The Time Has Come for Direct Job Creation

First Published on the New America Foundation’s blog.
According to an ILO report[15] issued before the global economic crisis hit, even though more people were working than ever before, the number of unemployed was also at an all time high of nearly 200 million. Further, “strong economic growth of the last half decade has only had a slight impact on the reduction of workers who live with their families in poverty…”, in part because the growth was fueling productivity growth (up 26% in the past decade) but was not creating many new jobs (up only 16.6%). The report concluded: “Every region has to face major labour market challenges” and that “young people have more difficulties in labour markets than adults; women do not get the same opportunities as men, the lack of decent work is still high; and the potential a population has to offer is not always used because of a lack of human capital development or a mismatch between the supply and the demand side in labour markets.” All of these statements applied equally well to the United States even at the peak of our business cycle in early 2008.

Now, of course, our labor market is in dire straits–having lost more than 6 million jobs, with official unemployment approaching 10%, and with millions more workers facing reduced hours and even reduced hourly pay. According to a New America Foundation report[16] released late last spring, if we add “marginally attached” workers, those forced to work part-time, and those who would like to work but have given up looking, the effective unemployment total is over 30 million. Add to that another 2 million incarcerated individuals–many of whom might have avoided a life of crime if they had enjoyed better economic opportunities, and it is likely that a more accurate measure of the unemployment rate would be about 20%.

These numbers are similar to those I obtained for the Clinton boom when I estimated how many potential workers remained jobless even when the economy was supposedly at full employment.[17] Labor force participation rates–the percent of working age population that is employed or unemployed–vary considerably by educational level; high school dropouts have very low participation rates, and correspondingly high incarceration rates. I calculated that as many as 26 million more people would be working if we brought labor force participation rates of all adults up to the levels enjoyed by college graduates. That number would be higher now because of lackluster job creation during the Bush years and due to the economic crisis. Thus, we can safely conclude that whether the US economy is booming or busting, it is chronically tens of millions of jobs short.

Comparing such numbers with President Obama’s promise that his policies will create, or at least preserve, three or four million jobs demonstrates that current policy is not up to the task of dealing with our labor market problems. To be sure, there is no single labor market policy that can deal with the scope of our problems. We certainly need to resolve the financial crisis and to restore economic growth. But as experience demonstrates, even relatively robust growth does not automatically create jobs.

We also have severe structural problems: some sectors, such as manufacturing, will create far too few jobs relative to the supply of workers with appropriate skills, while others, such as the FIRE sector–finance, insurance and real estate–likely should be downsized, and still others, such as nursing and trained childcare, face a chronic shortage. Finally, it could be argued that we face another kind of structural problem identified a half century ago by John Kenneth Galbraith: a relatively impoverished public sector and a bloated for-profit sector. Thus, while recognizing the multi-faceted nature of our problem, I believe that direct job creation by government would go a long way toward resolving a large part of–and probably the worst of–our unemployment problem even as it could put people to work to provide needed public sector services.

Direct job creation programs have been common in the US and around the world. Americans immediately think of the various New Deal programs such as the Works Progress Administration (which employed about 8 million), the Civilian Conservation Corps (2.75 million employed), and the National Youth Administration (over 2 million part-time jobs for students). Indeed, there have been calls for revival of jobs programs like VISTA and CETA to help provide employment of new high school and college graduates now facing unemployment due to the crisis.[18]

But what I am advocating is something both broader and permanent: a universal jobs program available through the thick and thin of the business cycle. The federal government would ensure a job offer to anyone ready and willing to work, at the established program compensation level, including wages and benefits package. To make matters simple, the program wage could be set at the current minimum wage level, and then adjusted periodically as the minimum wage is raised. The usual benefits would be provided, including vacation and sick leave, and contributions to Social Security.

