In this paper we will
describe what has been called the "employer of last resort" (ELR) proposal as a
policy to achieve true full employment without inflation. We will answer three
main concerns about the program: 1) How can the government afford to hire all
those who might want to work?, 2) Won't full employment cause inflation?, and 3)
What will all those workers do?
In building the case for
ELR we show that the purpose of the program is to supplement but not to
replace alternative employment, such as that provided by private firms or other
government programs. By design, ELR offers employment to those who are “ready,
willing, and able” to work, but who have not been able to find jobs. Our claim
is that any country that operates with its own currency, and which adopts a
floating exchange rate, can implement an ELR program, but each nation might
formulate the specifics of its program in accordance with its own political and
Argentina is one such
nation. We therefore consider its experience with Plan Jefes de Hogar. We
examine the institutional design of the program and its impact on the
Argentinean economy and draw parallels between the theoretical proposals for ELR
and the practical experience with Jefes. Argentina’s case allows us to
assess the viability of ELR programs and to respond to critics. It also
demonstrates possible ways in which ELR can advance a sense of civic duty,
citizenship, social cohesion, reciprocity, and community involvement.
Furthermore, ELR can contribute to the redefinition of the meaning of work by
commanding recognition that certain forms of labor, such as caring and community
involvement, are socially useful. Finally, we uncover some deficiencies of the
Jefes program and assess its ability to ensure true full employment and
and the Possibility of Eliminating Unemployment
A principal ambition of
economic policy is to secure high (or full) employment at low (or zero)
inflation. Paradoxically, neither accepted economic theory nor practical
experience, appear to indicate that full employment is even possible with stable
prices. As a result, monetary policy around the world has been geared toward
raising the unemployment rate as a means to achieving stable prices;
unemployment is almost universally perceived as the inevitable cost of price
But when crises hit and the
cost of unemployment becomes too high, governments such as in Argentina are no
longer willing to sit idly by and watch unemployment rise. In this paper, we
argue that there need not be a trade-off between inflation and unemployment and
that stable prices and true full employment are indeed possible. We advance a
proposal of the government as an Employer of Last Resort (ELR), which guarantees
a zero unemployment rate by offering a job to all who are ready, willing, and
able to work at the going wage. Such policy, if properly designed, does not
introduce inflationary pressures and, in fact, helps stabilize prices throughout
the economy. We do not claim that the program will eliminate changes in any
given price index. The ELR program would still allow market (and other) forces
to impact both nominal and relative prices. However, the point is that the
proposed full employment policy would not generate the sort of inflationary
pressures that many economists believe must result from policies that generate
We will argue that ELR is
only possible when the government enjoys a truly sovereign control over its
national currency, i.e. it is not subject to a monetary regime such as fixed
exchange rates, currency boards or monetary unions. Governments as in the U.S.,
Canada, Japan and many others, which have flexible exchange rates and full
control over their tax and spending policies, are capable of implementing ELR.
Argentina joined the ranks of
true sovereign-currency-nations after it abandoned its currency board in January
2002. To tackle its severe economic crisis, it implemented a government
employment program called Plan Jefes de Hogar (Jefes,
hereafter), which in many ways resembles our ELR proposal.
In this paper we build the
case for ELR and later compare it with Jefes. The goal is to assess
Argentina’s ability to secure true full employment without generating
We argue that while
Argentina’s Jefes plan has considerable potential for eliminating
unemployment and inflation, its design and implementation are still deficient in
many ways to make it a true Employer of Last Resort. Nonetheless, the program
has been successful in achieving a number of goals. We outline where we see the
benefits and flaws of this program and we offer recommendations for making
Jefes a true ELR program, which can eliminate unemployment and enhance price
is the Employer of Last Resort Program?
For the past eight years, a
number of researchers (many of whom are now associated with the University of
Missouri-Kansas City) have been advocating a job creation program that has been
variously called the employer of last resort, job guarantee, public service
employment, or buffer stock employment program. These proposals were based on
earlier work by Hyman Minsky, Abba Lerner, Phillip Harvey, Wendell Gordon, and
Charles Killingsworth and recalled the U.S. New Deal experience with job
creation programs. Most of the work so far has been at the theoretical level
(Harvey 1989 and Ginsburg 1983 are important exceptions).
The essence of the proposal
is relatively simple: the government acts as the employer of last resort, hiring
all the labor that cannot find private sector employment. As Minsky put it:
The policy problem is to develop a strategy for
full employment that does not lead to instability, inflation, and unemployment.
The main instrument of such a policy is the creation of an infinitely elastic
demand for labor at a floor or minimum wage that does not depend upon long- and
short-run profit expectations of business. Since only government can divorce the
offering of employment from the profitability of hiring workers, the infinitely
elastic demand for labor must be created by government. (Minsky 1986, p. 308)
National governments with
sovereign control over their currencies can provide funding for a program that
guarantees a job to anyone who is ready, willing and able to work. For reasons
discussed later, we propose a fixed and uniform wage-benefit package for all
workers in the program. The program should be as decentralized as possible,
with program workers primarily performing tasks that are not currently done—or
at least, are in short supply. However, each individual country needs to come
up with a program that suits its own economic and political situation, as it was
done in Argentina in 2002.
