Bard College Bard Digital Commons Theses - Graduate Programs in Economic Theory and Policy Levy Economics Institute of Bard College Spring 2021 A Job Guarantee Proposal for Austria: Public Policy for Full Employment and the Reduction of Poverty and Inequality Daniel Haim MS Follow this and additional works at: https://digitalcommons.bard.edu/levy_ms Part of the Economics Commons A Job Guarantee Proposal for Austria: Public Policy for Full Employment and the Reduction of Poverty and Inequality Thesis Submitted to Levy Economics Institute of Bard College by Daniel Haim Annandale-on-Hudson, New York, May 2021 ACKNOWLEDGEMENTS I want to thank Fulbright Austria; without their support, I would not have been able to go on this exciting journey. I am also indebted to the Chamber of Labor in Vienna, who generously supported me through their Maria Szécsi Fellowship and offered me an internship in which I developed the first ideas for this thesis. I want to express gratitude to all my professors at the Levy Economics Institute—Jan Kregel, Thomas Masterson, Michalis Nikiforos, Dimitri Papadimitriou, Luiza Nassif Pires, Fernando Rios-Avila, Martha Tepepa, L. Randall Wray, Ajit Zacharias, Gennaro Zezza—for pushing me to learn about economics diligently without losing sight of the bigger goal: changing the world to be a more equitable place for all. My thesis advisor, Thomas Masterson, has taught me how we can conceptualize, understand, and explain the inequalities and poverty in our societies with both patience and passion. Thank you, Bill Walker, for all your stories and our conversations in the library. Thank you, Liz Dunn, for helping me publish my first working paper. Thank you to all my colleagues and fellow grad students at the Levy Economics Institute, who made my time here both pleasurable and memorable. Lastly, I want to thank my partner and my family, who have nurtured my curiosity and supported me unconditionally in my pursuit of new knowledge. 1 PLAGIARISM STATEMENT I have written this project using my own words and ideas, except otherwise indicated. I have subsequently attributed each word, idea, figure, and table which is not my own to their respective authors. I am aware that paraphrasing is plagiarism unless the source is duly acknowledged. I understand that the incorporation of material from other works without acknowledgment will be treated as plagiarism. I have read and understand the Levy Economics Institute of Bard College statement on plagiarism and academic honesty as well as the relevant pages in the Student Handbook. Daniel Haim, 25 May 2021 2 ABSTRACT The Austrian labor market has experienced high rates of involuntary unemployment for several years, and the COVID-19 pandemic has likely exacerbated the problem. Part-time employment rates, especially high for women, have fed into time-related underemployment. Many people have left the labor force wanting to work. Aside from the short-lived Aktion 20,000 program, labor market policies have been ineffective in addressing these issues. A different, more promising approach is the job guarantee. In a job guarantee, the state acts as an employer-of-last resort, granting everyone willing to work the right to a job at a minimum wage. This thesis argues that a job guarantee is an effective and equitable policy to reach full employment, reduce poverty, and reduce income inequality in Austria. Applying a microsimulation approach, three benchmark scenarios are estimated using survey data from EU-SILC 2019, the Austrian labor force survey, and registry data from the Public Employment Service (Arbeitsmarktservice, AMS). In the simulation, between 169,460 and 613,483 people join the program, depending on eligibility criteria. A job guarantee is found to have large and significant impacts on the share of people at risk of poverty in Austria, decreasing the overall headcount ratio by 10.8 to 29.0 percent. Among job guarantee participants, the share of people at risk of poverty in the different benchmark scenarios drops from a range of 37.9 to 47.9 percent to a range of 4.3 to 19.3 percent. Income inequality measured by the Gini coefficient is found to decrease from 0.346 to between 0.335 and 0.341. The thesis offers suggestions for a just and equitable implementation of a job guarantee policy in Austria. Type of jobs, a participatory democratic implementation process, perspectives on gender-sensitive policy design, and ideas for the administration of the program are provided. The net costs of the different scenarios are estimated at 0.9 to 3.7 percent of 2020 GDP, not including multiplier effects. Keywords: Job Guarantee; Austria; Public Service Employment; Employer of Last Resort; ELR; Unemployment; Full Employment; Poverty; Inequality; Gender Inequality; Public Policy; Labor Market Policy; Policy Design JEL Classifications: D31, E24, E61, H41, I38, J21, J45, J68 3 TABLE OF CONTENTS List of Tables, Equations, and Figures ........................................................................................... 6 1 Introduction ............................................................................................................................ 8 2 Literature Review................................................................................................................. 10 2.1 Labor Market Policies in Austria .................................................................................. 10 2.2 Involuntary Unemployment in Economics ................................................................... 15 2.3 The Case for a Job Guarantee ....................................................................................... 23 3 Methodology ........................................................................................................................ 40 3.1 Data Sources and Concepts ........................................................................................... 40 3.2 Generating and Aging the Dataset ................................................................................ 43 3.3 Simulating Benchmark Scenarios ................................................................................. 51 3.4 Analyzing the Impacts on Poverty ................................................................................ 53 3.5 Analyzing the Impacts on Income Inequality ............................................................... 55 4 A Job Guarantee Proposal for Austria ................................................................................. 57 4.1 Stylized Facts About Target Groups ............................................................................. 57 4.2 Other Potential Target Groups ...................................................................................... 67 4.3 Defining a Program Wage and Hours Worked ............................................................. 70 5 Results of Microsimulation .................................................................................................. 72 5.1 Number and Breakdown of Participants in Benchmark Scenarios ............................... 72 5.2 Impacts on Poverty ........................................................................................................ 75 5.3 Impacts on Income Inequality ....................................................................................... 78 5.4 Impacts on Gender Pay Gap .......................................................................................... 82 6 Notes on Policy Design and Implementation....................................................................... 86 6.1 What Jobs Should a Job Guarantee Provide, and Where? ............................................ 86 6.2 A Participatory Democracy Approach .......................................................................... 89 6.3 Gender-sensitive Policy Design .................................................................................... 92 6.4 Costs and Administration .............................................................................................. 95 7 Conclusion ......................................................................................................................... 101 7.1 Limitations of Results and Suggestions for Further Research .................................... 101 4 7.2 Public Policy in Times of Crises ................................................................................. 103 8 Bibliography ...................................................................................................................... 107 Appendix A: Unemployment in EU-SILC ................................................................................ 120 Appendix B: Probit Model for Employment Status ................................................................... 124 Appendix C: Probit Model for Full-Time Employment Status ................................................. 127 Appendix D: Probit Model for Labor Force Participation ......................................................... 130 Appendix E: Indices of Agreed Minimum Wages, 2018-2020 ................................................. 133 Appendix F: Proposal for a Scoring System .............................................................................. 134 5 LIST OF TABLES, EQUATIONS, AND FIGURES Table 1 Results from Target Variable P031000 (EU-SILC 2019) .............................................. 50 Table 2 Job Guarantee Participation by Scenario ....................................................................... 72 Table 3 Poverty