Economy

Trump's Jobs-for-Medicaid Scheme Is Based on Warped Logic—Here's What Might Actually Work Instead

A Job Guarantee would offer a job to any American who was ready and willing to work at the federal minimum wage.

Photo Credit: Maxx-Studio/Shutterstock

Earlier this year, the Trump administration said it would support state efforts to require able-bodied adults to work or participate in other “community engagement activities” as a future condition of eligibility for Medicaid. States are already taking up the president’s offer: On January 12, Kentucky became the first U.S. state to require that Medicaid recipients work or get jobs training, after submitting a waiver for federal approval in 2016. Others, such as Maine, Utah and Wisconsin, are making similar noises.

The professed goal behind the measure is to save the states some money, especially as the Affordable Care Act gave them the option of expanding Medicaid to cover more poor Americans under the health insurance mandate. There is also an ideological component to the proposal, given that many still see programs like Medicaid as a lucrative benefit that discourages poor people from looking for jobs.

So, goes the thinking, get the "undeserving poor" to work if they want to keep those benefits. But here’s the thing: you can’t demand work as a precondition for receiving a benefit like Medicaid if the work isn’t available in the first place. If you want to help people become less dependent on government benefits, why not tackle the problem more directly via a Job Guarantee with a living wage and benefits package, including contributions to Social Security, receipt of Medicaid, and other health care benefits?

The JG would not constitute a radical departure for the federal government, as it could be modeled along the lines of old New Deal programs, such as the Works Progress Administration (WPA, in existence from 1935-1943 after being renamed the Work Projects Administration in 1939) and the Civilian Conservation Corps (1933-1942). It would offer a job to any American who was ready and willing to work at the federal minimum wage, plus legislated benefits. No time limits. No means testing. No minimum education or skill requirements. At the very least, with a Job Guarantee, we’ll at least get a sense of how big the scale of involuntary unemployment truly is, which will form a more rational basis for determining how much, if any, abuse of government benefits actually exists.

One distinguishing feature from the New Deal: The JG would remain a permanent feature of the economy. The program would operate like a buffer stock, absorbing and releasing workers during the economy’s natural boom-and-bust cycles. The kernel of this idea comes from Australia, where the federal government provided guarantees to the Australian Wool Corporation that the price of wool would remain within a price band by using the AWC to purchase stocks of wool in the auction markets if demand was low and selling it if demand was high. As economist Bill Mitchell notes, by being prepared to hold "buffer wool stocks" in low demand and release it again in times of high demand, the government was able to attenuate the boom-bust nature of the wool cycle and thereby guarantee incomes for the farmers.

This buffer stock, Mitchell notes, works just the same for labor resources—the federal government unconditionally offers to buy all labor at a stated fixed wage, thereby putting a floor on the price of labor, while keeping a fully employed labor force ready to be bid back into the private sector, as and when private demand revives. In a boom, employers would recruit workers out of the program; in a slump the safety net would allow those who had lost their jobs to continue to work to preserve good habits, making them more attractive to employers (additionally, when employers review job applicants, there is also ample evidence to suggest that those who are already gainfully employed are generally more appealing than those who have gaps in their work experience).

The Job Guarantee would also take those whose education, training or job experience was initially inadequate to obtain work outside the program, enhancing their employability through on-the-job training. Work records would be maintained for all program participants and would be available for potential employers. Unemployment insurance offices could be converted to employment offices, to match workers with jobs in the program, and to help private and public employers recruit workers.

Employment is also better for one’s health, which should please the states worried about strained budgets, as a result of the ACA Medicaid expansion. There are ample studies that demonstrate strong correlation between long-term unemployment and poor health outcomes. Want to reduce the need for Medicaid use? Get people a job. Moreover, such unemployment does not just affect the unemployed themselves; it also harms their children, their families, and the communities in which they live. It is a causal factor in malnutrition and growth stunting, as well as contributing to urban blight and economic crimes (as well as incarceration, in itself a significant cost for government).

The Job Guarantee program is an idea that is steadily gaining traction. The Center for American Progress has recently proposed a jobs guarantee to counter the effects of reduced bargaining power, technical change, globalization, and the Great Recession. Richard Dien Winfield, a candidate for Congress in Athens, Georgia, is running under the slogan “Guaranteed Jobs, Fair Wages.” So is Charles Whalen, a Democrat running in New York’s 23rd District, with his “USA Jobs Program” proposal. And, of course, the Levy Institute at Bard College and the Centre for Full Employment and Equity (CofFEE) in Australia have done considerable scholarly work in this area for many decades.

Note as well that the proposed JG program would not be one of those bogus "public-private" partnerships, along the lines touted by Trump for his much-vaunted infrastructure program. In the outline of Trump’s infrastructure program, the federal government is offering minimal direct funding, replacing that with tax breaks and guaranteed returns to the private sector while further privatizing public programs and assets—the classic hallmarks of a rentier economy. In a true JG program, financing would come directly from the federal government (which would also alleviate the concerns of the 50 states that the funding costs for a new federal program were being dumped on them). Furthermore, the wage would be periodically adjusted to reflect changes in the cost of living and, equally important, linked to rising national productivity so that real living standards for all Americans would rise (the break between wages and labor productivity is a significant factor contributing to wage stagnation and growing income inequality).

