fiscal costing according to government budget rules, not be an economist’s benefit-cost analysis. Not only would the budget costing exclude the societal benefits not captured in the government budget, it is also required to exclude indirect “second round” budget effects, like future savings to health etc. This is the methodology that would be used when published in the government budget (most my professional background is as a budget bean counter so this is just how I think). The second round effects are a bit more guessy and delayed off in the future, whereas governments, for good or for ill, care about how much cash they’re up for right now.

      I agree any formalisation of this proposal should include quantification of second round effects and benefits not captured by the government.

      Agree on mental health. The only comment I would make is that mental health benefits of increasing employment are perhaps overstated sometimes. This comes from mistaking the high average benefit of a job for the benefit at the margin. The unemployed are going into jobs that are less satisfying than average. (I know you’ve done research in the economics of happiness; correct me if I’m wrong anywhere with this take.)

      Consider this ANU study of over 7000 people published in the BMJ:

      “Overall, unemployed respondents had poorer mental health than those who were employed. However the mental health of those who were unemployed was comparable or superior to those in jobs of the poorest psychosocial quality. This pattern was evident in prospective models: those in the poorest quality jobs showed greater decline in mental health than those who were unemployed (B = 3.03, p<0.05). The health benefits of becoming employed were dependent on the quality of the job. Moving from unemployment into a high quality job led to improved mental health (mean change score of +3.3), however the transition from unemployment to a poor quality job was more detrimental to mental health than remaining unemployed (−5.6 vs −1.0). "
      https://oem.bmj.com/content/68/11/806

      And another in the International Journal of Epidemiology:

      "Formerly unemployed adults who transitioned into poor quality work had greater adverse levels of biomarkers compared with their peers who remained unemployed. The selection of healthier unemployed adults into these poor quality or stressful jobs was unlikely to explain their elevated levels of chronic stress-related biomarkers. Job quality cannot be disregarded from the employment success of the unemployed, and may have important implications for their health and well-being."
      https://academic.oup.com/ije/article/47/1/47/4079898

      These risks could be mitigated of course with voluntary participation and requiring a certain standard of conditions.

      I also support conventional active labour market programs, including job subsidies into the private sector (although on a mass scale I'd start to worry about job displacement without careful management).

      I'm not sure a private sector subsidy-centric model would be as politically feasible, as it may lack support from the kind of activists who advocate for policies in this area. But I could be wrong. (A bit of personal experience: I once put a private sector wage subsidy program up as a motion to a Labor Party conference, and it was shot down in flames.)

      Part of the challenge I set myself when proposing this was to take a public employment model and turn it into the best policy I could think of. If a government set me a constraint of public employment, what policy would I recommend?

      Thanks again for the comment!

      • paul frijters says:

        Hi David,

        I think we could go a few rounds on this. The BMJ article you link to (but which I cant read on my home computer – it is Sunday after all) looks a bit fishy to me. For one, I dont see the relevance of raising it because surely you do not intend these job-of-last-resort to be worse than unemployment but rather to have positive traits? Secondly, normally speaking in happiness land we dont find that any job is worse than unemployment, even though there are some pretty bad jobs out there, like call centers. Mental health doesnt capture the same benefits of jobs that happiness does, for instance missing the status and purpose aspects of happiness, but still, they usually align. It seems as if the BMJ article purposely defines a bad job as one with the poorest MH, which is of course an unwarranted selection because in any large dataset you will then find a few with worse averages than unemployment (even if you select on movements).

        The programs I am thinking are not really job-subsidies, but real programs of matching young unemployed to charity jobs and private jobs. They have case managers and sometimes there is a pubic sector job of last resort, but they try not to put people into those. The Wales Government Traineeship Program is of that ilk. You also have quite a few city-initiatives like this (such as in Rotterdam). Of course the UK National Volunteer program had the same beautification angle you advocate.

