Report 2020-02

Investing in a Job Guarantee for Australia
William F. Mitchell and Martin Watts1
July 2020

Centre of Full Employment and Equity
The University of Newcastle, Callaghan NSW 2308, Australia
Home Page: http://www.fullemployment.net
Email: coffee@newcastle.edu.au

1.

Introduction

The coronavirus pandemic has thrown the Australian labour market into chaos andthreatened to leave a generation of Australians without adequate work or no work. The
Australian government stimulus programs have not been sufficient to curb the significant
increase in official unemployment and hidden unemployment since the crisis started
impacting in March 2020. In part, this is because the scale of the fiscal stimulus was grossly
inadequate given the problems faced, especially the uniqueness of the lockdowns and theirimpacts on the ability of workers to maintain their jobs. Further, the programs introduced
were not designed to create jobs.
However, the Australian labour market was weakening before we entered the crisis. Since
the first of the oil shocks in the early 1970s, the underutilisation of labour either throughofficial unemployment, or, since the 1991 recession, through underemployment hasremained at elevated levels. The unemployment of the 1990s, gave way to theunderemployment in the 2000s. Since February 1978, Australia’s unemployment rate has
averaged 6.2 per cent. By contrast in 1974, the rate of unemployment was less than 3 percent. And since the beginning of 1991, underemployment has averaged 7.6 per cent.
Both sides of politics now eschew the adoption of policies of direct job creation to reduce
the rate of unemployment.2 Monetary and fiscal policy has been geared to keeping inflation
low and to achieving fiscal surpluses, respectively. There is a belief that if inflation is kept
in check, then deregulated markets will deliver the necessary and sufficient conditions forthe return to full employment.3
The evidence doesn’t support the supposition.
At the same time unemployment is now viewed as an individual problem rather than acollective problem. Governments now talk of full employability rather than full
employment. The ‘job services’ industry, the privatised offshoot of the old Commonwealth
Employment Services, manages the unemployed with a rather pernicious system of work
tests. Various compliance tests have evolved since the late 1990s with no evidence tosupport the claims that this system assists unemployed workers back into sustained, wellpaid, productive work.
The persistent shortage of work is evidenced by the fact that the unemployment tovacancies ratio has always been well above one. In May 2020, there were more than 7
unemployed for every job vacancy, and the problem of a lack of jobs intensifies if we
include the 600 thousand odd who have dropped out of the labour force due to lack of workand the 1.8 million who are underemployed, and, desire, on average, an additional 15 hours
of work per week.
Meanwhile, the economic and social costs of these persistent elevated levels of labour
underutilisation are substantial (Sen, 1997a,b; Mitchell and Watts, 1997; Watts, 2000a,
Watts and Mitchell, 2001). In this paper, we estimate the income losses arising fromelevated levels of unemployment in Australia and the investment required to introduce a
Job Guarantee (JG) Program under the principles of the buffer stock mechanism to reduce
unemployment in Australia (Mitchell, 1998). We adopt conservative assumptions. The
annual value of increased output under a JG Program is calculated to be about $101.3
billion, due to the conservative assumption of lower productivity in the public sector.
2

The net increase in government outlays of $51.7 billion takes into account the wage andon-costs of direct job creation, the impact of the multiplier on private sector job creation,
income tax and profits tax and other savings (for example, the reduction of unemployment
benefits). Our estimates ignore many other ways in which the government would reduce
outlays, for example, via the impact of unemployment on personal health, crime rates,
mental health incidence, and more. In that sense, the exact net outlays required to introduce
a Job Guarantee in the way described in the paper are a maximal estimate.
In Section 2 we outline the methodology used to compute the economic costs ofmaintaining an unemployment rate at 10 per cent rather than 4 per cent. The income losses
scale up and down in a linear fashion for different benchmarks. In Section 3 the methods
used in Section 2 are developed to outline the estimation of the costs of implementing a
Job Guarantee. Concluding remarks follow in the final Section.

3

2.

