Ending the Unemployment Crisis with Guaranteed Employment and Retraining

Vol. XLVIII No. 3 September 2014
DOI 10.2753/JEI0021-3624480305
Ending the Unemployment Crisis with Guaranteed
Employment and Retraining
Jon D. Wisman and Aaron Pacitti
Abstract: Since 2008, the U.S. economy has been mired in the second worst
economic crisis in its history. Conceivably, massive government spending could
bring the economy out of this slump as massive war spending ultimately ended the
Great Depression of the 1930s. However, a far superior strategy exists: guaranteeing
employment accompanied by retraining to enable all unemployed workers to
become absorbed into the regular work force. Beyond ending the crisis, the
superiority of this strategy is that it would institutionalize a procedure for insuring
that, in an increasingly technologically dynamic and open economy, workers would
possess the necessary skills for available jobs. Guaranteeing employment would also
eliminate the ecological costs associated with the need to seek growth to generate
employment at practically any cost. Finally, it would establish a new moral social
contract, whereby everyone is granted the dignity that accompanies being a
productive member of society. Welfare for those able to work could disappear,
along with the degradation and humiliation accompanying it.
Keywords: employer of last resort, inadequate demand, inequality, unemployment
JEL Classification Codes: E24, H10, J38
[No] country however rich, can afford the waste of its human
resources. Demoralization caused by mass unemployment is
our greatest extravagance. Morally, it is the greatest menace
to our social order.
-- Franklin D. Roosevelt (1934)
The real problem, fundamental yet essentially simple [is] to
provide employment for everyone.
-- John Maynard Keynes (1980, 267)
The voices which, in such a conjuncture, tell us that the path
of escape is to be found in strict economy and in refraining,
Jon D. Wisman and Aaron Pacitti are professor of economics at American University and assistant professor of
economics at Siena College, respectively. Helpful comments by Chris Brown and two anonymous referees are gratefully
©2014, Journal of Economic Issues / Association for Evolutionary Economics
Jon D. Wisman and Aaron Pacitti
wherever possible, from utilizing the world’s potential
production, are the voices of fools and madmen.
-- John Maynard Keynes ([1933] 1982, XXI, 61)
Eleven percent of the U.S. workforce — 6.2 million workers — remained unemployed
in 1939, ten years after the onset of the Great Depression. Two years later, as the US
entered WWII, unemployment was halved, and by 1944, the unemployment rate fell
to an unprecedented 1.0 percent. What happened?
The U.S. government began massive deficit spending and — far less noted —
became a de facto employer of last resort when it placed over ten million Americans in
uniform, and added another two million to the Department of Defense and other
agencies. War-stimulated demand employed an additional five million Americans. In
all, employment increased by seventeen million (Vatter 1985, 16-17), increasing the
total labor force by 18 percent.1 In doing so, it drew minorities and women into the
active workforce, breaking through barriers that had traditionally excluded them.
Currently, the U.S. economy is trapped in the second worst economic crisis in
its history. Although less severe, it shares common roots in the dramatic rise in
inequality preceding both of these crises, resulting in inadequate aggregate demand,
consumption externalities, and distortions that fueled massive indebtedness, and
speculative frenzy — conditions consequent to the dominance of laissez faire ideology.
Many workers have become so discouraged that they have left the workforce entirely,
as can be seen by the sharp fall in the employment-population ratio in Figure 1:
Figure 1. Civilian Employment-Population Ratio (Percent), 2007–2013
Employment-Population Ratio
Source: Bureau of Labor Statistics (2007–2013).
As of May 2014, employing an additional 17 million workers, and assuming the unemployment
rate fell from 6.3 to 1.0 percent, would require approximately 8.5 million new or re-entering labor-market
Ending the Unemployment Crisis with Guaranteed Employment and Retraining
The employment-population ratio declined from 63.3 in January 2007 to 58.7
percent in June 2013. Although the recession formally ended in June 2009, and the
share of the population with a job reached a low of 58.2 percent in November 2010,
it has flat lined since, indicating that the economy remains in what many call the
“Great Recession.” What is clear is that the continuingly weak economy is a major
tragedy for all who remain involuntarily unemployed.
Massive government spending brought the U.S. economy out of the Great
Depression, and — pace the mistaken budget hawks — it could end the current crisis.2
This article claims that there is a far superior solution. It is one that not only would
end the crisis, but also address serious social problems, prepare the workforce for an
increasingly technologically dynamic and open economy, and better enable the
country to address the worsening ecological crisis. It would also establish a new moral
social contract which provides everyone with the dignity that accompanies being a
productive member of society. Welfare for the work-able could end, along with the
degradation and humiliation accompanying it. That superior solution is government
guaranteed employment and the requisite retraining to enable all workers to
successfully enter and remain in the regular workforce.
A rich literature has evolved over the past several decades (discussed below)
providing detail as to how a program of guaranteed employment would work. This
article advances this discourse by examining why the ongoing unemployment crisis
especially mandates that serious consideration be given to such a program, and why it
is critical that it be supplemented by a retraining component. Current conditions that
especially justify a skilling program include ever-increasing inequality, accompanied by
lessened social mobility, the slowing pace of recovery from recessions (Olney and
Pacitti 2013), rising concern that the current crisis may be harbinger of a sustained
period of economic stagnation (Colander 2013; Gordon 2012; Krugman 2013;
Summers 2013; Wray 2013), and that we may be nearing a point of no return if
remedial environmental actions are not undertaken.
The next section of this article addresses the causes that brought on the current
crisis and underlie its intractability. Attention then turns to why a program of
guaranteed employment and retraining would be superior to conventional deficit
spending for ending the crisis, followed by a summary of how such a program might
work, and then a discussion of its costs. The following section identifies additional
benefits of guaranteed employment with a retraining program. The article concludes
with reflections on the political conditions confronting the implementation of a
program of guaranteed employment and reskilling.
Inequality, Inadequate Demand, and Crises
Wage stagnation and rising inequality were core causes of the financial crisis of 2008,
as had been the case in 1929. As Stiglitz notes, “[i]n the wake of the 2008 global
financial crisis, there is now an increasing global consensus that inequality leads to
As Keynes put it, “[l]ook after the unemployed, and the budget will look after itself” ([1933] 1982,
CW XXI, 150).
Jon D. Wisman and Aaron Pacitti
instability and that instability contributes to inequality” (2012, 91). Over the three
decades preceding 2008, and the decade leading up to 1929, wages practically
stagnated, lagging far behind productivity gains. The extreme degree of inequality
accompanying wage stagnation is captured by the fact that, on the eve of both crises,
the top 1.0 percent received historically high shares — just under 25 percent — of total
income (Alvaredo et al. 2013). Wage stagnation and exploding inequality generated
three dynamics that made the economy vulnerable to systemic dysfunction in the runups to both 1929 and 2008 (Wisman 2013b, 2014; Wisman and Baker 2010). The
first is that they constrained consumption, reducing profitable investment potential in
the real economy, and thereby encouraging an ever wealthier elite to flood financial
markets with credit. This credit helped keep interest rates low, and encouraged the
creation of new financial instruments and greater indebtedness as some of the excess
income and wealth of the rich was recycled as debt to those below. In both instances
rising inequality fueled speculation in financial and real estate markets, resulting in
macroeconomic instability (Galbraith 2012; Kumhof and Rancière 2010).
