What Makes a Jobs Bil Work? (A Job Insurance Supplement)

Introduction:

Up until a week ago, the prospects for a second round of economic stimulus looked bleak; an ominous coalition of Senate moderates (the same folks who shrank the stimulus and cut out Pelosi’s teacher preservation program, and who’ve tried their level best to stop the health care reform effort in its tracks) threatened to force the U.S government into default unless Congress agreed to a deficit-reduction committee with authority over Social Security and Medicare, and President Obama responded by talking up deficit reduction in his next budget.

And then the October jobs report came out, showing unemployment rising over the magical 10% level that signals political disaster in a midterm election. Suddenly, President Obama began to talk up a December “jobs summit,” and Senator Reid announced that he’s pulling together a pre-election jobs bill.

This sudden momentum is welcome, but if we want to significantly reduce unemployment, and thereby protect our Democratic Congress at the same time, we need to be very careful about what goes into this jobs bill.

Evaluating Options:

To begin with, let’s start by analyzing the policy options that have been widely discussed in the media – a new jobs tax credit for employers, a payroll tax holiday, and a package of infrastructure public works projects.

New Jobs Tax Credit:

One of the elements that the Obama administration has repeatedly mentioned, which was initially proposed but eliminated from the stimulus bill back in January, is a tax credit of $3,000 per new worker hired. Economists tend to be rather skeptical of such tax breaks: given that the average total compensation per worker comes out to about $50,000 a year, they argue, $3,000 is unlikely to make much of a difference in hiring decisions.

The historical evidence suggests more of a mixed bag. During the Nixon Administration, a New Jobs Tax Credit was established, providing a 50% subsidy on the first $10,000 in wages (or about $5,000 per head). Taking the average of three different studies’ estimates, the New Jobs Tax Credit created about 468,000 jobs, at a cost of $6,480-$58,000 per job (in 2008 dollars). While this suggests that a new jobs credit could conceivably create some jobs, given that the current proposal is quite a bit less, we might only see 280,000 jobs for $840 million.

While that isn’t bad on a per-dollar basis, it’s still only a .18% drop in the bucket – not even enough to bring us down to 10% even. (Note: to be completely fair, I should note that Timothy Bartik and John Bishop of the Economic Policy Institute, who have more expertise in these kinds of calculators than I do, estimate that a properly-designed New Job Tax Credit of 10-15% could create 2.8 million jobs in the first year, at a gross cost of $80 billion (net cost of $27 billion. This would give us an unemployment rate of 8.1%, which is pretty good for $27 billion.)

Payroll Tax Holiday:

One idea that has an unusual amount of bi-partisan support from progressive economists like L. Randall Wray and conservative anti-taxers is a payroll tax holiday for employers. The strange thing about it is that, when you think about what it does, a payroll tax holiday only differs from Obama’s new jobs credit in terms of scale, not kind, coming out to a $2,500 credit for employers and a $2,500 credit for employees.

This comes out roughly equivalent in scale to the New Jobs Tax Credit of the 1970s, suggesting a potential direct effect of somewhere around 468,000 jobs, which is good, but would only drop the unemployment rate from 10.2% to 9.87%. On the other hand, as Wray and others have pointed out, a payroll tax credit – since it also results in increased take-home pay for workers – would provide additional stimulus of about $685 billion, which might increase the overall effect (if we take the stimulus’ 3.3 million for $787 billion) to 3.339 million jobs. This would bring unemployment down to 8%, which is a significant improvement. (Note: the Center for Budget and Policy priorities is rather more skeptical of the idea.)

The downside of the payroll tax holiday is twofold: first, politically, a $685 billion price tag would be extremely hard to swallow, even in the context of 10% unemployment. Second, there is the issue of timing. As we have seen, the stimulus has shown significant results in terms of turning economic growth around and at least stemming layoffs – but it’s taken 8-9 months, and we still haven’t gotten to the point of substantial jobs growth. It is unlikely that the electorate would see enough in the way of results before November to make this effort worth the political effort.

Public Works/ Stimulus:

Another option that has been discussed, especially since the stimulus package only ended up containing about $275 billion in public works (another $288 billion went to tax cuts and $224 billion to entitlement programs like UI and Food Stamps), is a second round of stimulus. Ideas for said stimulus have been varied – Lawrence Mishel and Ross Eisenbray have recommended $160 billion in aid to the states and another $10 billion in school repair and maintenance, L. Randall Wray has called for $400 billion split between Unemployment Insurance and aid to states, others have called for more money for a “smart” energy grid and other green projects, and so on.

What we have learned from the current stimulus is that your bog-standard Keynesian stimulus does work. Despite being split into tax cuts, entitlements, and public works, and despite the fact that only 58% of moneys have been awarded, and only 13% received (according to recovery.org), we’ve still created or saved 685,000 jobs and created about 2.3% in additional GDP growth. At this rate, we’re on track to hit 3.3 million jobs created or saved overall, which should mean an additional 2.7 million jobs once the public works contracts are fully let and the crews are hired.

