Tuesday, May 5, 2009

Re-Post Number 8: "Jobs How? An Introduction to Obama's Jobs Policy" (Oct 15, 2008)

Note: This is one of the last re-posts, dealing now with the nature of jobs policy in the new Obama administration.
A little bit of background: this essay stems from several years of research on job-creation policy colliding with the 2008 election. As you may have noticed, Obama's anti-poverty platform and his economic recovery plan both have a focus on jobs; it's a major part of the Democratic stump speech (not just in Obama's speeches, but also in the speeches of his surrogates); it's a winning issue at a time when unemployment hovers at 6.1% and may rise as high as 8% in the coming recession.

This essay is a pitch, both to the Obama campaign, to progressives, and to Congressional Democrats that the time is ripe for a new direction for jobs policy, from an approach that emphasizes job training and private sector job creation, to an approach that emphasizes on-the-job training and public sector job creation in light construction, "public works," and social services.


The current Obama platform includes the following jobs-related policies:
  • Provide $50 billion to Jumpstart the Economy and Prevent 1 Million Americans from Losing Their Jobs: This relief would include a $25 billion State Growth Fund to prevent state and local cuts in health, education, housing, and heating assistance or counterproductive increases in property taxes, tolls or fees. The Obama-Biden relief plan will also include $25 billion in a Jobs and Growth Fund to prevent cutbacks in road and bridge maintenance and fund school re­pair - all to save more than 1 million jobs in danger of being cut.
  • Reward Companies that Support American Workers: Barack Obama introduced the Patriot Employer Act of 2007 with Senators Richard Durbin (D-IL) and Sherrod Brown (D-OH) to reward companies that create good jobs with good benefits for American workers. The legislation would provide a tax credit to companies that maintain or increase the number of full-time workers in America relative to those outside the US; maintain their corporate headquarters in America if it has ever been in America; pay decent wages; prepare workers for retirement; provide health insurance; and support employees who serve in the military.
  • Create a National Infrastructure Reinvestment Bank: Barack Obama and Joe Biden will address the infrastructure challenge by creating a National Infrastructure Reinvestment Bank to expand and enhance, not supplant, existing federal transportation investments. This independent entity will be directed to invest in our nation’s most challenging transportation infrastructure needs. The Bank will receive an infusion of federal money, $60 billion over 10 years, to provide financing to transportation infrastructure projects across the nation. These projects will create up to two million new direct and indirect jobs and stimulate approximately $35 billion per year in new economic activity.
  • Invest in our Next Generation Innovators and Job Creators: Obama and Biden will create an Advanced Manufacturing Fund to identify and invest in the most compelling advanced manufacturing strategies. The Fund will have a peer-review selection and award process based on the Michigan 21st Century Jobs Fund, a state-level initiative that has awarded over $125 million to Michigan businesses with the most innovative proposals to create new products and new jobs in the state.
  • Double Funding for the Manufacturing Extension Partnership: The Manufacturing Extension Partnership (MEP) works with manufacturers across the country to improve efficiency, implement new technology and strengthen company growth. This highly-successful program has engaged in more than 350,000 projects across the country and in 2006 alone, helped create and protect over 50,000 jobs. But despite this success, funding for MEP has been slashed by the Bush administration. Barack Obama and Joe Biden will double funding for the MEP so its training centers can continue to bolster the competitiveness of U.S. manufacturers.
  • Invest In A Clean Energy Economy And Create 5 Million New Green Jobs: Obama and Biden will invest $150 billion over 10 years to advance the next generation of biofuels and fuel infrastructure, accelerate the commercialization of plug-in hybrids, promote development of commercial scale renewable energy, invest in low emissions coal plants, and begin transition to a new digital electricity grid. The plan will also invest in America's highly-skilled manufacturing workforce and manufacturing centers to ensure that American workers have the skills and tools they need to pioneer the first wave of green technologies that will be in high demand throughout the world.
  • Help Americans Grab a Hold of and Climb the Job Ladder: Obama and Biden will invest $1 billion over five years in transitional jobs and career pathway programs that implement proven methods of helping low-income Americans succeed in the workforce.
  • Create a Green Jobs Corps: Obama and Biden will create a program to directly engage disadvantaged youth in energy efficiency opportunities to strengthen their communities, while also providing them with practical skills in this important high-growth career field.
His Monday speech, "Rescue Plan for the Middle Class" also included several jobs-related policies:
  • A New American Jobs Tax Credit: Obama will provide a new temporary tax credit to companies that add jobs here in the United States. During 2009 and 2010, existing businesses will receive a $3,000 refundable tax credit for each additional full-time employee hired. For example, if a company that currently has 10 U.S. employees increases its domestic full time employment to 20 employees, this company would get a $30,000 tax credit—enough to offset the entire added payroll tax costs to the company for the first $50,000 of income for the new employees. The tax credit will benefit all companies creating net new jobs, even those struggling to make a profit.
  • Save one million jobs through immediate investments to rebuild America’s roads and bridges and repair our schools: The Obama emergency plan would make $25 billion immediately available in a Jobs and Growth Fund to help ensure that in-progress and fast-tracked infrastructure projects are not sidelined, and to ensure that schools can meet their energy costs and undertake key repairs starting this fall. This increased investment is necessary to stem growing budget pressures on infrastructure projects. In addition, in an environment where we may face elevated unemployment levels well into 2009, making an aggressive investment in urgent, high-priority infrastructure will serve as a triple win: generating capital deployment and job creation to boost our economy in the near-term, enhancing U.S. competitiveness in the longer term, and improving the environment by adopting energy efficient school and infrastructure repairs. In total, Obama’s $25 billion investment will result in 1 million jobs created or saved, while helping to turn our economy around.