The second dynamic is that consumption externalities were generated, forcing
individuals to struggle harder to find ways to maintain the welfare of their families
and their relative social status. The consequence was that, by the eve of the 2008
crisis, the personal saving rate had fallen from 10.4 percent in the early 1980s to
negative in 2006. Between the periods 1898–1916 and 1922–1929, personal saving as
a percent of disposable income declined by 42 percent — from 6.4 to 3.8 percent
(Olney 1991, 48-49). Part of the excess income of the rich was recycled into debt to
families below, as total household debt as a percent of disposable income doubled —
from about 62 percent in 1974 to 129 percent in late 2007. From 1919 to 1929, debt
as a percent of income almost doubled, increasing from 4.64 to 9.34 percent (Olney
1991, 88-89). And by 2007, the average married household worked 19 percent more
hours than they did in 1979 — the equivalent of over one extra work day per week.
Although work hours are unavailable, in the 1920s, with female participation rates
increasing from 24.3 to 25.1 percent, household workweeks may have increased
(Smiley 2010, 4).
The third dynamic is that, as the rich took larger shares of income and wealth,
they gained more command over ideology, and hence politics (Hacker and Pierson
2010; Wisman 2013c). Reducing the size of government, abandoning full
employment policies, undermining unions, cutting taxes for the wealthy, reducing
welfare for the poor, deregulating the economy, and failing to regulate newly evolving
credit instruments, flowed out of this ideology, causing policy-induced increases in
inequality (Schmitt 2009). The rise in inequality that brought on these crises now
impedes recovery. Inequality reduces aggregate demand by negatively affecting
consumption, investment, and government spending (Rohit 2011). The consumption
propensity of upper-income groups is substantially lower than that of lower-income
groups, so an upward redistribution of income will lower aggregate demand. On
average, the wealthiest 1.0 percent of income earners spend 49 percent of their
income, the richest 20 percent spend 76 percent, and the bottom 80 percent spend 90
percent (Dynan, Skinner and Zeldes 2004).
Ending the Unemployment Crisis with Guaranteed Employment and Retraining
Since the start of the recovery from the Great Recession, productivity has risen
at an annual average of 1.9 percent, while real wage compensation has grown by a
paltry 0.2 percent per year. Practically all gains from economic growth have accrued to
the owners of capital.3 Labor’s share of national income has fallen by 3.8 percent
since the official end of the Great Recession (June 2009), while after-tax corporate
profits have increased by 24 percent. Labor’s share of GDP is at a post-WWII low (55
percent), while the profit share is at a post-WWII high (11 percent).
Given the caution and deleveraging provoked by the crisis, consumption cannot
readily be pumped up by households saving less and taking on higher debt. And given
the dearth of investment spending, and thus weak demand for labor, longer work
weeks cannot be counted on to fuel additional consumption.
Although profits have been robust, net investment that might generate
employment has been weak due to anemic consumer demand. Since 1994, net
investment as a share of GDP increased by 2.9 percent per year, but has only
increased by 0.9 percent per year since the start of the recovery. Over the same period,
total foreign direct investment by U.S. firms increased by 1.6 percent, but rose to 2.2
percent during the recovery. From 2007 to 2012, profits for domestic corporations
grew by 35 percent, but their investment in plants and equipment grew by only 2.6
percent (Samuelson 2013, A17). What then, aside from investing abroad, has been
done with these profits? Fueled by the Fed’s quantitative easing policies, funds have
been flowing into asset markets and cash reserves. Dividend payments as a share of
GDP have increased by 25 percent since the start of the recovery, and the number of
share buybacks by firms, which increases stock prices, has tripled (Amenta 2013).
Additionally, firms are opting to hoard cash as opposed to making new investments.
U.S. firms have increased their cash reserves by approximately 25 percent since the
start of the recovery, while the ratio of cash to net assets has increased by
approximately 20 percent (Sánchez and Yurdagul 2013).
While the economy was saved from more severely crashing during the first two
years of the crisis by highly stimulative fiscal policy, once this threat dissipated, a loud
chorus has successfully insisted on budget austerity, causing government spending to
decline. Total federal expenditures as a share of GDP had risen by 27.4 percent
during the recession, but have fallen by 10.1 percent since the start of the recovery.
Since the official end of the recession in June 2009, the three main sources of
economic growth — consumption, investment, and government spending — have been
too weak to enable a recovery as robust as those following earlier recessions. The
redistribution of income away from labor and toward the wealthy has, as noted
earlier, dampened consumer demand. This, in turn, has reduced the incentive of
firms to invest in real capital. Fiscal austerity means that government spending has
been inadequate to counter the low levels of consumption and investment.
Constrained private and public sector consumption has reduced net investment and
increased cash hoarding by U.S. firms. Not only did an explosion in inequality set the
Capital is overwhelmingly owned by the rich. In 2007, the wealthiest 1.0 percent of Americans
owned 49.3 percent of stocks and mutual funds, the richest 10 percent had 89.4 percent, leaving the
bottom 90 percent with only 10.6 percent (Wolff 2010, 52, Table 9).
Jon D. Wisman and Aaron Pacitti
stage for the crisis of 2008, but that explosion continues unabated. Since the start of
the recovery, Emmanuel Saez (2012) estimates that the top 1.0 percent of the income
distribution captured 93 percent of all of the income gains during the first year of
recovery from the Great Recession. The distribution of wealth, which accounts for
assets and debt as well as income, has followed a similar trend between 2009 and
2011. The bottom 93 percent of households has seen its net wealth fall by 4.0 percent,
while the top 7.0 percent of households have seen their net wealth rise by 28 percent
(Fry and Taylor 2013). By constraining consumption, inequality and its continued rise
handicap the recovery.
The plight of the economy can be seen in the following: Since the start of the
recovery, the economy has added an average of 117,000 jobs per month. At this pace,
all the jobs lost during the recession will not be recovered until October 2014 —
nearly seven years since the start of the Great Recession. Even if all nonfarm job
vacancies were immediately filled by unemployed workers, it would still leave
approximately eight million workers without a job. Such depressed conditions have
unsurprisingly led to a vast pool of missing workers: Approximately 4.0 percent of the
labor force has stopped looking for work due to weak job opportunities (Economic
Policy Institute 2103). But the slow pace of recovery and massive scale of
unemployment and shrinking labor force is only part of the story.
Since the onset of the Great Recession, the labor market has dealt a series of
harsh blows to the unemployed. Figure 2 shows the near tripling of the post-WWII
average duration of unemployment. The share of unemployed workers who have been
jobless for more than half a year, shown in Figure 3, has also tripled. This has led to
record high levels of the cost of job loss, as workers can now expect to lose over 40
percent of their income during the year following job loss — approximately twice the
historic average (Pacitti 2011).
