How much would a job guarantee actually cost?

Why Democrats' big new policy idea might cost less than you've heard

Cory Booker.
(Image credit: AP Photo/Mel Evans)

Are Democrats getting their progressive groove back? Over the past week, a number of presidential hopefuls in the Senate have signed onto a job guarantee, a sort of public option for employment. If you want a job, the federal government will find you one, and pay you a living wage plus benefits to do it.

It's big and bold and inspiring. And it might cost less than you've heard.

Let's start with how a job guarantee would work.

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There isn't legislation for Sen. Bernie Sanders' (I-Vt.) version yet. But it sounds like a national program with regional branches. The latter would gather information about who needs work and what needs to be done. Then they would match the needs up.

Sen. Cory Booker (D-N.J.) already has a bill that would set up a pilot program in 15 different areas across the country, rural and urban alike. After testing it for a few years, the program would then presumably expand to a national scale.

Both versions will pay people $15 an hour, and provide health coverage.

Needless to say, expanding that kind of compensation to the millions of Americans still out of work across the country could result in sticker shock. The paper that Booker's proposal drew from estimated it would cost $543 billion in its first year. And that was at less than $15 an hour; the higher the wage, the more Americans will be compelled to switch over from lower-paying jobs.

But there's more to it than just the $500 billion estimate.

That's because if we got a national job guarantee up and running, something else would happen too: Medicaid, food stamps, and other programs designed to help people in poverty would massively shrink. They all operate by providing benefits to people who fall below a certain income threshold. And with a job guarantee in place, far fewer people would ever drop that low (and in the case of Medicaid, they'd get their health care through their job, too). Spending on other social ills tied up with unemployment, from health problems to crime to incarceration, would shrink as well.

There's another piece to this: All those newly employed workers with spending money would stimulate private businesses as well, leading to more job creation and wage gains. That would drive up tax receipts, even without any change to current tax policy offsetting yet more of the costs.

Finally, that boost to the private sector would also cause the job guarantee to naturally shrink from its initial size. The program isn't designed to compete with the private sector for workers. It's not going to continuously jack up its own wage offers to hold onto everyone it employs. As the private sector strengthens from the job guarantee's stimulus, it should draw people off the program and back into private sector employment. Spending on the job guarantee will then shrink, and ultimately stabilize at a lower level. For example: A much more modest version of a job guarantee was attempted in Argentina in the early 2000s. And it shrank 40 percent in just three years as private employment expanded, before the government cut it off. It almost certainly would've gone lower.

It's unclear exactly how big all these offsets would be. No one's run a full-blown job guarantee before, so we don't have past examples to model from. But economists at the Levy Institute took a crack at it, and estimated the final net increase in federal spending would be between $260 and $354 billion in the first five years. Then it would fall to $235 to $326 billion over the following five years.

These are also very conservative estimates. They only included the effect on unemployment benefits, Medicaid, and the earned income tax credit. And the economists low-balled the savings even for those programs. "These figures appear to underestimate (probably significantly) the savings that a [job guarantee] program (with a wage set above the poverty line and providing health-care benefits) could generate, particularly for Medicaid," they wrote.

And that's not even getting into modern monetary theory, which says you don't need taxes to "pay for" federal spending. You just need them to keep the economy from overheating. (The federal government controls the supply of the currency, after all, and can print all the U.S. dollars it wants.) And since the job guarantee is designed to not perpetually compete with private employers over scarce labor, it shouldn't set off the wage-price spirals that cause overheating and inflation. No overheating and inflation means no need for taxes to offset spending on the job guarantee.

Now, I think modern monetary theory has this right. But even if you're not prepared to go there, even $354 billion a year is doable. It's an 8.5 percent increase in the federal budget, and it's smaller than the military, Social Security, and Medicare. It's also probably the worst case scenario.

And what will we get in exchange for that money? Just a virtual end to American unemployment and all the suffering that comes with it.

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