Journal number 1 ∘ Malkhaz Chikobava ∘ Nazira Kakulia ∘ Manana Lobzhanidze ∘ Tea Lazarashvili ∘ Irma Tkemaladze ∘
Opportunities for creating decent jobs in accordance with the concept of guaranteed employment of Modern Monetary Theory

DOI: 10.52340/ekonomisti.2026.01.01

Introduction 

Modern Monetary Theory (MMT) is a system of thought developed 25 years ago by a group of American and Australian economists, primarily university professors. The main impetus for the development and popularization of MMT was the need to create a scientific framework for overcoming problems facing the American economy, such as the accumulation of enormous public debt, chronic budget deficits, and high unemployment. This theory offers a very original and universal solution to these problems.

MMT originated in the research of Warren Mosler and Stephanie Kelton and was further developed by a large group of researchers. MMT denies the fundamental principles of the modern monetary system. Its popularity is rapidly growing in political circles, universities, and among financial analysts. The theory is actively promoted by economists who advise the US Congress. The publication of the textbook "Macroeconomics" by its active proponents - William Mitchell, Randall Wray, and Martin Watts - promoted MMT\\\'s popularity (Burlachkov 2021).

There are two main ways in which MMT differs from traditional theoretical views:

• In a modern economy, money is created not only by the central bank, but also by the state treasury, that is, the structure that accumulates budget revenues into its account and spends the funds;
• The budget deficit should become the government\\\'s main instrument of influence on the economy, since its reduction leads to a decrease in savings in the private sector, and its increase leads to an increase in savings.

According to the creators of MMT, based on the first thesis, in a modern economy it makes sense to combine the central bank and the state treasury into a single structure. Accordingly, this implies the "unification" of monetary and fiscal policies and the implementation of a unified financial policy. Within this framework, uniform regulatory instruments should be used.

In the modern economy, due to its peculiarities, the so-called money multiplier does not operate. Currently, following the publication of research on this topic by economists at leading central banks, this assertion has gained general acceptance.

According to MMT, in a modern economy, new money is created through lending operations not only by the central bank and commercial banks, but also by the state treasury. Specifically, new non-cash money (reserves) is created:

1. When the central bank credits funds to the treasury account at its own request;
2. When funds are credited to the treasury account by purchasing its bonds at auction;
3. When the treasury is granted an overdraft.

The creation of money by the state treasury is only possible with the consent of the central bank and only in emergency situations when budget expenditures are necessary in the absence of financial resources generated by tax revenues. This possibility, however, expands our understanding of the specifics of the modern monetary mechanism. MMT theorists believe that this phenomenon must be used to justify the integration of monetary and fiscal policy into a single whole.

According to MMT:

• The criterion for the adequacy of the money supply is the full utilization of all factors of production and the absence of involuntary unemployment;
• The central bank purchases government-issued bonds by issuing money, thus acting as the primary holder of government debt. 

Employment and Unemployment Buffer Stocks: A Comparative Analysis 

This paper examines two policy approaches aimed at achieving sustainably low and stable inflation.
Two distinct buffer stock frameworks can be identified:

• Unemployment buffer stocks: Within the Natural Rate of Unemployment (NRU) framework - also known as the Non-Accelerating Inflation Rate of Unemployment (NAIRU) - inflation is controlled through restrictive monetary and fiscal policies, which give rise to unemployment buffer stocks. This mechanism is widely regarded as both costly and unreliable.
• Employment buffer stocks: The national government utilizes its fiscal authority, inherent in the fiat currency issuance system, to secure full employment through the establishment of an employment buffer stock. The Job Guarantee (JG) model constitutes a prominent example of this policy approach.

Both of these approaches to inflation control rely on the logic of buffer stocks and are employed to establish so-called “inflation anchors.” In the case of NAIRU, unemployment serves as the inflation anchor, disciplining the labor market and restraining inflationary wage demands. Under the Job Guarantee (JG) framework, by contrast, the inflation anchor takes the form of an unconditional employment guarantee at a fixed wage provided by the government (William Mitchell, L. Randall Wray and Martin Watts, 2019).

In contemporary capitalist economies, access to employment is a necessary condition for full participation in social life. Employment integrates individuals not only into networks associated with workplaces, but more broadly into the social and political sphere as well.