The tragedy of lost income is compounded by the fact that the longer workers
are unemployed, the more their skills or human capital atrophy — a loss of a critically
important store of personal wealth. Consequently, when they eventually find
employment, they will be less skilled, and thus command lower salaries.
Moreover, the current economic crisis is not just impacting unemployed
workers, but also underemployed workers, or those with inadequate employment.
According to the Bureau of Labor Statistics U-6 measure of labor underutilization,
one out of every seven workers is underemployed as of December 2013. This measure
includes unemployed and discouraged workers, but also involuntary part-time
employees — those who wish to work full-time, but can only find part-time work. The
number of involuntary part-time employees has nearly tripled since the beginning of
the recession.
However, these measures fail to capture one more form of underemployment:
“mal-employment,” where employees are employed in positions that do not
significantly make use of their skills. Neeta P. Fogg and Paul E. Harrington (2011)
estimate that mal-employment rose from 25 percent in 2000 to 28 percent in 2010,
with much of the gain affecting workers between the age of 20 and 24, whose malemployment rate was 39 percent. Surveys of workers, who graduated college during
the Great Recession, show that only 40 percent have jobs that require a four-year
Ending the Unemployment Crisis with Guaranteed Employment and Retraining
degree, and that 23 percent have jobs outside of their education specialty (Stone, van
Horn and Zukin 2012). Moreover, underemployment is highly regressive in that it
most affects marginalized populations: young workers, the least educated, and low
income and minority groups (Sum and Khatiwada 2009, 2010, 2012).
Figure 2. Average Unemployment Duration in Weeks, 1948–2013
Unemployment Duration
Source: Bureau of Labor Statistics (1948–2013).
Figure 3. Percent of Unemployed Workers Jobless for 27 Weeks or More,
Unemployed >27 weeks
Source: Authors’ calculations from the Bureau of Labor Statistics (1948–2013).
Jon D. Wisman and Aaron Pacitti
This massive underutilization of labor will depress rates of growth in human
capital formation and incomes for the groups who need upward economic mobility
the most. In addition to the economic costs, the social costs to the underemployed
include insecurity, stress, lower self-esteem, alcohol abuse, and depression (Dooley
and Prause 2004).
It is not only workers that have been impacted by the Great Recession and slow
recovery. Due to the severity of the current crisis, a large number of firms have been
forced into bankruptcy. Between March 2008 and March 2010, corporate
bankruptcies doubled, and have yet to return to their pre-recession levels (U.S.
Federal Courts 2013). Emerging firms will generally deploy the most recent
technological advances, often meaning that workers released by the defunct firms will
not possess the skill mix needed by the new ones. Not only does this prolong their
unemployment, but the enhanced demand for more highly skilled workers augments
the polarization of the workforce, and generates greater long-term structural
Per-Anders Edin and Magnus Gustavsson (2008) estimate that each year of
unemployment causes a five percentile move down the skill distribution. Henry
Farber (2011) finds that workers who lost their jobs during the Great Recession and
were reemployed received a real weekly wage in their subsequent job that was on
average 17.5 percent lower than their pre-displacement earnings.4 This analysis
includes all durations of unemployment, so the earnings losses for the long-term
unemployed are probably much greater than Farber’s final estimate.
The Superiority of Guaranteed Employment and Retraining Over Massive
Government Spending
Although massive government spending could conceivably bring the economy fully
out of the Great Recession, it is far inferior to instituting a comprehensive program
guaranteeing employment and the retraining necessary to enable workers to find
employment in the regular economy for three principal reasons. First, as Hyman P.
Minsky (1973) argued, full employment has historically been achieved through
accelerated private investment, which is unsustainable because it creates financial
instability, provoking recessions and mass unemployment. To engender full
employment by stimulating investment, the government often gives preferential
treatment to capital income, such as reduced capital gains taxes and accelerated
depreciation allowances. This widens income distribution and the role of speculative
finance, thereby increasing macroeconomic instability over time. A system of
guaranteed employment, by contrast, would be able to sustain full employment,
because speculative finance is not required to create the investment that traditionally
generates full employment. The government directly creates jobs, hence
The difference between a five percentile fall in the skill distribution and a 17.5 percent decline in
earnings can be accounted for due to the different scales, but also because the decline in earnings is due to
both skill decay and shorter hours when reemployed (Farber 2011).
Ending the Unemployment Crisis with Guaranteed Employment and Retraining
macroeconomic stability, thereby eliminating the need for preferential treatment of
capital income and enabling a compression of income distribution.
Second, government spending could only reduce unemployment to its so-called
natural rate, or the non-accelerating inflation rate of unemployment (NAIRU), below
which inflation is believed to become a problem. At that point, monetary authorities
can be expected to “take away the punchbowl,” ending the economic expansion that
pulls workers into the active workforce.5 Thus, although government spending could
substantially reduce unemployment, it could not eliminate it. The Congressional
Budget Office (2013) estimates that the 2013 value of the NAIRU has temporarily
risen from its long-term value of 5.5 to 6.0 percent, while Justin Weidner and John C.
Williams (2011) estimate a rise to 6.7 percent. Thus, according to these estimates, to
avoid inflationary pressures, 8.6 to 10.4 million workers must remain unemployed,
sacrificed for the presumed good of everyone else. But, in fact, society would suffer
the loss of their potential output, and the social wealth loss as skills or human capital
depreciate, not to mention welfare costs and the severe social consequences of
unemployment. A guaranteed employment program would make these sacrifices
unnecessary since all willing workers would always be employed, and therefore all
contributing to society’s wellbeing.
Third, government spending alone would not address the increasingly severe
problem of workers not being adequately prepared for an ever more technologically
dynamic economy. As Frank Levy and Richard J. Murnane claim in a recent study
prepared for the think tank Third Way, “[f]or the foreseeable future, the challenge of
‘cybernation’ is not mass unemployment but the need to educate many more young
people for the jobs computers cannot do” (cited in Tankersley 2013, A9). A program
to guarantee employment and any necessary training would eliminate — or at least
greatly mitigate — long-term structural unemployment, the problem of the skills firms
demand not being matched by the skills workers can supply.6
Since the industrial revolution, as production processes became increasingly
sophisticated, government-provided public education prepared workers for more
complex workplaces.7 However, since the 1970s, education — especially for the less
As Rudi Dornbusch (2002) famously put it, “[n]one of the postwar expansions died of old age, they
were all murdered by the Fed” (cited in “Of Shocks and Horrors”). However, the 2001 and 2007 recessions
were not caused by Fed tightening, but rather by the popping of asset bubbles.
There is considerable debate surrounding the role of structural unemployment in the current crisis.
Some argue that the unemployment problem is largely structural, and therefore that fiscal and monetary
policies are incapable of addressing it in the short run (Brooks 2010; Kocherlakota 2010; Rajan 2010).