However, what we have also learned is that it takes time. We very likely won’t see the stimulus take its full effect for at least a year. A new stimulus package would undoubtedly have a significant economic impact; what is more doubtful is how quickly traditional public works and/or stimulus could take effect.

Direct Job Creation:

As I have discussed in my Job Insurance series, the direct creation of jobs is a potentially powerful vehicle for creating a large number of jobs for a relatively low amount of money (compared to traditional aggregate stimulus) quickly.

A youth jobs program, as discussed here, could create jobs at about $22 billion for every million jobs created. An adult jobs program, that seeks to provide a wage that could keep a family of four out of poverty, could create jobs at the rate of about $35 billion per million jobs created. The direct job creation route has certain advantages over the options discussed before: unlike a new jobs tax cut or a payroll tax holiday, direct job creation does not depend on the uncertain reaction of employers in what is a very dicey market. As we have seen, despite the marked improvement in terms of economic growth, employers have been rather hesitant to add employees, and have turned instead to getting more out of their existing workforce - even as average hours worked per week has dropped to about 32, output per hour has risen by 9.7% in the third quarter of 2009. Secondly, direct job creation can be extremely fast (in part because it doesn't have to wait for the effects of stimulus to percolate throughout the economy) - the Civil Works Administration in 1933 was able to put 4.27 million people to work in three months. A direct jobs creation program would produce visible results well in advance of the 2010 midterm elections.

One of the most positive signs that I have seen recently is that the idea of direct job creation, which wasn't even mentioned during the stimulus debates, has started to make its way back into the discourse. Both Mishel and Eisenbray call for a "public service employment" program (i.e, a jobs program where workers are tasked to providing public services instead of constructing public goods) of at least $40 billion. It' somewhat hard to calculate how many jobs that works out to (given that Mishel and Eisenbray call for such jobs to pay the prevailing wage, which varies from state to state), but if we take an extremely rough estimate of $15 an hour, that would come out to at least a million jobs per $40 billion.

Getting Where We Need to Go:

So the question is, how do we build a jobs bill from this range of options? The trick here is to balance our objective of making a significant and fast dent in our U3 unemployment rate of 10.2% and our political constraints here regarding the budget deficit.

Wray and the other progressive economists, as is the wise political move, are arguing for the largest possible package, to push the "Overton window" of this debate as far as it will go, which is why Wray is calling for $400 billion just in aid to the states, and Mishel/Eisenbray call for a package to roughly works out to $293 billion (including $160 billion in aid to states, $40 billion in direct job creation, $80 billion for a new jobs credit, and $13 billion for school repair/maintenance).

My guess would be that at the very most, we're talking about anywhere from $100-300 billion. I certainly don't think anything larger than that will fly at the moment. Granted, this effort becomes much easier if the jobs bill can be made to be deficit-neutral by raising some revenue. Mishel and Eisenbray's suggestion for a Tobin tax to generate about $100-150 billion a year is a good one, allowing potentially a quite strong package to be funded without much difficulty.

Taking Mishel/Eisenbray's $293 billion package as a rough guideline, I think we could create a package that created 8.8 million jobs if we combined a strong direct jobs creation package of 2.25 million jobs for youth (price tag = $49.5 billion) and 3.75 million jobs for adults (price tag = $131.25 billion) with Bartik/Bishop's version of the New Jobs Tax Credit (price tag = $80 billion), coming in at $281 billion. This would drop unemployment down to 4%, and it would do it well within a year, creating a drastic sea-change in both the larger economy and in the public eye.

Making the package deficit neutral isn't particularly easy, but it is possible - the suggested Tobin Tax would make it deficit-neutral within 3 years; establishing the youth and adult jobs programs as social insurance would generate enough revenue to pay back the initial cost within 7 years. And as I'll discuss in my next section, this is only scratching the surface of potential revenue mechanisms.

Conclusion:

Back in January when the stimulus was being debated, a jobs bill was but one element among many, and the political winds favored tax cuts and traditional public works (and let's not forget, a smaller package than initially proposed). Now a jobs bill has become a matter of political survival. And this is by no means a bad thing. Because it is when politicians most fear defeat that their traditional fear of the new and the untried becomes weakest. We should take advantage of this sudden change in the winds; it might not come again.

Meta: 

Comments

Keep in mind

We don't know what's in the discussed bill yet - I've started making some inquiries, but I haven't found anything solid yet.

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what about options not discussed?

Like cancel the offshore outsourcing of Federal and State contracts. Get China to float the yuan. Create a federal venture capital fund, using loans from the Federal Government, with companies stipulation they must be incorporated in the U.S. and must hire U.S. workers.

How about targeting advanced manufacturing and subsidize it here in the U.S.?

How about trade reform?

How about corporate tax code reform. They could pass a fairly simple bill to repeal the tax deferrals which make incentives for offshore outsourcing. This was a campaign promise.

