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NATIONAL
JOBS FOR ALL COALITION
UNCOMMON
SENSE 14 rev. October 2001
Responding
To Rising Unemployment:
Can We Afford Jobs for All?*
#1 of FAIR WORK AND WELFARE: a welfare
reform packet
By Philip Harvey, Assoc. Prof. of Law, Rutgers University
School of Law (Camden), and Advisory Board, National Jobs for
All Coalition
In October 2000 the national unemployment rate stood at 3.9 percent.
Ten months later it had risen to 4.9 percent. Thus, even before
the September 2001 attack on the World Trade Center, all of the
reductions in the nation's rate of unemployment achieved in the
preceding three years had been lost, and there is every reason
to expect the situation to deteriorate even more rapidly in the
wake of the attack. This trend will put the problem of unemployment
back on the public's political agenda, but it is important to
remember that even with unemployment at the 3.9 percent level
achieved in the fall of 2000, over 5.5 million active job seekers
were entirely without work, over 2.5 million were employed part-time
even though they wanted full-time jobs, and over 4 million people
reported that they wanted a job
even though they were not actively looking for one.
Even in periods of general prosperity, there are not enough jobs
to satisfy
the needs of everyone who wants to work, and the burdens of this
joblessness tend to fall disproportionately on disadvantaged population
groups. With unemployment rising, millions more will suffer, and
this increase, too, will be born disproportionately by members
of disadvantaged
population groups. As of September 2001, before the attack on
the World Trade Center, official unemployment had risen by 1.5
million compared to a year before and the number of involuntary
part-time workers had grown by another million.
While jobless individuals and their dependents endure the most
harm from
the economy's failure to provide work for everyone who wants it,
they are
not they only ones to suffer. We all share in the sacrifice. We
are poorer as
a society because millions of people who want to work are kept
idle instead. Our taxes are higher because there are fewer workers
to pay taxes. And government expenses are higher because of the
benefits and services which must be provided to deal with the
multitude of problems that unemployment either causes or aggravates.
Why doesn't our government simply create the additional jobs
needed to ensure that everyone who wants to work can do so? There
is a variety of considerations that keep us from taking that step,
and I shall address only
one of them here-concern about the cost of the needed job-creation
effort.
There is no question that job creation is expensive. What most
people fail to take into consideration is that unemployment costs
governments money, too. The true cost of creating jobs for everyone
who wants to work is the difference between the cost of creating
the jobs and the costs of unemployment that governments already
bear. When those costs are compared, the surprising conclusion
is that creating jobs for all might end up saving taxpayers more
money than it would cost them.
The Costs of Joblessness
Is it possible to finance a large-scale initiative without adding
to what we
now spend coping with joblessness? The answer may be yes. The
key to understanding why lies in an assessment of the costs of
leaving people unemployed.
1. Governments lose the taxes that jobless people would pay if
they were working. The result is higher taxes on others, lower
public expenditures, or larger deficits.
2. Government revenues pay for income-assistance benefits to the
jobless, like unemployment insurance or food stamps.
3. We lose the goods and services that the jobless would produce
if they were employed. The result is a lower standard of living
for society as a whole.
4. We bear a myriad of indirect costs attributable to the social
problems that joblessness aggravates--from increased criminal-justice
costs to increased health-care expenditures and family breakdown.
5. We suffer deeper recessions because rising unemployment cuts
consumer spending, further discouraging business.
The fact that joblessness imposes costs on society and that governments
already bear a substantial portion of these costs raises the possibility
that government job creation might be at least partially self-financing.
The Cost of Job Creation
I have explored this idea, analyzing both the costs of a large-scale
job-creation initiative and the additional public-sector revenues
and savings it would generate. Although the numbers have changed
somewhat since then, the basic conclusion still applies.
I asked what it would have cost to operate a program capable
of providing employment to every job-seeker unable to find work
in the regular labor market between 1977 and 1986--a period of
unusually high average unemployment. I included not only officially
unemployed workers but also involuntary part-time workers, discouraged
workers, and able-bodied welfare recipients not already counted
in the labor force.