At a minimum, ELR will have
the following six characteristics:
ELR Offers an Infinitely
Elastic Demand for Labor
ELR should offer a job to
anyone who is ready, willing and able to work, regardless of race, gender,
education, work experience, or immigration status, and regardless of the
performance of the economy. ELR will have no means tests and no term limits.
Just listing those conditions makes it clear why private firms cannot possibly
offer an infinitely elastic demand for labor. The government must play a role.
At a minimum, the national government must provide the wages and benefits for
the program, although this does not mean that ELR must be a government-run
ELR Hires off the Bottom
ELR is an employment safety
net. It should not compete with the private sector or with non-ELR employment in
the public sector. It is not a program that operates by “priming the pump,”
i.e. by raising aggregate demand. Trying to get to full employment simply by
priming the pump with, for example, military spending could generate inflation.
That is because military Keynesianism hires off the top. By definition, ELR
hires off the bottom; it is a buffer-stock program and as such, it will
stabilize the price of the bufferstock – in this case, wages at the bottom.
ELR Operates with Loose
Labor Markets and Creates an Employable Pool of Labor
The goal is full employment,
but with loose labor markets. This is virtually guaranteed if ELR hires off the
bottom. With ELR, labor markets are loose because there is always a pool of
labor available to be hired out of ELR and into private firms. Right now, loose
labor markets can only be maintained by keeping people out of work—the old
reserve army of the unemployed approach.
ELR Pays a Fixed Living
The ELR compensation package
should provide a decent standard of living even as it helps to maintain wage and
price stability. The size of the living wage will depend on each individual
country. A package of benefits could include healthcare, childcare, sick leave,
vacation, and contributions to Social Security, so that years spent in ELR would
count toward retirement.
ELR Maintains and
Enhances Human Capital
ELR experience prepares
workers for post-ELR work–whether in the private sector or in government. Thus,
ELR workers should learn useful work habits and skills. Training and retraining
should be an important component of every ELR job.
ELR Employees Perform
Finally, ELR workers are
engaged in useful activities. In advanced nations for example, they can focus on
the provision of public services, such as environmental clean-up. However,
developing nations like Argentina may have much greater need for public
infrastructure—for roads, public utilities, health services, and education.
These six features determine
what an ELR program ought to look like. This still leaves a lot of issues to be
examined. Who should administer the program? Who should do the hiring and
supervision of workers? Who should decide exactly what workers will do? There
are different models consistent with this general framework, and different
nations might take different approaches. In later sections we examine how
Argentina has answered these questions.
Before proceeding, it is
necessary to admit that our proposed policy could lead to an increase of
government spending; indeed, a persistent government deficit could result. We
take the position that there is nothing inherently wrong with big deficits;
these do not necessarily cause "crowding out", do not "burden" future
generations, and cannot lead to "financial ruin" of the government. This is
because all government spending for nations with sovereign control over their
currency is, in the first instance, financed by crediting a member bank's
account at the central bank, that is, government spending is "financed" by money
creation. Taxes are required only to generate a demand for this money; they are
never required to "finance" the government spending (which has already
occurred). Bond sales are then required to "drain" reserves (that is, bonds are
sold as an alternative to non-interest-bearing excess reserves) in order to hit
interest rate targets.
Thus, government deficits are
not "financed" by bond sales, deficits do not raise interest rates and "crowd
out" private investment (since the government need only sell so many bonds as
necessary to achieve its interest rate target—and can set that target
more-or-less anywhere it likes), and deficits do not automatically set up a
stream of interest payments (since bond sales are discretionary) and even when
they do, these are always met through crediting bank reserves; thus, there is no
"burden" of servicing government debt. There are necessary caveats to these
conclusions for the case where the government has issued debt denominated in
foreign currencies—but this action is almost never required.
In our view, fear of deficit
spending is irrational and should never be allowed to stand in the way of the
spending that may be required to generate full employment. This is not to say
that deficits cannot be too large. Once an economy is operating beyond full
employment, any increase of aggregate demand (whether by government or by the
private sector) might be inflationary.
Most importantly, the
universal abandonment of the gold standard by all of the large economies has
virtually eliminated all rational barriers to deficit spending as a means to
hire all of the unemployed.
We Can Afford ELR, Wouldn’t Such a Policy be Inflationary?
As we explained in the
previous section governments buy what they need by crediting bank accounts
(i.e., by money creation); they tax to generate a demand for that money and then
accept the same money in payment of taxes. Any resulting deficits allow the
population to hoard some of the money. It could be said that deficits “finance”
savings of the private sector. The deficit is of no consequence to the
government. If the government wants to, it can let the population trade the
money for interest earning bonds, but the government never needs to borrow its
own money from the public.
This does not mean that the
deficit cannot be too big and hence, inflationary, but it can also be too small
and deflationary. When the deficit is too small (when the government has
restricted the monetary issue and does not accommodate the private sector’s
desire to net save), unemployment results. The fear, of course, is that
government deficits might generate inflation before full employment can be
There are two
institutional characteristics, which ensure that ELR is not inflationary in and
of itself. Furthermore, there are other reasons why ELR can help stabilize
prices in the economy.
