by
Robert Cauneau
29 June 2019
The author would like to thank Ivan Invernizzi – MMT France / Rete MMT Italia – for his very useful comments in writing this article.
The Job Guarantee (JG) by the State as Employer of Last Resort (ELR)1 is a fundamental element of the neo-chartalist monetary approach « Modern Monetary Theory » (MMT)2. This approach has been the subject of significant and numerous research and a wealth of literature since the early 1990s. It is increasingly discussed in the media, particularly due to its adoption and support in the USA, both by Senator Bernie Sanders and by Alexandria Occasio Cortez, Member of Congress.
Unconditional Basic Income (UBI) is also attracting growing interest and intense media coverage. It is generally presented as an alternative policy to ELR. To the extent that these policies share certain objectives, the question arises as to whether they can be considered as opposed, or as complementary. This presentation aims to synthesize the many articles already published on these two concepts, both to present them and to compare them. However, it does not claim to be exhaustive, and therefore does not exhaust the debate. Its purpose is (i) to outline MMT, (ii) to outline the main features of UBI, (iii) then of ELR, (iv) to compare them, and finally, (v) to discuss whether or not they can be considered complementary.3
Introduction
UBI and ELR are intended to provide significant common benefits. They constitute a powerful economic stimulus on the demand side. They aim to solve many problems related to high levels of unemployment and poverty. Both programs offer a universal income or wage guarantee that aims to meet the population’s most basic needs and establish a decent minimum standard of living. Their environmental concerns are comparable. They both aim to reduce the cost of other social programs, without eliminating them completely. Finally, although in a more restrictive manner for the ELR, but more liberal for the UBI, they respond to the aspirations of people wishing to be useful by getting involved in social and environmental causes.
The comparison between the UBI and the ELR is fundamentally that of the right to income and the right to employment. Supporters of the UBI are convinced of the inevitability of the end of full employment and present it as a remedy for this development. They believe that modern economies are moving towards increasingly precarious labor markets and maintain that paid employment is not the only answer to a better life. The ELR, on the other hand, is part of the logic of seeking full employment, which it considers one of the noblest and most important missions of economic policy.
1. What is MMT?
MMT is a monetary approach that emerged in the 1990s. The national currency is primarily considered a tax credit, i.e., a voucher, a credit note, or a coupon for taxes payable. Its acceptance is enforced by the issuance of taxes payable in the currency, based on the coercive power of the state, followed by the desire of individuals to save it and exchange it even before paying these taxes. The state therefore has a monopoly on its currency, which it creates by spending and destroys by collecting taxes: taxation then serves to create demand for the currency from the private sector, and thus to produce goods and services sold in this currency.
According to this logic, taxes do not « finance » public spending. The monopoly state first creates its currency by spending, without financial constraints, but rather under the constraints of the availability of resources sold in its currency, and with the objective of full employment and price stability. Then it collects its taxes. The chain of causality is therefore reversed.
MMT therefore describes the national currency as a public monopoly for a government, and unemployment as proof that the public deficit is too small to activate the entire workforce. It considers unemployment as a question of fiscal policy, and therefore of the level of taxation and public spending.
It is a technical description of operations that shows that the state’s spending capacity exists, how it is suboptimal, and therefore how to allow the economy to express its full potential. It shows how the expression of this capacity of the economy is eminently political, subject to uninformed choices, or deliberately self-limited ones.
It is important to note that MMT allows for the analysis of the currency monopoly, which, as far as France is concerned, is currently located at the Eurozone level, the only level at which it can therefore be fully applied.
2. What is Unconditional Basic Income (UBI)?
According to the French Movement for a Basic Income (MFRB), it is defined as follows: « Basic income is an inalienable, unconditional right, cumulative with other incomes, distributed by a political community to all its members, from birth to death, on an individual basis, without means-testing or requirement for compensation, the amount and funding of which are democratically adjusted. »
From this definition, it follows that:
All members of the community receive it, regardless of their income or professional status.
- No compensation is required to receive it.
- It is paid to each member of the household, regardless of the income of other members.
- Children are also entitled to it. It could, for example, be paid to legal guardians until they reach the age of majority.
- It is combined with any other income (salary, certain allowances, etc.).
According to the MFRB, « Universal basic income aims above all to give individuals more freedom: it gives them more choice, particularly in the work they can do, without remuneration necessarily being a factor. »
« Basic income is in no way opposed to paid work or the value of work. It strengthens social cohesion and individual freedom. »
According to its supporters, it is not an obstacle to paid work, but, quite the contrary, to the extent that it allows for a freer choice of work, it is a motivating factor and increases the desire to work.