What about infrastructure jobs? Firstly some of the money you're talking about, per job creation doesn't sound very efficient but more importantly, one can create jobs which do something, i.e. give back, money that the Federal government would have to pay anyway, such as infrastructure. They also need older workers who could be used as a dual purpose, not only would that give them work, but also allow them to train the untrained. They have the skills and there are advanced skills that, again, due to offshore outsourcing are plain being lost because there is no job where that person can apply their craft. The #1 area I'm thinking of here is tool & die makers, but there are many others.

Frankly I think a jobs bill needs a few things. Firstly they must verify that the job is here in the United States and it is going to a U.S. citizen/perm resident. Then, they need to look at this as one would any business. Where is the most bang for the buck in terms of products, i.e. which bridge is about to collapse if they do not get funds. I know people would like that money to be distributed regionally, but I think that's a mistake and instead they should go to projects and then offer temporary housing and travel so people in seriously depressed regions can go work at these jobs. Probably day care as well.

But my main point is that $35 billion per $1 million jobs is way, way too high. That's a 3500:1 ratio! So is the $22 Billion per 1 million. No way! That has to be inefficient as hell.

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Well

The first 4 things you discuss probably won't be in, since they're long-term rather than short-term.

Infrastructure is good, it's just that as we've seen it takes quite some time to get going.

Regarding the efficiency question - yes, direct job creation is more expensive than a tax credit. But it's more effective. You create jobs directly - you get the number of jobs you planned for, plus some more from the multiplier effect of their wages.

But as you can see from the historical evidence on the New Jobs Tax Credit - dollar for dollar it worked out great, but it only created about a half-million jobs. In order to really make a difference, you need something "bigger bore," and that costs money.

However, there is something I didn't discuss, which is the return on the investment. The jobs programs I discuss, like the historical WPA, largely involve unskilled workers using basic hand tools and techniques to do "light construction," and unskilled workers providing public services. However, you still create "infrastructure," as you would in the proposed infrastructure, because even a less efficient mass of workers still generates a lot of work, and that labor power which would otherwise be lost to time is then gained.

Just doing a rough calculation: the average American worker produces $105k per year. Even if we assume a very low productivity of these jobs program workers, you only need to hit $35k per worker (or 1/3 as efficient as the average worker) to break even in terms of money spent versus production created. I don't think it's out of the realm of possibility that we'd be looking at a least $52.5k per worker (or 1/2 as efficient), which would result in a net addition of $17.5k per worker. For a million workers, that means by spending $35 billion, you create an additional $17.5 billion over your $35 billion investment - or .125% GDP (and that doesn't count the multiplier effect of the wages, etc.).

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forget tax credits

because they don't use conditions to get them, so they are usually manipulated. Take IBM. They get state tax credits constantly to create jobs...they never do and they never get those tax credits revoked. Instead they offshore outsource the jobs.

On revoking Federal and State contracts that are currently offshore outsourced I beg to differ. Those would be immediate jobs for very little costs. Right now states offshore outsource call centers for social services, as well as a lot of back end work. All of that can easily be re-transferred back to the U.S. It's already government expenditures anyway, which makes zero sense to not put all U.S. taxpayer dollars back into the domestic economy for job creation, esp. services for the unemployed and poor. But bottom line is the infrastructure is still here to do those jobs and it's just a matter of transferring it back. They transferred it out in a matter of months so this would be faster than any direct jobs program and much cheaper.

Secondly. I don't know where you are getting those calculations but a 3500:1 dollar ratio for a job is what I am referring to. That is beyond inefficient. In the private sector, the ratio is about 2.5:1 for a cost of an employee vs. their wages. So, where in God's name is this 3500 going to? You could take that money, create 10,000 startups in the U.S., will strong stipulations they must employ U.S. workers and not below X wage or say at least meet the occupational median, generate a host of new ventures, a host of innovations and have it be way cheaper.

and this is from someone who blasts the no-bid "Iraq" contract award system, which apparently is one of the ultimate feeding at the government trough with little bang for the buck.

Believe me, I'm not for giving away U.S. tax dollars to MNCs, believe most tax cuts are manipulated and believe we need a direct jobs program....but 3500:1, there would be no way if I was in Congress I would approve of that because it's way too expensive per job.

I think they should deploy the military in some capacity to run a new CCC type of program, but not only for youth, but also for older workers. We have institutionalized age discrimination and I think older workers could be the ones training these kids, providing management skills....but the CCC was pretty damn efficient during it's day (not so much the WPA) and they also demanded high productivity and that's obviously true if one visits any of the state parks, forests and so forth they created.

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Ok

Fed contracts, I grant you, that's fairly easy. Just don't know how much that would generate in a year.

Here's my calculation:
$24k a year in wages.
Add 12% for Social Security. That's $26.8k a year.
Add 30% for all non-labor costs (admin, land, materials, tools, etc.). This is a conservative estimate; the WPA managed a 20% non-labor cost. That's $34.8k per job created, or about $35 billion for every million jobs.

