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of Bard College
Levy Economics
Institute
Levy Economics Institute of Bard College
Policy Note
2018 / 2
Senior Scholar l. randall wray is a professor of economics at Bard College. Research Associate stephanie a. kelton is a professor of
public policy and economics at Stony Brook University. Research Associate pavlina r. tcherneva is an associate professor of economics
and director of the economics program at Bard College. scott fullwiler is an assistant professor of economics at the University of
Missouri–Kansas City. flavia dantas is an associate professor of economics at State University of New York at Cortland.
The Levy Economics Institute is publishing this research with the conviction that it is a constructive and positive contribution to the
discussion on relevant policy issues. Neither the Institute’s Board of Governors nor its advisers necessarily endorse any proposal made by
the authors.
Copyright © 2018 Levy Economics Institute of Bard College ISSN 2166-028X
GUARANTEED JOBS THROUGH A PUBLIC
SERVICE EMPLOYMENT PROGRAM
l. randall wray, stephanie a. kelton, pavlina r. tcherneva,
scott fullwiler, and flavia dantas
In this policy note, we examine the effects of implementing a nationwide job creation program.
In recent months, support for a national job guarantee has been growing rapidly, with a number
of progressive organizations issuing proposals. The Levy Economics Institute has spent more
than a quarter of a century researching the topic and putting forth numerous proposals. The
Institute will soon be issuing a major report that will provide detailed estimates of the economic
effects of a nationwide program, including impacts on the federal budget, inflation, GDP, and
private sector employment.
We begin this note with a brief overview of the goals and structure of the proposal that has
been developed at the Levy Economics Institute, building on the work of the Institute’s scholars.
The program we envision—which we call a Public Service Employment (PSE) program—would
create millions of new jobs at a living wage in an effort to guarantee employment to anyone ready
and willing to work. We then discuss current labor market conditions and assess how a job guar-
antee program modeled on our PSE approach would affect employment and poverty.
Policy Note, 2018/2 2
We see the PSE program as part of a restructuring of the
economy that represents a radical departure from the neolib-
eralism that has dominated national policy for the past four
decades. Neoliberal doctrine has resulted in stagnant wages,
chronically high unemployment, declining labor force partici-
pation among prime-age male workers, rising inequality that
already exceeds levels achieved in America’s notorious “Gilded
Age,” and an explosion of household debt. Other key initiatives
in this restructuring include calls for a national infrastructure
investment plan, the movement to eliminate student debt (see
Fullwiler et al. 2018), proposals to create “Medicare for All,”
and the push to raise minimum wages to $15 per hour.
The PSE program would play a complementary role by
offering paid work at a living wage of $15 per hour with a
basic package of benefits that would include healthcare pro-
vided through an expansion of Medicare. It would ensure full
employment in the sense that the program would supply a job
to anyone ready and willing to work. Jobs would be provided in
every community—taking workers where they are, delivering
an economic boost to every community in the country.
Goals and Structure of the PSE Program
There has been a recent surge of interest in the creation of a
national “job guarantee.” Those now championing the idea
(rightly) recognize that our nation is failing to provide an
opportunity to work for millions of Americans who want and
need jobs. In our work on such proposals, spanning more than
a quarter of a century, we have examined America’s experience
with job creation programs, including the New Deal programs,
as well as those adopted in other countries. As a result of our
long investigation of the successes and failures of those expe-
riences, we have designed a program that is in some respects
simpler than other proposals and yet provides greater potential
for economic stabilization.
Our PSE program pays a uniform wage of $15 per hour, for
both part-time and full-time work. This ensures that anyone
ready and willing to work will be able to earn at least that wage.
In other words, this becomes the effective minimum wage
across the country—a wage other employers will have to meet
(either by paying at least that wage or by offering other benefits
or opportunities in compensation for a lower wage). It also
offers basic healthcare (we suggest that this be done through an
expansion of Medicare), as well as other basic benefits (such as
childcare)—effectively establishing a minimum benefits pack-
age that other employers will have to match (or those offering
below-minimum benefits will have to pay above $15 per hour).