The Costs of Unemployment

2.1
Introduction
Sustained unemployment imposes significant economic, personal and social costs (Sen,1997a,b; Watts and Mitchell, 2001, and Mitchell and Fazi, 2017). Our main focus in thispaper are the measurable static economic costs of unemployment, namely foregone output,
and the fiscal investment required to implement the Job Guarantee. In doing so, we do notconsider the wider costs of unemployment, which include:
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social exclusion and the loss of freedom;skill loss;
psychological harm, including increased suicide rate;
ill health and reduced life expectancy;
loss of motivation;
the undermining of human relations and family life;
racial and gender inequality; andloss of social values and responsibility.

Many of these costs are difficult to quantify but clearly are substantial given qualitative
evidence from an extensive research literature (see Watts and Mitchell, 2001).
2.2
Full-time equivalent employment shortage
The first task is to estimate the output and income losses that arise from unemployment
being below what we might term to be an irreducible minimum, which incorporates anallowance for frictional unemployment (people moving between jobs, etc).
A number of conceptual and empirical issues arise in the computation of foregone output
resulting from unemployment, hidden unemployment and underemployment.
There are also a raft of special circumstances arising during the pandemic as a result of theway the Australian Bureau of Statistics (ABS) is choosing to classify workers in the faceof the various Federal support programs (JobKeeper and JobSeeker), which have alterednormal behavior.
In the case of the JobKeeper wage subsidy scheme, the ABS note that this has allowed
some workers to retain an attachment with their employer even if they are working zero
hours and would normally be classified as unemployed. They are currently being counted
among the employed which has reduced the severity of the official unemployment count.
In May 2020, the ABS estimated that some 360 thousand employees worked zero hours.
Another complication is that the ABS recently noted that if the increase in workers who
were classified as ‘not in the labour force’ since March 2020, the so-called hidden
unemployed, had been recorded within the official unemployment count (given theseworkers were functionally equivalent) then the unemployment rate would have been higher
by 4.2 points higher in May 2020 (ABS, 2020). In June 2020, as workers returned to thelabour force, the adjusted unemployment rate (counting in the hidden unemployed) would
be 10.6 per cent.
Thus, in addition to establishing a reasonable benchmark unemployment target (whether
that be a concept of full employment or otherwise), the difficulty in designing our4conceptual experiment to gauge the loss of output in June 2020 arising from unemployment
relative to that benchmark, is that we have a problem actually tying down what the
unemployment level actually is given these complicating factors.
First, the choice of the target rate or benchmark level of unemployment is important. In thepast we have used a figure of 2 per cent as our full employment unemployment ratebenchmark (see Watts and Mitchell, 2001). That can be justified in a number of ways.
In this paper, we use 4 per cent, only because it is the low-point unemployment rate that
the Australian economy reached in February 2008 before the Global Financial Crisis (GFC)
emerged. We do not argue that this is a full employment state. In fact, we believe theirreducible minimum unemployment is below this level. Further, as you will understand,our estimates are linear and can be extrapolated relatively easily for lower unemployment
benchmarks if the need arises.
So, our benchmark of 4 per cent unemployment is a first-stage policy aspiration rather thanan end-goal.
Second, the aggregate labour force participation rate is pro-cyclical. Accordingly, thecomputation of the additional jobs to achieve the target unemployment rate must include
an estimate of hidden unemployment (HU). Mitchell (2000a) used regression analysis toestimate the increase in participation associated with the target unemployment rate of 2 percent as a way of computing the level of hidden unemployment.
In this paper, we use a simpler method, which relies on assessing how far the participation
rate has deviated from its maximum value over the available data. Given that the maximum
participation rate achieved since February 1978 in Australia was 66.2 per cent in August
2019, we are relatively certain that deviations since have not been driven by structural
factors, such as ageing. The participation rate in June 2020 was 64 per cent. The labour
force would have been 13,785 thousand in June 2020, rather than 13,320.8 thousand, if theparticipation rate had have remained at the August 2019 level. We consider this difference
to be the level of hidden unemployment in June 2020. We abstract from gender differencesin preferences for full-time and part-time employment among the hidden unemployed.
However, we do caution again adopting an assumption that there was zero hidden
unemployment in August 2019. Using the estimation technique outlined in Mitchell (2000),
we find that there was still potential for the participation rate to rise further than the August
2019 peak. But for simplicity, we assume that hidden unemployment is captured by theworkers who have dropped out of the labour force since August 2019. It understates thetrue cyclical jobs response but has the advantage of being easy to understand and estimate.
Third, there were 1,556.6 thousand underemployed workers in Australia in June 2020, who
on average, desire around 15 extra hours per week. That represents a massive income loss
to the Australian economy and the workers who are forced by lack of overall activity toendure the hours shortfall. In the estimation that follows, we also do not include theinvestment required to eliminate all this time-based unemployment. We leave that issue toanother time when more comprehensive data are available from the ABS. However, there
would be a modest decline in time-based underemployment through the creation of morepart-time jobs at our estimate of workers’ desired weekly hours.

