Job impact: Rough rule of thumb

President Obama is scheduled to propose a set of job-creation proposals before a joint session of Congress on Thursday. Details have yet to be released, but it looks like the package will include a continuation of some policies — such as the expanded unemployment insurance benefits, and the payroll tax holiday — and some new initiatives such as school construction and expanded investments in infrastructure.

Given that unemployment remains over 9% with 14 million people unemployed, it’s important to ask whether the job package is large enough to be meaningful. It’s also important to make sure that funds go to initiatives that are cost-effective at creating jobs quickly, while also providing economic value over the long run.

Here’s how to think about the job impact. The continuation of temporary or expiring job policies will make sure that we don’t backslide, but won’t be a new source of net job creation. For example, the payroll tax holiday and the extended unemployment insurance have already created jobs (and will continue to do so), and failing to continue these policies (or to replace them with something as effective) will lead to 1.5 million fewer jobs.

New initiatives, by contrast could lead to substantial new job creation if they are funded at an appropriate scale. For example, what would be the cost of spurring the creation of one million new jobs economy-wide? If you look at the impact of something like boosting spending on infrastructure (roads, bridges, etc.) each dollar spent yields an estimated $1.44 in increased GDP–which is pretty good on the bang-for-the-buck scale. If you track through the impact on employment (you need more people to make more stuff!) – it looks like each 1 percentage point increase in GDP leads to about 1.2 million new jobs. So, doing the quick math, you would need about $88 billion in additional investments to get an increase in employment of one million jobs. Conversely, investments totaling $100 billion would get you an increase of about 1.1 million jobs.

The president’s initiatives will likely include some ideas that have a larger bang for the buck, as well as some that may have lower impacts, but the 1.1 million jobs per $100 billion is a fairly good way to quickly assess the overall job impact of public investments.

Blue Chips falling on my head, ouch!

Looking ahead at the unemployment expected in the future does not make me happy at all, especially these days. To gauge the persistence of the high unemployment, I keep track of forecasters’ projections of unemployment at the end of (last quarter of) 2012. This is usually as far forward as forecasters look and, frankly, anything beyond that is not all that credible to me.

I just received the Blue Chip consensus, which aggregates the forecasts of 52 forecasts and they tell me that expectations for unemployment keep on rising. Back in June the consensus was for 8.0% unemployment in the fourth quarter of 2012 but it rose to 8.1% in July, jumped to 8.5% in August and reached 8.7% in the September consensus. This reflects that the growth expected in 2012 has fallen from the 3.1% rate expected in the June forecasts to just 2.2% in the recent forecasts. The Goldman-Sachs economics team, whose forecasts have fared pretty well in this recession, expects 9.3% unemployment at the end of 2012. Ugghhhh.

Oh – and remember that none of these forecasts show an outright “double-dip” (i.e., return to negative growth). Instead, they just show the consequence of growth that is consistently too slow to soak up new labor market entrants and work off the backlog of unemployed workers built up during the recession. So, it’s not just an outright return to recession that’s scary for those worried about joblessness, sluggish growth is plenty scary too.

The U.S. doesn’t lack the right workers, it lacks work

A common refrain we hear these days is that one of the reasons hiring has not yet picked up substantially is that employers have job openings but can’t find workers with the education and skills they need.  Of course, as today’s release of the Job Openings and Labor Turnover Survey shows, unemployed workers outnumber job openings by over four-to-one right now. The amount of unemployed workers vastly outnumbers job openings in every major industry, and there are far fewer job openings in this recovery compared to even the very weak recovery of the early 2000s.  Our broad shortfall of demand for workers is beyond question.

However, could there be a skills mismatch for the job openings we do have? An important thing to note in this discussion is that while there are always changes going on in any labor market that will create some degree of mismatch between the workers who are available and the workers employers need, the relevant question is whether this mismatch is contributing a substantial part of today’s unemployment.

It is true that workers with higher levels of education have much lower unemployment rates than workers with lower levels of education. Could this signify an unmet demand for workers with high levels of education — a mismatch, given the excess supply of workers with lower levels of education — that is fueling our persistent high unemployment? The figure below shows unemployment in the first half of 2007 (before the recession began) and in the first half of 2011, by education level. It shows that while workers with higher levels of education do have substantially lower unemployment rates, these workers too have seen a large percentage increase in unemployment since before the recession started.  In fact, all education categories have seen their unemployment rates roughly double over the last four years.