Tell me if I'm doing the math wrong here.

CCC - it was somewhat efficient (don't over-romanticize the military admin here, or the getting back to nature), but that has a lot to do with the wages. CCC workers were only paid $20 a month ($329 in 2008 dollars). It's easy to be efficient if you pay people mostly in room and board.

The WPA was actually remarkably efficient, with $50 a month in wages and $10 a month in non-wage costs.

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ah

CCC workers were paid $30/month, with $25 going directly to their families. About the only way I can see them getting away with that today is to say it's a "work-study" type of program and later, after completion, offer a free ride to a public college/trade schools with job placement.

I've read the WPA was not efficient in terms of requiring people to actually do the jobs. Not in every division, but some.

I think your calculations are way off on the jobs cost.

It should be, very roughly, 2.5x wages. Paying each $15/hr would be equivalent to about $78 Billion for a million workers and that's not including infrastructure, equipment, housing, capital and so forth to do a direct jobs program.

So, to me, if one wants to push a direct jobs program, one must use existing administration, infrastructure, the minimal additional expenditures as possible, consider doing some sort of housing/free medical/dental/child care type of deal (which an you imagine the rhetoric on this one!) and most importantly, target public works projects that are going to have huge payouts economically for the nation.

So, this also implies hiring the destitute and the desperate..OR....well, paying them market wage and not that great in other offerings. hmmm....

I see screams from the left on wages, screams from the right about how the "communists are locking up Americans into central planning slave labor camps" just blasting to shit from both sides! Can you hear it now? I can.

Even if one called it "retraining", OMG, the political rhetoric will be insane.

If only one could get to practicality vs. this insane, off the mark, diversionary screams from the left/right.

So, I gotta say what's the "Profit margin" for public works? I know that's an oxymoron, but I'd frame it in those terms.

Say, running high power lines from wind corridors for wind farms, or say particular bridges, if they fell down would not only be a horrific loss of life but also cripple a regional economy, i.e. the projects need to be selected that they will even potentially generate revenues for the future for the U.S. government to make the long term payout a zero sum game at least. i.e. the government is going to "get the money back" from a "long term jobs program".

Now, that's a most interesting thing because to me, the U.S. has been riding the coat tails of the New Deal infrastructure projects for 60 years and the highway infrastructure projects...

so can one show that the U.S. government and national economy "made money" by all of that infrastructure put into place 60, 40 years ago?

How does one quantify the WPA artists program which has left us with so many interesting things to look at, added to the public sphere, the "beauty" of a place?

But I think that initial sticker shock might also be muted by $700 Billion for Wall Street bonuses rhetoric and I hate to say it but $787 Billion (or whatever it was) for Stimulus that didn't really create jobs...
therefore one can put together $300 Billion with the final "profit margin" will be $1 trillion in 5 years projected...
something along those lines.

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SA, don't get me wrong

I want to see some major direct works program and additionally significant investment in the U.S. and her people, I'm just thinking out loud about what can work and pass for the most effective ways possible.

So, I for one am thrilled at this post and starting to raise the dialog and present possibilities.

I think some "cleaning house" of no bid contracts and contracts generally is also in order.

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Gotcha

I'm not sure why 2.5x is the right number. After all, historically speaking, the WPA worked out to wages + 20%. Keep in mind, these figures don't include state + local contributions in terms of land, materials, and the like.

Regarding the profit margins of the WPA and public works more generally, I think it is possible to do an accounting like this, given that: A. the vast majority of the WPA's employees were engaged in construction, and B. we have some good stats in the Final Report of the WPA. I think you could do a cost-benefit analysis or something like it if you could do some figuring to work out estimates for miles of road, schools, airports, etc. I just don't have the expertise to do it. (A CBA was done for the CCC, I believe, but the two programs involved very different products) Incidentally, if there's anyone out there interested in doing this, I'd be really interested in collaboration - it would help my research enormously.

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FICA, overhead

I got 2.5x from a typical ratio of private total employee costs vs. W2 (wages). I think you're missing FICA and some other taxes which should already eat past 20% in today's world. That 2.5x is what the total employee costs are vs. the wage. i.e. health insurance, FICA taxes, training, uniforms and so on. But this is very rough, it's a thumb in the air that is used inside corporations.

That would be a very great project, I'll keep a look out. Something like Public works pay! It has to be true to some degree. Take the Hoover Dam just as one, that assuredly has paid out 100x for it's costs by now. GG bridge, probably just in tourist fees alone to cross it has to have paid out 10x, never mind the increased commerce and so on.

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That doesn't sound right though

Looking at the BLS's data (http://www.bls.gov/news.release/ecec.nr0.htm), non-wage compensation only worked out to 30% - and that's including things like private retirement and life insurance plans that wouldn't be necessary in temporary jobs.