5The Australian Treasury has estimated that as a result of the COVID-19 crisis, theunemployment rate would rise to 10 per cent in June 2020. They also estimated that without
the JobKeeper wage subsidy program, the rate would have risen to 15 per cent. The fiscal
outlay for that program over 6 months is estimated to be $A70 billion (after initiallyclaiming the outlay over 6 months would be $A133 billion).
In June 2020, official unemployment had risen to 7.4 per cent (992.3 thousand). This islower than was initially expected (even by the Australian Treasury) because 464.2 thousand
workers have dropped out of the labour force since August 2019, in the face of collapsing
job opportunities. As noted above, this represents a drop in the participation rate of 2.2
percentage points.
Then the adjusted unemployment rate would be 10.6 per cent if the 464.2 thousand workers
were classified as unemployed.
To keep matters simple (and because our estimates are linear and can be scaled up anddown easily in percentage point terms), the exercise we conduct here is to take the Treasury
estimate of a 10 per cent unemployment rate as at June 2020 (which also is in the rangethat we estimated in the previous paragraph), and then compute the employment required
to achieve an official unemployment rate of 4 per cent with a participation rate as at August
2019. In other words, we estimate a 6-percentage point reduction in the unemployment(from 10 per cent), taking into account that jobs have to be provided for the 464.2 thousand
workers who have dropped out of the labour force. We do not attempt to include
adjustments for workers on JobKeeper who are working zero hours.
Table 1 presents the underlying labour market aggregates that we need to start computing
the output losses arising from mass unemployment. Our first step is to work out the fulltime equivalent (FTE) jobs shortfall that the 6-percentage points unemployment gap
represents.
In June 2020, out of a labour force of 13,320.8 thousand, 73.7 per cent of those classified
as being officially unemployed were seeking full-time employment. Average weekly hours
worked was 33.8, with part-time employees working an average of 18.3 hours per week
and full-time employees 40.8 hours per week.
The apparent disparity between the required and actual composition of jobs to reduce theunemployment rate to 4 per cent arises due to the higher share of the unemployed who want
full-time jobs, as compared to the full-time share of total employment.
Taken together, the total employment change required to move from a 10 per cent
unemployment rate to a 4 per cent unemployment (with an August 2019 participation rate)would be:§§1,244.9 thousand jobs (or 1,113.4 thousand FTE jobs).
Of those jobs, 464.2 thousand would go to workers reentering the labour force (415.2
thousand FTE) and 760 thousand would go to workers currently classified as
unemployed.

6

Table 1: The jobs required to move from 10 per cent to 4 per cent unemployment
As at June 2020
Working age population (000s)

Actual

FTE

20,823.2

Participation rate (%)

64.0

Peak participation rate (%) - August 2019

66.2

Labour Force (000s)

13,320.8

Potential Labour Force at peak participation

13,785.0

Change in hidden unemployment since August 2019

464.2

Official unemployment (000s)

992.3

Official unemployment rate (%)

7.4

Adjusted unemployment rate including change in HU (%)

10.6

Actual Employment (000s)
Total

12,328.5

Full-time

8,489.1

Part-time

3,839.4

Employment at 10 per unemployment current labour force(000s)
Total

11,988.7

Full-time

8,255.2

Part-time

3,733.6

Employment at 4 per cent unemployment potential LF(000s)
Total

13,233.6

Full-time

9,112.3

Part-time

4,121.2

Total Jobs required to achieve 4 per cent unemployment (000s)
Total

1,244.91113.4Full-time

917.8

917.8

Part-time

327.1

195.7

Total

464.2

360.4

Full-time

342.2

342.2

Part-time

122.0

73.0

Of which extra jobs for hidden unemployed (000s)