The operation of the ELR
program ensures that budget deficits will never be too large or too small.
Budget deficit are a normal
condition and budget surpluses should be generated only in unusually strong
expansions. Inflation can occur when aggregate demand is too large relative to
aggregate production or productive capacity, and deflation may occur when
aggregate demand is too low relative to total production or productive capacity.
If there is unemployment in the economy, this is evidence that aggregate demand
is too low. Under ELR, the unemployed will be hired at the basic ELR wage,
increasing the budget deficit. Income and spending will rise, increasing
aggregate demand. When aggregate demand has risen to just that level sufficient
to purchase the entirety of the full employment level of output, there will be
no more unemployment, and the budget deficit will cease expanding. Thus ELR
serves as a powerful automatic stabilizer, increasing the budget deficit and
thus aggregate output, income and expenditure, and employment when these are too
small, providing a built-in guard against deflation. Once unemployment drops to
zero, there will be no additional hiring into ELR, so the budget deficit will
cease to expand, ensuring that aggregate demand will not grow beyond the full
employment level of output (at current prices). If the budget deficit were to
increase beyond that point, this could push up prices, but the automatic
stabilizing feature of the ELR program ensures that this will not happen. Note
that ELR serves these important functions without any need to estimate or
predict national income data: spending automatically increases when it is too
low, and automatically stops when it reaches the appropriate level. Note also
that, under ELR, traditional fiscal and monetary policies remain available to
‘fine-tune’ aggregate demand, as well as the size of ELR relative to private
ELR wage is set exogenously by the government and is therefore a perfectly
stable benchmark price for labor—it is effectively a minimum wage.
government is willing to hire as few or as many people who want to work at the
basic ELR wage. It is therefore free to set the ELR wage exogenously, rather
than paying a market-determined wage. Being fixed, the program’s wage is
perfectly stable and sets a benchmark price for labor. It is thus unlikely that
inflation will be due to wage-related factors under such a system. In fact, the
exogenous pricing component of the ELR approach may be seen as a means of
defining the national currency in terms of fairly homogeneous, low- or
semi-skilled labor. The program wage thus serves as an anchor to which the
currency is tied. Because labor is a basic commodity, employed directly and
indirectly in the production of every other commodity, ELR offers a mechanism
for regulating the value of the currency, and thus controlling the price level.
In this sense, the ELR approach resembles a commodity bufferstock scheme—only
here it is labor that is being used as the bufferstock to stabilize the
These two institutional
features—1) deficit spending always at the right level and 2) the exogenously
fixed ELR wage—are enough to ensure that ELR will not introduce inflationary
pressures. There are other reasons, however, to believe that ELR will enhance
First, if ELR is directed
toward the development and maintenance of infrastructure and other public
resources, then it can have a positive impact on private sector productivity.
Such productivity enhancement helps ward off inflationary pressures. Second,
firms can continue to maintain reserve capacity even while ELR fully employs
labor. Firms plan reserve capacity to meet peak
demand and unexpected increases in demand for their products. Reserve capacity
at the firm level often translates into excess capacity at the industry and
economy-wide levels. This excess capacity is normally complemented by a reserve
army of unemployed labor that stands ready to enter production lines when demand
rises. ELR permits full employment of labor, but without sacrificing the reserve
capacity in terms of plant and equipment. By permitting the economy to run at
‘normal’ rates of capacity utilization, ELR presents the opportunity to have the
‘best of both worlds’: full employment of labor and non-inflationary reserve
Third, ELR can
be designed in such a way as to avoid inflationary bottleneck and other
rigidities, which are associated with high levels of private sector employment.
With ELR, full
employment can be attained, but without sacrificing the flexibility usually
associated with excess capacity and a pool of unemployed labor. ELR activities
are not constrained by private sector efficiency criteria, so methods of
production may be selected that do not draw resources
from sectors operating at high levels of capacity utilization. Numerical
flexibility is retained with ELR, as ELR workers are ready to enter the private
sector when the demand for labor rises. ELR may therefore be thought of as ‘full
employment with loose labor markets.’ ELR offers the real possibility of a
flexible full employment—a full employment that is not inflationary.
works tend to be less inflationary than the ‘dole’ because they increase both
aggregate supply and aggregate demand. Welfare and other support to the poor and
unemployed boost income, spending and demand, but ELR also buoys supply by
providing infrastructure and other good and service. This ELR is less likely to
contribute to inflation that the ‘dole’ which only stimulates aggregate demand.
Fifth, unemployment is associated
with the depreciation of skills and work habits. By employing those who would
otherwise be unemployed and by offering training and education, ELR helps
maintain and even appreciate human capital. Inflation can occur when real wages
rise faster than labor productivity. By enhancing labor productivity through the
maintenance and appreciation of human capital, ELR ensures this sort of
inflation will not occur.