Most of the overhead is stuff that you wouldn't have to pay for - as you point out, "existing administration, infrastructure" and the like could be saved through using existing bureaucracy. Furthermore, ou can also cut down on costs by doing what the WPA did - use labor power instead of machinery, and get local sponsors to contribute labor and materials.

I guess where I come back to is that the WPA was able to do it with wages + 20%. I don't understand why, after adding on FICA, FUTA, and SUTA and an additional 10% non-labor costs, we couldn't replicate that feat.

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I think the key is effective, efficient management

I don't think you'll get 20% frankly. There is location costs, there are equipment costs, uniforms, tools, sick days, health care, etc.

But as I see it currently the key is to avoid those bloated administrative costs, such as schools, universities have.

FICA alone, for the employer is 9.1%. We haven't even added health care or any benefits at all.

Then there is unemployment insurance tax, state and fed. That can be anywhere from 0.8% to 5.4%

You haven't hit training or anything yet. Training, travel, possible meals, depending,

We haven't even gotten to project and administration costs of running such a large project. One has to do payroll, manage personnel, set up a management team, do project management, scheduling...reporting, meetings, team leaders and then the project managers....

Somewhere in here is workman's comp. too.

Then there is insurance, liability insurance and so on. That's standard for any construction or infrastructure project. There are probably permits and fees and other things.

I'm not in infrastructure and construction but I'm sure there are additional costs beyond the ones that are coming to mind.

it's like setting up an entire company. Even if the exact infrastructure is already in place, one still has to set it up for a new project and that has major overhead.

I don't think 20% is realistic at all and we haven't even hit health care.

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FYI more by Prof. Wray

is proposing a Job Guarantee Program. This may address the serious high structural unemployment problem that we are going to encounter.

The original New Deal programs included large–scale infrastructure projects with direction coming from Washington. A permanent and universal JG program should be decentralized, with projects created and administered locally–where the workers are, and for the benefit of their communities. The federal government would provide the wages, plus a portion of capital and supervisory expenses (perhaps capped at 25% of total wages paid for each JG project). Local governments and nonprofits would propose projects and cover the rest of the expenses. State unemployment offices would be converted to employment offices, helping to match workers and projects.

Project proposals would be submitted to regional councils and, if approved, would be evaluated by state councils and then by a federal council. Wages and benefits would be paid directly to workers (using Social Security numbers and direct bank deposits) to minimize fraud. Organizations submitting proposals would be prevented from replacing paid workers with JG workers. For-profit business would be excluded, because the temptation to substitute would be too great. At the same time, businesses would be protected from unfair competition because all JG projects would have to demonstrate they’d fulfill unmet public purposes. If at some future date, a for-profit firm decided to provide services that a JG project is performing, the JG project could be phased out. There is neither need nor desire for the JG program to compete with the private for-profit sector.

RebelCapitalist.com - Financial Information for the Rest of Us.

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I see problems with this

The Federal Government corruption is bad enough, but I really think funds would disappear and projects would be good ole boy favors if it was decentralized yet distributed through state and local governments.

We're already seen no-bid contracts popping up through the Stimulus distributions to states.

That said, the entire "trade readjustment" and "retraining" mantra you will hear from those to blow off the supposedly claim that free trade "can cause economic hardship temporarily to localities" (read the entire nation is a locality, and the time period isn't temporary) is a joke.

I saw a community college get almost a million dollar to "retrain" people with Masters degrees to be....restaurant workers. I kid you not.

So, a program that gives jobs, into the public works but also gives real training in real skills I think would be a good idea.

The problem is how money is distributed from Federal Funds and the entire management structure of such a program. Not only do you need to watchdog it....we have billions and billions wasted every year through no-bid contracts, defense projects that are not warranted, political lobbying by special interest groups, corruption and administrators who think they must have 6 figure salaries and bonuses and we get layer upon layer of unneeded "administration". Case in point is universities. There was a recent report where they have massive administration bloat while professor salaries are below market wage for their field, adjunct professors, non-tenured are getting paid below minimum wage, graduate student stipends are way below minimum wage, you plain can't live on it and tuition is through the roof.

All of that needs to be stopped for any program to be effective.

All of that executive/administration 6 figure pay and bloat needs to be stopped. It's happening in K-12, in private companies and in state government.

I also think they need to target public works projects which will have the biggest "payout" to the nation and that means people will have to move to where the job is in part.

For example, let's say there is an initiative to rebuild the power grid and add high power lines to new alternative energy regions. i.e. Wind farms in the Texas wind corridor and solar in the SW. Workers would have to go to those localities to work on it.

In other words, just a project needs to be run like a for profit company and thus get the most "taxpayer bang for the buck".

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addendum

i.e. one could do both. Have distribution of funds through local governments but also give some sort of management structure that is effective for them to implement. So, one could do both, have some funds distributed locally for needed projects. (How many localities for example need a new water system or a new power station or need say city wide broadband access, etc.?) but the large money should focus on those projects, public works with the largest "payout" for the future of America.

