By Randy Wray, Professor of Economics at the University of Missouri-Kansas City. Cross posted from New Economic Perspectives
There have been many job creation programs implemented around the world, some of which were narrowly targeted while others were broad-based. The American New Deal included several moderately inclusive programs such as the Civilian Conservation Corp and the Works Progress Administration. Sweden developed broad based employment programs that virtually guaranteed access to jobs.
From WWII until the 1970s a number of countries, including Australia, maintained a close approximation of full employment (measured unemployment below 2%) through a combination of high aggregate demand plus loosely coordinated direct job creation. (Often there would be an informal “employer of last resort”, such as the national railroads, that would hire just about anyone.) As Bill Mitchell argues, a national commitment to full employment spurred government to implement policies that created jobs—even if it did not explicitly embrace a national and universal job guarantee/employer of the last resort program.
In the aftermath of its economic crisis that came with the collapse of its currency board, Argentina created Plan Jefes y Jefas that guaranteed a job for poor heads of households. (See Tcherneva and Wray 2005 here) The program successfully created 2 million new jobs that not only provided employment and income for poor families, but also provided needed services and free goods to poor neighborhoods.
For many years Argentina was proclaimed to be the success story of IMF austerity and market liberalization policies, until it experienced an economic meltdown in the winter of 2001-2002. (I won’t deal with causes of the crisis here—but it was the inevitable result of adopting a currency board arrangement. By giving up its own currency, it faced a financial crisis even though its budget deficits always would have met Maastricht criteria.)
To deal with the looming crisis and skyrocketing unemployment and poverty rates, the Argentinean government implemented a limited job guarantee program called Plan Jefes y Jefas de Hogar Desocupados (Program for the Unemployed Male and Female Heads of Households, or simply Jefes). Participation in the program grew quickly, to about 5% of the population, and about 13% of the labor force.
The Jefes program provided a payment of 150 pesos per month to a head of household for a minimum of 4 hours of work daily. Participants worked in community services and small construction or maintenance activities, or were directed to training programs (including finishing basic education). The household had to contain children under age 18, persons with handicaps, or a pregnant woman. Households were generally limited to one participant in the Jefes program. The program was intended to be one of the government’s primary programs to deal with the economic crisis that gripped Argentina with the collapse of the currency board. Most other safety net programs were eliminated or reduced in order to shift funding to Jefes.
Government’s total spending reached about 1% of GDP, with nearly 2 million participants (about 1.6 million in Jefes and 300,000 in a similar program that we did not study, PEL). However, it should be noted that the U.S. spends 1% of GDP on anti-poverty social assistance, while France and the UK spend 3-4% of GDP on such programs.
The program deviated substantially from our proposal for a jobs guarantee: it limited entry to those who had qualified and signed-up by May 17, 2002, although some who did not meet that deadline were added. This is said to have resulted in some cases of discrimination because other potential participants were denied access even though they appeared to meet program requirements—but had missed the deadline. More importantly, households were forced to make a choice concerning who would participate in the program. Limited entry prevented the program from reducing unemployment and poverty rates further. If entry into the program were not restricted to one participant per family, it is probable that many poor families would send both husband and wife into the program. This would have provided a minimum family income of 300 pesos monthly, lifting some families out of poverty. If the program were broadened further, extended beyond heads of households with children, persons with disabilities, or pregnant women, participation would almost certainly have grown well beyond 2 million. The unemployment rate would have fallen much further, as would the poverty rate.
Further, by limiting the program to the equivalent of half-time work, workers were prevented from working the number of hours desired, and their incomes were reduced to the extent that they were unable to find another part-time job to make up the difference. Given that many participants—especially females—had no previous formal labor market experience, the likelihood that they would find work outside Jefes at anything approaching the minimum wage is quite low. Limiting entry appears to have been made a central feature of the program in an attempt to constrain federal government spending; however, it led to much dissatisfaction and possibly to some instances of favoritism and corruption.
Much to the surprise of Labor Ministry officials, female heads of households initially accounted for some 60% of program participants and that eventually grew to three-quarters. Formal surveys indicate that the program was well-targeted to intended households (poor families with children) and was highly popular among participants. Studies by international researchers (including the World Bank) found that projects were generally well-run, completed on time, and provided needed services to poor communities.