Finally, ELR reduces a number
of other social and economic costs. By guaranteeing full employment, ELR reduces
the costs of unemployment society otherwise has to bear. ELR is thus likely to
significantly reduce certain expenditures on prisons and the criminal justice
system, health care, social work, and other spending necessitated by the effects
of unemployment. ELR reduces other social costs as well. For example, if ELR
workers are engaged in environmental protection and clean-up, education, health
care, child care, and other social services, this will reduce the direct and
indirect costs of pollution, illiteracy, ill health, and other societal
problems. Lastly, spending on ELR will reduce the cost of other social programs
such as unemployment insurance, welfare and other aid to the poor. ELR is thus
associated with reduced spending in a number of areas, ensuring that the nominal
cost of ELR would not be inflationary.
Employment Policy Requires Fiat Money
There is another
consideration that is related to the arguments of the previous sections. If the
currency issued by the government were "backed by" and made convertible into a
precious metal or any other currency that are of relatively fixed supply
(dollars, for example, as in the currency board of Argentina), then the ELR
proposal becomes impossible to implement during times of crisis. The government
would fear that if it were to hire all those unemployed and allow its deficit to
float, then there could always be a run on its currency as the public attempted
to convert government money to, say, dollars. The latest crisis in Argentina
demonstrated that such a scenario is a realistic possibility even without an ELR
program; government spending for any other policy is restricted by the currency
Even though the government
could try to supplement its gold or dollar reserves (for example, by raising
interest rates in an attempt to cause a positive flow of gold from foreign
sources), any level of backing less than 100% would still expose it to the
danger of a run. Alternatively, the government might devalue the currency by
reducing the conversion rate—however, this would be more likely to generate a
run due to expectations of further devaluation than it would be likely to
prevent a run. Thus, a gold standard (or any other standard which involves a
promise to convert money on demand to a relatively scarce reserve) is not
compatible with an ELR. Indeed, ELR would expose the government to the greatest
risk precisely when it was most needed, that is, during a collapse of the
private sector of the economy.
This was the experience
during the Great Depression in the United States. The low level of aggregate
demand and high level of desired net saving resulted in a peak unemployment rate
of 25% in 1933, and that remained high for the whole decade (unemployment was
still 15% as late as 1941). Many New Deal policies were put into place to
promote employment and raise aggregate demand. However, government spending of
the 1930s was never sufficient to pull the economy out of the depression.
Part of the reason for the
reluctance to deficit spend was the convertible nature of the currency. It has
always been common for governments to abandon convertibility during a crisis. As
a domestic gold drain began in 1934—as dollars were converted to gold—the
government abandoned convertibility domestically. Americans would never again be
allowed to convert dollars to gold. However, the US did not discover the
solution to the Depression until WWII broke out: the government abandoned gold
convertibility altogether and engaged in massive deficit spending. The two
actions were linked: the tremendous deficits would not have been thought
possible if the currency could be converted to limited gold reserves.
During WWII, the deficit rose
as high as 31% of GDP—or more than five times the highest ratio achieved during
the Great Depression—as the government purchased up to 60% of the nation's
output. Unemployment fell below 2% by 1943, and a national campaign greatly
expanded the labor force (as women came into the labor force in large numbers).
What had not been "financially" possible during the Great Depression suddenly
became possible. No doubt the deficit greatly exceeded desired net saving,
however, as discussed above, this did not generate significant inflation due to
a combination of rationing, wage and price controls, and patriotic net saving
(even with exceedingly low interest rates; for example, the short term
government borrowing rate was 3/8 of one percent). There was no fear that either
a run on currency or retiring government debt would lead to loss of gold
reserves as the promise of convertibility had been removed. For all practical
purposes, this allowed unemployment to disappear.
The Argentinean experience
demonstrated a similar point. The currency board and the severe Washington
Consensus austerity measures did not allow the Argentinean government to revive
its economy through fiscal stimulus programs. Only after abandoning the currency
board and putting a moratorium on debt payments was the government able to take
decisive action to help rescue its economy. Argentina was then able to fund
Jefes. There was no longer any major (real, as opposed to perceived) barrier
to carry out a full employment policy. But did Argentina implement a true full
Plan Jefes de Hogar
Through most of the 1990s,
Argentina had been the poster child for the Washington Consensus, adopting a
currency board, opening markets, downsizing government, and freeing capital.
After its economy collapsed and unemployment and poverty skyrocketed, it
implemented a limited employer of last resort program called Plan
Jefes de Hogar, to provide jobs to poor heads of households. The program has
provided jobs to 2 million workers or about 5% of the population, and about 13%
of the labor force. Argentina's experience allows us to assess the viability of
ELR programs and to respond to critics.
Argentina’s experience with
job creation is not new. During the second half of the 90s, the Argentine
government tried to tackle poverty and unemployment by instituting a program
called Trabajar. This program had three phases: the first began during
the 1995-96 Tequila crisis, the second was implemented during 1997-98, and the
third ended in 2002. The World Bank favored Trabajar and frequently gave
it positive reviews. From program targeting and administration to project
execution and evaluation, World Bank ratings of Trabajar varied mostly
between “satisfactory” and “highly satisfactory” (see World Bank Report No:
26134-AR). Jefes is effectively the fourth phase of this social
protection program, although technically it was executed as a replacement for
Trabajar. The institutional design of the latter was no longer capable of
providing the necessary safety net to deal with the large-scale social
dislocation, poverty and unemployment that precipitated from the 2001-2002
economic crisis. Jefes was conceived to be far more comprehensive.