Others appeal to evidence suggesting that the current elevated unemployment rate is almost entirely
cyclical, and thus could be reduced using traditional expansionary policy (Chinn, Ferrara and Mignon
2013; Lazear and Spletzer 2012; Valletta and Kuang 2010). The argument we set forth in this article is that
an ELR program with a training component could alleviate short-term unemployment problems, whether
they be cyclical or structural. Moreover, from a long-term perspective, it will mitigate the effects of rapid
technological change, human capital depreciation, and an inadequate educational system that creates the
conditions for structural unemployment.
As Joel Mokyr notes, “the Industrial Revolution and the subsequent technological developments
after 1760 led to many production processes that required a level of competence that was beyond the
capability of the household” (2002, 140).
Jon D. Wisman and Aaron Pacitti
privileged — has not kept pace with the more sophisticated needs of the economy.8
The plight of the less privileged can be seen in the fact that the educational
achievement gap between children from rich and poor families is roughly 30 to 40
percent greater for those born in 2001 than those born in the mid-1970s, and is now
more than twice as large as the black-white achievement gap (Reardon 2011). The
Education Trust reports that 23 percent of high school graduates do not score high
enough on the enlistment test to be accepted by any branch of the military
(Washington Post 2010, A2). This strongly suggests that the formal education which
society provides to many of its future workers is not adequate for the job demands
created by more rapid technological change.
Further, in an ever-more-complex economy, the training most receive when
young is not adequate for their full work lives. More and more will need continual
retraining. While much of this training is on-the-job, some workers will lose their jobs
and, for lack of necessary skills, not find comparable new ones. Although publicly
provided formal schooling might provide some of the necessary reskilling, some
workers who perform poorly in school settings learn well when training is part of their
The traditional model — that future workers receive their education when young
and that any future reskilling occurs on the job — no longer suffices in a work world
where skills are continually becoming antiquated. To maintain skills and full
employment in increasingly sophisticated workplaces, a new model is needed. This
model should provide those who do poorly in school with needed skills, while
continually retraining those who become and remain unemployed because of obsolete
skills. Thus, it is in the best interest not only of workers, but of society generally, that
a critical component of a new model be a government-employer-of-last-resort program.
The program will not only insure continuous employment, but also the necessary
skills, so that all workers may successfully enter and re-enter the regular labor market.
In spite of an economy that has become enormously more complex over the past four decades,
Michael Alison Chandler points out that, “[n]ationally, the [SAT] reading score for the Class of 2011,
including public- and private-school students, was 997, down … 33 points from 1972, [while] the average
math score was 514, … up five from 1972” (2011, A1). International comparisons confirm this educational
failure. Among 25 to 34 year-olds with university degrees, the US had sunk to 12th place in 2010. The
World Economic Forum ranked the US 52nd among 139 nations in the quality of its university math and
science instruction in 2010. Almost half of all science graduates in the US are foreigners. Further evidence
of the failure of the American educational system to adequately produce the skills necessary for the more
dynamic economy is the pressure employers are putting on Congress to exceptionally permit more highly
skilled workers into the US. To the extent their petition is successful, demands for strengthening education
in the US will be attenuated.
This is well supported by the success of the apprentice programs of Germany, Austria, and
Switzerland, which provide workers, who accept lower wages, two to three years of firm-funded on-the-job
training, in addition to education provided by the state (Dustman and Sconberg 2012). These programs
have been successful at smoothing the transition between apprenticeships and employment by equilibrating
the skills demanded to the skills being supplied (Parey 2009; Ryan 2001).
Ending the Unemployment Crisis with Guaranteed Employment and Retraining
How Government Guaranteed Employment and Retraining Would Work
Under such a program, employment could be guaranteed to everyone willing and able
to work (zero involuntary unemployment) by making government the employer of last
resort (ELR). In recent years, a number of economists have advocated just this (Attali
and Champain 2005; Forstater 1998, 2006; Harvey 1989; Kaboub 2012; Mitchell and
Wray 2005; Wisman 2010, 2013a; Wisman and Reksten 2013; Wray 1998a, 1998b,
1999, 2007).
An ELR program might work as follows: Federal funds would be given to local
governments which would then distribute resources as needed to community
employment centers, so that employment opportunities could be tailored to meet
local needs (Kaboub 2012). Employment is then offered to anyone who seeks work,
but would otherwise be without a job.10 Workers are “[hired] off the
bottom” (Mitchell and Wray 2005, 236), and the offered wage serves as a price floor —
a living minimum wage.11 Upon losing a job, unemployment insurance could cover a
set number of weeks for the individual’s job search, at the end of which the individual
may join the ELR program should a job not have been located. This program could
also be crafted to provide part-time work for those only able to find part-time work in
the private sector, or who can only work part time due to family responsibilities. No
other form of public support need be available to unemployed, but able-bodied
workers. Thus, those choosing to not accept such employment would be voluntarily
unemployed, and welfare could be restricted to those physically or mentally unable to
Entering into the ELR program would entail working in a government-created
or approved job, and/or receiving training. The goal would be to keep the entire
workforce at work, or in training, and to move workers into the regular economy as
quickly as possible. A job placement component, working in conjunction with private
employers, could facilitate re-entry into the regular labor market. The goal would be
that government employment would only be temporary, lasting until workers become
capable of rejoining the regular labor force. The government catches them as they lose
jobs and releases them as soon as possible.
An ELR program would face the challenge of employing workers in domains
that do not directly compete with private or current public sector jobs. Domains
might include programs for assisting the elderly population, tutoring less-privileged
children, daycare, and improving the quality of the public space by providing flowers,
benches, statuary, and fountains along streets and in parks.12 The American Society of
Or, in technical terms, the program would operate so as to provide an infinitely wage-elastic
demand for labor. The price of labor in the program would be set independently of market conditions,
absorbing all redundant labor at that price. That is, the market sets the quantity, but not the price.
An ELR could end-run the claim that the minimum wage cannot be raised without causing further
unemployment. Those losing jobs as the living wage is slowly lifted would fall back into the ELR sector
where training would raise their skill level and productivity, making the higher wages profitable for their
future employers.
Wray offers an extensive list of potential ELR jobs (1997, 15-16). He also suggests that an ELR
program might fund “qualifying non-governmental non-profit organizations, such as Americorps, VISTA,
Jon D. Wisman and Aaron Pacitti
Civil Engineers (2013) gave the United States a D+ grade for the current state of its
infrastructure. Thus, major projects — such as burying utility cables; creating seawalls
in flood-prone areas; providing public broadband internet access to all areas of the
country, including rural ones; road and bridge repairs; improved public
transportation; and high-speed rail in population-dense areas — offer productive and
socially useful avenues for employment. But one of the most promising uses of ELR
workers would be to employ them in “green jobs,” such as alternative energy
manufacturing, which provide the tools and incentives to reduce the likelihood that
the human species commits ecocide (Forstater 2006).
Although at the outset such a program might be inefficient due to frictional
adjustments and the time needed for skill acquisition, its efficiency should improve in
the nature and quality of work performed, in its training component, the
management of resources, and in its ability to help participants locate employment.13
An ELR program might come to be seen as is the public school system — a necessary
social institution for economic dynamism and fairness.