Even if funded directly via the federal government, the administration and operation of the program can and should be decentralized to the state and local level. There is no need to create a new overweening federal bureaucracy. Registered not-for-profit organizations could propose projects for approval by responsible offices designated within each of the states and U.S. territories as well as the District of Columbia. Then the proposals should be submitted to the federal office for final approval and funding. To ensure transparency and accountability, the Labor Department should maintain a website providing details on all projects submitted, all projects approved and all projects started. To avoid simple “make-work” employment, project proposals could be evaluated on the following criteria: a) value to the community; b) value to the participants; c) likelihood of successful implementation of project; d) contribution to preparing workers for employment outside the program.

There is no question that the private sector plays an invaluable and dynamic role in providing employment, but it cannot always ensure enough jobs to keep up with population growth or speed economic recovery—much less achieve the social goal of full employment for all Americans, where they all become taxpayers who contribute to aggregate social welfare programs, not simply consume the benefits. Even at the peak of a business cycle, there are more people in need of jobs than there are jobs available. And even if one generously conceded a job multiplier effect as a result of the policies hitherto undertaken by Trump and the Republican-dominated Congress, the impact is muted by the fact that they are exclusively supply-side measures—subsidies to reduce labor costs and to promote exports, corporate tax cuts—to incentivize the businesses community to hire workers to produce for customers that either do not exist or do not have the requisite purchasing power because of subsidence wages.

Why make work a precondition to receiving benefits like Medicaid? It’s politically palatable because of a still prevailing notion that mass unemployment and welfare are the fault of the unemployed themselves, rather than a systemic failure of the economy, in the face of deficient demand. From this warped (and sometimes racist) perspective follows that all that needs to happen is for the unemployed to try harder and be more diligent, more disciplined, just as a person who is out of shape should start exercising more.

This is a surprisingly pervasive ideology, even existing at the highest levels of "respectable" policy-making. As transcripts from the Federal Reserve’s meetings back in 2011 illustrate, members enjoyed poking fun at those left behind in the wake of the crisis (this at a time when the unemployment rate was still a shocking 9 percent):

“'I frequently hear of jobs going unfilled because a large number of applicants have difficulty passing basic requirements like drug tests or simply demonstrating the requisite work ethic,’ said Dennis Lockhart, a former Citibank executive who ran the Atlanta Federal Reserve Bank. ‘One contact in the staffing industry told us that during their pretesting process, a majority—actually, 60 percent of applicants—failed to answer ‘0’ to the question of how many days a week it’s acceptable to miss work.’

“The room of central bankers then broke into laughter.

“Charles Plosser, the president of the Philadelphia Federal Reserve, cited ‘work ethic’ as a common complaint he heard in his district, both in rural and inner city areas. A contact of his who owned 60 McDonald’s restaurants said ‘passing drug tests, passing literacy tests, and work ethic are the primary problems he has in hiring people.'"

One would hope that the Fed actually appreciated that we live in an economy that is vulnerable to periodic declines in overall demand for goods and services that can create serious unemployment. Businesses lay people off when their customers stop buying, for any reason. When sales go down, jobs are lost, and when sales go up, jobs go up, as businesses hire to service all their new customers. Back in 2008 when the collapse of the credit system started to engender job losses in excess of 500,000 per month, our workforce didn’t become a lot lazier or less diligent all of a sudden. Of course, after many months of unemployment, a worker’s skill can degrade (with all of the accompanying social pathologies that often accompany long-term unemployment), which is why a Job Guarantee is preferable to a system of unemployment insurance or even a universal basic income (UBI).

The current system we have relies on an “army of unemployed” and excess capacity to try to dampen wage and price increases. Our government programs pay unemployed labor for not working and allow that labor to depreciate and develop behaviors that act as barriers to future private-sector employment. Potential taxpayers become social welfare recipients. How does that save money? Governments are subsidizing the effects of unemployment, rather than proactively trying to prevent its rise in the first place. And we create a whole new host of economic insecurity if we start making access to Medicaid conditional on finding a job on top of that.

The JG program would allow for the elimination of many existing government welfare payments for anyone not specifically targeted for exemption. It would also command broad political legitimacy, as Americans place a high value on work as the means through which individuals earn a livelihood. Labor would welcome the safety net of a guaranteed job, and business would recognize the benefit of a pool of available labor it could draw from at some spread to the government wage paid to JG employees. Employment security would be enhanced. And it would likely create greater bipartisan support for social welfare programs, by minimizing crude perceptions of the undeserving poor scrounging for the proverbial free lunch.

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Marshall Auerback is a market analyst and commentator.