On the other hand, it is well established that persistent unemployment generates substantial economic, personal, and social costs, including:

• losses in current national output and income;
• social isolation and the loss of personal freedom;
• erosion of skills;
• psychological harm;
• deterioration of health and reduced life expectancy;
• loss of motivation;
• the undermining of human relationships and family life;
• racial and gender inequalities;
• the erosion of social values and personal responsibility.

Accordingly, macroeconomic policy that relies on unemployment as a means of ensuring macroeconomic stability not only compels individuals who are already in disadvantaged positions to bear the bulk of the economic losses associated with unemployment, but also undermines social cohesion.

The Universal Declaration of Human Rights of the United Nations recognizes the right to work not only because it is intrinsically valuable, but also because many other economic and social rights enshrined in human rights law cannot be effectively realized in the absence of paid employment. Full, productive, and decent employment is also one of the United Nations’ development objectives, as articulated in the Millennium Development Declaration. Amartya Sen (1997) supports the right to work on the grounds that the economic and social costs of unemployment are devastating in their far-reaching consequences, extending well beyond the one-dimensional loss of income (Sen 1997).

Markets are not always effective mechanisms for securing the economic and social rights recognized in the Universal Declaration of Human Rights. For this reason, state policy is essential for the protection of various human rights. Neoclassical theory generally assumes that unemployment and poverty are necessary costs of macroeconomic stability, particularly in maintaining price stability and exchange rate stability.

This raises important questions. Should a country combat inflation by leaving part of its population unemployed and impoverished? Are there alternative instruments available to achieve these objectives? More specifically, should policymakers tolerate a certain degree of inflation and currency depreciation in order to eliminate unemployment and poverty?

Only the government can guarantee the right to work, because markets neither function—nor are capable of functioning - in a manner that consistently approximates true full employment without the direct creation of jobs on a large scale. Only the government can generate infinitely elastic demand for labor by hiring all those who are otherwise unable to find employment, since it is not constrained by the narrow concerns of market efficiency due to its capacity to issue and spend a sovereign currency. Private firms hire only the amount of labor necessary to produce the level of output that they expect to sell at a profit. By contrast, the government can adopt a broader perspective by prioritizing the public interest, including the right to work. For this reason, achieving social justice requires the government to act as an employer of last resort. A Job Guarantee (JG) program can secure the right to work while minimizing undesirable effects on wages, prices, government fiscal policy, and the value of the currency.

According to proponents of MMT, it is difficult to conceive of a policy objective that would secure a broader range of social and economic rights than the achievement of full employment. As Forstater argues, “There is no single policy with more potential benefits than true full employment, or a guaranteed job for anyone ready and willing to work” (Forstater, M 2017).

In addition to income, employment provides socially useful production and recognition for doing something of value. While economists typically focus on the economic multiplier, there are also social multipliers associated with job creation. These benefits include reductions in crime and drug use; stronger family and community cohesion; improved economic security, education, and healthcare; protection of vulnerable populations; environmental preservation; improvements in local and national public budgets; a more equitable distribution of consumption, income, wealth, and power; the stimulation of investment in poor communities; and the promotion of social and political stability.

Although economic growth and development are desirable, neither can ensure full and decent employment on their own. Addressing unemployment, underemployment, and inadequate wages undoubtedly requires a range of programs and policies involving both private and public initiatives. However, according to MMT, the private sector cannot deliver full, productive, and decent employment for all, even with substantial government support for job creation within the private sector. Only the establishment of a Job Guarantee–based safety net can effectively protect the human right to employment.

A range of strategies has been adopted to address the problem of unemployment, among which the most significant are behavioral strategies (targeting issues among unemployed individuals), structural strategies (for example, skills mismatches), and strategies addressing job shortages.

In general, social relations and policy tend to emphasize behavioral and structural issues. This orientation produces policies aimed at motivating and preparing the unemployed, often combined with incentives for greater flexibility (such as wage flexibility) to reduce frictions in the labor market. In this framework, unemployment is conceptualized primarily as an individual problem stemming from behavioral deficiencies rather than as a systemic macroeconomic issue.

However, if the core problem lies in a shortage of jobs, such policies can only redistribute unemployment among the less fortunate, who are then blamed for their own unemployment. During periods of economic expansion, some job seekers who are not employed may indeed possess the characteristics identified by behavioral and structural arguments (since employers first hire those with the most desirable attributes), which obscures the underlying problem: the chronic insufficiency of available jobs.