This inclusion of benefits and a generous wage was also
part of the strategy that President Roosevelt attempted to pur-
sue in his New Deal jobs programs, and his purpose—to pro-
vide a boost to living standards at the bottom—was similar.
Unfortunately, President Roosevelt was not able to achieve
that goal—he was forced by political opposition to accept a
tiered wage structure, with relatively decent wages for skilled
workers but poverty-level wages for low-skilled workers. States
dominated by conservative politicians then ensured that most
jobs created in their states through New Deal programs like
the Works Progress Administration (WPA) were designated as
low-skilled jobs, in order to keep wages low. Radical restruc-
turing of US labor markets to ensure that anyone who works
full time will earn a living wage requires a high minimum pro-
gram wage.
In addition, Roosevelt’s plan for the New Deal jobs pro-
grams was to create employment that did not compete with
private sector activities. The goal was to ensure full employ-
ment with decent basic wages, but to do so without putting
private employers out of business. It is important that the pro-
gram of job creation does not pull workers out of existing jobs
in the private sector. Our PSE program is designed to ensure
that all employers pay fair (living) wages, but without compet-
ing for employees or displacing private sector undertakings.
Some job guarantee proposals would pay tiered wages,
with higher wages for workers of higher skill. We see two prob-
lems with such a strategy. First, it could generate the same
political fighting that we saw over the New Deal programs, as
states dominated by conservatives will try to exclude projects
with higher wages. More importantly, higher wages for work-
ers with greater skills will increase competition with private
sector employers. Indeed, during periods of economic growth,
there is already substantial competition for skilled workers. We
believe that the most serious unemployment problem faced
in the United States is chronic unemployment for workers
with lower skills and education—they have high unemploy-
ment (and underemployment) through thick and thin of the
business cycle. Our design targets job creation for this group.
While workers with greater education and skills will turn to
this program when jobs are scarce, PSE participation for them
will be transitional: they will work temporarily in the program
Levy Economics Institute of Bard College 3
until conditions improve. Since their normal pay will be above
the program wage of $15 per hour, they will have an incentive
to return to employment outside the program. The PSE pro-
gram will not try to retain them with pay above $15 per hour.
On the other hand, the PSE program will provide not only
the opportunity to work for those with lower skills and educa-
tion, it will enhance their chances to obtain work outside the
program. They will gain work experience as well as on-the-job
training. This will be made an explicit goal of every job created
in the program. As such, when labor markets are tight, employ-
ers will recruit workers out of the PSE program.
By design, employment in the PSE program will move in a
countercyclical pattern—growing in downturns and shrink ing
in recoveries as workers are pulled into the private sector. This
helps to stabilize economic activity and household incomes.
Economists call this an automatic stabilizer. The government’s
budget will also move in a countercyclical manner as spending
on the program cycles with the economy. This, too, helps to
smooth cyclical fluctuations.
While we recognize some advantages to designs that fea-
ture a federally run program like the WPA, we prefer a highly
decentralized program. Today, the federal government directly
employs only 2.8 million workers (less than 2 percent of US
employment). Advocates of a universal job guarantee recog-
nize that the program might employ at least five times that
number of workers. We worry about the political feasibility of
expanding federal employment on such a scale. We also see the
advantages of decentralizing administration to the commu-
nity level. Since the goal is to create jobs in every community,
and to create projects that are beneficial to every community,
it makes sense to involve the local communities in the projects
from the proposal stage through to implementation, adminis-
tration, and evaluation.