An ELR program would be countercyclical because it absorbs into a buffer stock
those who are laid off from the private sector during a downturn, and would serve as
the ultimate automatic stabilizer. The government would buy excess labor supply as a
buffer stock and release it as the demand for labor in the private sector increases.
Unemployment insurance currently provides this sort of buffer stock of workers, but
with the disadvantages of incentive problems, lower incomes, and eroding human
capital. Moreover, when the private sector expands, it can hire from the buffer stock
of workers with greater confidence that they possess the appropriate work habits and
skills. The reserve army of the unemployed is replaced by a disciplined and better
skilled reserve army of ELR employees.
An ELR approach differs radically from the strategy of stimulating aggregate
demand to create jobs. In an aggregate demand approach, reaching full employment is
sought indirectly through stimulative fiscal and monetary policy, although, as noted
earlier, monetary authorities bring expansions to an end well before actual full
employment is achieved in order to avoid excess inflationary pressures. A guaranteed
employment program, by contrast, would go directly to the problem by providing all
willing and able unemployed workers with a job. Whereas managing aggregate
demand to increase employment is a “trickle-down” approach, an ELR is a “bubbleup” approach, with jobs created for workers at the bottom (Wray 2007, 17). Full
employment would exist regardless of the level of aggregate demand, although with
full employment aggregate demand would remain robust. It is a supply-side as
opposed to a demand-side solution to the problem of unemployment.
the Student Community Service Program, the National Senior Service Corps, the Peace Corps, the
National Health Service Corps, school districts, and Meals on Wheels” (2007, 11).
Although job retraining programs in developed economies have produced mixed results, none
have been as comprehensive as what we advocate here. Studies reveal that how retraining programs are
structured is critical in determining effectiveness (Heckman, LaLonde and Smith 1999). Furthermore,
training is only effective when there are existing jobs that require workers. An ELR would provide both the
training and the jobs. Moreover, a better trained workforce would facilitate the generation of firms that
could thrive were the properly skilled workers available.
Ending the Unemployment Crisis with Guaranteed Employment and Retraining
Finally, an ELR program could be decentralized, so as to better meet local needs.
For instance, states could receive ELR budgets from the federal government
proportional to their rates of unemployment (Wray 1999, 485). If the program were
to be administered by states, or smaller political jurisdictions, then the ELR wage
could be set in terms of the local cost of living, and/or it could be set lower the higher
the percent of the local labor force absorbed into the program, so as to preserve
incentives for mobility.
The Cost of Government Guaranteed Employment and Retraining, and the
Cost of Unemployment
Several economists have estimated the likely cost of an ELR program (Attali and
Champain 2005; Darity 2010; Gordon 1997; Kaboub 2012; Wray 1997, 1998, 2011).
Fadhel Kaboub’s (2012, 109) extensive study estimates that a comprehensive and very
generous ELR program, with a three-tier skill-based wage scale, “could employ 23.4
million people for less than $600 billion annually, or less than 4% of GDP, with the
added benefit of increasing GDP by nearly one trillion dollars per year.”14 Kaboub’s
estimates correspond to the costs estimated by Jacques Attali and Vincent Champain
for France (2005, 6-7). William Darity, Jr., estimates that to employ fifteen million
unemployed workers at a mean salary of $40,000 plus $10,000 in benefits would cost
$750 billion, thus less “than the $1.3 trillion handout initially given to the investment
banking community” at the outset of the current crisis (2010, 180). Michael Murray
(2012) estimates that, using a standard macroeconomic model, an ELR implemented
today could be budget neutral — neither increasing nor decreasing the deficit —
because the growth-inducing effects and tax increases would offset the operating costs.
Although a training component for such a program would considerably increase costs
in the short run, it would more than pay for itself with large, lasting benefits such as
those listed above.
Although the estimates given above provide a rough sense of an ELR’s cost,
forecasting the full long run costs and benefits of an ELR program, especially one
with a sophisticated reskilling component, would be difficult and lies beyond the
scope of this paper. It would entail estimating the value produced by ELR workers,
the enhanced productivity of ELR-trained workers when they enter the regular labor
force, the resulting increase in tax revenues, and the decrease in social costs currently
resulting from unemployment. Unemployment benefits, beyond a brief few weeks
following job loss to enable a new job search, would disappear and other incomesupport program costs would dramatically decline. Unemployment-generated health
costs borne by Medicaid would be practically eliminated.
For the unemployed, who are absorbed into an ELR, there are significant nonpecuniary costs that would be eliminated. It has been estimated that these costs
drastically outweigh the monetary and consumption costs of not having a job
Kaboub’s (2012) hourly wage scale would be $21 for skilled-, $18 for semi-skilled-, and $15 for
unskilled workers, all with a $10,000 annual benefits package. These figures could be adjusted to suit local
costs of living and community needs.
Jon D. Wisman and Aaron Pacitti
(Winkelmann and Winkelmann 1998, 1). Daniel Sullivan and Till von Wachter
(2009) find evidence of higher mortality rates for workers who experience job loss,
and estimate that for workers displaced at age forty, life expectancy falls by 1-1.5 years.
Job loss also results in poorer health outcomes: elevated stress and anxiety, such as
heart attacks and strokes (Burgard, Brand and House 2007); higher divorce rates
(Charles and Stephens 2004); loss of social standing, self-esteem, and contact with
friends and family (Taylor et al. 2010); and lower levels of emotional wellbeing, such
as worry, sadness, and stress (Krueger and Mueller 2011; Marlar 2010).15
Many of the personal costs of unemployment also have a public dimension.
Studies have found a correlation between increased unemployment and increased
criminal activity. Jeff Grogger (1998) as well as Eric D. Gould, Bruce Weinberg, and
David B. Mustard (2002) find that youth criminal activity positively correlates with
the unemployment rate. Unemployment fuels prejudice against minorities and
immigrants (Sen 1997). Adolescents with unemployed parents do less well in school,
and those who attempt suicide are more likely to have an unemployed father (Storm
2003, 401).
There is the possibility that an ELR program would initially be inflationary,
especially with ELR wages set above minimum wages. However, William Mitchell and
L. Randall Wray (2005) and L. Randall Wray (1998) conclude that after its
introduction, it would be anti-inflationary, or at worst, non-inflationary. But would
not guaranteed employment embolden workers to demand higher wages? Wray
(2007, 18) counters this possibility by noting that,
while workers have the alternative of ELR jobs, employers have the
opportunity of hiring from the ELR pool. Thus if the wage demands of
workers in the private sector exceed by too great a margin the employer’s
calculation of their productivity, the alternative is to obtain ELR workers at
a mark-up over the ELR wage. This will help to offset any wage pressures
caused by elimination of the fear of unemployment.