If the program offered employment at market wages (the average
wage earned by similarly qualified individuals when employed),
program wages would have averaged about $9.25 per hour in 1986,
or almost $19,000 per year (both in 1999 dollars). Other assumed
program features included the following:
1. Program participants would pay the same Social Security taxes
and receive the same Social Security benefits as other workers
(with the program paying the employer's share of the payroll tax);
2. Program participants would be offered the same health insurance
benefits as federal government employees and on the same terms;
3. Free, high-quality child care would be provided for all working
parents;
4. Paid job training would be offered to anyone who initially
could not qualify for a job paying at least a poverty-level income,
as well as to others who need training to provide needed services;
5. Individuals who could not function in a normal working environment
would be offered employment, either temporarily or permanently,
in a sheltered workshop or other appropriate setting.
Not surprisingly, such a program would have cost a lot of money--
less than $225 billion a year average (in 1999 dollars) over the
ten-year period analyzed. Although very large, it is worth noting
that this level of social-welfare spending is not unprecedented.
We regularly spend more on Social Security benefits. In 1986,
for example, the job program would have cost $143 billion in current
dollars compared to $194 billion for Social Security (not including
Medicare).
Paying the Bill
Costs would have been substantially higher for this hypothetical
jobs program but for an interesting side-effect. The program would
eliminate certain expenses that add to the cost of providing jobs
in the regular labor market. Consider child care, for example.
Child care is an expensive benefit when purchased from third-party
providers, but a comprehensive job program could operate child-care
centers as one of its job-creation initiatives. Free, high-quality
child care could then be offered to program participants without
adding a penny to total program job costs. The same is true of
the costs of job training. Creating jobs for trainers would reduce
the number of other positions the program would have to create.
This means program participants could be furnished ample training
without increasing program costs.
The program wouldn't have to limit its hiring to currently unemployed
individuals either. If someone were hired away from another job
because the program needed a person with particular skills (e.g.,
a child-care professional), the job that person left behind would
become available to someone else. This vacancy would substitute
for a job the program otherwise would have to create. Projects
also could be started slowly, permitting program participants
to gain experience. This would reduce the program's total output,
but it wouldn't increase its total cost. The latter would depend
on the total number of jobs created, not the distribution of participant
assignments between training and direct production.
Administrative costs and most other support services in the program
could be financed in the same way. Even the cost of purchased
goods and services (e.g., child care supplies and building materials)
would be partly internalized since jobs created in the private
sector to produce these goods and services would substitute for
jobs the program otherwise would have to create.
The bottom line is that a comprehensive jobs program could offer
employment at a lower cost per job than would be possible in a
more narrowly targeted program. Given the persistence of the economy's
job deficit, many of these jobs could be essentially permanent.
Others would be temporary, designed to provide work for cyclically
unemployed workers.
The results of my job-creation study were a pleasant surprise.
$225 billion is not chicken feed. Yet, according to my calculations,
these costs would have been offset almost entirely by lower government
costs and increased revenues resulting as people moved from unemployment
to jobs.
Begin with taxes. I estimate that about 20 percent of program
costs would have been immediately recouped through increased income
and Social Security tax payments by program participants to all
levels of government. Another 60 percent of the program's cost
would have been covered by funds actually spent between 1977 and
1986 on unemployment compensation and means-tested income assistance
provided to able-bodied adults of working age and their dependents.
After accounting for additional tax receipts and income-assistance
savings, the job program's remaining funding deficit would have
averaged only 20 percent of total program costs, an average of
$43 billion per year (in 1999 dollars). That's not an unreasonable
amount to pay for full employment. Even this amount, however,
assumes that everything the program produces would be given away
for free. If anything at all were charged for the goods and services
produced, the program's funding needs would be reduced, very possibly
to less than zero.
In the period I studied, for example, the program would have
produced an average of about $225 billion of goods and services
a year (expressed in 1999 dollars). This level of output could
include child care not only for program participants but for other
working parents. It could include low-cost housing for homeless
families, additional maintenance and recreational staff to work
in our parks, additional classroom and lunchroom aides for our
schools, home-care aides for the elderly, conservation workers,
and so forth. Those who worry about the "end of work"
or a "jobless future" can be reassured. There is no
shortage of work that needs to be done. The problem is having
the political will to translate real needs into real jobs.
The public might not be willing to pay $225 billion a year for
these goods and services, but it would be willing to pay something.
If it had paid the $43 billion per year needed to close the program's
remaining budget gap, it would have gotten the program's output
for an average of 20 cents on the dollar.