This last phase began in
April 2002. The Jefes program provides a payment of 150 pesos per month
to a head of household for a minimum of 4 hours of work daily. Participants work
in community services and small construction or maintenance activities, or are
directed to training programs (including finishing basic education). The
household must contain children under age 18, persons with handicaps, or a
pregnant woman. Households are generally limited to one participant in the
Jefes program. The program was intended to be one of the government’s
primary programs to deal with the economic crisis that gripped Argentina with
the collapse of the currency board. Most other safety net programs were
eliminated or reduced in order to shift funding to Jefes. The Ministry of
Labor also operates another employment program, Programa de Emergencia
Laboral (PEL) with a design very similar to that of Jefes—monthly
benefits are the same, but it includes some beneficiaries that do not qualify
Government’s total spending
on Jefes and PEL is currently equal to about 1% of GDP, with
nearly 2 million participants (about 1.6 million in Jefes and 300,000 in
PEL). This is out of a population of only 37 million, or more than 5% of
the population. The size of the program was a concern, not only because of
organizational demands but also because of the cost. However, it should be noted
that the U.S. spends 1% of GDP on social assistance, while France and the UK
spend 3-4% of GDP on such programs. Given a national poverty rate above 50%, and
with 9.6 million indigents and a child poverty rate approaching 75%, Argentina’s
spending is small relative to needs.
According to the World Bank’s
reviews (see for example World Bank Report No: 23710-AR), the program has been
successful in achieving a number of goals. First, program spending is well
targeted to the intended population—poor households with children. Second, the
program has provided needed services and small infrastructure projects in poor
communities, with most projects successfully completed and operating. Third, the
program has increased income of poor households, although it has not pulled them
above the poverty line (this is not surprising, because of the low monthly
income provided through the program). Hence, the poverty rate in Argentina
continued to rise during the first months after the implementation of Jefes.
While beneficiaries report satisfaction with the program, there are reports of
favoritism, and some home country researchers have made critiques of its design.
One of the most surprising
results of the program has been the large influx of women into Jefes—women
account for over 60% of program participants. It is suspected that many
households have chosen to allow the wife to participate in the program while the
husband attempts to find private sector work, including work in the underground
economy. Some consider this to be an undesirable outcome. In addition to the
program’s apparent inability to reduce significantly poverty rates, it has not
been successful at reducing unemployment and underemployment rates to desirable
levels either. Part of the reason is the entry of women into the program that
had previously been outside the labor force. Hence, it is probable that the
program would have to expand in order to produce a considerable drop in measured
unemployment and underemployment. This could be accomplished by relaxing rules
so that more than one family member could participate in the program. More
generally, if the program would move beyond the head of household and drop means
testing, it could provide jobs to all willing to work at the base wage.
The implementation of
Jefes was budgeted at a total cost of $1987 million, of which $600 million
was funded through a Specific Investment Loan from the World Bank. The World
Bank project was implemented over a two-year period, with an expected closing
date of 07/30/2004. Almost all of the World Bank’s contributions were targeted
to fund wages paid to program participants. It was estimated that the World Bank
would finance about 60% of the total number of working participants over the
life of the World Bank project. Given the design of the program, which is
targeted toward providing community services and infrastructure to raise the
quality of life in poor neighborhoods, it is not likely that Argentina’s dollar
earnings will be increased significantly by the program. Hence, the government’s
ability to repay the World Bank loan is not likely to be directly increased by
the Jefes program. This seems to raise our main concern about the
program’s long run viability. In point of fact, the World Bank foreign currency
loan was not required because program participants are paid in pesos. It appears
that both Argentina and the World Bank recognized this, and that the real
purpose of the loan was to allow Argentina to continue to service its
outstanding dollar debts. We believe that such loans amount to a Ponzi scheme
that only increases the likelihood that Argentina will have to default on its
Another point of concern is
that the program is designed specifically to limit entry. This has resulted in
some cases of discrimination as potential participants were denied access even
though they appeared to meet program requirements. More importantly, and as
discussed above, households have been forced to make a choice concerning who
would participate in the program. Frequently, women have entered the labor force
to participate in Jefes, while their husbands have tried to find
employment, often in the underground market. This result has also generated
domestic criticism, in part because the program is not reducing unemployment
rates significantly. If entry into the program were not restricted to one
participant per family, it is probable that many poor families would send both
husband and wife into the program. This would provide a minimum family income of
300 pesos monthly, lifting some families out of poverty. Hence, not only would
poverty rates fall, but unemployment rates would also decline. If the program
were broadened further, extended beyond heads of households with children,
persons with disabilities, or pregnant women, participation would almost
certainly grow well beyond 2 million. The unemployment rate would fall much
further, as would the poverty rate.