Moreover, workers within the program would presumably come to possess the
skills needed in the private sector, boosting productivity, and thus applying downward
pressure on prices. Worker productivity might also be enhanced if increased job
turnover improved job fit. Upward wage pressures might be lessened in an
inflationary period as employers could readily hire workers from the buffer stock, who
are willing to work, disciplined, and well-trained, hence causing a race to the top in
In a description of European males during the 1930s, Peter Temin (2008, 681) has vividly
captured the debilitation of unemployment:
Unemployed men in the European Great Depression were exceedingly idle; an increase of
apathy reduced all forms of recreational activity. Men passed their time doing essentially
nothing; when asked, they could not even recall what they had done during the day. They sat
around the house, went for walks, or played cards and chess. Most men went to bed early;
there simply was no reason to stay awake. They contributed less to the running of the
household than before, sometimes not even turning up on time for meals.
Ending the Unemployment Crisis with Guaranteed Employment and Retraining
recruitment and providing incentives for workers to supply high levels of on-the-job
effort. In an expansion, as workers are pulled from the buffer stock into regular
employment, ELR spending would decrease, countering some of the inflationary
pressures of the expansion. That is, even in an expansion, labor markets would be
relatively loose. Wray (1998, 544) notes that “[f]urther, reduction or elimination of
employment taxes related to the unemployment insurance program will also attenuate
pressure on prices, as will reduction of private and social costs of unemployment (e.g.,
reduction of crime will lower business costs).” Mitchell and Wray (2005, 4) also
speculate that the anti-inflationary character of ELR might end the need for restrictive
monetary policy to address inflationary pressures. After its introduction, no further
inflationary pressure should result, and the natural rate of unemployment, or
NAIRU, would become zero.
Further Benefits of Guaranteed Employment
There are significant benefits, in addition to full employment, that would result from
an ELR program. First, guaranteed employment would enhance productivity by
providing not only jobs, but also training to match the skills needed by employers. It
would reduce structural unemployment resulting from the skills of unemployed
workers not matching those needed by employers. This skill mismatch is likely to
become a growing problem as the pace of technological change quickens and
globalization expands (Wisman and Reksten 2013). Also, by removing the threat of
unemployment, workers might be less reluctant to leave jobs, for which their skill mix
is ill-suited to search for a better fit. Although this could increase turnover rates, and
thus short-run adjustment costs, it would provide productivity gains in the long run as
job fit would improve.
Second, guaranteed employment and retraining would eliminate bias associated
with hiring the long-term unemployed, ending the problem of “duration
dependence,” which appears when rising periods of unemployment beget further
increases in unemployment duration due to negative signals and depreciated human
capital (Kroft, Lange and Notowidigo 2012). William Dickens and Rand Ghayad
(2013) have hypothesized that the shifting outward since 2008 of the Beveridge curve
— the empirical relationship between unemployment and vacancies — may be due to
the fact that the long-term unemployed are viewed by employers as damaged goods.
Third, the training component of an ELR would especially improve the
productivity and wages of workers at the lower end of the job spectrum who —
although employed most of the time — suffer from involuntary part-time employment,
unstable and insecure jobs, frequent interludes of unemployment, underemployment,
little or no skill accumulation, and lasting earnings losses (Couch and Placzek 2010;
Farber 2008, 2011; Stevens 1997).
Fourth, an ELR would ultimately eliminate the need for minimum wage
legislation. To attract workers, private employers would have to pay a wage equal to or
higher than that paid by the government program. Additionally, an ELR would
eliminate the need for unemployment insurance, and for the work-able, nutrition
assistance, and other stigma-inducing and degrading income-support programs.
Jon D. Wisman and Aaron Pacitti
Fifth, it would guarantee full employment, with the least disruption to markets
and macroeconomic stability (Minsky 1973; Wray 2007). The need for speculative
financial markets to provide capital for private investment to generate full
employment would be sharply reduced, attenuating swings in the business cycle.
Rather than fighting the intractable and contrary twin curses of unemployment and
inflation, the focus of economic policy would be maintaining price stability.
Sixth, an ELR would provide a socially fair mechanism to offset the costs
imposed by the secular shift toward deindustrialization and service production:
namely, longer recovery times from recessions and the slow employment growth
which accompanies it (Olney and Pacitti 2013), in addition to mitigating the
damaging economic effects of a possible stationary state (Durand and Lege 2012,
Seventh, as William S. Vickrey (1992, 342) points out, “[u]nder conditions of
full employment, trade-balance deficits become not a matter of exporting jobs, but of
importing capital.” Thus, domestic demand would be stimulated through open
economy channels.
Eighth, guaranteeing employment to all able-bodied workers would significantly
reduce inequality, especially if its pay were set to provide a living wage and if the
preferential treatment of capital income were eliminated, making the tax and transfer
payment system more progressive (Minsky 1973).16 The long-sought goal of
eliminating poverty within a capitalist system for those able and willing to work would
at last be realized. An ELR would also reduce inequality by augmenting the human
capital of the least privileged — those whom current social conditions and the
education system cheat out of an adequate preparation for work life. Guaranteeing
employment and adequate skills to enter the regular labor market could be expected
to provide cumulative benefits as poverty and dysfunctional neighborhoods disappear.
Children would grow up in families where parental employment offers social and
personal respect, and in neighborhoods where the able are gainfully employed.
Additionally, ELR jobs that provide needed resources to underserved
communities could revitalize previously neglected areas and increase economic
mobility. Forty percent of individuals born into the bottom quintile of the income
distribution remain there as adults, and 70 percent remain below the middle quintile,
with African Americans in particular less likely to surpass their parents’ income
(Urhan et al. 2012). This constraint in opportunity results from a lack of access to the
educational, economic, social, and cultural resources needed for upward mobility.
Attempts to improve schools for the less privileged have met with limited success, due
in large part to the high unemployment and social dysfunction in the neighborhoods
in which these schools are located.17 Guaranteeing employment would promise to
Robert Gordon has identified six “headwinds” that he believes will slow or even end U.S.
economic growth. Inadequate education is one, but “the most important quantitatively in holding down
the growth of our future income is rising inequality” (2012, 17).
Rising inequality has also played a critical role in its influence on public expenditures for public
goods, such as schools, a dynamic addressed by Christopher Lasch in his last major work, The Revolt of the
Elites (1996). He noted that as economic elites take an ever-greater share of income and wealth, they tend to
Ending the Unemployment Crisis with Guaranteed Employment and Retraining
dramatically improve the quality of these neighborhoods and their schools. The
training component of an ELR would catch those whom schools fail, providing them
with the human capital necessary for employment, and enable the social and selfrespect that accompanies having a job.
Until recent decades, the United States was widely known as the land of
exceptional opportunity, holding out the potential for anyone to rise to the very top.
Among the factors underlying this social mobility were the lack of defined classes,
less inequality, abundant land in the nation’s early history, and the world’s best
education system between the 1830s and 1970s. Rising inequality has eroded that
legacy, and the potential for vertical mobility is now greater in many other wealthy
societies. A number of studies have found upward mobility between generations to
be lower in the US than in other countries, such as Canada, Sweden, Germany,
Spain, Denmark, Austria, Norway, Finland, and France (D’Addio 2007; Hertz 2007;
Mazumder 2005; Mishel, Bernstein and Allegretto 2007; Solon 1992). An ELR with
a training component would insure that everyone can accumulate the human capital
with which to have a fair chance of advancing.