It helps reduce the dependency that most individuals find themselves in with regard to employment, and thus ensures that a salary no longer becomes a vital necessity. It is also intended as a response to « bullshit jobs » and an incentive to develop socially useful volunteer activities, for which it is, in a sense, the « remuneration. »
3. What is the Employer of Last Resort (ELR)?
The ELR is a proposed government-funded program that employs all unemployed workers who are ready, willing, and able to work in a public sector project at a basic wage4, in jobs corresponding to the production of goods and services with a definite social utility.
MMT advocates the ELR with the goal of eliminating involuntary unemployment. It views it as an instrument for maximizing price stability because it directly targets unemployment, rather than attempting to indirectly increase job creation in the private sector through a much larger economic stimulus. Furthermore, the ELR maintains a « buffer stock » of labor that can easily transition to the private sector when jobs become available.
An ELR program can therefore be considered a powerful automatic economic stabilizer, expanding when private sector activity cools and contracting when private sector activity strengthens, while ensuring price stability. It thus provides a powerful alternative to neoliberal logic, using full employment, rather than unemployment, as the adjustment variable for price stability. 5
It involves hiring unemployed workers, regardless of the phase of the economic cycle, whether depression or expansion. The approach is considered « bottom-up, » coming from below, because it provides a safety net for those who are generally the least employed, because they are the least skilled and least educated.
To the extent that the public deficit is sufficiently large, the private sector tends to expand and is therefore encouraged to seek workers. And it can only do so by offering wages higher than the ELR, which itself offers compensation set above the poverty line. Similarly, private sector employees who earn wages below this threshold have the option of escaping. They have the contractual power to raise their wages above the poverty line and thus enter the ELR. The ELR is therefore an instrument in the interest of workers. It effectively establishes the minimum wage. This, in turn, has an effect across the entire wage scale in favor of employees. The ELR therefore has a significant impact on redistribution.
An ELR program can significantly address both transition and human development issues. By offering a carefully determined fixed (but adjustable) nominal wage in a context of price stabilization, it provides the necessary means of subsistence.
4. Comparison of the Two Proposals
4.1 From an Economic Perspective
4.1.1 Inflationary Risks
The ELR is part of a theory that fully and coherently explains the functioning of money, MMT, of which it constitutes one of the cornerstones and one of the most important elements of its prescriptive component. The UBI, on the other hand, does not refer to any new economic paradigm. It is part of the currently dominant neoliberal economic paradigm, with no intention of challenging it.
The ELR is rooted in a comprehensive vision of the monetary system, unlike the UBI. It constitutes a powerful stabilizer of the economic cycle, which is not the case with the UBI. Coupled with its countercyclical mechanism,6 the ELR is indeed an inflation stabilizer. It ensures that the government deficit is at just the right level to maintain full employment. In other words, both supply and demand increase.
UBI, on the other hand, which generates an increase in demand but an increase in supply in a less direct and less fluid way, is potentially a powerful generator of inflation. This erodes the value of UBI, keeping the poor poor and preventing discrimination in access to work. MMT thinkers have addressed this issue in several articles7.
As the fiscal approach to the national currency makes clear, taxes confer value on that currency by creating a demand for it. Moreover, this value is determined by what is necessary to obtain it, namely the production of goods and services. In the case of an UBI, there is no such requirement, as income payments are made universally and unconditionally. However, if a program is put in place to allow the population to freely obtain the unit that fulfills the tax obligation, the value of the national currency deteriorates sharply. Although this may not happen immediately, over time, the value of an unconditionally provided national currency ultimately tends to zero. It must be emphasized that the UBI is not inflationary because it is financed by currency, but because this (new) currency is essentially « free »8 and is provided on demand to everyone. This therefore invalidates the objective of taxes, which is to create demand for the state’s currency. We can then easily envision a scenario where the state can no longer tax, and therefore its currency disappears, and thus the market structure collapses.
According to MMT logic, the market, before being a generic system for exchanging goods and services, is a generic system for exchanging national currencies. MMT starts with taxation. The state makes its taxes payable in its own currency only, which forces private sector actors to produce and offer goods and services in that currency in order to pay its taxes. This is what gives the currency its value. According to this logic, everyone capable of working is affected. Basic income, which is universal and unconditional, is analyzed as a negative tax, which destroys the logic of the system by reducing, or even eliminating, the supply of goods in currency. However, the currency only has value if labor is sold in that currency.
In contrast, in the ELR program, the value of the national currency is linked to public sector wages. It is designed to provide a stable benchmark for the value of the national currency.