This across-the-board deterioration in the demand for workers runs directly counter to the notion that there has been some transformation of the workplace over the last four years that has left millions of workers inadequately prepared for the currently available jobs. The fact that productivity growth over this downturn has been comparable to that of the early 1990s downturn and far less than that of the early 2000s downturn (see Figure L here) provides further evidence that no major workplace transformation has occurred.

For more on the issue of structural unemployment, see Reasons for Skepticism About Structural Unemployment.

Georgia Works doesn’t work

The last place I’d look for innovative job creation ideas is Texas, but Georgia isn’t far behind. President Obama hasn’t endorsed the Rick Perry sub-minimum wage job creation machine yet (see Paul Osterman’s op-ed in Tuesday’s New York Times), but he has given a shout out to a terrible idea from Georgia known as Georgia Works. I’ve been part of an effort to discourage the administration from including a Georgia Works-like proposal in the president’s Thursday jobs speech, but I’m afraid it’s been a losing battle.

In 2003, long before the Great Recession, Georgia started allowing employers to try out new employees for eight weeks without having to pay them anything. Unpaid employment is generally illegal, of course. It violates the federal minimum wage law. Georgia thought it could get around the law by letting the try-out employees continue to receive their unemployment insurance benefits. In addition, the state provided stipends to help the employees pay for transportation to and from work.

When the U.S. Department of Labor (DOL) discovered what was going on, it cautioned Georgia that the unemployed could continue to receive unemployment insurance benefits only if they were receiving state-approved training, and not if they were re-employed. But DOL also pointed out that bona fide trainees don’t have to be paid the minimum wage. So Georgia began calling its try-out employees “trainees” and required the employers to provide some training, though in practice the training might not amount to much.

This is obviously a great deal for the employers who participate, who get eight weeks of employment free, without paying even Social Security taxes or unemployment insurance taxes, let alone wages and benefits. Their competitors haven’t complained very much, perhaps because they know that in the long run, such a program will drive down entry wages low enough to benefit them, too (many employers have discovered the similar advantages of unpaid internships). But what kind of deal is Georgia Works for employees?  Its proponents defend it on the basis that it’s voluntary and it gives the unemployed some hope of getting permanent employment at the end of the try-out.

Unfortunately, even the state of Georgia doesn’t claim much success for the program.  Only one try-out employee in four got hired by the business that got his or her free labor, even according to the state’s unaudited claims. The state has never published any study that provides any evidence that the program improves the participants’ chances of getting a permanent job, let alone one at decent wages and with good benefits.

And as for job creation, Georgia has failed miserably. From July 2010 to July 2011, Georgia lost more jobs than any state but Indiana. All but six states gained jobs over that period, but Georgia lost 24,900 jobs. Georgia’s unemployment rate remains among the nation’s highest, a full percentage point worse than the national average.

Clearly, this is a record to run from, not one to impose on the rest of the nation. So why would President Obama praise Georgia Works? Does he know the program has dwindled to the point that fewer than 20 of the unemployed were participating in it last week? The answer appears to be that his hunger for bipartisanship has overcome his reason. Representative Eric Cantor (who wants to stop paying Emergency Unemployment Compensation to the  millions of long-term unemployed who are receiving it), likes Georgia Works. Speaker of the House John Boehner likes Georgia Works too. Apparently, that’s enough to convince the president to ignore the stubborn fact that Georgia Works is a failed program with the potential to do serious damage to an already weak labor market.

My biggest fear is that Georgia Works, no matter how scrupulously it’s reformed and policed, is the first step onto a slippery slope leading downhill to workfare, the notion that the jobless ought to “work off” any benefits they receive. There are plenty of right-wing pundits and politicians who consider unemployment insurance a form of welfare, rather than a protection workers earn and pay for with their work and deferred wages.

Fixing schools, creating jobs

We’re doing a snap quiz today. Question: How can we improve education and the safety of students and teachers while helping to solve the nation’s #1 economic problem? Answer: Read on…

More than 1.2 million construction workers were out of work in August, and their unemployment rate is about 50 percent higher than the national average. Those numbers look  a little better than they did six months ago, but it’s not because construction firms are hiring. It’s because construction workers are finding jobs outside their industry or giving up their job search. Total construction employment is no higher today than it was a year ago, when the unemployment rate for construction and extraction workers was 16.3 percent.  Millions of years of experience are going to waste as these skilled workers sit idle.