Reduced inequality would lower the likelihood of economic crises and
accelerate recoveries from downturns, as discussed above, and more generally would
provide a strong base for adequate aggregate demand and robust economic
performance.18 Having assessed a massive number of studies, Richard Wilkinson and
Kate Pickett (2009) find that more unequal societies score lower on practically every
measure of quality of life.
A ninth benefit is that guaranteeing employment would eliminate the pressure
for economic growth at practically any cost, which has severely handicapped the
struggle to avoid ecological catastrophe. There is a growing consensus among
scientists that human activity is dramatically changing the environment, with severe
future consequences if appropriate action is not taken. And the urgency of such
action is becoming increasingly apparent. As reported by Frances Kissling and Peter
Singer (2012, B3), “many climate experts suggest that we have less than two decades
before we reach a point of no return — after that, nothing we can do will prevent
climate changes from spiraling into disaster.” This threat is made more acute by the
fact that the current crisis has decreased the focus on environment issues, as
politicians seek growth at practically any cost to lower unemployment (Eilperin and
Craighill 2012, A3).
isolate themselves in social enclaves, such as gated communities, exclusive clubs, and private schools. They
tend to work in jobs, live in neighborhoods, and move in circles where they literally do not see those
struggling to stay on their feet. Because of elites’ disproportionate political power, this withdrawal from the
wider society and from direct contact with the concerns of other citizens erodes support for public services
on which those further down the economic ladder depend — public schools, parks, transportation, public
safety, and a clean environment. As Secretary of Labor during the Clinton Administration, Robert Reich,
has put it, “members see no reason why they should pay to support families outside the gates when
members are getting everything they need inside” (2001, 199).
The so-called “Golden Age of American Capitalism” — the thirty years following WWII — came
with what Arthur Burns termed a “revolutionary leveling” (cited in Williamson 1991, 11), and what
Claudia Goldin and Robert Margo (1992) dubbed the “Great Compression” in the wage distribution.
Jon D. Wisman and Aaron Pacitti
The output of today’s world economy is valued at $65 trillion, and over the
next two decades, it is expected to double. Joel E. Cohen (2012. 47) reports that,
whereas global electricity consumption has doubled since 1980, it is expected to
double again by 2030, placing additional enormous strains on the environment. The
oceans — the “lungs of the earth” — are 30 percent more acidic today than the preindustrial level, and their acidity is projected to double by the end of the century,
posing a severe threat to the sea food web. Furthermore, “the OECD projected that,
by 2050, without more effective energy policies fossil fuels will supply 85 percent of
energy demand, thus implying a 50 percent increase in greenhouse gas emissions and
worsening urban air pollution “(2012, 47).
It was inevitable that humanity would reach a point where its continued
activities would pose a severe challenge to the earth’s environment. Until recent
centuries, the human population was small enough and its technology not
sufficiently developed that collective human activity could upset global equilibria. It
is true that earlier human societies created local ecological devastation, such as
deforestation, severe soil erosion, and polluted waterways. They even did so to the
point of causing their civilizations to collapse (Diamond 2005). However, their
ecologically harmful actions were never before on a sufficient scale to threaten the
ecology of the whole earth, and thus threaten humanity’s very future. But this
threat’s inevitability is shown by the numbers. Cohen reveals that “since 1700
human numbers have grown elevenfold, soon to be twelvefold, while economic
activity per person has grown twelvefold” (2012, 49). The cumulative impact on the
environment of this exploded population in possession of ever more powerful
technologies has been such that, today, the threat of ecological devastation is no
longer in question among the overwhelming majority of scientists in all fields of
This challenge is compounded by the fact that in democracies political parties
across the spectrum, striving to hold onto or acquire office, struggle to convince the
electorate that their advocated policies hold the greatest promise of stimulating
economic growth and reducing unemployment. The continuing contemporary crisis
has heightened the pressure to be convincing, and when in power, to show results.19
However, this pursuit of employment creation through growth at practically any
cost means that the struggle to successfully address what arguably is humanity’s
greatest struggle — avoiding ecological devastation — is seriously compromised.
Guaranteeing employment and, where necessary, reskilling all capable of work, would
sidestep this problem. Economic growth would no longer be necessary to generate
employment. This does not mean that growth would cease. Indeed, productively
employing all able workers and providing them with appropriate skills would promise
The belief that economic growth can decrease unemployment is, of course, true in the short run.
However, although more robust growth typically lowers unemployment, it is never a permanent decline.
Thus, in spite of decades of growth, unemployment levels have not trended downward. For instance, in
spite of a more than doubling of economic output in the post-WWII US, between 1948 and 1976, the
average unemployment rate was 5.0 percent, and between 1977 and 2013, it averaged 6.5 percent.
Ending the Unemployment Crisis with Guaranteed Employment and Retraining
to enhance the potential for growth. But society would be free to pursue “smart”
growth — an ecologically benign growth that reverses ecological damage.20
The tenth benefit of guaranteeing employment and retraining is that it could
serve as the foundation of a new moral social contract. Despite theoretical discord
among economists on the macroeconomic policy front, a short-run tradeoff between
unemployment and inflation is generally assumed. Whatever the measures taken to
stimulate growth, and thereby generate employment, there is an underlying
assumption that at some point — the natural rate of unemployment, “one of the most
vicious euphemisms ever coined” (Vickrey 1992, 341) — lower unemployment
threatens rising inflation. As William S. Vickrey notes, “under current practices the
only way in which fiscal and monetary authorities can restrain inflation is by creating
unemployment” (1992, 341), and it should be added, by increasing employment
insecurity through the use of part-time workers (Pacitti 2014). Stock prices also tend
to fall when unemployment dips dangerously low, presumably due to expectations
that very low unemployment may provoke wage inflation, generalized price inflation,
and higher interest rates (Roubini 2013). Thus, some level of unemployment appears
necessary for the wellbeing of capital markets.
Unemployed and part-time workers who desire full-time positions — generally
society’s least privileged (Darity 1999) — are held hostage to the inflation monster. As
Wray and Forstater (2004) put it, “the job of fighting inflation through
unemployment is horribly disproportionately shared and is mostly put on the backs of
those who have no market power to cause wage inflation in the first place” (262). For
most of society to profit from price stability, a minority — the least privileged — are
condemned to be unemployed, thus sacrificed for the good of the whole.21
Guaranteeing employment, and providing the training necessary for all workers
to participate in the economy, would end this unfair treatment of society’s least
privileged by establishing a new social contract. Yet, it would not be a radically new
one. Government has participated in opening opportunity throughout U.S. history,
especially by providing access to land and the education necessary for economic
Final Reflections
If guaranteeing employment and reskilling are such good ideas, why have they not
always been more central to politicians whose success in gaining office and holding
There is a further dynamic by which guaranteed employment and retraining would make the
environmental challenge less intractable. By reducing inequality, it would reduce the intense status
competition in consumption that higher inequality fuels (Wisman 2011).
