Now that debates are raging over Bernie Sanders’ proposal for a job guarantee, also known as an “employer of last resort” or ‘ELR’ policy, one bit of skepticism founded on apparent empirical evidence needs to be addressed. The evidence in question is presented in a paper by David Card, Jochen Kluve, and Andrea Weber, all eminent economists (‘CKW’). Card in particular is an honored leader in the profession. His study is cited in criticisms of the idea by Dylan Matthews in Vox, Noah Smith on Bloomberg.Com, and Annie Lowrey in The Atlantic, among others. I explain in this note that the merits of the paper notwithstanding, its results have no relevance to the merits of a job guarantee. To impute such relevance is a category error.
In a nutshell, the framework of CKW is human capital. It treats public employment, to the extent it treats it at all (fewer than 10% of the studies examined pertain to public employment, and none of them are randomized controlled trials), as a temporary intervention aimed at making a worker more qualified for subsequent, permanent employment in the private sector. In this respect, it locates the cause of a worker’s spotty employment record and prospects as resulting from his or her lack of human capital, one aspect of which is work experience. To his credit, Matthews discusses the JG in just these terms, as an effort to employ people with “work barriers.” This is the wrong question.
The broader survey in the paper covers a wide variety of “active labor market programs,” or ALMPs. The value of the interventions depends on the individual’s subsequent employment experience. The extent of labor market slack such workers confront is included as a factor that is indeed found to have noticeable impacts, but the fundamental reality of a labor-surplus economy is glossed over.
We could note that workers who tend suffer employment discrimination or who are bedeviled by occupational segregation (women confined to “women’s work”) will not necessarily benefit from ALMP interventions. Their weak labor market attachment is not their fault. The word “race” does not appear in CKW.
A job guarantee would be evaluated very differently. Experiments are conceivable. A JG program would fail to the extent 1) nobody applied for jobs; 2) those who entered the program would voluntarily exit, then go to seed or become otherwise unfit for private employment; 3) it produced no public output of value.
In the first instance, a JG program open to all comers cannot fail. If you show up willing to work, you will have work and income. If your job tenure is ended (with ample notice and portable benefits), it would only be because private sector job openings were abundant. We could imagine termination could be conditional on successful placement in a private sector job–placement, not simply referral. In the event of unsuccessful placement, the door would remain open for a returning worker.
In short, an ELR regime is quite distinct from temporary public employment in a labor-surplus economy, one where the surplus is fomented as a perverse public policy for the sake of controlling inflation and maintaining labor discipline.
Human capital policies are not necessarily without value. In this regard, the paper is carefully done and has useful pointers to relatively fruitful approaches. But ALMPs remain a horse of a different color from an ELR regime.