Note that the program compensation package would set the minimum standard that other (private and public) employers would have to meet. In this way, public policy would effectively establish the basic wage and benefits permitted in our nation–with benefits enhanced as our capacity to provide them increases. I do not imagine that determining the level of compensation will be easy; however, a public debate that brings into the open matters concerning the minimum living standard our nation should provide to its workers is not only necessary but also would be healthy.

The federal government would not have to micromanage such a program. It would provide the funding for direct job creation, but most of the jobs could be created by state and local government and by not-for-profit organizations. There are several reasons for this, but the most important is that local communities have a better understanding of needs. The New Deal was more centralized, but many of the projects were designed to bring development to rural America: electrification, irrigation, and large construction projects. To be sure, we need infrastructure spending today, but much of that can be undertaken by state and local governments. This program would provide at least some of the labor for these projects, with wages and some materials costs paid by the federal government.

More importantly, today we face a severe shortage of public services that could be substantially relieved through employment at all levels of government plus not-for-profit community service providers. Examples include elder care and childcare, playground supervision, non-hazardous environmental clean-up and caring for public space, and low-tech improvement of energy efficiency of low-income residences. Decentralization promotes targeting of projects to meet community needs–both in terms of the kinds of programs created but also in terms of matching new jobs to the skills of unemployed people in those communities. Also note that by creating millions of decentralized public service jobs, we avoid one of the major criticisms of the stimulus package: because there were not enough “on the shelf” infrastructure-type projects, it is taking a long time to create jobs. Instead, we should allow every community service organization to add paid jobs so that they can quickly expand current operations.

As the economy begins to recover, the private sector (as well as the public sector) will begin to hire again; this will draw workers out of the program. That is a good thing; indeed, one of the major purposes of this program is to keep people working so that a pool of employable labor will be available when a downturn comes to an end. Further, the program should do what it can to upgrade the skills and training of participants, and it will provide a work history for each participant to use to obtain better and higher paying work. Experience and on-the-job training is especially important for those who tend to be left behind no matter how well the economy is doing. The program can provide an alternative path to employment for those who do not go to college and cannot get into private sector apprenticeship programs.

There are some recent real world examples of programs that are similar to the one I am proposing. When Argentina faced a severe financial, economic, and social crisis early this decade, it created the “Jefes” program in which the federal government provided funding for labor and a portion of materials costs for highly decentralized projects, most of which created community service jobs.[19] The program was targeted to poor families with children, allowing each to choose one “head of household” to participate in paid work. The program was up-and-running in a matter of four months, creating jobs for 14% of the labor force–a remarkable achievement. More recently, India has enacted the National Rural Employment Guarantee, which ensures 100 days of paid work to rural adults. While the program is limited, it does make an advance over the Jefes program: access to a job becomes a recognized human right, with the government held responsible for ensuring that right.

Indeed, the United Nations Universal Declaration of Human Rights includes the right to work, not only because it is important in its own right, but also because many of the other economic and social entitlements proclaimed to be human rights cannot be secured without paying jobs. And both history and theory strongly indicate that the only way to secure a right to work is through direct job creation by government. This is not, and should not be, a responsibility of the private sector, which employs workers only on the expectation of selling output at a profit. Even if we could somehow manage economic policy to produce a permanent state of boom, we know that will still leave tens of millions of potential workers unemployed or in part-time and underpaid work. Hence, a direct government job creation program is a necessary component of any strategy of ensuring achievement of many of the internationally recognized human rights.

[15] Global Employment Trends Brief 2007, International Labour Office; results summarized in “Global Unemployment Remains at Historic High Despite Strong Economic Growth”, ILO 25 January 2007, Geneva. See also The Employer of Last Resort Programme: Could it work for developing countries?, L. Randall Wray, Economic and Labour Market Papers, International Labour Office, Geneva, August 2007, No. 2007/5.

[16] Not Out of the Woods: A Report on the Jobless Recovery Underway, New American Contract, New America Foundation, 2009, www.newamericancontract.net.

