An Employer of Last Resort Scheme which Resembles a Free Labour Market

Abstract

Abstract. The idea that government should act as employer of last resort (ELR) is an old one. That idea is often referred to nowadays as “job guarantee”. Many ELR schemes to date have been confined to the public sector. There is no good reason for that limitation: i.e. the private sector should use ELR labour as well.  A second common characteristic of ELR schemes has been that (like the WPA in the US in the 1930s) they involve specially set up projects or schemes as distinct from subsidising temporary employees into work with EXISTING employers. The “existing employer” option is preferable. Once those two common defects in ELR are removed, the result is a system where the unemployed are subsidised into temporary and relatively unproductive jobs with existing employers till better jobs appear. And that in turn is what the unemployed tend to do in a totally free market: a scenario where there are no minimum wage laws and unemployment benefit, and where the unemployed tend to get temporary low paid jobs in both public and private sectors pending the appearance of better jobs. In contrast to a free market, under ELR, take home pay is maintained at socially acceptable levels. Assuming that free markets maximise GDP, it follows that the sort of ELR system advocated here will also maximize GDP. That free market style ELR system actually resembles the ELR system that the UK has at the time of writing, namely the Work Programme. The latter “free market” / Work Programme system is not free of faults, but as long as ELR employees do not displace regular employees to too great an extent, that “free market” ELR system is better than traditional ELR.

Keywords. Employer of last resort, Job guarantee, Work project admistration.

JEL. J60, J63, J64, J68.