Meanwhile, most of the nation’s 100,000 public schools need repairs, upgrades, and maintenance that have been deferred, sometimes for many years. These repairs are just the kind of work unemployed construction workers have the skills and experience to do — replacing boilers or faulty air conditioning systems, repairing broken tiles, removing or encasing asbestos, making electrical repairs and upgrades, replacing roofs and windows, and making security improvements.

School districts and state education agencies have long lists of deferred maintenance and repair projects. Washington state, for example, has listed $2 billion of projects in hundreds of schools, many of which could be started even while the kids are in school. New York City has a project list with a price tag exceeding $1 billion, which is no surprise when you take into account that some of the city’s schools are more than 100 years old.

The maintenance and repair backlog means inefficient energy use and higher utility costs, roof leaks that damage books and equipment, exposure to mold, asbestos, and fire dangers, and a sense among many schoolchildren and teachers that education really isn’t a local or national priority. And the problem is getting worse. The states and local governments have been hammered by the financial crisis, the recession, high unemployment and falling tax revenues. They have laid off hundreds of thousands of employees and cut back spending however they can. California, for example, has imposed $18 billion of budget cuts on the schools since the Great Recession began three years ago, leaving even less money to address deferred maintenance and repairs.

The only solution to nationwide problems of this magnitude and importance is federal intervention. Congress should enact a jobs program targeted at the infrastructure of our public schools. That program is FAST!, Fix America’s Schools Today, a $50 billion grant program I have proposed with Mary Filardo of the 21st Century School Fund and Jared Bernstein of the Center on Budget and Policy Priorities.

Using existing school aid formulas, Congress could allocate money to the 100 biggest school districts and the state education agencies to put people to work within a matter of weeks. Before winter hits, old, thermally inefficient windows could be replaced, insulation could be added to roofs, old boilers could be swapped out, and tens of thousands of construction workers could be back on the job. By next summer, hundreds of thousands of workers could be employed making improvements to facilities in every school district.

The great thing about this is that this work has to be done eventually, it’s overdue, and there’s no better time than the present to do it. Borrowing costs for the federal government are historically low, material costs are low, and contractors are eager to do the work. Many people say (wrongly) that they and their families never  benefited from the previous stimulus, and most people have trouble identifying anything that was accomplished. But this work will be highly visible and highly appreciated by the 64 million public school students and their families.

The high school my daughter attended was just renovated, six years too late for her.  But it gives me a sense of pride and confidence in the community to see the vastly improved facility and to know that future students will be safer and better served. Legislation like FAST! should have been enacted 10 years ago, but it’s better late than never.

Rumors abound that President Obama will recommend a program like FAST! in his jobs speech at the joint session of Congress on Thursday. If House Speaker John Boehner and his colleagues care about jobs and education, they’ll take him up on this win-win proposition.

Schools confront poverty, why don’t education policies?

In a recent interview, Secretary of Education Arne Duncan reflected on his prior tenure as Chicago schools superintendent:

I come from Chicago where 85 percent of our students live below the poverty line. If children can’t see the blackboard, they’re going to have a hard time learning so we have to get them eyeglasses. We used to get literally tens of thousands of kids eyeglasses every year. If children aren’t fed and are hungry, they’re going to have a hard time concentrating, so we fed tens of thousands of kids three meals a day. We had a couple of thousand kids we were particularly worried about so very quietly we would send them home Friday afternoons with a backpack full of food because we worried about them not eating over the weekend.

Should schools have to do that? No, in a perfect world they wouldn’t have to do that. But we have to deal with reality and whether it’s eyeglasses, food, or physical and emotional safety, we have to address all of those things. And schools can’t do it alone. Non-profits, faith-based institutions — all of us have to work together.

Then asked “All else equal, should we expect more of schools?,” Duncan replied, “We should expect more of society.”

Urging schools to solve vision, nutrition or physical and emotional safety problems by working with “non-profits” and “faith-based institutions” is silly. Voluntary organizations can perform isolated acts of charity, but only government can narrow the vast social inequalities that bring many children to school unprepared to learn.