Although Hyman Minsky is best known for his work on financial instability, he also argued that any state policy that prioritizes education and training over direct job creation is putting the cart before the horse and is unlikely to succeed (Minsky 1986).

Firstly, such approaches place blame on the unemployed, who may already experience demoralization, and seem to reinforce prevailing social perceptions of undesirable traits that are presumed endemic among vulnerable populations. The underlying idea is that the poor must change their characteristics, including their behavior, before they “deserve” employment. Yet, unemployed individuals may not perceive such changes as desirable or even feasible.

Secondly, the time lag before results are realized can be substantial: the gestation period for developing a worker is at least 16 years in developing countries and 25 years or more in advanced economies. Moreover, as structuralists have recognized, a dynamic economy continually discards old skills and demands new ones. There will always be a persistent, significant reserve of individuals with insufficient skills and education, even when many can exit that reserve promptly.

Thirdly, as noted, there is a risk that those who have undergone retraining will still face job shortages, ultimately displacing previously employed workers who then join the ranks of the unemployed.

For these reasons, it is essential that jobs be available to accommodate workers as they are, regardless of their skills, education, or personal characteristics. Updating workers’ skills should follow as a second step, with much of the necessary training conducted on the job. The unemployed require access to actual jobs, not merely promises of employment contingent on successful reform.

It should also be noted that offering benefits (including unemployment compensation) in place of jobs negatively affects the unemployed’s self-esteem, social engagement, and human capital (skills and experience), which deteriorates due to underutilization of the labor force. Thus, providing welfare instead of employment opportunities for those willing to work is not only an acknowledgment of failure (recognition that the labor market cannot provide sufficient jobs) but also a misallocation of resources and the creation of social costs (Mitchell et al., 2021).

After World War II, the idea that Keynesian policies could sustain aggregate demand at a sufficiently high level to support stable growth dominated Western thought. It was also believed that high growth rates would maintain unemployment at low levels and thus reduce poverty. In the West, particularly in the United States, aggregate demand was sustained through defense spending, public infrastructure investments, and a favorable orientation toward private investment. High-growth strategies were combined with behavioral and structural labor market policies, as well as welfare measures (which, in terms of labor policy, included programs aimed at reducing the labor force through support for families with children and pension income for the elderly). These measures were considered necessary because economic growth left pockets of poverty among vulnerable groups, with poverty concentrated regionally and racially.

During the early postwar period, economic growth remained above average, while unemployment and poverty appeared to decline, clearly supporting the Keynesian approach.

However, these policies did not eliminate unemployment and poverty, as they did not prioritize job creation. At best, they redistributed unemployment. Furthermore, the high-growth strategy tended to favor more advanced sectors of the economy—those employing highly skilled and well-paid workers—thereby increasing income inequality. Finally, policies promoting high investment proved unsustainable, generating macroeconomic instability, as evidenced by inflation, currency devaluation, and financial fragility.

Keynesian policy lost popularity during the stagflation of the 1970s. Following the collapse of the fixed-exchange-rate (Bretton Woods) system in March 1973, major currencies moved to floating exchange rates. Social safety nets established in the early postwar period were either dismantled or underfunded, while liberalism (known in the United States as neoconservatism) assumed a growing role in developed economies such as the U.S., the U.K., and Australia.

Ultimately, recessions and financial crises returned after the 1970s, as the prevailing belief emerged that high growth rates and low unemployment were incompatible with price stability. Financial fragility gradually increased, as evidenced by increasingly frequent and severe domestic and international financial crises.

Policy makers largely abandoned fiscal policy for growth stimulus and relied primarily on monetary policy. Proponents of monetary policy, in turn, deny responsibility for supporting high employment and growth, except indirectly, insofar as low inflation promotes a strong economy. This prioritization of low inflation over high employment effectively embodies an unemployment buffer-stock policy.

All of these issues generate serious disagreement. However, it is widely acknowledged that attempts to regulate the economy through Keynesian manipulations of aggregate demand were largely unsuccessful. Even if such policies had been effective, there is little political will to return to them today. Yet the chosen replacement—neoliberalism—has also failed to achieve success.

There remain two alternative employment-stimulating policies: indirect job creation through incentives for the private sector, and direct employment provision by the government. Both strategies have been tested in multiple economies.