Hence, while we would have the federal government pro-
vide the funding for the program, we would allow state and
local governments as well as registered nongovernmental, not-
for-profits to put forth proposals. (To retain a level playing
field within the private sector, we would not allow for-profit
firms to participate—as they might try to replace part of their
workforce with federally paid or subsidized workers.) Since
federal monies would be spent, we envision that project assess-
ment and evaluation would take place at multiple levels: com-
munity, state, regional, and federal.
We expect that most of the jobs created will provide pub-
lic services in nonprofit community organizations, public
schools, and state and local governments. We recommend that
the federal government’s role be largely confined to providing
administrative services (through local employment offices),
project evaluation, and funding of wages, benefits, and some
materials costs. However, if state and local efforts prove to be
insufficient, the federal government will need to create sup-
plemental projects to ensure a sufficient number of jobs are
made available to all seeking work. These should be targeted to
underserved groups.
While some advocates of job guarantee programs would
follow the New Deal in undertaking large-scale public works
projects, we would limit the use of PSE program workers on
infrastructure projects to small-scale projects or for approved
apprenticeship or other trainee positions. We do this to avoid
conflicts with the Davis-Bacon Act and prevailing wage laws
that require wages higher than $15 per hour. As discussed
above, we do not favor a tiered wage structure and do not want
to compete with private sector employment. Virtually all pub-
lic works projects today involve government contracts that are
awarded to private construction firms. However, PSE workers
could be used for very small projects (installing playground
equipment), simple maintenance of infrastructure (planting
vegetation as screening), and environmental retrofitting (add-
ing insulation to housing in low-income neighborhoods or to
community buildings), where such projects do not conflict
with applicable prevailing wage laws or the Davis-Bacon Act.
We also envision experimentation with alternative
approaches to employment and the provision of community
services. For example, a number of proposals for creation of
workers’ cooperatives could be solicited. These might be sup-
ported by the PSE program for a limited time with the fed-
eral government paying wages until the co-ops could become
self-supporting. Alternatively, proposals can be solicited for
apprenticeship programs that would train PSE workers for
skilled employment outside the program after a specified term
of PSE program employment. While we want to avoid funding
of programs that train workers for jobs that do not exist, train-
ing should be a part of every PSE job and some room should be
made in the program for approved apprenticeship programs.
While we advocate a program wage of $15 per hour, we
recognize that moving immediately from the current federal
minimum wage to $15 per hour would be disruptive in many
Policy Note, 2018/2 4
Status in Current Month (February 2018)
Status in Employed Unemployed Not in Labor Force Other Flows* Total
Previous Month
Employed 148,628 1,560 4,217 25 154,430
Unemployed 1,916 3,220 1,547 2 6,684
Not in Labor Force 4,600 1,911 88,955 200 95,665
Other Flows** 71 15 294 – 380
Total 155,215 6,706 95,012 227
Table 1 Labor Force Status Flows, Seasonally Adjusted (in thousands)
Notes: *Including estimated deaths and other BLS population adjustments; **Including those who turned 16 and other BLS population adjustments.
Source: Bureau of Labor Statistics
regions of the country. Further, scaling up to a national pro-
gram that might employ 15 million workers will take time.
Hence, we recognize that the program will probably be phased
in over a period of several years, both in terms of the numbers
employed and the wages and benefits paid. Current propos-
als for lifting the minimum wage frequently allow for gradual
increments, with the wage finally reaching $15 per hour in
2022. This allows time for employers to adjust to higher wages.
PSE Program Impacts on Employment and Poverty
President Obama stepped out of office with the longest unin-
terrupted streak of job creation on record: with 15.8 million
private sector jobs added since 2010. Indeed, official unem-
ployment rates have fallen into the 4 percent range—rates that
are now commonly believed to equate to, or even exceed, full
employment. The February 2018 payroll employment data
showed the unemployment rate remained at 4.1 percent for the
fifth month in a row, while 331,000 jobs were added. The num-
ber of unemployed remained at 6.7 million and the number of
long-term unemployed was also unchanged at 1.4 million.