72.3
The income losses from mass unemployment are huge
The level of foregone output associated with the prevailing level of unemployment andunderemployment is proxied by a direct measure of output per worker, that is in turn,multiplied by the number of additional employees.
Clearly this calculation depends on a number of factors, which have to be assumed.
First, which workers will close the unemployment gap specified: all Job Guarantee workers
or a mix of public and private. As you will see in later sections, because the introductionof a Job Guarantee creates positive multiplier effects, ultimately the employment necessary
to shift the economy from 10 to 4 per cent unemployment (as outlined in Table 1) involves
a mix of Job Guarantee and private sector jobs.
Second, that mix depends on the private sector labour productivity measure we deploy. The
lower the productivity, the greater the proportion of workers that gain new jobs in theprivate sector for a given output boost from the spending associated with the decision tooffer jobs to the Job Guarantee workers. Further, in Australia’s case, the capital intensityof the mining sector and its relatively small employment base, creates an upward bias inany estimate of average productivity in the private sector. Clearly, it is also likely that the
productivity attained in the Job Guarantee sector will be lower than that prevailing in the
non-government sector overall.
There is no definitive correct way to proceed. In this instance we assume that the private
sector productivity levels per FTE worker is 80 percent of total economy wide productivity
net of mining (around 90 per cent of the total) that is 72 percent of economy wide
productivity; whereas the productivity of a Job Guarantee worker is her total input cost(which is a conventional way of estimating public sector productivity when services are
not delivered at market prices (around 47 per cent of total productivity net of mining).
In the past exercises like this, we have conservatively assumed that the productivity of the
newly employed full-time equivalent workers in the private sector is 60 per cent of theeconomy-wide average, reflecting the lower skills of the unemployed, , and possible capital
shortages resulting from the higher level of economic activity.
The scale of annual GDP (income) loss resulting from the unemployment rate being at 10
per cent rather than 4 per cent ranges from $95,404 million (if all workers were absorbed
in the retail trade sector) to $201,384 million (if the workers had average non-mining
productivity). That range on a daily basis would be $261.4 million (5 per cent 2019 GDP)
to 551.7 million (10.6 per cent of 2019 GDP).
However, even if the losses are at the lower end of this sort of range, the quantum is verylarge and represent huge deadweight losses that are never recovered, and losses of somedegree accumulate every day that unemployment remains above 4 per centFurther, we clearly do not take into account the personal and community losses noted in
Section 2.1, in this calculation.
In terms of the debate about the relative scale of the losses arising from the failure to
maintain full employment and microeconomic inefficiencies, the late James Tobin (1977:468) wrote:8Any economics student can expatiate on the inequities, distortions, and allocationof inefficiencies of controls or guideposts or tax rewards and penalties. But justconsider the alternative. The microeconomic distortions of incomes policies would
be trivial compared to the macroeconomic costs of prolonged underemployment oflabor and capital. It takes a heap of Harberger triangles to fill an Okun Gap.
Quiggin (1998) summarised a number of studies in the Australian context into the benefitsof microeconomic reform and concluded that the gains were in fact “modest” and the“benefits of further reductions in tariff rates are likely to be very small”. The average
impact on national output estimated from a broad range of studies was much lower thanthe lost output from mass unemployment. Quiggin estimated the benefits to be less than 1
per cent of GDP, taking account of the impact of microeconomic reform on unemployment.
Thus, there is persuasive evidence that the macroeconomic costs of unemployment, asmeasured solely by foregone output, dominate any realistic measure of the costs of
microeconomic inefficiency. Thus direct, macroeconomic intervention is justified.
This becomes accentuated when we start to compile estimates of the social costs arisingfrom prolonged unemployment and underemployment.