Subsidized employment in the private sector presents several significant challenges. First, the government must ensure that firms use subsidies to create new jobs rather than to reduce private expenditures on existing employees. In a dynamic economy, where jobs are continuously created and destroyed, monitoring this is difficult, as profit-seeking firms may attempt to use public funds to subsidize existing positions, resulting in government expenditure without any net increase in employment.

Second, since unemployment tends to be concentrated among less successful workers, policy must encourage firms to hire individuals they would not otherwise employ. This too is difficult to enforce, as firms are likely to hire candidates with more desirable attributes permitted under program rules rather than average or lower-skilled workers. Moreover, there is a risk that firms may hire the more desirable workers, displacing similarly skilled employees who were previously marginalized.

Third, there are challenges related to program duration rules. One objective of subsidized employment programs is to employ workers with limited experience or skills and prepare them for unsubsidized positions. However, if workers are allowed to remain in the program only for a fixed period, employers have strong incentives to replace them at the end of their eligibility period with newly qualified, subsidized workers, rather than retain the initially hired group. Workers exiting the program may then struggle to find unsubsidized employment.

Fourth, determining the appropriate level of wage subsidies is complex. The subsidy required to induce firms to hire additional workers appears to vary with the scarcity of available labor and the size of the labor reserve from which firms normally hire. A sliding-scale subsidy may be most effective, yet setting optimal rates can be difficult. The necessary subsidy will also depend on firms’ demand for new workers: during an economic boom, a modest subsidy may suffice to encourage an additional hire, whereas in a severe recession, even a 100% wage subsidy may fail to incentivize a firm to hire an extra worker.

Finally, wage subsidies inevitably introduce some market distortions. Some firms may benefit disproportionately from the program while others may not. Existing employees may compete with subsidized workers in some cases, but not others. Certain sectors may increase output due to the addition of workers, whereas others may not.

While none of these potential issues, individually or collectively, implies that wage-subsidy programs should not be attempted, they suggest that such programs, on their own, are unlikely to fully resolve unemployment or guarantee the right to work.

Of course, subsidies to the private sector cannot function effectively without a sufficiently developed private sector capable of employing a significant portion of the population. In some developing countries, particularly in rural regions, such policies have limited potential. Only the direct creation of jobs by the government, with a basic living wage, can reliably ensure the adequate provision of non-agricultural employment to reduce unemployment.

We conclude that increasing aggregate demand, enhancing human capital, and raising incentives for private employers cannot, on their own, guarantee the right to work. While each of these policies may be beneficial in isolation, they must be complemented by direct job creation by the government. Most governments, in one form or another, participate in job creation to reduce unemployment. Countries that achieved near-full employment in the postwar period likely relied on a combination of programs to maintain low unemployment. Each of these programs, in one way or another, maintained a buffer of jobs accessible to the least skilled workers who would otherwise likely remain unemployed.

The principal critique of government-led job creation schemes is that, unlike a Job Guarantee (JG), they generally do not provide permanent employment under normal labor conditions and that their coverage is typically limited to specific groups, such as agricultural workers (e.g., India’s National Rural Employment Guarantee Scheme inspired by Mahatma Gandhi), heads of households (e.g., the Jefes de Hogar program in Argentina), and youth (e.g., youth employment guarantees in European Union countries) (Mitchell et al., 2021).

The Job Guarantee occupies a central position in Modern Monetary Theory (MMT) arguments. It is neither an emergency policy nor a substitute for private-sector employment, but rather a permanent complement to employment in the private sector. A direct job creation program under the JG framework can provide employment at a basic wage to those who would otherwise be unable to secure work. No other program can reliably ensure access to jobs with a decent wage. Moreover, the JG approach has the advantage of addressing simultaneously the principal objection to full employment: the argument that maintaining full employment inevitably generates unsustainable inflationary pressures.

Given the importance of employment availability for working-age individuals who are willing to work, using employment buffer stocks represents a superior alternative to unemployment buffers for achieving price stability, provided that such stability is not jeopardized. An employment program functions as a minimum level of economic activity in the real sector, linking not only the general price level to the wages of those employed from the unemployment buffer but also producing useful output with positive supply-side spillovers.

According MMT, taxes levied by a currency-issuing government create demand for the currency. The value of the currency is determined by what must be done to obtain it. Currency is priced in terms of the labor that can be purchased with the margin represented by wages paid under a Job Guarantee (JG) program. The wage-and-benefits package within a JG program establishes the benchmark for producing income denominated in the currency.

