Commentary | Inequality and Poverty

President Obama, help low-income families by creating jobs

This commentary first appeared in Spotlight on Poverty and Opportunity

Last night, President Obama addressed Congress and the nation, highlighting his plans for the upcoming year. The future economic well-being of families was a major theme in his speech. While he did not spend much time on the specific issues facing low income families, he did focus on the crisis of joblessness more broadly.

President Obama gave a clear message that jobs are important to working families. The number one priority to assist low-income families is to add jobs more broadly. There are 13 million officially unemployed and the labor market needs more than 10 million jobs to get back to full employment. Most likely, adding jobs and lowering the unemployment rate will immediately and directly impact job growth among racial and ethnic minorities, younger workers, and workers with low levels of education. The employment rates of these groups are more buffeted by business cycles. Furthermore, wages at the bottom end of the distribution are more responsive to changes in the unemployment rate, and will rise more quickly as the unemployment rate falls.

Therefore, policies to stimulate job growth are of utmost importance to working families.

President Obama discussed several specific policies that would stimulate demand and thus, jobs.  Creating manufacturing jobs and keeping jobs in the United States was high on his list though he failed to stress exchange rate policy, which is by far the most important lever for helping manufacturing. He did mention the importance of immediately passing the payroll tax cut to assist families and spur demand. What he noticeably left out of his speech is the importance of extensions to unemployment insurance (UI) benefits.

Spending on extended UI benefits is a very effective way to inject money into the economy, since that money is spent immediately by cash-strapped, long-term unemployed workers. This spending creates demand for goods and services, which takes workers to provide, so it generates new jobs. These important macroeconomic effects are over and above the fact that unemployment insurance benefits directly keep families out of poverty—in 2010, UI kept 3.2 million people out of poverty.

It’s important to note, however, that even the most aggressive jobs program – one that somehow got us quickly back to the unemployment rate of 2007, before the Great Recession began – won’t be enough to solve the problems facing low income families. There was a time when poverty fell sharply as the economy grew; that time is no more. Growing economic inequality over the last 30 years has been a prime reason why those at the bottom and middle of the income scale have not seen their livings standards keep up with overall income growth.  A real poverty agenda needs to steer substantial resources to low-income families so that they too can see the gains of a growing economy and have real opportunities for a decent life.

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