9

3.
A guarantee whichever way
There are two broad ways to control inflation and the use of buffer stocks are involved in
each:
§

§

Unemployment buffer stocks: Under a mainstream NAIRU regime (the current
orthodoxy), inflation is controlled using tight monetary and fiscal policy, which leads
to a buffer stock of unemployment. This is a very costly and unreliable target for policy
makers to pursue as a means for inflation proofing.
Employment buffer stocks: The government exploits the fiscal power embodied in a
fiat-currency issuing national government to introduce full employment based on an
employment buffer stock approach.

The point is that there is a guarantee of either unemployment or employment depending on
the choice of buffer stock made by government We argue that the former is an inferior
approach given the massive costs involved, in terms of daily lost income and damage tothe individuals and families who have to endure the unemployment.
Full employment requires that there are enough jobs created in the economy to absorb theavailable labour supply. Focusing on some politically acceptable (though perhaps high)unemployment rate is incompatible with sustained full employment.
Over the last several decades, governments have abandoned their commitment to full
employment and central banks have, increasingly, been given the responsibility by
government for managing the price level. In conducting monetary policy to fulfill theirmajor economic objectives, central banks manipulate the interest rate and attempt tomanage the state of inflation expectations via aggregate demand impacts.
They now use unemployment as a policy tool rather than a policy target to discipline theinflation generating process. Where negative real effects from the operation of inflationfirst monetary policy are acknowledged they are theorised to be necessary for optimal longterm growth and employment and small in magnitude. Mitchell and Muysken (2008)
present evidence to show that these theories have little empirical support.
In Modern Monetary Theory (MMT), a superior use of the labour slack necessary to
generate price stability is to implement an employment program for the otherwise
unemployed as an activity floor in the real sector, which both anchors the general pricelevel to the price of employed labour of this (currently unemployed) buffer and can produce
useful output with positive supply side effects (Mitchell, Wray and Watts, 2019).
The employment buffer stock approach, termed the Job Guarantee, exploits the imperfectcompetition introduced by a fiat (flexible exchange rate) currency, which provides theissuing government with pricing power and frees it of nominal financial constraints.
We know that a currency-issuing government can purchase whatever goods and services
that are for sale in its own currency including all unemployed labour. Mass unemployment
is thus, always, a political choice rather than the result of financial constraints on
government.
The problem with the current approach to fiscal policy is political. Governments think thatlarge deficits are to be avoided so they spend on a quantity rule – that is, allocate $x
billion to a program(s), which they think is politically acceptable. It may not bear any
10relation to what is required to address the existing spending gap left by non-government
leakages from the income-expenditure cycle.
A better basis for the conduct of fiscal policy which is exemplified in the provision of
employment guarantees is to spend on the basis of a price rule. That is, the government
just has to fix the price (the Job Guarantee wage) and ‘buy’ whatever is available at thatprice. After all, the fiscal deficit is endogenous and has to be whatever it takes to get full
employment.
The Job Guarantee is thus an unconditional offer of public employment at a socially
inclusive minimum wage to anyone who wants to work but cannot currently findemployment. It is based on a buffer stock principle whereby the public sector offers a fixed
wage job (spending on a price rule) to anyone willing and able to work, thereby
establishing and maintaining a buffer stock of employed workers. This buffer stock
expands (declines) when private sector activity declines (expands), much like today’s
unemployed buffer stocks.
Spending on a price rule means that the program is demand-driven, with the government
providing a perfectly elastic demand curve for labour at the socially inclusive minimum
wage. This is in juxtaposition to other programs which are supply-constrained (spending
on a quantity rule), where the fiscal allocation is set, and the outcomes are thus limited.
The Job Guarantee proposal in the MMT literature was conceived independently by
Mitchell (1998) and Mosler (1997-98). Other authors have also added to this literaturesince, including, most recently, Tcherneva (2020), A comprehensive treatment of the idea
appears in Mitchell and Muysken (2008).
Mitchell (1998) argued that, if the private sector does not provide sufficient job
opportunities to achieve full employment, then the government should guarantee a job at
the living wage level to everyone who desires one. The workers would then choose thehours they desire to work, thus eliminating time-based underemployment as well as
unemployment.
The Job Guarantee thus fulfils an absorption function to minimise the real costs associatedwith the flux of the private sector. When private sector employment declines, public sector
employment will automatically react and increase its payrolls. The nation always remains
fully employed, with a changing mix between private and public sector employment. Since
the Job Guarantee wage is open to everyone, it will functionally become the national
minimum wage. This means the program does not disturb the private sector wage structure
and avoids the government competing for labour resources at market prices. That element
is necessary to ensure the Job Guarantee is consistent with price stability.
The aim is to replace unemployment and time-based under-employment with paid
employment (up to the hours desired by workers), so that those who are at any point in time
surplus to the requirements of the private sector (and mainstream public sector) can earn areasonable living rather than suffer the indignity and insecurity of underemployment,poverty and social exclusion.
The Job Guarantee is designed to generate both full employment and price stability.4 The
Job Guarantee is better thought of in MMT as a macroeconomic stabilisation frameworkrather than just being a job creation program. When the level of private sector activity is
11such that wage-price pressures forms as the precursor to an inflationary episode, thegovernment would manipulate fiscal policy settings to reduce the level of private sector
demand. As a result, instead of creating mass unemployment, the government policy shift
would see labour being transferred from the inflating sector to the ‘fixed wage’ JG sector,
which would eventually resolve the inflationary pressures.
But in general, there cannot be inflationary pressures arising from a policy that sees theGovernment offering a fixed wage to any labour that is unwanted by other employers. The
Job Guarantee thus involves the Government ‘buying labour off the bottom’ rather thancompeting in the market for labour. By definition, the unemployed have no market pricebecause there is no market demand for their services. The unemployed have a zero bid in
the labour market.
The Job Guarantee is also seen as a high quality automatic stabiliser, which resolves manyof the uncertainties that may make counter-cyclical discretionary fiscal interventions
problematic. The fiscal allocation rises and falls automatically to ensure there are always
jobs available to those who want to work.
Further, if the business community or anyone else thinks the fiscal deficit is ‘too high’ orthat there are ‘too many’ workers in the Job Guarantee pool – then there is a simple remedy
that is available to them – they can just increase private spending (for example, invest morein productive capacity). Then the fiscal deficit will shrink, and the Job Guarantee pool will
decline.
In other words, just as the fiscal balance at any point in time is significantly driven by nongovernment spending and saving decisions, so would the size of the Job Guarantee pool.
In normal times, the pool would be relatively small. But the important point is that the Job
Guarantee would create a safety net for workers in the face of the flux and uncertainty of
non-government sector spending fluctuations. In that sense, it is infinitely superior to thealternative approach of using unemployment as the buffer stock to cope with thesefluctuations.
There are many unfulfilled needs that could be met by Job Guarantee workers including
environmental restoration, community services to the aged, the youth, and the disabled,and other similarly useful activities. Local councils have the knowledge and expertise to
identify pressing social needs and employment agencies could readily establish the extent
of idle labour. Such a program would generate a high rate of social return on public
expenditure (Mitchell 2000b, Cook et al., 2008).
The Job Guarantee would be a permanent buffer of jobs that would always be available tothe most disadvantaged workers as an employment safety net, thus eliminating all
involuntary unemployment at all times.
Further, subject to preference, the Job Guarantee, which provides the highest quality ‘work
test’, would be able to replace the elaborate income support schemes relating tounemployment benefit payments. However, both systems could run together if that was thepreference, although it is hard to see why a society that was always capable of providing
paid work would maintain a system of payments for the unemployed. The Centrelink
structure could be reoriented to overseeing the federal responsibility for the Job Guarantee(see Cook et al., 2008).
12