The social conditions and social choice that condemn some to unemployment has a parallel in
Shirley Jackson’s classic and macabre short story, “The Lottery.” It is the story of an annual ceremony at
which a town’s citizens draw lots, and then the “winner” is stoned to death. Presumably this is natural and
good, in the interest of the broader community. As old man Warner puts it: “Lottery in June, corn be heavy
soon.” The difference is that in Shirley Jackson’s town lottery, all citizens had equal chances of winning,
whereas in the job lottery the chances — as determined by social background, race, and gender — vary
Jon D. Wisman and Aaron Pacitti
onto it has depended upon offering a convincing program to reduce unemployment?
One possibility is that in earlier instances in which governments provided jobs for the
destitute, it occurred too frequently in “the jail-like workhouse, [that] forcibly
separated husbands, wives and children in order to punish the poor for their
destitution, and discourage them from the dangerous temptation of procreating
further paupers” (Hobsbawm 1968, 69-70). Moreover, given the lamentable character
of so much work during earlier capitalism, perhaps it was not readily conceivable that
the state could guarantee work which was anything but dehumanizing. An alternative
explanation is that an ELR would increase the bargaining power of labor at the
expense of capital, reducing the ability of employers to discipline their labor force,
with the threat of unemployment (Kalecki 1943). A small elite that overwhelmingly
owns capital exerts enormous political power, and thus the ability to steer ideology
away from a comprehensive employment guarantee. Nevertheless, there was a push
for guaranteed employment in the US during the trying period of the 1930s which
resulted in three job creation programs employing 1.4-4.4 million people each month
(Rose 2013, 155). There was also an unsuccessful attempt to make “Employment
Assurance” a part of the Social Security Act. What is seldom realized is that during
WWII the U.S. government instituted an ELR, albeit without this intention, when
twelve million men and women — approximately 18 percent of the labor force — were
directly employed. In 1943, a “New Bill of Rights” was proposed, but not adopted,
that would have entailed the “formal acceptance by the Federal Government of
responsibility for insuring jobs at decent pay to all those able to work regardless of
whether or not they can pass a means test” (cited in Rose 2013, 170, emphasis in
original). In his 1944 State of the Union address, President Roosevelt advocated an
“economic bill of rights” that would include the “right to a useful and remunerative
job” and the “right to earn enough to provide adequate food and clothing, and
recreation” (cited in Rose 2013, 170).
The original draft of the Full Employment bill of 1945 affirmed that “all
Americans able to work and seeking work have the right to useful, remunerative,
regular, and full-time employment” (cited in Rose 2013, 170), which — had it been
retained — would have obliged the federal government to guarantee employment. The
Humphrey-Hawkins Full Employment Act of 1978 was the last attempt to strengthen
the government’s commitment to full employment, but it came forth in a political
climate that was rapidly turning against labor’s interests. It came at the closure of the
“Great Compression” (Goldin and Margo 1992), during which labor had made
historically unprecedented gains as inequality decreased.
Stagflation in the 1970s delegitimized Keynesian economics. Chicago School
economist John Cochrane claimed that, “[w]hen inflation came in the nineteenseventies, that was a major failure of Keynesian economics” (cited in Cassidy 2010,
31). As early as 1980, Robert E. Lucas (1980, 19) wrote that, “[a]t research seminars,
people don’t take Keynesian theorizing seriously anymore; the audience starts to
whisper and giggle to one another.” This set the stage for a strong rejection of
government intervention in the economy, motivated by a strong backlash to the
liberal agenda. As Michael Perelman (2007, 32) notes, “the political climate during
Ending the Unemployment Crisis with Guaranteed Employment and Retraining
the Nixon administration terrified many conservatives, who worried about the
prospect of a radical takeover of the state and the end of capitalism, as they knew it.”
Attention shifted, as illustrated by the Laffer curve, to the alleged growthdepressing high taxes, especially on the rich, that were claimed to reduce
entrepreneurial energies and incentives to save and invest, resulting in stagnation and
anemic tax revenues. Welfare, union power, and labor legislation were claimed to
have sapped work incentives. As this understanding of the economy became more
entrenched, the push for directly assuring workers jobs was abandoned and forgotten
not only by policymakers, but also by almost all modern macroeconomists. An elite
had recaptured the political ideology and the political process (Hacker and Pierson
2010; Wisman 2013c).22
Milton Friedman claimed that “only a crisis — actual or perceived — produces
real change” (1982, ix). In keeping with Friedman’s hypothesis, the reversal of the
gains labor had made since the 1930s came during a period of crisis — the stagflation
of the 1970s. Today, the U.S. economy again finds itself in a prolonged crisis. Might
the times again be ripe for “real change”: change that brings this crisis to an end,
prepares the workforce for an ever more technologically dynamic future, makes the
ecological challenge less intractable, ends poverty and welfare, and restores a high
level of social mobility to America? Moreover, an ELR with a training component
might find wide support across the political spectrum23 since it would privilege work —
the ever-present ethic in the American experience that everyone should contribute
productively to society — while ending welfare for those able to work. If implemented,
such a program would not only dynamize, but also humanize American capitalism.
A final reflection is that there is something morally amiss in a rich economy
which leaves a portion of its workforce unemployed and without adequate skills to
find employment. Unemployment is both the largest market and political failure.
And, no matter the unemployment rate, it is morally wrong for an overwhelming
majority of the population to condemn a portion of society — the least privileged — to
a life of unemployment and underemployment. Economic, social, and emotional
wellbeing is tied to having a job (Wisman 2010). The personal costs that these
unfortunates must suffer are far too high. Avner Offer (2007, 7) reports that “[t]he
strongest determinant of low life satisfaction is absence of social connection,
particularly unemployment and separation.” Professor of psychiatry James Gilligan
(2011) claims that the inability to find a job is the foremost driver of shame and
worthlessness. To condemn a portion of the population — even if only a small
The political victory of the elite was abetted by the rapid rise of the importance of money in
political campaigns. For instance, the number of firms with registered lobbyists increased from 175 in 1971
to almost 15,000 in 2007 — an increase of over 8,000 percent. Between 1974 and 2009, the total number of
corporate political action committees increased sixteen-fold, from 89 to 1,598 (Wisman and Pacitti 2012).
Research reveals that expenditures on creating and disseminating ideology yield high returns (Glaeser
In the US, job training has bipartisan support. Retraining programs were supported by Republican
Presidential candidates, Mitt Romney and Newt Gingrich. Even the ultra-conservative Paul Ryan has
claimed that “equipping workers with the skills and tools they need is a proper role for the federal
government to assist with” (reported by Goldstein 2012, B3).
Jon D. Wisman and Aaron Pacitti
percentage — to remain unemployed is morally wrong. It sacrifices those who are
generally the poorest to what is perceived, mistakenly, to be in the best interests of
society. Equality of opportunity, just outcomes, and ecological survival constitute a
moral, social, and economic imperative to guarantee employment and retraining for
the full workforce.
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