BEE Partner, South Africa Economy Watch

In the face of wage—price pressures, the Job Guarantee approach maintains inflation control by choking aggregate demand and inducing slack in the non- buffer stock sector. As the slack does not reveal itself as unemployment, the Job Guarantee may be referred to as a ‘loose’ full employment. This leads to the definition of a new concept, the NAIBER, which, in the buffer stock economy, replaces the NAIRU/MRU as an inflation control mechanism. The BER is the ratio of buffer stock employment to total employment.

As the BER rises, due to an increase in interest rates and/or a fiscal tightening, resources are transferred from the inflating non-buffer stock sector into the buffer stock sector at the fixed buffer stock wage. This is the vehicle for inflation discipline. A major advantage of the Job Guarantee approach is that the disciplinary role of the NAIRU, which forces the inflation adjustment onto the unemployed, is replaced by the compositional shift in sectoral employment, the major costs of unemployment thus being avoided. The only requirement is that the buffer stock wage be a floor and that the rate of growth in buffer stock wages be equal to or less than the private sector wages growth.

So far we have analysed the effects likely to accompany the introduction of the Job Guarantee and compared the outcomes to a NAIRU economy. However, there are further issues that arise when we consider the maintenance of full employment using the Job Guarantee policy. While orthodox economists typically attack the Job Guarantee policy for fiscal reasons, economists on the left also challenge its validity and effectiveness. Mitchell (2000b), analyses the arguments presented by Michal Kalecki in his ‘Political aspects of full employment,’ published in 1943 in the Political Quarterly, which laid out the blueprint for socialist opposition to Keynesian-style employment policy. A summary of Mitchell’s conclusions are useful although more complete detail can be obtained from the above-mentioned publication.

Kalecki (1971: 139) lists three reasons why industrial leaders would be opposed to a full employment ‘achieved by Government spending’: first, that the private sector opposes government employment per se; second, that the private sector does not like public sector infrastructure development or any subsidy of consumption; and third, a more general claim involving a dislike by the private sector ‘of the social and political changes resulting from the maintenance of full employment‘ (emphasis in original).

Firstly, Kalecki’s argument that business leaders fear public spending that might be in competition with their own investment is erroneous, because the Job Guarantee jobs are most needed in areas that have been neglected or harmed by capitalist growth. The chance of overlap and therefore substitution is minimal. Secondly, Kalecki (1971: 140-41) worries that under a regime of permanent full employment, ‘the sack’ would cease to play its role as a disciplinary measure. However the Job Guarantee creates loose full employment rather than tight full employment because the buffer stock wage is fixed (growing with national productivity). The issue comes down to whether the Job Guarantee pool is a greater or lesser threat to the employed or unemployed when wage bargaining is under way. This is particularly relevant in relation to the significance of the long-term unemployed in total unemployment. It can be argued that the long-term unemployed, because they are not a credible substitute, exert very little downward pressure on wages growth. The Job Guarantee workers, however, do comprise a credible threat to current private sector employees for reasons noted above. The Job Guarantee pool provides business with a fixed-price stock of skilled labor from which to recruit. In an inflationary episode, business, because it can achieve cost control, is more likely to resist wage demands from its existing workforce. In this way longer-term planning with cost control is achievable. In this sense, inflation restraint exerted via the NAIBER is likely to be more effective than using a NAIRU strategy.

Possibly related posts: (automatically generated)
THE JOB GUARANTEE AND INFLATION Part 3

• THE JOB GUARANTEE AND INFLATION Part 1
• THE JOB GUARANTEE AND INFLATION Part 2
• THE JOB GUARANTEE AND THE BUDGET DEFICIT
• The Monetary System and the Government continue…
• THE DEVELOPMENT OF THE JOB GUARANTEE APPROACH
• The Link Between Inflation and Unemployment continue…
• The Link Between Inflation and Unemployment
• Shaping a new breed of South African manager for the global challenge part 11
• The Monetary System and the Government
• South Africa and Globatisation: Quo Vadis? (Scenario No. 2 3 4)