However, those apparently good numbers do not satisfy
all analysts. Some take this as evidence that the unemploy-
ment rate has reached rock bottom and fear labor shortages
will soon fuel inflation. This is the sentiment that lies behind
the Federal Reserve’s move to raise rates. On the other hand,
others are worried that in spite of relatively strong job creation
and low official unemployment rates, some groups are being
left behind. In many regions of the country, chronic jobless-
ness is creating desperation—reflected in an opioid crisis,
suicides, and rising mortality—at least for some groups. The
social costs of unemployment—both visible and less so—are
extensive and already shouldered by governments, communi-
ties, and families (Tcherneva 2017). Why aren’t these realities
reflected in the numbers?
The problem is that the official unemployment data count
only a fraction of those who are without jobs but want to
work. Indeed, the constant unemployment rate and numbers
of unemployed in the face of job growth is evidence that part
of the big picture is missing. We need to look beyond official
unemployment statistics and adopt a dynamic approach to the
labor force. Many of those who leave the ranks of the officially
unemployed simply exit the labor force (often because they’ve
given up hope), and some of those who exit are counted as dis-
couraged. Many of those who obtain new jobs do not come
from unemployed status, but from being out of the labor force.
While a significant number of them are new entrants (college
graduates, for example), many others are discouraged workers
who got lucky. In some respects, many of those who are out of
the labor force look very much like those who are counted as
unemployed in terms of their desire to work.
Table 1 shows the flows between labor force categories from
January to February 2018—during which 331,000 jobs were
added. Just over 1.5 million workers who had been employed
in January became unemployed by February, and another 4.2
million left the labor force. Of the more than 6.5 million who
had been unemployed, almost 2 million obtained jobs, 3.2 mil-
lion remained unemployed, and 1.5 million left the labor force.
Over 4.5 million who had been out of the labor force obtained
jobs—almost two-and-a-half times greater than the number of
Levy Economics Institute of Bard College 5
unemployed who found paid work in February—and almost
2 million became unemployed (more than the number of
employed who lost their jobs). While the vast majority of those
who had been out of the labor force maintained that status, a
significant minority behave much like those who are counted
as unemployed—and their flows into the ranks of the employed
and the unemployed significantly impact the changes in those
categories’ totals. This is why relatively robust job creation does
not necessarily reduce the unemployment rate.
Another way of looking at that is to say that official unem-
ployment rates do not provide an accurate assessment of the
tightness of labor markets. We also need to look at employ-
ment rates (number employed relative to population of work-
ing age—generally age 16) and labor force participation rates
(number of employed and unemployed relative to population
of working age). Figure 1 shows labor force participation rates
for prime-age workers (ages 25–54).
Dantas and Wray (2017) examined in detail the stagnation
or decline of labor force participation rates and employment
rates by age, gender, and race. This has commonly been attrib-
uted to the aging of the US population and to other supply-
side factors (such as lifestyle choices), but Dantas and Wray
show that these trends account for only half of the decline. In
any case, age demographics cannot apply to prime-age work-
ers. Furthermore, the share of the population age 55 or older
that continues to work has been rising, attenuating the nega-
tive impact of aging on the participation rate.
Our forthcoming Levy Institute report will provide
detailed estimates of the number of people out of the labor
force who would have accepted work if a universal job guar-
antee program had been in place in the third quarter of 2017.
Even after the sustained pace of job creation of the past month,
we estimate that approximately 4.5 million people who are
currently counted among those out of the labor force would be
ready and willing to work in such a program. If we add those
who are still counted as unemployed (almost 6.7 million) and
those who are involuntarily underemployed (working fewer
hours than desired—about 4.5 million), we find that there
are approximately 15 million potential workers who would be
likely to join the program. This would reverse the troubling
labor force trends of the past two decades.