        I do think in terms of advocacy it’s a mistake to take the primary outcome the immediate wage-welfare dollars of the program. That focuses the attention on the wrong thing. I think you want to talk about how cheaply you buy more happiness and long-term health and employability with a low investment. Much like primary school is an investment that only costs in the short run, so too would this be.

        Anyhow I am supportive of the initiative and think there are many more reasons for doing so.

  2. Conrad says:

    I largely agree with Paul on that in terms of benefits (including the value of mental health — even the Business Council of Australia thinks unemployment benefits should be higher, which I presume is in part of these sorts of reasons).

    Alternatively, given the jobs you are proposing are largely unskilled, I don’t see how they wouldn’t be in conflict with other people wanting those jobs. In this case, when you look at lists of most in demand jobs, these are always the ones that come up. They are also the ones in decline the most. A random google search gives me this list, which are some numbers, and you can find other lists which look at jobs most searched for and they are even more biased towards unskilled jobs.

  3. Moz of Yarramulla says:

    I wonder about the less direct substitution – you’re creating a pool of low-skill jobs and thus reducing the incentive to upskill. But the flip side is that our government(s) are fixated on driving jobs into that pool (the uberisation of everything) so perhaps it will happen regardless. On the gripping hand, those unpleasant unskilled jobs are their own incentive to upskill.

    One extra cost that can be avoided is workcover and a safe work environment, since WfD programmes normally don’t provide those. That’s easy to justify since Uber, Amazon et al don’t provide those things either. But it does influence which jobs can be provided in the relevant market since people who do provide those things will be crowded out. Note that the relevant standard is “that which is enforced” not “that which is legislated” (see for example RoboDebt, Westpac, Mirvac…)

    I’m kind of thinking of the volunteer firefighter problems we have in NSW right now, where the “volunteers who want to be there” also want to provide their own PPE and cover all the other costs faced by firefighters. I’ve already seen this in bush regen WfD programmes, where the gear provided is almost unusable but the workforce are encouraged to provide their own, at their own expense. To someone with a job $20 for a cheap set of steelcapped boots is probably no big deal, but when you’re on the inadequate unemployment benefit it should be unaffordable (viz, the benefit is intended to be less than needed for essentials and decent boots are not essential).

    Sure, this stuff is fine print details, but it reflects assumptions that are baked into the programme right from the start. Will they be funding these jobs to at least the same level as private sector equivalents, or will they continue to accept excess deaths to save money?

  4. David
    Two comments.
    Extending the program to include self employment in the arts and culture , numbers could easily grow like rabbits ,criteria and benchmarks re quality etc when art can be anything ,are meaningless.
    And our university art school system each year already graduates far too many people who have no real prospects (or skills) , would not want to encourage them.

    As for people doing landscaping and related out door work, that’s actually skilled , physically demanding and can be dangerous to boot , the costs of training and supervision would be high.

    • davidsligar says:

      Thanks.

      The program was designed with that risk in mind. I don’t think 3.5-7 hours of a 35 hour work at minimum wage, which people only become eligible for after two years of unemployment and then 6-12 months of full time work, is sufficient to really encourage people to deliberately set out to choose this as a life pathway. Particularly when, as you say, the majority of the jlr work might be pretty tough as you point out.

      My view is that if people are unemployed over the long-term, there’s little cost in just giving them a few hours a week where they’re told to create something and seeing what happens. Even if their audience is quite small, it is still adding value to the community. In addition, there will be the odd black swan that is fantastic – perhaps creating an opportunity for a career, and/or (even better) a significant contribution to society’s repository of ideas and culture, noting the historical evidence that the market of the day is often pretty poor at valuing things that turn out very important.

  5. David
    Something that could do with more feet on the ground
    https://www.smh.com.au/national/pour-more-money-into-the-most-effective-tool-we-have-for-reducing-fire-severity-20191220-p53lpz.html

    Usual deadly serious caveats about training and safety apply of course. However reducing fuel loads, in a way that also improves country , does need a lot more feet on the ground than we currently have ,and reducing the chances of huge areas all burning at the same time with the same level of max intensity, would also have economic benefits.

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