1.Indigence and Poverty
Despite the program
deficiencies outlined above, Jefes has been successful in reducing
indigence rates among its participants. Indigence is extreme poverty measured
in income necessary to purchase the minimum amount of food calories per day.
After four months after the implementation of Jefes in April 2002, the
indigence rates among participating households had fallen by nearly 25% and
among individuals by over 18% (Figure 1). As noted above, reduction in poverty
has been negligent, largely because the program restricts participation to heads
of household and because the income it provides is below the official poverty
Decline in Indigence
and Poverty of Jefes
The effect on unemployment
has been somewhat disappointing. Nonetheless, immediately after the
implementation of the Jefes program in April of 2002, the unemployment
rate fell by several percentage points. In May 2002, the unemployment rate was a
record 21.5 percent, while in May 2003 it had dropped to 15.6 percent. In the
first quarter of 2005 the unemployment rate stood at 13 percent, however the
methodology of measurement had changed in 2003. As a result, the labor force
participation rate jumped significantly mainly because much broader and detailed
survey questions were being asked, making the unemployment rate significantly
larger than under the old methodology. Once again we point out that the fact
that Jefes limits participation to heads of household is the main reason
why the drop in unemployment is larger.
There are other ways in which
we can assess program success. As we have already mentioned the program is well
targeted. The beneficiaries are largely those of households with at least one
unmet basic need (Figure 2). These are people who live in overcrowded or
otherwise inadequate housing conditions, with poor sanitation and very high
dependency ratios, which measure the number of family members per employed
person in the household. As Figure 2 shows, the average dependency ratio in
families with Jefes beneficiaries is 3.9 people per employed individual.
Secondly, Jefes workers are individuals with low educational attainment
and low income; the vast majority of Jefes beneficiaries have high school
education or less (Figure 3) and fall primarily in the bottom two income
quintiles (Figure 4). One surprising result, as we already noted, has been the
significant influx of women into the program, who account for 64% of program
participants (Figure 5). As the Jefes income is rather small, it seems
that often the woman has been designated the “head of the household” in order to
receive the benefit as a supplementary income, while the man in the household
attempts to find work elsewhere.
Beneficiaries According to Unmet Basic Needs
Beneficiaries According to Educational Attainment
Beneficiaries According to Distribution of Personal Income
Figure 5:Beneficiaries by Gender
The response of the
beneficiaries to the Jefes plan has also been positive. As Figure 6
shows, only a small fraction of Jefes workers have said that they are
dissatisfied with the program, while 90% are either satisfied or very satisfied
with it. When asked how they felt when requesting the program, most people
(over 70%) reported “respected” as opposed to “undervalued” or “politically
used” (Figure 7). Some of the reasons for this satisfaction include the
opportunity “to do something” and “help the community,” but note that the second
largest reason for satisfaction that people report is the good environment that
Jefes jobs provide (Figure 8). When asked what they would prefer to do
as part of Jefes, most people stated that they would like to be involved
in training and community projects (Figure 9).
Degree of Satisfaction with the Program
Did You Feel When You Requested the Program?
Reasons Why You Were Satisfied
Would You Like to Do As Part of the Program?
And the program allows them
to do just that—help the community. A large number of projects are designed
specifically to cater to community needs by providing a wide range of goods and
services. As Figure 10 shows 87% of Jefes beneficiaries work in
community projects. These include primarily agricultural micro-enterprises and
various social and community services (Figure 11). Some specific examples
include cleaning and environmental support in the agricultural sector, improving
the sewer systems and water-drainages. Much of the community work is performed
in local community centers, thus renovation of existing centers or construction
of new ones represent many small Jefes infrastructure projects. Examples
of community services performed in these centers include food kitchens or family
attention centers which address domestic violence issues or provide temporary
shelter and other services to abused women or children. Other projects include
health promotion programs, which offer basic education on sanitary issues—how to
boil water, for example, or how to handle food and avoid dysentery and other
infections. Others deal with mending old clothes that have been donated to poor
communities. A similar program exists for the public libraries, where scrapped
books from wealthier regions are repaired and catalogued for public libraries in
poorer communities. Large-scale infrastructure projects, primarily under the
jurisdiction of the Ministry of Infrastructure, also hire Jefes workers
for the repair of Argentina’s roads and bridges.
Project Typology: Distribution of Jefes
Workers by Type of Employment
Project Typology: Types of Community Projects
A peculiar aspect of the
project organization is that the federal government finances no more than 80%
(but usually only 60%) of the various Jefes projects. This provision
requires that the project executing firms and NGOs contribute with their own
resources—an arrangement, which commands a higher level of commitment from both
sides of the public and private sphere.
6.Administration and the Meaning of Work
The Argentinean experience
shows that an ELR program can be up and running in a very short period of time.
In Argentina, it took no more than five months. There are other lessons we can
learn from Jefes. The program has allowed local and municipal governments
who are most familiar with the economic needs of their communities to administer
the program. In addition, it has recognized certain kinds of activities as
socially useful, thereby helping redefine the meaning of work.
The program was born via a
presidential degree in January 2002 during the short term of president Duhale,
but was actually signed into law on April 3, 2002.
