Opinion Editorial: Why Piddle Around? Jobs and Economic Development
In what has been dubbed the "Boeing Session," the Washington Legislature held a special session in early June 2003 to address what Boeing said were the highest unemployment insurance (UI) costs in the nation, costs that could keep Boeing from locating its newest production line, and all the jobs that go with it, in Washington state.
Quite simply, bad UI policy threatened to cost the state jobs and keep unemployment high. In the end, the Legislature made improvements to Washington UI and it may make the difference for Boeing.
But lowering UI benefits is not the only answer for Washington. How the state actually uses its benefits is critical. As state economic development gurus scour the state budget, asking: "Where do we find money to create jobs?" state agencies dole cash to claimants asking: "How long must we wait for jobs?" The opportunity to turn benefits into jobs is ripe. Sound familiar?
A Lesson from the Depression How not to do it
Roosevelt reemphasized the project nature of the program, renaming it the Works Projects Administration and over eight years, the WPA built thousands of schools, bridges and other public projects. More importantly, 8.5 million people worked and reaped the financial and psychological benefits of work.
Unfortunately, the WPA was expensive and, according to many economists had little economic development effect on the national economy, which eventually climbed out of the Great Depression with monetary stimulus and the consequent private sector spending.
The lessons are simple: 1) real work works and "make work" doesnt, 2) private works not public works stimulate the economy and 3) costs must be controlled.
Promoting Work Today Subsidized Wages
Subsidized wage programs take the money states spend on the unemployed and offer it to employers who agree to provide job seekers with a job, training and a regular wage. The subsidy normally funds about half of the employers wage cost for three to six months, providing an incentive and ensuring a partnership.
Wage subsidies have evolved to answer the criticisms of the Roosevelt era program. They: 1) create real work with employers who will not hire an employee for "make work," 2) promote economic development by targeting job creation and immediately increasing production and 3) contain costs by simply converting previously committed money.
An Example in Oregon
Unlike many economic development strategies, wage subsidies can be used by any employer who can add a new employee. This includes the small businesses that constitute over 90% of employers and account for the large majority of projected new hiring in the state.
Sound like economic development?
Consider the economic impact in modest-sized Oregon (pop. 3.5 million). In fiscal year 2001, over $25 million normally used to subsidize unemployment, through unemployment insurance, was used to subsidize jobs and injected back into the economy in the form of production. Wages paid in the economy were twice the amount of benefit checks, and the unemployed became producers in the economy, tapping the multiplier effect and adding to the tax base.
Compare this to other economic development programs, for example,
tax credits that lure jobs from one community to anotherarguably a
zero sum game. And consider the cost/savings:
But is on-the-job training needed? If neighboring Oregon is any indicator, the majority of new jobs projected for the next decade will require short-term on-the-job training. This is just the type of training employers are expert in giving. And according to the W.E. Upjohn Institute for Employment Research, in a recent study on the subject, not only is on-the-job training critical, attaining it through subsidized wages is one of the most effective ways to help people move into work.
So, why not leverage what employers do well and upgrade the skills of thousands in the Washington state workforce?
With so many cost-free ways to create jobs and economic development, one question remains: Why piddle around?
John W. Courtney is a Senior Fellow for The American Institute for Full Employment and an EFF adjunct scholar. He can be reached at (541) 273-6731.
Evergreen Freedom Foundation
Contact: Jason Mercier, Budget Research Analyst
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