4.1.2 Impact on Human Capital
Both UBI and ELR claim to address the problem of poverty. To the extent that they succeed and poverty is reduced, many social ills will also be addressed, such as poor health, certain criminal activities, homelessness, malnutrition, school dropout rates, and racial and ethnic antagonism. However, ELR has a clear advantage over UBI because it maintains a visible and employable labor pool that can be tapped by private investors if they need trained and skilled workers for their businesses. On the other hand, while a UBI can provide the income needed to maintain a standard of living above poverty, it does not address the loss of skills and training and the deterioration of human capital that result from unemployment, especially if it is long-term.
The ELR is a safety net that mobilizes labor for the public good. By explicitly incorporating on-the-job training, it maintains and improves human capital. Even the poorest and least educated people have something to contribute to their communities. The goal is to find them decent work that provides on-the-job training to prepare them for post-ELR work.
4.1.3 Regarding the Evolution of Employment
The UBI is presented by its supporters as a response to the automation of tasks, which is increasingly widespread and threatens to destroy jobs. This automation does not, however, call into question the relevance of the ELR. Even if workers are increasingly replaced by machines, people will always be needed to manufacture and maintain these machines. Moreover, just as projections regarding the future number of paid jobs are contradictory, it is clear that human creativity is unique to humans, and that there are a number of tasks that will never be automated.
The UBI is also presented as an incentive to reduce working hours. The ELR does not prevent the reduction of working hours, nor does it prevent a system in which employees can freely choose their work, rather than be subjected to it—quite the opposite. Indeed, it empowers workers. And the reduction in working hours does not necessarily mean the disappearance of work.
4.1.4 What about activities outside of paid work?
UBI supporters want to remunerate activities outside of paid work that are socially useful (raising children, caring for parents, volunteer work, etc.). But, from an MMT perspective, currency has value. And this value is the consequence of the fact that it allows people to purchase goods and services. However, these activities outside of paid work certainly have social value, but they do not contribute to increasing the value of the currency because they are not sold to obtain this currency. They are considered asymmetrical in that they do not compensate for the fact that the people involved do not work for the currency.
We must be aware that if we give currency to people who have not worked and these people use it to purchase goods and services in that currency, we are taking away purchasing power from those who have worked and produced economic value. They are thus unable to appropriate the same value they produced. This is a political choice, which is certainly possible, and which directly influences redistribution.
4.2 Other Points of Comparison
4.2.1 Perception of the Philosophical Value of Work
To discuss this point, it is interesting to refer to the statements of people, mainly women, involved in a Job Guarantee experiment conducted in Argentina in the early 2000s. Its observers reported9 that all the participants they interviewed as part of the program, without exception, wanted to work rather than receive a social assistance check of the same amount. During an evaluation of the program, the Ministry of Labor also noted that many women were disappointed to have returned to inactivity following their transition to a simple social assistance plan. A survey revealed that women who joined this social assistance program, but whose ELR community projects had not yet been discontinued, continued to return to work, even though they were now exempt from the obligation to work and no longer met the conditions for participation.
Thus, participants in this program agreed that only paid work enhances dignity and that receiving unconditional income support and social assistance leads to a certain humiliation.
This clearly demonstrates that paid employment has a much broader dimension than income alone: it involves the feeling of being part of society, of being useful to it, and therefore of seeking to maximize one’s sense of self-worth. This preference for work is clearly confirmed by unemployed people who find employment through the French « Territories with Zero Long-Term Unemployment » program.
Official surveys of participants in this Argentine program indicated that earning an income was not a primary reason for their satisfaction with the program. Beneficiaries appreciated participating in the program because they had the opportunity to « do something, » to work in a « good environment, » to « help the community, » and to « learn. »
Thus, if we consider that, like any social reform, such as ELR or UBI, we must meet the expectations of the population, and if these expectations are not those of an unconditional income, but those of a salary that compensates for employment, ELR is far preferable to UBI.
As Amartya Sen taught us, poverty is not simply a function of the lack of adequate income. Providing an income alone does not eliminate poverty. This is precisely what ELR does: it recognizes that many people want paid work, provides them with employment opportunities, and removes the barriers that prevent them from seizing this opportunity by targeting jobs at communities and providing them with the services they might need to seize these opportunities (education, transportation, healthcare, etc.). ELR eliminates discrimination in access to work, which UBI does not.
4.2.2 A Real Paradigm Shift?
There is an almost neoclassical market-clearing assumption behind most UBI analyses, according to which, as long as people have money, the market will magically provide them with goods, allow them to acquire assets, give them the freedom to do as they please, and so on. According to this logic, all the structures that marginalize, reduce opportunities, and discriminate remain. The ELR is not a panacea for all these problems, but it addresses a crucial and systemic aspect of marginalization: the lack of a guarantee of decent work.
