Friday, April 8, 2011

Allocating stimulus between unemployed and would-be employer

This post grew out of an interesting discussion at Mark Thoma’s blog, where he asked “What can we do to help the unemployed?” One statement by a commenter, Britonomist, jumped out at me: “What if there was a guaranteed citizens income, as in, you are always guaranteed at least a minimum amount of income whether you are employed or not, BUT, the minimum wage is also abolished? The minimum wage wouldn't be needed as workers would already have a very large bargaining position, since they do not depend on employment to survive.”

I chimed in that perhaps the better idea would be to increase incentives for employers to hire and expand. Giving people an alternative to getting employment (because of guaranteed income) might actually take away incentives to look for work.

My default is that all businesses want to create and develop customers, that nothing can ever take away that incentive, otherwise they wouldn't be in business. It's just that cost pressures sometimes get in the way of hiring. They may have competitors who have cheaper costs because they produce from or outsource to cheaper locales. The hurdle I see is not of businesses shying away from winning new markets, but of businesses shying away from hiring people because it's cheaper to just automate or to outsource jobs abroad.

So the idea is for government to countervail that cost arbitrage a bit. And with more locals being given employment, that should create more potential customers all around, too.

I don't see my approach as socialism for the affluent, but creating aggregate demand where it matters, which is via employment, and pushing for employment where they are created - at the company/private sector level. We're not going make anyone unduly rich here, as I mentioned in a previous post, because all the government will have to compensate the business for is a nominal return for its effort (There should be no extra premium for business risk that is being mitigated by the government support).

But the support must be such that it makes some businesses feasible that would otherwise not be feasible with regularly paid workers, when there are foreign competitors paying slave wages. Additionally, as commenter, beezer, said in my previous post, the support need not even be an actual subsidy, but a tariff levied on imports that are killing off labour-intensive local industries.*

The companies I have in mind for such a program are not your run-of-the-mill TBTF firms run by your run-of the-mill plutocrats. Instead I’m thinking about your run-of-the-mill small and medium scale businesses that typically hire local members of the community, but whose markets are slowly being eaten up by the TBTF, who have arbitraged their costs, whether operational or tax, by spreading their tentacles worldwide.

Of course, giving the unemployed some form of income support is also important. What Britonomist and Ohm, the Economists’ View commenters I engaged discussion with, were hinting at is a minimum guaranteed income. High enough that whether one is employed or not, it ensures one can survive with or without additional employment income. This is a noble aim, and as Britonomist said, at a pragmatic level, it takes away the need for a mandated minimum wage.

My position is we also have to find a cut-off point so we don’t give too much assurance of survival that it counters with the goal of putting every able person in productive employment. Unemployment would not be solved if we create alternatives to seeking employment. But it just might be solved if we take away business' alternatives to seeking local employees. With employment comes productive income. Keywords being “productive” and “income”. Providing income to would-be consumers leads to aggregate demand creation. Productive means the demand growth is matched by supply growth. Otherwise, we’re just increasing the supply of money chasing the same amount of output.

But I also realize we could be talking about 2 parts of a single multi-pronged stimulus plan.

*I also realize that some companies might try to game the stimulus, if it comes in the form of subsidies. So government should thoroughly audit the companies it supports in this program (That’s already a job stimulus there for auditors). But perhaps the tariff solution in fact would be an easier solution to implement.


Karl said...

"My position is we also have to find a cut-off point so we don’t give too much assurance of survival that it counters with the goal of putting every able person in productive employment. Unemployment would not be solved if we create alternatives to seeking employment."

I think that's poorly phrased at the very least, because it seems to equate 'working for someone else' with 'productive'. There are many ways to be productive without being employed; entrepreneurship and homemaking at the most universally agreed on, but independent work in the arts or volunteer work for charitable or community organizations.

I think more useful productivity is suppressed than gained by forcing people to seek employment than by giving them a baseline grant on the assumption that they'll be better able to figure out how they can invest it in generating the most productivity.

Will some use it as an excuse to do nothing personally productive? Sure. But it's their loss to make that choice and everyone else's gain, as the money that they spend helps increase the pay and thus the standard of living for those that do want more than the baseline.

When you take all able people and the technological tools that we have to enhance production into account, we end up with far more productive capacity than we could ever hope to consume. I think taking away the pressure for people to seek external employment beyond what it takes to meet the demands of society and trade opportunities pushes us into a dangerous and unsustainable economic state.

Rogue Economist said...

Karl, you misunderstand what I mean by an "alternative to seeking employment". The alternative I'm talking about is NOT SEEKING EMPLOYMENT. If we give too much to people so they do not have to look for employment, neither will they go into entrepreneurship, which is even harder and much more fraught with risk than seeking employment.

I am not advocating we force people to seek employment. I'm actually advocating for more people to get into business and do entrepreneurial activities. Why do you think we're not seeing enough people getting into it?