4Investing in the Job Guarantee
In this section, we provide estimates of the scale of investment that the Australian
government would require to implement a Job Guarantee. The analysis is predicated on
several assumptions, which we articulate in the following discussion.
4.1
Employment Generation
What are the impacts on public and private employment of a Job Guarantee program
designed to reduce the unemployment rate from 10 per cent to 4 per cent.?
From Table 1, we know that to achieve that goal requires the creation of 1,244.9 thousandjobs or 1,113.4 thousand FTE net jobs. But, in instigating such a job creation program, thegovernment would trigger spending multiplier effects, which would stimulate private
sector employment through the higher incomes earned by the unemployed who are broughtback into productive employment.
Our estimation framework takes in account this multiplier process to determine the mixtureof private and public sector jobs that result from the initial expansion of public sector
employment. We abstract from details such as disability support pension holders. They
may be among the hidden unemployed, but we do not consider them formally.
The thought experiment we conduct is this (see Cook et al., 2008 for detailed analysis of
the assumptions):
1. What would happen to full- and part-time employment if the government created 100
new public sector jobs at the current legal minimum wage in Australia?
2. Each full-time employee under the Job Guarantee program is paid $A753.80 per week(the minimum wage in Australia as at July 1, 2020) and works a standard 38-hour week.
3. Each Job Guarantee job is subject to on-costs of 30 per cent.
4. Additional capital costs (supervision, equipment, etc) of 35 per cent are added tosupport each Job Guarantee worker. Thus, we assume that the Labour-Capital ratio foreach job is 65/35.
5. The Marginal Propensity to Consume (MPC) out of wage income is 0.9 for Job
Guarantee workers, 0.8 for private sector workers, and 0.6 for consumption from profit
income. The Marginal Propensity to Import (MPM) is assumed to be 0.20.
6. Unemployment benefits are withdrawn when a worker takes a Job Guarantee job.
7. The tax structure is the current Australian structure as at April 9, 2020.
8. We simulate the result based on private sector productivity being 80 percent of
economy wise productivity net of the mining sector.
The creation of 100 new Job Guarantee jobs in the public sector results in increases in
disposable income associated with securing a public sector job for those persons registeredas unemployed and for those who were hidden unemployed. This extra disposable income
will reflect the extra gross income, the prevailing tax rate and the claw back of benefits.
The multiplier process then kicks in, driven by the MPC, the MPM and the tax structure(direct and indirect taxes), which leads to further increases in domestic consumption
expenditure, which gives rise to increased private sector employment, the magnitudedepending on the level of private sector productivity per worker. The increase in private
sector employment is also spread pro-rata by part-time and full-time status.