For the purposes of our analysis, we assume that the pro-
gram pays $15 per hour—which equates to $31,200 annually
for full-time work. We assume that the workweek in the pro-
gram averages 32 hours, which includes part-time and full-
time workers. The program’s nonwage benefit costs are set at
20 percent. Hence, while we recognize that real-world imple-
mentation of a PSE program would be phased in over a period
of years, with the wage gradually rising to $15 per hour, for the
purposes of our analysis we model a program that is imple-
mented quickly and pays $15 per hour from the beginning.
We find that the program would have a significant effect
on poverty rates. At $15 per hour, one full-time worker could
lift a family of up to five out of poverty; with one full-time
and one part-time worker, a family of eight could rise out of
povert y.1 In 2016, nearly 7.5 million people in families with a
full-time worker lived in poverty. We find that with one full-
time worker per family in the program, 9.5 million children
would be lifted out of poverty. The average income gap of the 8
million families living in poverty in 2016 was $10,505—which
is less than what a half-time job in the PSE would pay.
Direct spending on the program is just below 2.5 percent
of GDP per year. However, this estimate excludes increases
in tax revenue due to economic growth as well as potential
savings on a wide range of federal, state, and local programs
that are targeted to low-income households. In 2015, for
40
45
50
55
60
65
70
75
80
70
75
80
85
90
95
100
1970-01
1974-01
1978-01
1982-01
1986-01
1990-01
1994-01
1998-01
2002-01
2006-01
2014-01
2018-01
Men 25–54 (left scale)
Women 25–54 (right scale)
All 25–54 (left scale)
Sour
ce: Bureau of Labor Statistics
Figure 1 Prime-Age Labor Force Participation Rates:
Me
n vs. Women, January 1970 – February 2018
Percent
Percent
2010-01
Policy Note, 2018/2 6
example, the federal government spent $104 billion on food
and nutritional service programs (including $74 billion for the
Supplemental Nutrition Assistance Program, $21 billion for
Child Nutrition, and $6 billion for the Special Supplemental
Nutrition Program for Women, Infants, and Children), $17.3
billion on Temporary Assistance for Needy Families, $50 bil-
lion on housing assistance, and $ 67 billion on Earned Income
Tax Credits. Additionally, total direct spending by states on
social services and income maintenance on public welfare was
$505 billion (this does not include spending on health, polic-
ing, or corrections). Many of these programs would be signifi-
cantly reduced if everyone who wanted to work had access to a
job paying $15 per hour, plus benefits.
The social and economic costs of unemployment and
poverty are already “paid for” by federal, state, and local gov-
ernments, by private firms, by charitable organizations, and
by American households. While it is difficult to estimate the
dollar savings that the various levels of government might
experience from a program that creates jobs at living wages for
perhaps 15 million workers, lifts all workers’ wages above $15
per hour, and significantly reduces poverty, there is little doubt
that social safety net spending would decline and tax revenues
would rise. It would be a mistake to focus on the “cost” of fed-
eral funding for a national PSE program without considering
the much greater economic and social costs already borne by
government and society as a whole, a large portion of which are
due to inadequate work opportunities.
In our forthcoming report, we will provide detailed esti-
mates of the economic effects of the program—including
impacts on the federal budget, GDP, inflation, poverty reduc-
tion, and additional private sector jobs created due to the eco-
nomic stimulus provided by a job guarantee program that pays
a living wage.
Conclusions
Despite headline-grabbing reports of a healthy US labor mar-
ket, millions of Americans remain unemployed and underem-
ployed. It is a problem that plagues our economy in good times
and bad—there are never enough jobs available for all who
want to work. The problem is most acute for women, youths,
blacks, and Latinos, but new research from Benjamin Austin,
Edward Glaeser, and Lawrence H. Summers (2018) finds a per-
sistent lack of employment for large numbers of working-age
men, especially across the Eastern heartland, a region that
extends from Mississippi to Michigan.