The Obama Administration’s education program expects nothing of society, and everything from schools. It proposed a “Blueprint” for re-authorizing the Elementary and Secondary Education Act that would hold schools accountable for getting all children “college and career ready” by 2020, whether they can see the blackboard, come to school hungry, or eat on the weekend. And while the “Race to the Top” competition (with funds from federal stimulus appropriations) awarded points to states for the administration’s favored school reforms, states got no points for providing eyeglasses or food, or for improving emotional and physical safety by, for example, adopting suburban zoning reforms that would permit family moves from ghettos to more stable neighborhoods.

The Broader, Bolder Approach to Education campaign convened by the Economic Policy Institute describes many practical programs that could ameliorate hardships that impede children’s ability to flourish in school. Duncan’s interview shows the administration is not oblivious to this need but simply chooses to ignore it.

Business economists differ from House orthodoxy on regulation, uncertainty, and tax hikes

The House Republican majority has spent much of the last year, and will likely spend much of the fall, criticizing what it considers job-killing, uncertainty-generating regulations, and holding fast to the belief that deficit reduction should not include increased taxes. In contrast, the nation’s business economists overwhelmingly think the current regulatory environment is good for the economy, dismiss the possibility that government-caused uncertainty is a major factor holding the economy back, and believe deficit-reduction should include tax hikes.

These findings emerge from a survey  released in August by the National Association for Business Economics. NABE’s survey of 250 of its members, who include both academic business economists and practicing business economists (“those who use economics in the workplace”), contains the following results:

— The vast majority (80%) of those surveyed believe the current regulatory environment is good for American businesses and the overall economy.

— The large majority of business economists believe concerns about economic uncertainty are a proxy for generalized concerns about the bad economy. (That is, the concerns do not reflect business worries about regulation.) Few believe economic uncertainty is a major concern that is holding back economic progress.

— Nearly nine in every 10 business economists believe that attempts to reduce the federal budget deficit should include at least some tax increases. Nearly half support deficit-reduction packages reflecting equal amounts of spending cuts and tax increases or mostly tax increases.

Here are the relevant survey questions, along with breakdown of the respondent answers which were tabulated by the NABE:

Q: In your view, is the current regulatory environment good or bad for American businesses and the overall economy?

— 80%: Good
— 17%: Bad
— 3%: Unsure

Q: When asked about their top economic concerns, many businesses cite “uncertainty” as a major worry, suggesting that continued anxiety is impacting their decision-making process. How concerned are you about “economic uncertainty,” and do you feel that it is a legitimate challenge to economic growth?

— 13%: Americans remain anxious about the economy, and as a result, they are not spending or investing in their businesses. It is a major concern.
— 75%: While Americans remain anxious, “economic uncertainty” is simply a proxy for other economic indicators. Once the economy starts to improve, such anxieties will go away. It is a concern, but not a major one.
— 12%: “Economic uncertainty” is not measurable, so it really has no bearing on the economy or growth. It is not a major concern.

Q: How should Congress attempt to reduce the federal budget deficit?

— 12%: Only with spending cuts.
— 44%: Mostly with spending cuts.
— 37%: Equally with spending cuts and tax increases.
— 6%: Mostly with tax increases.
— 1%: Only with tax increases.

Welcome to ‘Working Economics’

Colleagues, policymakers and working Americans,

Hello and welcome to Working Economics, the new blog of the Economic Policy Institute.  Since its founding in 1986, EPI has had a special focus on the living standards of working families and we have done so for a simple reason: We believe that the measure of a good economy is whether it is providing rising living standards to the vast majority. That is the bottom line and discussions about Gross Domestic Product, productivity, trade or even rising employment must be vitally linked to how they connect to improved economic well-being and quality of life for our nation’s working families. And, for the record, “working families” includes those who want to work but cannot find work as well as those in retirement, living off of the pensions, Social Security and savings generated during their working years.

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Working Economics will provide EPI an additional tool for communicating about the economy and economic policy. It will provide an effective mechanism for engaging in the issues that people are thinking about every day. The blog will help EPI analyze and respond to breaking economic news quicker than ever before. It will also allow us to surface many of the analyses which we regularly undertake but do not showcase in the public sphere. The blog provides a forum for EPI researchers to present EPI’s work in a conversational and engaging manner. We recognize that EPI’s biggest asset is our hard-earned reputation for doing solid empirical and policy analysis. Therefore, our blog posts will maintain the same high quality readers have come to expect from EPI.

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Lawrence Mishel
EPI President