Some individuals earn income in the private or public sector in ways that are not commensurate with their effort. If everyone could earn income by doing nothing (as if trees produced money), the value of the currency would approach zero. In the real world, however, government-issued currency does not grow on trees, and most individuals must perform some work to obtain it. Consequently, at the margin, currency retains value.

From 1945 until the mid-1970s, governments in Western countries recognized that through deficit spending, which supplemented private demand, they could ensure that all workers willing to work could find employment. Although private-sector employment growth during this period was relatively high, governments themselves were significant employers, maintaining a buffer of jobs accessible to the least skilled workers. These jobs included positions in large utilities, railways, local public services, the military, and essential government infrastructure functions. By employing workers who had lost employment due to reductions in private investment, governments acted as an economic safety net.

As British economist Paul Ormerod observed, in countries that avoided high unemployment in the 1970s, there existed “an economic sector that effectively functioned as an employer of last resort, absorbing shocks and making employment available, more generally, to the less experienced and less skilled” (Ormerod, P. 1994). He concluded that societies with high levels of social consolidation, such as Austria, Japan, and Norway, were better positioned to make paid work universally accessible.

The employment buffer stock approach, more commonly referred to in the literature as a Job Guarantee (JG), defines a policy framework in which the government manages buffer stocks of jobs to absorb workers who cannot find employment in the private sector. Analogous to a central bank’s role as lender of last resort, the JG functions as a buffer, employing job seekers who have not obtained regular employment in the public or private sector at a socially acceptable minimum wage. In this sense, the government acts as an employer of last resort, with jobs made available according to demand.

Although the JG can be described simply as a public-sector job creation strategy, it is important to recognize that it is, in fact, a macroeconomic policy instrument designed on the principle of buffer stocks to achieve full employment and price stability. Under the JG framework, the government provides unconditional, pre-specified job offers at a given wage to anyone willing to work. Rather than leaving individuals unemployed when aggregate demand falls below the level required to support full employment, these individuals enter the JG workforce.

This approach represents a shift from expenditure rules based on the quantitative NAIRU framework to expenditure grounded in price rules. Market forces determine the total government expenditure necessary to meet demand for public-sector jobs at a fixed JG wage. Accordingly, the JG fund expands (contracts) when private-sector activity declines (increases). In this way, the JG absorbs fluctuations in aggregate demand while minimizing the associated adjustment costs in economic activity. If aggregate demand falls, overall demand for labor outside the JG decreases according to the employment demand function. Workers released from their private-sector positions then have a choice: accept JG employment or wait for economic conditions to improve outside the JG framework.

Decisions made by these workers depend on several factors. First, the government can offer a choice between the JG wage and unemployment benefits, with the latter being lower. Second, some workers—particularly those in highly skilled positions—may opt to receive reduced salaries or unemployment benefits during periods of downsizing to preserve themselves economically. Economists refer to this behavior as “waiting unemployment.” These workers may perceive accepting low-skilled JG jobs as professionally disadvantageous and thus wait for improved conditions. (It should be noted that JG policy does not provide unemployment allowances, and most released workers prefer JG positions over waiting unemployment; these assumptions serve to simplify the analysis without altering the system’s core dynamics.)

When private economic activity expands, employers draw workers from the JG pool, and the employment buffer shrinks. Government expenditure on the program moves countercyclically, supporting the stabilization of overall employment, demand, income, and output.

The JG program also contributes to stabilizing aggregate wages, since no worker’s pay can fall below the JG wage. For most of the labor force, wages represent the primary source of income. Stable aggregate wages, in turn, help stabilize consumption. Consequently, this targeted approach to supporting full employment is a powerful stabilizing force for aggregate demand, output, and prices. Specifically, variations in spending unrelated to the JG are smaller under the buffer-stock model, meaning that the JG employment stock can be maintained at a relatively low level while still remaining responsive to the business cycle.

Workers in the buffer stock are paid a living wage that establishes the level of income necessary to ensure adequate social and material conditions for a full-time worker. The labor force of the country remains fully employed at all times, while the proportion of workers employed in the private and public sectors will vary depending on private-sector spending decisions. Since the JG wage is open to all, it effectively functions as a national minimum wage, as private employers must meet it to retain their employees (except in exceptional circumstances).