The Macro-Economic Fine Print
Economists will note that such a program would have increased
disposable household income by an average of close to $43 billion
a year (the program's total cost less direct taxes paid by the
newly employed and income-assistance benefits they would have
received had they remained jobless). This would have provided
the necessary income and a rationale (the prevention of excess
economic stimulus) for charging fees for some portion of the goods
and services the program would have provided.
Account also needs to be taken of the likely counter-cyclic effect
of such a jobs program. In the period studied, almost half of
the estimated ten-year funding deficit would have been incurred
in the recession years of 1982 and 1983. A jobs program that offered
employment to all job-seekers unable to find work would be a powerful
automatic stabilizer. If it had been in place during the early
1980's, the deep recession of that period almost surely would
have been moderated. This would have reduced the program's cost,
but a bigger payoff for society would have come in the form of
higher aggregate income levels. The nation's gross domestic product
fell by $121 billion (1999 dollars) between 1982 and 1983. Compared
to the 3 percent expansion we might have had, the loss was $288
billion.
This is not to say the recession would not have occurred if a
comprehensive jobs program had been in place. It is just to indicate
that any reduction in the severity of recessions attributable
to such a program could generate a large social payoff.
Finally, indirect savings likely to flow from reduced joblessness
have not been taken into account here. There are countless ways
in which joblessness is harmful to both individuals and families.
Its negative effects on physical and mental health are well documented,
and it is implicated in the full range of social problems associated
with poverty. These problems weigh most heavily on the unemployed
and their families, but the public shares the cost. Government
spending is affected in areas as diverse as health care, education,
criminal justice, and social-service delivery. While the indirect
savings and benefits society would enjoy from reduced unemployment
are hard to quantify, they are undoubtedly large.
Good News and Bad News
When all these factors are considered, it is hard not to conclude
that a jobs program capable of providing work for everyone who
needs it would not cost us money. It would save us money. Existing
policies are more expensive. A comprehensive job-creation program
would lighten the burden on taxpayers. As with the provision of
universal health insurance, making sure that all Americans have
jobs they can live on is not only the humane and just thing to
do, it's just plain smart.
The bad news is that it would be very hard to mobilize the resulting
pool of savings. The savings would show up in thousands of budget
lines scattered across all levels of government as well as in
real income gains by ordinary tax payers. No one level of government
would save enough to fund such a program on its own. Gathering
the money saved by a large-scale job-creation initiative into
a single pot would be a gargantuan political task. In conceiving
specific funding devices for job creation, proponents should look
for ways these savings could be gathered together.
There also are other challenges to winning public support for
job-creation. Given the association of low levels of unemployment
with higher rates of inflation, questions would be raised about
the inflationary effect of such a program. This is not a simple
issue to analyze. The inflationary effects of the direct job-creation
described here would be less than those of the more conventional
way of creating jobs through an increase in overall spending (possibly
financed by increased government budget deficits.) Job creation
targeted to unemployed labor and depressed areas can avoid spot
shortages that can lead to inflation. However, the bargaining
strength of employees would increase in both instances, resulting
in wage increases. These, if not offset by productivity increases
or a reduction in the share of profits, would trickle through
to prices. However, in the absence of total spending growing beyond
capacity and/or more expansionary monetary policy, it is unlikely
that a wage/price spiral would persist for long.
The net effect of a job-creation initiative such as I have described--following
an inflationary adjustment period--might be a redistribution of
income in favor of wage earners, particularly at the lower end
of the wage scale, without much change in underlying inflationary
tendencies. This is worth exploring in more depth. If inflation
were a problem, other inflation-controlling techniques are preferable
to the socially destructive policy of intentionally increasing
joblessness.
Other issues that would have to be addressed in persuading the
public that deliberate job creation makes sense include the question
of whether there really is a job shortage in the economy, whether
government has the capacity to administer a successful job-creation
initiative, whether unemployed workers really are "employable,"
whether a direct job-creation effort would adversely affect regular
government employees, and whether such an initiative would tend
to undermine labor productivity and discipline in the private
sector. Even if the money could be found to fund a major program,
the importance of these other questions should not be underestimated.
Nevertheless, in today's political climate, cost is a key issue.
Proponents of job creation are unlikely to make much headway in
promoting deliberate job creation as long as the public believes
someone is going to have to take a big tax hit to pay for it.
On that score, the public can be reassured. Notes available on
request. _______________________________________________________
*A version of this article appeared in Social Policy, Spring 1995.
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