13

The real impacts (in terms of employment and output) are summarised in Table 2.
Table 2 The real impacts of a Job Guarantee from 10 per cent to 4 per cent unemployment
000s
AnnualTotal change in employment

1,244.9

Job Guarantee

1,044.1

New private sector

200.8$A billion

Total change in real GDP

101.2

Public74.2

Private

27.1

Source: Authors’ calculations.

4.2
Government Outlays and Revenue
Table 3 summarises the estimated annual changes to government outlays and revenue thatwould result from creating 1,244 thousand new jobs in total.
The other point to note is that our experiment assumes that the employment gains would
persist in the form outlined in Table 2 for 12 months, which is, of course, highly unlikely.
The probable outcome would be that investment confidence would be stimulated by thehigher employment and output and that the non-government sector would start adding jobs
at a faster pace and reducing the pool of workers within the Job Guarantee pool fairly
quickly.
Table 3 The fiscal impacts of a Job Guarantee from 10 per cent to 4 per cent unemployment$A billion
AnnualGross government investment outlay on Job Guarantee

74.2

Less:
Reduced outlays on unemployment benefits

4.5

Increased tax income on wages

6.8

Increased tax income on profits

1.1

Increased indirect taxes

10.1

Net government investment outlay on Job Guarantee

51.7

Change in share of government spending in GDP (percent)2.3
14The returns of having everyone in meaningful employment would be substantial. There
will be those who only focus on the net investment required by Federal government toimplement the scheme. In this era of fiscal surplus obsession, that would bias the caseagainst the Job Guarantee. However, a more reasoned policy approach would be tocompare this investment in the Job Guarantee relative to its overall benefits, which include
dramatic reductions in outlays to other major government programs that we have notconsidered here (for example, disability support pension).
Mitchell (1998) and Wray (1999) argue against the Job Guarantee being measured as a costto government. They say that the fiscal deficit should not be a target of policy makers andshould instead be allowed to vary endogenously. Central to their analysis is the rejectionof the analogy that is made between the budgetary constraints that households face inmaking their spending decisions and the financial constraints on government. They argue
that Federal government spending is not constrained. The existence of mass unemployment
signifies that the fiscal deficit is too low. In this context, arguments about whether theinvestment required to implement the Job Guarantee is too high or a feasible amount to add
to the fiscal deficit are irrelevant.