Between April 3 and May 17, 2002 most unemployed heads of households who were
ready, willing and able to work and who met the eligibility conditions were
issued social security cards and registered in a national database. Participants
were also required to register their children in school and take the necessary
vaccinations. These are two added benefits of the program design, made possible
by simple eligibility criteria.
One of the most
distinguishing features of the program’s institutional design is its
decentralized model of administration. The Argentinean federal government
provides the funding, general guidelines for the execution of work projects, and
some auxiliary services for managing the program. Such services include
maintaining a national registry of program beneficiaries, as well as databases
that track all projects that have been proposed, approved, denied and completed.
Note that all these databases are publicly available, thereby increasing
transparency and reducing corruption.
The actual administration of
the program, however, is primarily executed by the municipal governments. The
municipalities are responsible for assessing the pressing needs and available
resources of their communities and for evaluating the projects proposed by the
local non-profits or NGOs. For those projects that have been approved, the
municipality contacts program beneficiaries informing them of the availability,
time, and place of work.
In addition, by remunerating
certain activities Jefes has helped to broaden the meaning of work. For
example, in the past, some people have delivered medicine or read newspapers to
the elderly on purely voluntary basis; now the Jefes program allows for
these to be paid activities. Other undertakings that may not be in the purview
of profit-making enterprises (e.g., environmental cleanup) are also part of
these government-funded jobs.
The preliminary indication is
that the projects provide needed service to the community. Furthermore the
program has enhanced civic participation by involving many people across
different social strata in the political process.
7.Formalizing the market and reintegration of Jefes workers into the
Argentina’s program has helped ‘formalize’ underground activity. By registering
the unemployed, issuing them social security cards, involving them in training
and employment, and assisting them in reentering the private sector markets, the
program aims to move people from the informal to the formal sector and eliminate
gray economic activities.
The next chart (Figure 12)
shows the evolution in the ‘insertion rate’ of beneficiaries into the labor
market. In September 2003 over 76,000 Jefes workers entered the labor
market. These numbers are rather small, and therefore more recent data is
required to assess the programsability to reintegrate workers into the
Reentry into the Private Sector:Evolution
in the insertion rate of beneficiaries into the labor market
Finally, the ELR wage is
supposed to put a floor on wages in both the private and public sectors. The
Argentinean experience seems to confirm this expectation (see Figure 13). When
examining the wages which Jefes beneficiaries receive after (re)entering
the private sector, we observe that over 93 percent of these workers receive
wages of 150 pesos or above. This suggests that the Jefes wage is the
effective minimum wage in the economy.
Figure 13:Reentry into the Private Sector:
The Jefes wage is the effective minimum wage
The Argentine ministry of
labor estimates that the effect of Jefes on growth is overwhelmingly
positive. The multiplier effect of the increase in income due to the Jefes
benefit is a whopping 2.57. This, according to their methodology, is a
With a multiplier of 2.57, the impact of 150 pesos per person per month for 1.8
million people (the number of beneficiaries at the time of these calculations),
the annual addition to GDP is calculated to be 8.327 billion pesos, which
represents 2.49% of GDP
Is Argentina’s Plan
Jefes de Hogar an ELR Program?
The Argentinean direct job
creation program Plan Jefes de Hogar has many institutional features,
which could potentially make it a true employer of last resort program (Table
1). However, it is still a partial employment program and therefore, in its
present state, it does not benefit from all the desirable ELR features. It is
clear that Jefes has not eliminated unemployment. Furthermore, it is
difficult to assess its anti-inflationary features, because it is not clear that
the program has a powerful countercyclical bufferstock mechanism. We can however
see that it provides an institutional framework which can be further enhanced
and elaborated to achieve the desired outcomes.
In sum, until the program stops limiting entry, eliminates means tests and
offers a living wage, it cannot be considered a true employer of last resort.
Furthermore, for its long-term viability it needs to be entirely financed out of
pesos and not though dollar denominated loans.
TABLE 1. Is Jefes an
Infinitely Elastic Demand for Labor
means tests, no term limits
No. It is
means-tested and limited to heads of household only, but it does
not have term limits.
off the bottom
There is some indication of people moving into private sector
albeit not in large numbers.
Yes, but it
is not a living wage.
Enhancing Human Capital
the training and education component is still small relative to
We do believe, however,
that the Jefes experience has demonstrated some beneficial
characteristics of job creation programs. Jefes shows that a massive
employment program can be implemented in relatively short time, which can be
property targeted to the intended population, which can be favorably
received by its beneficiaries and which can perform useful activities that
serve destitute communities. The Argentina model also shows how a federally
funded program can be administered locally with heavy participation of
non-profit and non-governmental institutions. Finally, it can help broaden
the meaning of work by remunerating activities as family care and community
there are also challenges ahead. To be truly successful such programs should
not limit entry, should pay a living wage and should have a bufferstock
feature. More effort is necessary to minimize cases of corruption and abuse
(see Table 2). In any event Argentina provides a roadmap for dealing with
problems related to program design and implementation.
capable of securing full employment and price stability? We believe that the
present institutional design offers fertile ground for making this a
successful program. The potential is there, if there is a political will and
commitment to take the necessary steps and adjustments, which will secure
prosperity and high growth.