The increasing “feminization” of the program (caused in part by economic recovery that pulled most men out of the program and into the private sector) proved to be a political problem. Government officials adopted the attitude that the program was providing jobs to “economically inactive” women who should be at home instead of working. I won’t go into the details (in part because I am not sufficiently familiar with them) but officials created an alternative scheme by which the remaining men would be moved into an unemployment program and the women would be moved into welfare. These moves were voluntary, but higher pay in either unemployment or welfare was the attraction that helped to gut the Jefes program. One of my PhD students continued to study participants as the program was reduced—and found that women would rationally take the higher pay in welfare but continue to work in their jobs (without pay) because they found substantial benefits in the social networks they had created through work. They also wanted to contribute to their communities.
Pavlina Tcherneva and I visited a number of Jefes projects and conducted interviews with about 100 participants (mostly women) and their supervisors. Just to quickly summarize our main findings, we found that when we asked “would you prefer to receive the benefit of the Jefes program but stay at home,” every single one, without exception, said that they would not want to sit at home and that they preferred to go to work. When asked “why”, the most common responses were that 1) they felt (or would feel) useless sitting at home, 2) they felt like they were helping the community when they were working, 3) there is dignity in working, 4) they were meeting their neighbors and 5) they were learning new skills. Note that our findings are consistent with survey data from other studies, which indicate that participants are highly satisfied with the program because they feel they “can do something”, they “help the community”, they “work in a good environment” and they “learn”.
It was particularly interesting to note that when we asked “do you think that there are essential goods and services that your community needs, which can be performed by Jefes workers,” everyone, without exception, answered in the affirmative. People distinguished between factory work and community work, with many claiming that there are social services that are not considered ‘productive’ in the sense of profit-generating activities that, nonetheless, needed to be done—things like caring for the young, old and the frail, cleaning and fixing up the neighborhoods, running soup kitchens, and so on.
Jefes was helping to redefine the meaning of work, providing paid employment for activities that are generally thought to be “unproductive labor”. However, we found significant barriers, especially at the highest levels of government, to thinking about such types of work as deserving of remuneration. All of the government officials agreed that the kinds of services provided by Jefes projects were useful, but they were reluctant to view Jefes projects as “efficient”. There was a strong bias toward market evaluation of efficiency. For example, officials agreed that the bread provided by Jefes workers to poor neighbors was meeting a real need; however, they believed that modern private sector bakeries could meet this need much more “efficiently” with skilled labor. They told us it would be better to pay the women to stay home so that they could simply buy bread from modern bakeries.
The Jefes projects that they viewed as “sustainable” were micro-enterprises (worker co-ops) that could compete in markets. Projects that did not produce output sold in markets were seen as “inefficient” because they did not meet a market test. Hence, woman baking bread in a Jefes project that was then provided freely to their poor neighbors was seen as necessarily “inefficient”—although the project created useful jobs and useful “output” that reduced hunger.
This is obviously a common attitude shared by mainstream economists. “Market efficiency” is the metric of value. So, ironically, they preferred that the women do nothing “productive”—just stay at home and live off hand-outs—rather than make positive contributions to their societies. The only “productive” use of such “inefficient” women and their kids was as “consumers” of the output of big “efficient” corporations. Nor could these officials really comprehend all the other benefits the women got out of working and feeling useful to their communities.
All officials we interviewed agreed that the women in Jefes were doing important, even necessary, things, however, they were less convinced that these activities should qualify for pay. If the women organized into micro-enterprises to sell products in markets, then the market would determine the proper remuneration. However, if products were distributed freely to neighbors, then the work was somehow undeserving of remuneration. Of course, these are widely held views all over the world—especially by those who are trained in mainstream economics.
More recently, India passed the National Rural Employment Guarantee Act (2005) that commits the government to providing employment in a public works project to any adult living in a rural area. The job must be provided within 15 days of registration, and must provide employment for a minimum of 100 days per year. These programs represent a relatively explicit recognition that government can and should act as employer of last resort.