To address the problem, Austin, Glaeser, and Summers
argue in favor of geographically targeted subsidies, in particu-
lar expanding the Earned Income Tax Credit, to encourage hir-
ing and reduce entrenched joblessness. But what if something
far more ambitious were tried? What if we sought to eliminate
involuntary unemployment across all demographic groups
and geographic regions, by directly creating jobs in the com-
munities where they are needed through a federally funded job
guarantee program? How could such a radical transformation
of the labor market be implemented? What would it cost, and
what would it mean for the US economy?
In recent months, a number of proposals for direct job cre-
ation have emerged as an alternative to the more conservative
approaches that continue to try to encourage private employ-
ers to hire more workers. We applaud these efforts, which
are based on the recognition that the government must play
a direct role in job creation. Even if the private sector could
be encouraged to create enough jobs to move the economy
toward fuller employment, it would be impossible to main-
tain that position for long. Private spending and employment
have always been—and will always be—cyclical. As Hyman
Minsky argued, “policy weapons which are sufficient to move
an economy from slack to . . . full employment are not suf-
ficient to sustain full employment” (Minsky 2013, 122).2 Such
policies would generate inflation and financial instability that
would make them unsustainable—leading to a “go-stop-go”
approach to policymaking. For this reason, Minsky argued
that “a suggestion of real merit is that the government become
an employer of last resort” (Minsky 2013, 39).
In this policy note, we have sketched the design for such
a program. We prefer a universal program that takes work-
ers “as they are” and “where they are.” It is decentralized to
ensure that it serves workers as well as the communities in
which they live. The program pays $15 per hour plus benefits,
establishing a nationwide effective minimum compensation
level. It does not compete with private employers, beyond set-
ting minimum labor standards. Employment in the program
moves countercyclically, against business cycle swings, helping
to stabilize consumption, output, income, and employment.
In cyclical upswings, private employers recruit workers out
of the program; in downturns, the program absorbs workers
shed by private employers. Access to paid work eliminates most
Levy Economics Institute of Bard College 7
poverty, making it easier to deal with the poverty that remains
among those who cannot, should not, or will not work. The
program eliminates involuntary unemployment among those
who experience the greatest barriers to obtaining full-time
work. While it does not resolve all labor market problems, it
tackles the most severe ones: chronic unemployment, under-
employment, and poverty-level wages.
The forthcoming full report on our alternative proposal,
the Public Service Employment program, provides detailed
estimates of budgetary i mpacts, jobs created, economic grow th,
employment demographics, inflation, and poverty reduction.
Note
1. Using 2017 preliminary poverty thresholds released by the
US Census Bureau.
2. See also Wray (2015) for a discussion of the sustainability
problems of full employment.
References
Austin, B., E. Glaeser, and L. H. Summers. 2018. “Saving
the Heartland: Place-Based Policies in 21st Century
America.” Brookings Papers on Economic Activity,
Conference Draft. Washington, DC: Brookings
Institution. March.
Dantas, F., and L. R. Wray. 2017. “Full Employment: Are We
There Yet? ” Public Policy Brief No. 142. Annandale-on-
Hudson, NY: Levy Economics Institute of Bard College.
February.
Fullwiler, S., S. A. Kelton, C. Ruetschlin, and M. Steinbaum.
2018. “The Macroeconomic Effects of Student Debt
Cancellation.” Research Project Report. Annandale-on-
Hudson, NY: Levy Economics Institute of Bard College.
February.
Minsky, H. P. 2013. Ending Poverty: Jobs, Not Welfare.
Annandale-on-Hudson, NY: Lev y Economics Institute of
Bard College.
Tcherneva, P. R. 2017. “Unemployment: The Silent Epidemic.”
Working Paper No. 895. Annandale-on-Hudson, NY:
Levy Economics Institute of Bard College. August.
Wray, L. R. 2015. Why Minsky Matters: An Introduction to the
Work of a Maverick Economist. Princeton, NJ: Princeton
University Press.