But in all of these discussions, the real problem I see is the management, administration of it all. I don't want to feed more administration officials, absurd "retraining", more no-bid contractors. I want the funds to go directly to workers, efficient, effective public works programs that "pay out" to the community way beyond just employing some residents. Work also has to be important frankly for people to feel good, that they are contributing, accomplishing and there are so many things, all over the country that are in the public sphere, neglected.....

so I think it wouldn't be so hard to find "most bang for the buck" projects.

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Regarding "bang for the buck"

This was actually one of the sources of the Public Works Administration's failure to create as many jobs as the WPA. Requiring return on projects limits the kind of projects you can do, and really increases the time between application and men on the job.

At the time, they called it "self-liquidating projects." The WPA didn't bother with self-liquidation and created millions more jobs than the PWA.

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I'm down with Wray on a permanent program

I do think it needs some alteration:

1. Minimum wage is too low. $13.9k a year is enough to keep 1 person out of poverty, but it's nowhere near enough to support a family. Paying a higher wage of $24k a year not only reduces unemployment, but it also has a huge impact on poverty rates.

2. Decentralization is a BAD, BAD idea. In addition to the problems that Oak points out, I'd direct people's attention to the historical example of CETA. CETA was locally planned and administered, and as a result, you got massive displacement effects - state and local governments strapped for cash fired or didn't hire regular public employees and used CETA workers to do the work instead for lower wages. This drastically reduced the net jobs effect, and turned unions from a political ally to a political opponent of jobs programs.

The success of the WPA was precisely that they did the opposite: sponsors had to apply for their projects, and the WPA officially forbade WPA money to go to any project that would normally be done - forcing sponsors to come up with projects that would generate new jobs, rather than just redistributing existing jobs.

I would also note that the WPA operated 50 state and hundreds of local branch offices in order to get close to where the people lived - but the Federal government was in charge of these local branches. It helped cull the corruption problems that the CWA ran into.

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Paul Krugman on board with direct jobs program

Calculated Risk has put together a collection of Krugman writings on this.

The below youtube, the audio is poor.

So it seems there is some momentum going on here where we're all saying we need some sort of "WPA" style direct jobs program....

which leads me back to my original concerns of administration, management details.

We've been calling for direct jobs, I believe, almost from day 1 of this site's existence, so posts detailing proposals and plans are especially welcome!

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I hope you're right

On the other hand, folks like us, Wray, and Krugman are rather on the left edge of the Overton window.

My main hope is that the spur of re-election will loosen things up somewhat.

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Call me a Luddite if you will -But!

Over at the “Angry Bear” blog, there is a very thought provoking article by Martin Ford: “The Mythology of the Future Job Market.”
Mr. Ford’s thesis, as I understand it, challenges the historic assumption embraced by virtually all economist, historians and everyone else for that matter. Namely, that the past is cyclical and therefore a guide to the future. Specifically, because new technologies and economic systems replace old jobs with new; therefore, the current period of technology replacing unskilled jobs such as factory assembly lines and the new ‘global economic’ system replacing the national system is nothing to worry about. To challenge these assumptions is akin to being a Luddite.

However, Mr. Ford, if not actually challenging the assumption, acts the role of Socrates and ‘wonders aloud’ if the old unskilled middle class supporting jobs will be replaced with new unskilled middle class supporting jobs.

The new media/blog meme is ‘Job Jobs Jobs’. Well no kidding Dick Tracy! But, I see no meme about ‘What kind of Job Jobs Jobs?’ The so-called ‘shovel ready’ jobs are touted; but, how many people can handle of shovel. If ‘shovel’ is a metaphor for construction the unemployed lady next door is not strong enough. Also, don’t look now but the technological innovations in construction have significantly reduced the person-hours put unit of output (i.e. more structures for less workers). I watch the steel installation of a large duel arch six lane inner state highway bridge and on any given day I did not see more that 50 workers. But, I did see dozens of cranes and lifts.

In short, call me a Luddite if you will, but I have not seen a description of the US labor market for the year 2015 and beyond. What advice does a high school vocational counselor give to the students in his charge?

I think we need less talk about ‘jobs programs’ and ‘jobs stimulus’ bills and some actual description of the jobs that these programs and stimulus bills will create and most importantly what standard of living these jobs will support. The notion that small businesses are going to crate jobs supporting the traditional post war middle class (suburban) life style is pure fantasy. Small business jobs are minimum wage jobs - think McDonalds and CVS.

Talk about jobs is not enough. We need to talk about the standard of living the jobs will support. That’s what the kids in high school want to know.

Well enough of what I think. Really read Mr. Ford. He’s ‘spot-on’ to my mind.

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Jobs in the future.

You're no Luddite Tom. IMO, you're a realist. We live at a historic time.....peak oil, peak uranium, peak credit, peak resource depletion, and way past peak population carrying capacity of the planet. Check out Jim Kunstler's book "The Long Emergency" for a well reasoned look at our circumstance. Or visit The Club of Rome, who have been researching the limits to growth for 40 years now.