Although it is preferable not to disrupt private-sector wage structures with the introduction of a JG, the JG wage can be set above the existing private-sector minimum if productivity in the economy is considered to be very low. This is particularly relevant in developing countries, where many market-based jobs are concentrated below the poverty line and provide insufficient incentives for employers to invest in more productive capital or for workers to invest in human capital. The government supplements JG incomes through a broad range of expenditures, providing a social wage that ensures adequate access to public education, healthcare, childcare, and legal assistance.

The minimum wage should not be determined by private-sector affordability. It should reflect society’s aspiration for the lowest acceptable standard of living. Any private operator unable to pay at least this minimum should exit the economy.

Moreover, JG policy does not preclude the use of fiscal policy to achieve broader social and economic outcomes. Typically, the JG rule is accompanied by higher levels of public-sector expenditure on public goods and infrastructure, complementing the direct employment provision.

The JG wage thus establishes a baseline wage for the economy and functions as an automatic stabilizer that complements the tax system. Automatic stabilization refers to components of government fiscal expenditure and revenue that increase and decrease in response to economic cycle fluctuations, without explicit changes in government spending or tax parameters. It operates to stabilize the business cycle, ensuring a minimum level of aggregate demand during economic recessions and a maximum level during periods of economic expansion. At full employment, the automatic stabilizer component of aggregate demand is zero. Accordingly, when the economy contracts, tax revenues fall while social payments increase, automatically expanding the government budget deficit. The introduction of a JG has a similar countercyclical effect: JG-related expenditures rise during economic downturns and decline during recoveries.

In this context, the JG represents a superior (more powerful) automatic stabilizer compared to an unemployment benefit system (or unemployment buffer stock alternative), because aggregate demand declines less, generating a stronger positive effect on real output than would occur if the government merely provided unemployment benefits. Moreover, the JG maintains full employment, along with all the personal and social benefits previously discussed.

Automatic stabilizers are valued for their capacity to provide immediate countercyclical injections (or withdrawals) when private-sector activity fluctuates. They mitigate the so-called political lags associated with (i) identifying significant shifts in private demand; (ii) formulating a political response to those shifts; (iii) securing the necessary legislative authority to implement interventions; and (iv) executing the government’s response. In some cases, such delays may result in discretionary fiscal measures being implemented too late, potentially destabilizing the business cycle. For example, by the time the government designs and executes a new discretionary spending program, the private sector may have already resumed normal expenditure growth, so that the government-induced stimulus could risk overheating. Such destabilization does not occur under a JG: workers who become unemployed due to a decline in aggregate demand can immediately apply to the appropriate public authority and obtain employment within the JG (Mitchell et al., 2021).

The fixed wage offered under the JG also serves to stabilize the growth rate of nominal wages in the economy, providing a nominal anchor against inflation.

By design, the JG program functions as a fiscal and labor-market policy instrument within the private sector, regulating aggregate demand while supplementing other social protection and welfare programs. A universal JG, employing anyone willing and able to work, is the only type of program that can guarantee the ongoing protection of the human right to full employment. If the program’s wage meets a living standard, it also contributes to the realization of other human rights by ensuring sufficient income. A well-designed program not only produces socially valuable goods and services but also fosters a sense of dignity and accomplishment among participants. Ultimately, the JG generates full employment and macroeconomic stability with minimal market disruption.

The concept of a JG has a long history, and similar programs have existed throughout history and around the world. However, such programs have typically been small in scale or temporary in duration.

When introducing the potential for public-sector job creation into the economy, the Job Guarantee (JG) is best understood as a macroeconomic policy framework designed to maintain full employment and price stability throughout the private-sector economic cycle.

What, then, is the mechanism for controlling inflation under a JG framework? It is well understood that incompatible claims on available real income can generate wage–price pressures that escalate into inflationary episodes, as claimants (labor and capital) attempt to defend their share of income.

Under a traditional unemployment buffer stock system, unemployment serves to discipline wage demands and temper goods market pressures, thereby preventing firms from expanding profit margins as a mechanism to restrain wage–price pressures and maintain stable inflation.

We define the Buffer Employment Ratio (BER) as: 

 BER = JGE/ E

where JGE is total employment in the Job Guarantee buffer stock, and E is total employment in the economy. The BER rises when the JG pool expands and falls when it contracts (Mitchell et al., 2021).