[17] Can a Rising Tide Raise All Boats? Evidence from the Kennedy-Johnson and Clinton-era expansions, L. Randall Wray, in Jonathan M. Harris and Neva R. Goodwin (editors), New Thinking in Macroeconomics: Social, Institutional and Environmental Perspectives, Northampton, Mass: Edward Elgar, pp. 150-181.

[18] See Not Out of the Woods, referenced above.

[19] See Gender and the job guarantee: The impact of Argentina’s Jefes program on female heads of households, Pavlina Tcherneva and L. Randall Wray, CFEPS Working Paper No. 50, 2005.

9 Responses to The Time Has Come for Direct Job Creation

  1. If we're not careful, the military will turn into a universal jobs program.But of course, totally agreed.

  2. Lets see how efficient is the government at creating jobs…More Pa. State Government Layoffs Expected SoonIn Hawaii, school's out for recessionThousands Of Chicago City Workers To Take 24 Unpaid Days In 2010$2.3 million in federal stimulus money is going to pay for Tampa Bay area beauty school tuitionThe jobs saved or created in Michigan by federal contracts under the federal stimulus bill have cost about $300,000 apiece7 Months After Stimulus 49 of 50 States Have Lost JobsNevertheless I admire our president and our CONgress's good intentions and encourage them to apply for the 2010 Nobel prize of economics… Since Obama have gotten his piece prize for his peace intentions, I think he and his advisors have a good chance of winning the economics Nobel also.

  3. From that Michigan 300K per job article:"Muskegon-based Great Lakes Dock & Material LLC is a good example. It won two contracts from the Army Corps of Engineers — one for $1.3 million … and another for $4 million … Under reports released Thursday, those contracts have created two jobs.But those are only the jobs created by the company so far. Its subcontractors on the Monroe dredging — who’ll employ most of the people whose jobs will be created or saved — haven’t had to report yet."Once the estimated 175 jobs from the subs report, the average per job will come down at bit.

  4. If we're not careful, the military will turn into a universal jobs program.If it weren't for the equipment costs, this could be a good thing. The US military is the largest education institution on the planet, and is obsessed with effectiveness.

  5. I might be too much of a socialist for you, but I don't think requiring every young adult to be trained and prepared to murder people on the other side of the planet to get an education is a good thing.

  6. " as many as 26 million more people would be working if we brought labor force participation rates of all adults up to the levels enjoyed by college graduates. "The issue is that there is no demand for high-school dropout labor in the US. All the manual labor (such as done by the Civilian Conservation Corps) is now done by machine at much higher productivity levels with far fewer workers. Could you train up a few of them on earth movers? Perhaps, but not enough.We should understand why American youth are not getting the education they need. I suspect the drug war is a major element of this problem, combined with a socialist education system that may not be highly responsive to the needs of poor children, and may not have the buy-in of poor parents.This article complains about 10% unemployment rates, when this has been the norm in France and Germany for many years because of their higher labor market regulations, with their immigrant population marginalized at much higher unemployment rates."United Nations Universal Declaration of Human Rights includes the right to work"Does that include the right to refuse to join a union when you work?

  7. The Cynical Economist, lets see. Some of those stories highlight the stress the recession is having on states. Why are those states having to lay off or not pay their workers? Well times are tough. Now, part of the stimulus was in fact aid to states to help shore up their books and keep them from laying off workers and cut services, and to a certain extent it has reduced how many have been cut nation-wide but the aid was simply too little. The stimulus was already small and watered down at 782 billion from 900 something billion (still too low) by moderate and centrist replublicans and democrats. Not only that but a whole 38% of the stimulus was tax relief – tax relief – one of the least effective forms of stimulus. This to try and get republicans and centrist dems on board.And when the already too-little stimulus was pared down furter, take a good guess where the actual cutting was done by Snowe, Colins and Spectre?: Aid to states, and spending…thank you centrists and republicans!You inadvertedly highlight the NEED for the federal government to provide more aid and funding for states given how many people are employed by them. Hey but I'm sure you'll just bitch that we can't afford it

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