So, once you accept that there is no return to economic growth as we have known it, the idea of "future jobs" is pretty easy. Everyone's job will be to survive the turmoil, as best they can, while civilization finds a new equilibrium within the physical limitations established in nature. And you and Mr. Ford are right, there will be dramatic changes to our standards of living, and pretty nasty ones at that.

Of course, this is a contrarian view which is very upsetting to the status quo. TPTB won't be discussing any of this in public anytime soon.

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Hope I'm not off-topic

But reading about the current global transition keeps me going back to a book I read long ago, Kurt Vonnegut's PLAYER PIANO. In this 1952 novel, automation had resulted in a society divided into a wealthy upper class of managers and engineers who keep the mechanized factories running, and a large lower class. This leads to conflict because the lower class has no purpose in life but to consume and survive.
The elites of Vonnegut's book are highly educated (think Ph.D.s and Harvard MBAs) so there is little social mobility.
Fast forward to the present. We live in a society where social mobility has been commonplace, but concentration of wealth, increasing joblessness, and the rising cost of higher education has restricted social opportunity. One thing the USA has going for it is the American imagination. So you can still start a business in your garage or on the internet, but on the more traditional route to mobility the bar has been raised. Washington has been corrupted by the role of money in politics and a massive revolving door, and is now a wholly owned subsidiary of Goldman Sachs and a few other well-placed corporations. I know so many jobless people, it's downright depressing. The American standard of living has declined, and -- hopefully with it -- our taste for the junk and junky values the elites want to sell us. I don't know whether Vonnegut would prefer to return and write another biting satire, or possibly he would be happy to remain out of it.
Frank T.

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Frank T.

Vonnegut died

So unfortunately we can't get another not so subtle big picture analogy. Been a long time but I think I read most of Vonnegut in my younger years. What a fantastic trip with good lessons.

Vonnegut was wrong. Engineers, despite the amount of education, training it takes, are being treated like disposable diapers the same as blue collar. Age discrimination is beyond brazen in these occupations.

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not a Luddite

I agree with commongood. The real problem here is globalization. The U.S. plain needs to protect it's jobs and create policies in a host of areas, trade, labor, unemployment, taxes, immigration to protect U.S. jobs.

Sorry but the idea that somehow the U.S. is the only "nation" that can be creative and innovative is absurd. Creativity and innovation come about because a society supports it. Education, study is most of it, formal or informal.

Sure technological advances will wipe out some jobs and frankly there should be laws, policy that put on the company dime, retraining in many of these cases.

But we already had the "jobs of tomorrow", those being Science, Technology, Engineering, be massively offshore outsourced. Now people will not go into those fields because it's a lot of time, hard work with no pay out.

While one can revamp higher education so the U.S. gets more college graduates and so on, but if one offshore outsources the jobs....what is the point?

I would imagine one issue is that blue collar needs more tech skills, as manufacturing technology advances, but that said we need job creators and no robot, as an example, can run conduit for high power lines.

If they want to create the "jobs of tomorrow" they must make it pay out. No one wants to study for a PhD only to end up bankrupt and homeless, there is no incentive.

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Another perspective on jobs

Tom, I thought I might interest you to read this article from George Monbiot.

We are watching the collapse of the neo-liberal pursuit of globalization and we must return to a very locally based type of economy and community. It is the only sustainable path available.

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Oh no, not another stimulus...

I operate employment and training programs in a county just north of Detroit. Here is my take on what is going on.

The state is broke. It is slashing money to schools. They are privatizing, laying off, taking pay cuts, and destroying more "good" jobs as we speak. Schools don't need repair and maintenance money, they need money for staff and books.

The local county welfare office is swamped, and they are getting cut 40%. Before the cut, people can't get case loads opened (money, medicaid or food stamps) for months. They have a data base that should be blown up, and whoever built it ought to be fired. It takes eight hours to open ONE case file. Meanwhile, the stupid TANF program is still operating and demanding a participation rate of 30 hours a week, which must be "documented" in 15 minute increments. Referrals to the program are skyrocketing while the funding for it just got a 30% cut.

Obama and others don't seem to have a clue "who" the displaced worker is, let alone in Michigan. He thinks Reagan is still laying off plant workers from 30 years ago when in reality the majority are white collar with two Master degrees in a technical field, perhaps a PhD. Public works wants to give everybody a shovel. Green jobs wants to give everybody a hair drier and a piece of plastic, while it ships the high skill jobs to India. Building bridges and roads is fine, but a jobs program needs to be broader so that talent that is being casted aside from the last bastion of US manufacturing to be offshored, US autos, can be used in the schools and local governments. CETA PSE under Jimmy Carter did just that. They got a wage and the standardized benefits of the institution where they were placed. Yea, yea, Reagan and the Republicans said it had problems, but what else would "they" say. This is how DC kills a jobs program. First you demonize it, so when you kill it, "they had it coming".