The JG approach differs from the NAIRU approach in that, rather than manipulating overall employment by creating unemployment during periods of wage–price pressure, the government manages the BER. When private-sector activity and distributive conflict are such that wage–price pressures signal an inflationary episode, the government uses fiscal policy parameters to reduce the level of demand in the private sector. Subsequently, labor is transferred from the inflationary private sector to the fixed-wage JG sector, and the BER rises. Ultimately, this process alleviates the wage–price pressures that generate inflation.

Inflationary pressure cannot arise directly from a policy in which the government offers a fixed wage to any worker who is not desired by other employers. The JG framework assumes that the government purchases labor at a minimum price such that employment at the JG wage does not exert upward pressure on the market-sector wage structure. By definition, unemployed individuals have no market price, as there is no market demand for their services.

Without competition from the private sector, the JG avoids the inflationary tendencies associated with past Keynesian policies, which sought full utilization of productive capacity through “top-down” hiring—i.e., government expenditures implemented at market wages, competing with all other private-sector spending for resources. In practice, such policies often concentrated spending in advanced sectors, such as defense, employing highly skilled (typically unionized) workers.

Are current workers likely to exploit the reduced threat of unemployment to demand higher wages? This is unlikely. First, the JG program reduces recruitment costs for firms, as JG workers are not unemployed and retain their general and specific skills largely intact. Second, for high-wage workers, the perceived difference between unemployment and JG employment may be minimal, meaning they remain cautious in demanding higher wages.

The BER determines the overall level of wage demands. When the BER is high, real wage demands are relatively low, and firms’ capacity to expand profit margins is constrained by weaker demand for output.

Thus, instead of using an unemployment buffer to regulate distributive conflicts, the JG policy achieves this through compositional changes in employment, with transfers into and out of the JG pool. The JG links the general price level to the wage of the buffer-stock labor, while also producing useful output with positive supply-side externalities.

Importantly, the JG can also address supply shocks (e.g., rising prices of non-labor inputs essential to production) that generate incompatible claims on national income, which would otherwise trigger inflation.

NAIRU defines the unemployment buffer associated with stable inflation. In the JG framework, we define the Non-Accelerating Inflation Buffer Employment Ratio (NAIBER) as the BER that achieves stable inflation after workers are reallocated from the inflationary private sector to the fixed-wage JG sector. NAIBER represents the sustainable JG level at full employment and depends on a range of factors, including the historical trajectory of the economy.

The government’s objective is to minimize NAIBER to allow for a higher level of private-sector employment without generating inflation. Initiatives that can reduce NAIBER include public investment in education to stimulate skills development and productivity growth, institutionalized wage-setting processes that distribute productivity gains equitably among claimants, and restrictions on anti-competitive cartels to mitigate pressures for profit-margin expansion (Mitchell et al., 2021). 

Conclusion 

In conclusion, increasing aggregate demand, investing in human capital, and enhancing incentives for private-sector employers are insufficient to guarantee the right to employment. While each of these policies may be beneficial in isolation, they must be complemented by direct job creation by the government. Most governments, in one form or another, participate in public employment initiatives to reduce unemployment. Countries that achieved near-full employment in the postwar period likely relied on various programs to maintain low unemployment levels. All of these programs, in some form, maintained a buffer of jobs available to the least-skilled workers who would otherwise likely remain unemployed.

The primary critique of government job creation schemes is that, unlike the Job Guarantee (JG), they typically fail to provide permanent employment under standard labor conditions and are often restricted to specific groups, such as agricultural workers, heads of households and youth.

The Job Guarantee occupies a central place in contemporary Modern Monetary Theory (MMT) discourse. It is neither a temporary policy measure nor a substitute for private-sector employment; rather, it functions as a permanent complement to employment in the private sector. Direct job creation programs can provide employment at a baseline wage to those who would otherwise be unable to find work. No other policy can reliably ensure job availability at a socially acceptable wage. Furthermore, the JG has the unique advantage of simultaneously addressing the principal challenge to full employment: the argument that maintaining full employment leads to unsustainable inflationary pressures. 

References

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Minsky, H. (1986). "Stabilizing an Unstable Economy, New Haven, CT:." Yale University Press., 1986: 102.

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William Mitchell, L. Randall Wray and Martin Watts,. "Macroeconomics." In Macroeconomics, by L. Randall Wray and Martin Watts William Mitchell, 296-308. London: RED GLOBE PRESS, 2019.

 

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