Business and economic review: Job market
With the Congress supposedly pushing forward with a variety of proposals to bolster a seriously battered job market, most job seekers now have one key, but major question: Will any of those plans work?
Their proposals range from aiding states and local governments so they can avoid layoffs, to offering businesses tax breaks for new hires, and to extending unemployment benefits. While some of their proposals would only indirectly translate into hiring, partisan squabbling on both sides of the aisle are clouding the rest of the issue.
Earlier, the Senate voted 62-to-36, garnering a handful of Republican votes, to extend unemployment insurance benefits. That bill costs about $140 billion, and also includes health-care subsidies, among other items. Meanwhile, Democrats are also working on a smaller package of job-creation measures that includes tax breaks to encourage companies to hire workers.
Today, economists generally agree that getting money into the hands of needy consumers is a good way to make sure those funds are quickly spent — and consumer spending leads to jobs as firms ramp up production to meet demand. That’s one reason why the proposal to extend unemployment insurance is so well regarded by economists. “You are giving funds to people who are more likely to spend it,” said Nigel Gault, chief U.S. economist with economic analysis firm IHS Global Insight.
A recent MarketWatch News Service article provided the opposition’s viewpoint. Sen. Jon Kyl, R-Ariz., said that unemployment insurance could be a “disincentive for work because people are being paid even though they are not working,” adding that “providing unemployment benefits doesn’t create jobs.”
Kyl’s argument, as refuted by other “experts,” suggest, instead, that unemployment insurance is a relatively efficient stimulus that does lead to job creation. “You are giving money to people who have no choice but to spend it immediately,” said Heidi Shierholz, a labor economist with Economic Policy Institute. “They are going to spend it on rent and food. It’s going to go right into necessities from their local economy.”
It’s hard to pinpoint exactly how many and which sorts of jobs any one stimulus plan will create, economists said. While it’s clear that spending on infrastructure will lead to bridge-building jobs, other workers will also benefit, such as the waitress who serves coffee to the bridge builder. Stimulus also needs to take into account the changing labor force. More than eight million jobs have been lost since the recession began. And with new entrants into the labor force, even more jobs need to be created. Also, the U.S.’s high rate of productivity means that stimulus money must work even harder. If businesses can produce what they make with fewer workers or fewer labor hours, then many kinds of stimulus will have less of an impact on jobs, economists suggest.
In addition to economic efficiency, Congress should consider who benefits from various job-stimulus proposals, said Harry Holzer, an economist at Georgetown University and the Urban Institute. “First and foremost there is a moral obligation to help those with the greatest need,” Holzer said. “I would argue that the benefits should flow somewhat disproportionately to the people hurting the most, people in the lower- to middle-income range. But also the fact that they turn around and spend the money most quickly makes it effective stimulus.”
Aiming job stimulus at lower-wage workers can also support newer entrants to the labor force, said James Galbraith, an economist at the University of Texas at Austin. “Take a lot of young people and give them something they can count on so that they don’t spend the five years after high school or college unemployed,” Galbraith said. Spending on public projects can improve long-term economic productivity, and make consumers better off, Gault said. “Direct public spending may leave something worthwhile behind — a road, a bridge, a school, for example. All depends how well it is spent. If it’s a ‘bridge to nowhere’ then it’s wasted,” Gault said.
Too much public hiring could also face serious political head-winds if viewed as the government taking over the economy. Also, it’s important that governments learn how to make adjustments to their longer-term budgets, Gault added. “People worry that they won’t end up being temporary jobs; that they will end up being permanent jobs,” he concluded.
Clearly, while direct government hiring can be helpful in the very near term, it doesn’t address the economy’s longer-term issues. At the end of the day we are not going to create a lot of jobs unless the private sector kicks in, most economists agree. They add their contention that it’s important to jump-start the private sector; because, ultimately, that’s where the big job creation numbers will come from.
At the bottom, line, though, businesses and many economists still remain skeptical about the Administration’s and the Congress’ job creation and stimulus packages for two reasons: One, they are still aware that few government programs to stimulate jobs creation have worked, especially since they didn’t focus enough on private sector business development; and, two, most such programs have also added substantially to the mounting federal deficit accounts.
Finally, if the bills currently before the Congress actually end up on the President’s desk for signature, most private businesses may still hold in abeyance their hiring and expansion plans until they know for sure how those new government jobs-creation programs will impact their bottom lines. Time will tell. Stay tuned.
Paul Rendine is a financial advisor with well over 30 years of experience in that industry. You can address any comments or questions to him at his e-mail address at quoteman3@aol.com.