Now, all of these proposals are great in and of themselves, and they represent a huge leap from 2000 and 2004 in terms of a Democratic commitment to providing and creating jobs - moreover, in comparison to New Democrat priorities in the Clinton years, they really show the revolution in Democratic economic policy since the advent of the Bush years. In that regard, I have nothing but praise for Obama.

However, one thing that's clear is that there is a real tension between different strategies: the State Growth Fund, Jobs and Growth Fund, National Infrastructure Reinvestment Bank, and similar projects constitute a "public works" approach - creating jobs through public investments, primarily in infrastructure. This is a tried and true strategy of the Democratic Party in dealing with economic downturns. The Patriot Employer Act, New American Jobs Tax Credit, Manufacturing Extension Partnership, and Advanced Manufacturing Fund represent a similar, more private-sector approach that could be called a "labor demand" source - creating private jobs with public incentives. This is also a long-running approach to job creation, dating back to the Area Redevelopment Acts of the 1950s and 1960s. Finally, the "career pathway programs" and "Green Jobs Corps" represent more of a job-training approach - you'll note that the actual transitional jobs in question are rather hard to pin down in terms of numbers, but $1 billion over five years is not an encouraging signs. In any case, it's quite different from John Edwards' proposal for one million public jobs in the primaries.

Now each of these strategies have advantages and disadvantages. I'm very much a biased partisan on this question; from my research, I think that direct job creation is best, followed by public works, followed by labor demand, and job training is the worst form of jobs policy. For more on direct job creation, I highly suggest Helen Ginsburg's Full Employment and Public Policy or Phillip Harvey's Securing the Right to Employment. For more on public works, I'd suggest Robert Leighninger's Long-Term Public Investment or Jason Scott Smith's Building New Deal Liberalism. For more on "labor demand" policy, I'd recommend Timothy Barthik's weighty study Jobs For the Poor. For more on jobs training policy, I'd recommend Gordon Lafer's The Job Training Charade.


So why does all of this technical stuff matter?

Firstly, size, scope, and scale matter. The American economy, labor market, and working class are huge institutions and groups, and if you want to have a real impact on the jobs picture, you need to do something big. The Works Progress Administration worked because it provided jobs to a third of the unemployed; CETA didn't work because it provided jobs to only 725,000 people at a time when there were more than six million people unemployed (or 12% of the unemployed). Hence, spreading yourself across nearly a dozen programs could well mean that you create quite a few jobs here and there, but not the same kind of numbers you could create by maximizing your spending in the most effective area. It also means that the ultimate size of the program matters - a billion here or there over five years won't cut it, but if you were to take the $700 billion bailout and create $20k/year jobs with it, you'd employ every unemployed person twice over. Roughly speaking, it costs $30 billion/year to create 1 million jobs at $20k/year, which reduces the unemployment rate by half a percentage point.

Secondly, policy design has political consequences. Public jobs tend to produce public acceptance of and advocacy for the idea that the government can and should provide jobs for the jobless, and that the government can and should intervene in the economy to promote social ends. It's for that reason why jobs were at the center of the New Deal, and why one of Reagan's first social spending cuts were the 725,000 jobs of CETA. Thus, a choice between tax cuts and public works says a lot about our beliefs about what causes unemployment and what creates employment, the proper relationship between the public and private sectors, and the proper relationship between the people and their government. Hence, a more progressive policy will, over time, produce a more progressive public - political scientists of the American Political Development school refer to this as policy feedback (although I'd urge taking a pinch or two of salt with this idea).

Thirdly, not all policies are equal. For reasons that I will discuss in my next diary, job-training programs don't work very well; tax cuts are somewhat better but still uneven; public works are better still, but are less efficient in terms of creating lots of jobs quickly; direct job creation or "public employment" is best; the Civil Works Administration famously created 4.2 million jobs in just three months. Because of the political stakes, the consequences of programs will matter: if we invest in jobs policy, and it works, you shift the boundaries of acceptable economic policy in a big way, with the New Deal and its coalitions as a key example. If you do it, and it doesn't work, you establish a conservative conventional wisdom that's very hard to work against - witness the long-term influence of the Reagan Revolution over the last thirty years.

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