Michigan is training, training, training for jobs that don't exist. The only saving grace in all of that training is that we are completing degrees, including grad degrees, which no one will be able to take away from the people. However, it still doesn't create a job, and the rules, paperwork, and red tape are beyond frickin believe. Obama's USDOL is the worst. We spend more time proving what we are doing than doing it. Even applicant demographics (age, birth date, selective service registration, public assistance, veteran status, citizenship/legal other to name a few), must be proved and requires applicants to provide us with "specified" documents so their file can "pass" an audit, IF pulled. Heaven help the person who can't find their birth certificate. Eligibility for services is another farce. I mean after all, we wouldn't want to train the "wrong American". I keep asking why job training can't have some of that Haliburton/bank bailout money. You know. The kind you can throw off the back of a pick up truck in duffle bags in the middle of the night, or the kind that gets spent so fast you simply don't have time to write down where it got spent.

What we need is an industrial policy that creates high wage, high skilled jobs and KEEPS them here. The biggest stimulus and economic boost would have been passing tax funded single payer health care. Assuming the cost of health care would have made companies, states, schools, and local governments immediately solvent. Entrepreneurs would start falling out of trees.

Another stimulus is just jury rig and more money down the drain. If this administration can't do anything of value, who needs it. They are just driving up the deficit and making us even more vulnerable to the Chinese. Even John Stewart make fun of Obama's "submission" to China.

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Small Business - Mythology?

Small Business - Mythology?

On 11/17/09 CNN Money.com carried an article by Catherine Clifford: “Small business loans: $10 billion evaporates. Reports to the Treasury confirm what small business owners have known all year: Banks are cutting back on Main Street lending” - describing and discussing the credit plight of small business.

The following day, economist blogger David Goldman posted an article “It’s Still the worst Deflation in US History” wherein he notes that “35% of Americans work (worked) for enterprises with fewer than 100 employees and 20% work (worked) for firms with fewer that 20 employees.”

For years, talk radio host have characterized ‘small business as the backbone of our economy’ and increasingly many others seem to think the panacea for the current ‘slump’ is calling for relief to small business in terms of tax breaks and other forms of ‘stimulus’.

However, it seems to me, that this concept of small business as an independent component of the economy separate from ‘big business’ is not only mistaken but raises to the level (at least on talk radio) to mythology. It fails to take into consideration the FACT that in our economy small businesses are totally dependent on big business.

For example, if one see a large construction project such as a factory or high rise office building being built, there may well be 100’s of workers. However, the sub-contracting system of the construction industry results in all the workers working for small business enterprises. The general contractor will only employ a few managers and clerks. The work is done by tradespersons working for less than a 100 employee trade specialty companies (mason, electricians, etc).

However, none of these small construction businesses would be working if it were not for a large business (e.g. Kodak, GM, etc) that is having the structure built.

Another example, in my home town there was an industrial park that consisted of dozens of small (less than 100 workers) machining shops and suppliers of materials to those shops. But, virtually all the work done in those shops were contracts from Kodak, GM, Xerox, etc. When those large companies stopped growing most of the small companies went out of business.

In sum, I think, the small business meme is just another media event and has little to do with the reality of were we are and were we are going. What good are loans and tax breaks going to do for small businesses if there are no large businesses buying their goods and services?

Also, why would banks loan money to a small business unless they can show cash flow. And, cash flow to small businesses on a maco national basis comes from big business. Like we use to say: 'What's good for General Motors is good for the country.' General Motors being a metaphor for big business.

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disagree somewhat but agree Tom

While it's clear the big banks are being outrageous and not lending, esp. to small business, which exposes another TARP purpose lie, they do need these loans and possibly tax breaks...

but I think your overall point that we need to increase demand is probably the overriding factor in small business failure.

No orders, no sales, no workers, no money. But small business does really need temporary loans for cash flow purposes.

What came to my mind was how we cannot get investment in America. That's frightening to me in what is says about the views of the future of America.

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At the Micro Level

Take a stroll through the malls and shopping centers. Small stores closed and big chains flanked by empty shops. Mom and pop operations staying afloat because family labor supplements cash flow. The most successful restaurant in my town is a Greek place where two people can have a great meal for $40, and employees (mostly Greek, no doubt many family) work at such a quick pace and seem to love it. A block away, things are very slow. Wal-Mart? Sam's Club? These places are thriving, thanks in part to people on Social Security who can afford to work for minimum wage. On the other hand, the lines at the supermarket we frequent are not so long these days. I look for local indicators and to me, it's how many small businesses are still able to stay open.
If banks aren't lending, maybe we should ask the Federal Reserve to extend their "Lender of Last Resort" function to America's small businesses. With their cost of capital, they could certainly come up with better rates than the commercial banks, whose cost of capital is also low.
Frank T.

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Frank T.