The costs of inaction
Too often, budgetary considerations are the litmus test for program viability. Can we pay for a job guarantee? Would it be too expensive? What would be the impact on government budgets?
What these worries frequently miss is the fact that unemployment, poverty, and precarious employment are already very expensive in economic terms and, at present, governments dedicate large amounts of financial and real resources to tackling them. Governments also bear the costs of all of the associated social and economic problems. These are unnecessary costs. Meanwhile, unemployment and poverty endure. The job guarantee reduces these existing costs as it tackles the problems head on.
Mobilizing public money
Recent crises like the Great Financial Crisis, the COVID-19 pandemic, or the war in Ukraine taught us a vital policy lesson: finance, no matter how large, is always abundant and readily available for policy priorities.
Even outside of dire emergencies, to fund domestic goals, governments typically deploy their public financing institutions (Treasuries, Ministries of Finance, and Central Banks) to address them. Once funding for programs has been appropriated and voted on, these institutions ensure that the financing is available.
An important caveat is that the ability to finance government programs depends on the country’s monetary regime and available fiscal space. In countries that issue and control their own currencies, monetary and fiscal authorities coordinate to ensure that all public payments are guaranteed. This is known as monetary sovereignty. Countries that do not enjoy monetary sovereignty have smaller fiscal space within which to maneuver. Those countries with the most restrictive monetary regimes still bear the brunt of the avoidable costs of unemployment. The job guarantee is an effective method of reducing the existing costs, while ensuring that funding is dedicated to direct job creation, asset creation, and capacity building.
In monetary terms, according to one study, the average cost of unemployment per person per year in 2010 was €18,000 (UK), €19,991 (Spain), €33,443 (Belgium), €25,550 (Germany) and €28,737 (France) (Gerard et al, 2012). In each case, the costs were equivalent to one or more living-wage jobs per year in the respective country. These estimates also do not account for the reduced social costs of unemployment or the savings from government spending on other social deprivations that are linked to the absence of stable employment. As these are not monetarily sovereign countries, direct spending on unemployment represents a significant burden, whereas the largest associated costs of unemployment are the foregone social contributions by employers and workers, as well as the loss of tax revenue.
Actual spending on large-scale, real-world direct job creation programs has been quite modest. For example, India’s Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) peaked at 0.5% of GDP in 2020-2021 (Drèze, 2022), while Argentina’s Plan Jefes y Jefas cost 1% of GDP in 2001 and 2002 in the depths of an economic crisis (Kostzer, 2008). These numbers also do not include the resulting savings on other anti-poverty programs or the reduced social costs of unemployment. The programs were also not universal. For a recent estimate of direct financing cost and budgetary impacts of a very ambitious and universal job guarantee program, see the Levy Economics Institute Report on Public Service Employment. Another estimate for the cost of a US job guarantee can be found here.
The effects of unemployment
Unemployment is a policy choice, and the cost of the job guarantee must be evaluated against the massive and ongoing costs of unemployment and poverty. Jobseekers who cannot find decent employment lose more than a paycheck: they lose the future opportunities good jobs bring while suffering the mental and physical toll of involuntary unemployment. Additional costs are borne by communities and businesses, as the non-monetary cost of unemployment dwarfs the financial costs (Suppa, 2021). Policy makers around the world face two choices: the inevitable costs of inaction that guarantees persistent unemployment, or the investment spending on guaranteeing employment in socially useful work and its associated benefits.