Job guarantee supporters see employment not only as an economic condition but also as an inalienable right. Many of us see the right to work as a fundamental prerequisite for social justice. The American social scientist John Dewey maintained that:
The first great demand of a better social order…is the guarantee of the right, to every individual who is capable of it, to work—not the mere legal right, but a right which is enforceable so that the individual will always have the opportunity to engage in some form of useful activity and if the ordinary economic machinery breaks down through a crisis of some sort, then it is the duty of the state to come to the rescue and see that individuals have something to do that is worthwhile—not breaking stone in a stoneyard, or something else to get a soup ticket with, but some kind of productive work which a self-respecting person may engage in with interest and with more than mere pecuniary profit.
Some job guarantee supporters such as Phil Harvey and Bill Mitchell argue for the right to work on the basis that it is a fundamental human (or natural) right. Such treatments find supports in modern legal proclamations such as the United Nations Universal Declaration of Human Rights or the Employment Act of 1946 and the Full Employment Act of 1978. As these authors recognize, social justice arguments rest on more than the official recognition of the right to work as a fundamental human right.
Amartya Sen, for example, supports the right to work on the basis that the economic and social costs of unemployment are staggering with far-reaching consequences beyond the single dimension of a loss of income. Another Nobel Prize Winner William S. Vickrey identified unemployment with “cruel vandalism” and spent the latter years of his life outlining the social and economic inequities of unemployment and devising strategies for its solution. In sum we believe that the justifications for the right to income and the right to work on the grounds that they are inalienable human rights, consistent with the goals of social justice and freedom, are not incompatible.
In this vein, the Indian program might be more successful than the Argentinean experience. Note this is not for any technical reason, such as program formation or expertise. In my view, the Jefes program was organized in a very innovative way (albeit, as only a partial JG program, with various limits placed on participation and with a wage that was far too low). Its decentralization but with various levels of checks and balances was quite successful at generating projects that contributed to communities. And the program provided a wide range of benefits to participants. But the problem is that the officials in Argentina saw it as a temporary program to deal with a crisis. When the crisis was over, they phased out the program. India has formulated the program as a human right.
I had never been convinced that this is necessary because I thought that logic, alone, would carry the day. Employing people is better than giving them handouts. Enabling people to contribute to society is better than forcing them to remain at home living under the stigma of welfare. But, unfortunately, economists have successfully convinced policy makers that the only measure that really matters is narrow market efficiency.
Yet we have successfully battled against such arguments in the area of human rights—all races, all ethnic groups, all genders have fundamental human rights. As I said in an earlier blog, human rights are aspirational (Phil Harvey has written great articles on this)—and we need to recognize and fight for the right to a job. This is more than the right to have income. It is a right to do something useful, to contribute to society, and to have all the benefits one gains by fully participating in society in a socially useful way.
The Jefes experience allows us to move from the realm of theory to the reality of practice. Many of the fears of the critics of direct job creation programs have been shown to be fallacious. Job creation, even on a massive scale and under difficult circumstances, can be successful. Participants welcomed the chance to work, viewing participation as empowering. The program can be democratically implemented, increasing participation in the political process, and with relatively few instances of corruption and bureaucratic waste. Useful projects can be undertaken. Even with a huge program that employed 5% of the population, communities were able to find useful work for participants. Jefes reduced social unrest, and provided demand for private sector production.
Could a program like Jefes work elsewhere? At the very least, we can learn from the program’s successes and failures. As one of the Argentinean organizers put it to Pavlina and me, “The people that actually have the answers are the ones with the needs, those that suffer from starvation. If you target your policies to these people you cannot go wrong. This government did a good job; they addressed the root of the problem…. They didn’t look to the top; they went straight to the bottom.”
In a sense, the jobs guarantee/employer of the last resort program really is targeted “to the bottom” since it “hires off the bottom”, offering a job to those left behind. Its wage and benefit package is the lowest, setting the minimum standard that private employers can offer. It does not try to outbid the private sector for workers, but rather takes those who cannot find a job. Further, by decentralizing the program, it allows the local communities to create the projects and organize the program. The local community probably has a better idea of the community’s needs, both in terms of jobs and in terms of projects. However, actual project formulation must be done on a case-by-case basis.