Furthermore, the ELR reorganizes the balance of power in society between capital and labor, giving workers greater leverage in their negotiations. This is not the case with UBI, which, on the contrary, would mean that, to the extent that they have a minimum income, employees should see the balance of power shift in favor of their employers. Indeed, if the relationship between capital and labor remains unchanged, the fact that workers receive UBI from the state encourages employers to lower wages. Workers then have no better alternative to their job to earn a living. And, to the extent that wages are likely to fall by the amount of the UBI, there is a strong likelihood that workers will settle for a subsistence wage.
4.2.3 The Issue of Stigma
Both UBI and ELR share the same objective of universally guaranteeing income or employment, without any degrading means-testing. However, if UBI is established and accepted as a truly universal program, beneficiaries will not be stigmatized simply for receiving these benefits. They will most likely be stigmatized for not working, with the risk of creating conflict between the working poor and those who do not.
The problem of stigma cannot be entirely avoided, but it can certainly be mitigated through active government involvement. The types of jobs offered by an ELR can be creatively designed to carry greater weight and prestige.
4.2.4 Towards a Society of Choice?
Through ELR, MMT encourages the rethinking of a life endured in favor of a life chosen. Indeed, the ELR provides access to decent work, based on remuneration that ensures its beneficiaries are above the poverty line. This is also the case for a sufficient UBI. Beneficiaries have, in the worst case scenario, a guarantee that gives them the courage to seek a risky career path as an entrepreneur or artist, for example. On the other hand, while the ELR offers access to employment as well as a decent income, this is not the case with the UBI, which only offers an income. Some of its supporters believe that its beneficiaries will be encouraged to seek or create meaningful paid jobs. Even if this is the case, however, unlike what the ELR proposes, UBI beneficiaries will have to complete these steps without the support of a dedicated structure, without formalized support as proposed by the ELR. We can therefore consider that the ELR is in fact an RBI, but for the benefit of people who, if they are able to work, will systematically be offered paid employment.
5. Is complementarity between the two proposals possible?
While their objectives are comparable, centered in particular around the fight against poverty, the UBI and the ELR are fundamentally different: the acceptance of unemployment for one, the objective of full employment for the other.
The pursuit of full employment is certainly more desirable than a measure based on the acceptance of unemployment as something inevitable.
However, the ELR cannot address all situations. It is certainly designed to provide a minimum living wage that solves the problem of poverty and ensures a dignified human existence. But if some members of society cannot work because they are too young, too old, or too ill, some form of allowance paid unconditionally in national currency is necessary.
The analysis carried out through the prism of MMT shows that it would not be a question of complementarity between the ELR and a real, universal and unconditional RBI which, for the reasons mentioned above (high inflationary risk and risk of collapse of the national currency system), is not viable, but rather of complementarity between the ELR and unconditional financial aid targeted at populations who cannot claim paid employment.
Notes
1 The term “Employer of Last Resort” covers the same concept as “Job Guarantee” and “Transitional Employment Program” which may be used by other authors.
2 “Neochartalism” and “MMT” cover the same concept. The former is used in the French-speaking world, the latter in the English-speaking world.
3 Readers who wish to delve deeper into the technical issues raised in this article may find it useful to refer to the articles available here : https://mmt-france.org/
4 This is a salary that ensures that the beneficiaries of the program are above the poverty line.
5 It therefore provides an alternative that makes the NAIRU (Non-Accelerating Inflation Rate of Unemployment) obsolete, an economic indicator which, estimated econometrically for a country and at a given time, approximately measures the unemployment rate that would be compatible with a stable inflation rate.
6 As discussed above, an ELR program can be viewed as a powerful automatic stabilizer of the economy, expanding when private sector activity cools and declining when private sector activity strengthens, while ensuring price stability.
7 In particular, Pavlina R. Tcherneva:
– Universal Basic Income or a Job Guarantee? – https://gimms.org.uk/fact-sheets/universal-basic-income/
– Beyond full employment, the employer as the institution of last resort for change – https://mmt-france.org/2019/06/11/au-dela-du-plein-emploi-lemployeur-en-dernier-ressort-en-tant-quinstitution-pour-le-changement/
8 “Common Goals – Different Solutions: Can Basic Income and Job Guarantees Deliver Their Own Promises?” (with L.R. Wray), Rutgers
Journal of Law and Urban Policy, 2005, 2 (1): 125-166.
9 Tcherneva, P.R., and L. R. Wray. 2005b. “Employer of Last Resort: A Case Study of Argentina’s Jefes Program.” C-FEPS Working Paper No 41. Kansas City, MO: Center for Full Employment and Price Stability.
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