15

5.

Conclusion

The paper has demonstrated that, even under conservative assumptions about parametervalues, the static economic costs of sustained high unemployment are extremely high. The
inability of unemployed individuals and their families to function in the market economy
also gives rise to many forms of social dysfunction.
The apparent failure of neo-liberal supply side policies to reduce unemployment and themodest benefits of microeconomic efficiency points to the need for demand management
policies. If the Government had the political will, it could readily overcome the problem of
persistently high unemployment.
The arithmetic of the Job Guarantee program demonstrates that, under conservative
assumptions about spending propensities, a 6-percentage point reduction in unemployment
would deliver substantial net benefits to the nation.
The net investment required by the federal government is clearly within its fiscal capacity
and compares well, in terms of dollar returns, to other stimulus measures that the
government has introduced.
Further, the program provides a pathway for the nation to end its dependence on welfare
payments and the pernicious ‘unemployment’ industry that ‘manages’ the unemployment
through a never-ending cycle of punishment and failed outcomes.

16References
ABS (2020) People Who Lost a Job or were stood down: Flows Analysis, May 2020,
https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6202.0Main%20Features5May%202020
Cook, B., Mitchell, W.F., Quirk, V. and Watts, M.J. (2008) Creating effective local labour
markets: a new framework for regional employment policy, Centre of Full Employment
and Equity/Jobs Australia, November.
Mitchell, W.F. (1998) "The Buffer Stock Employment Model - Full Employment without
a NAIRU", Journal of Economic Issues, 32(2), 547-55.
Mitchell, W.F. (2000a) ‘Hidden Unemployment in Australia and the United States Updated Estimates’, Centre of Full Employment and Equity Working Paper, 00/08.
Mitchell, W.F. (2000b) ‘Full Employment Abandoned – the role of the public sector’,Centre of Full Employment and Equity Working Paper, 00/05, November 2000.
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Economic Review, 4th Quarter.
Mitchell, W.F. and Fazi, T. (2017) Reclaiming the State, London, Pluto Press.
Mitchell, W.F. and Muysken, J. (2008) Full Employment Abandoned: Shifting Sands andPolicy Failures, Cheltenham, Edward Elgar.
Mitchell, W.F., Wray, L.R. and Watts, M.J. (2019) Macroeconomics, London, Macmillan
Palgrave.
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Labour Review 136(2), 155-171.
Tcherneva, P. (2020) ‘The Case for a Job Guarantee’, New York, Wiley.
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Watts, M.J. (2000a) ‘The Dimensions and Costs of Unemployment in Australia’ in S. Bell(ed.) The Unemployment Crisis: Which Way Out?, Cambridge University Press, 21-48.
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Wray, L.R. (1999) Understanding Modern Money, Northampton: Edward Elgar.

17

William Mitchell is Professor of Economics and Director, Centre of Full Employment and Equity,
University of Newcastle and Docent Professor of Global Political Economy, University of Helsinki;Martin Watts is Emeritus Professor of Economics and Research Fellow, Centre of Full Employment
and Equity, University of Newcastle.

1

2

Mitchell (2000b) presented data for 1970-2000, which shows that the failure of public sector
employment to grow proportionately with the labour force explains a substantial portion of thepersistent unemployment. The private sector achieved employment growth in proportion to thelabour force growth. Between 1985-1990, private employment growth was significantly above
labour force growth, whereas public sector growth actually fell and the opportunity to reduce thehuge stock of unemployment was lost. In the following recession, public sector employment
behaved pro-cyclically (contrary to its historical counter-cyclical tendency) and the employment
gains of the late 1980s were dwarfed by the large increase in unemployment.

3

For a concise statement of the belief that in the long-run full employment will be the outcome of
low inflation see Reserve Bank (1996).

4

See Mitchell et al. (2019) for an account of the in-built inflation control associated with the Job
Guarantee policy.

18