2. Jefes: Report Card
The program is
well targeted to the intended population – poor families with
The program is
not universal and thus it has not eliminated unemployment .
The program is
well received by beneficiaries. It has reduced indigency rates.
Jefes offers below-poverty wage and
thus its impact on poverty is minimal.
The program is
mostly federally funded. The government has sovereign control over
its currency and therefore completely capable of funding Jefes
in its entirety.
The program is
partially funded by WB loan. Jefes jobs are generally not
dollar-generating activities. Thus program financing only increases
Argentina’s foreign indebtedness.
The program is
locally administered by municipalities who are most familiar with
their communities’ needs.
Jefes has not yet exhibited a clear
bufferstock mechanism (in part because Jefes has been in
operation for a short period of time).
beneficiaries perform useful projects, targeted to community needs
and making use of available resources.
reports of abuse and corruption.
Jefes has helped broaden the meaning
of work, by recognizing caring and community involvement as socially
seems to be losing political support.
Jefes helpsformalize underground activity.
Jefes workers are issued social security cards. Employers who
hire Jefes workers must register them and pay benefits.
there is no better way to conclude than with John Maynard Keynes call for
sensible economic policies. Keynes argued:
The Conservative belief that
there is some law of nature which prevents men from being employed, that it
is “rash” to employ men, and that it is financially “sound” to maintain a
tenth of the population in idleness for an indefinite period, is crazily
improbable—the sort of thing which no man could believe who had not had his
head fuddled with nonsense for years and years.... Our main task, therefore,
will be to confirm the reader’s instinct that what seems sensible
is sensible, and what seems nonsense is nonsense. We shall
try to show him that the conclusion, that if new forms of employment are
offered more men will be employed, is as obvious as it sounds and contains
no hidden snags; that to set unemployed men to work on useful tasks does
what it appears to do, namely, increases the national wealth; and that the
notion, that we shall, for intricate reasons, ruin ourselves financially if
we use this means to increase our well-being, is what it looks like—a bogy.
–John Maynard Keynes 1972,
Impacto Macroeconómico Del Programa
Jefas y Jefes De Hogar, Ministerio de Trabajo, Empleo y Seguridad Social,
Plan Jefas y Jefes de Hogar Desocupados:
Un año de gestión, Mayo 2002 - Mayo 2003, Ministerio de Trabajo, Empleo y
Seguridad Social, 2003.
Implementation Completion Report
(SCL-43660) on a Loan in the Amount of US$284 Million Equivalent to the
Argentine Republic for a Third Social Protection Project, World Bank Report
No: 26134-AR, June 30, 2003.
Project Appraisal Document on a Proposed
Loan in the Amount of US$600 Million to the Argentine Republic for the Jefes
De Hogar (Heads of Household) Program Project
World Bank Report No: 23710-AR, October
Ginsburg, Helen. 1983. Full Employment
and Public Policy: the United States and Sweden. Lexington, MA: Lexington
Gordon, Wendell. September 1997. “Job
Assurance – the Job Guarantee Revisited.” Journal of Economic Issues. v. 31.
Harvey, Philip. 1989. Securing the Right
to Employment: Social Welfare Policy and the Unemployed in the United
States. Princeton, NJ: Princeton University Press.
Keynes, J.M. 1972. The Collected
Writings of John Maynard Keynes, Volume IX: Essays in Persuasion. Donald
Moggridge (ed.). London and Basingstoke: Macmillan/Cambridge University
Lerner, Abba. “An Integrated Full
Employment Policy.” International Postwar Problems. pp. 69-129.
Marshall, Adriana. March 2004. “Labour
Market Policies and Regulations in Argentina, Brazil and Mexico: Programmes
and Impacts.” ILO Employment Strategy Paper #13.
Minsky, Hyman. 1986. Stabilizing and
Unstable Economy. New Haven, CT: Yale University Press.
Wray, L. Randall.
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The authors are, respectively, Associate Director for Economic Analysis
and Director of Research at the Center for Full Employment and Price
Stability, University of Missouri-Kansas City.
Galasso and Ravallion (2003) and Marshall (2004) argue that program
coverage extends to only about 8% of the unemployed because it restricts
participation to heads of households leaving many poor and unemployed
individuals without this government safety net.
Decreto Nº 565/2002- Creación del PROGRAMA JEFES DE HOGAR para ser aplicado
mientras dure la Emergencia Ocupacional Nacional
For example, the Ministry of Labor collects data on Jefes
beneficiaries, which is available monthly and lists all workers (by name
and registry number) involved in the projects of each municipality.
To calculate disposable income, the greater VAT tax on consumption goods
of 21% is used, as opposed to the 13% percent income tax, which
substantially reduces the value of the multiplier. Furthermore, the
marginal propensity to consume (mpc) is set to 0.9, even though
there are strong reasons to believe that for those people in the lowest
income quintiles (i.e., those receiving the Jefes income) the
value of mpc is closer to 1. In other words the poorest workers
consumer their wages in their entirety leaving nothing to savings.