Putting America back to work: a look beyond public-works bills
With unemployment widely expected to break through the 11 percent level soon, Congress is under irresistible pressure to create jobs.
But the job-creating tactics at the immediate command of Congress all have drawbacks, experts say. These include public-works and public-service programs, tax credits for employers, minimum wage changes, and training programs.
''There are no painless short-run panaceas,'' notes Richard Rahn, chief economist for the US Chamber of Commerce.
And with 11.9 million people unemployed, even costly programs like the $9.7 billion jobs package Senate Democrats recently unveiled are expected to have only a relatively modest effect on unemployment. President Reagan's $5.5 billion road-repair and job-creating plan was slated to come before the full Senate as early as Thursday.
''Any specialized (form of) attack is just a drop in the bucket,'' given the problem's massive size, notes Sar A. Levitan, director of the George Washington University Center for Social Policy Studies.
Rep. Les Aspin (D) of Wisconsin says the federal government would have to spend $20 billion on public-works and public-service jobs to cut unemployment by 1 percent. Most economists agree that any significant reduction in unemployment will have to come from federal taxing, spending, or monetary policies designed to stimulate economic growth.
''When you have massive unemployment it cannot be resolved without expansionary fiscal and monetary policy,'' says Michael Lovell, a labor economist at Wesleyan University in Middletown, Conn. Using such measures, ''we know how to push unemployment down to 5 or 6 percent,'' he says. ''The problem is to do it with the least inflationary side effects.''
While economists agree that measures to stimulate the economy are the most effective against unemployment, there is sharp disagreement over the specific course to pursue.
For example, some think the Federal Reserve Board is already exercising too little restraint on the money supply. ''I am fearful that (Federal Reserve chairman Paul A.) Volcker is reinflating,'' says Richard McKenzie, senior fellow in economics at the Heritage Foundation.
Others, like Brookings Institution economist Barry Bosworth, say additional steps by the Fed to stimulate the economy ''would have no major inflationary effects. . . . I do not see why action to stabilize the (unemployment) situation will cause enormous erosion in the (investors') belief that the Fed is serious about inflation and willing to act on it.''
Congress may act to limit the Fed's independence if interest rates start to climb again. But in the meantime, legislators will concentrate on more narrowly focused measures.
One advantage of spending for roads, bridges, and public transportation is that necessary improvements in these systems get made. And stepped-up federal spending for construction will likely create some jobs for construction workers and those who make constuction equipment and supplies.
''We applaud any initiative to create jobs,'' notes AFL-CIO spokesman Rex Hardesty.
But a public-works program funded by increased taxes - such as the gas-tax-supported jobs plan passed by the House earlier this week - ''is a transfer of resources and jobs away from various other areas and into road construction,'' counters Harris Bank and Trust vice-president and economist Robert R. Davis. And most of the jobs created go to skilled workers.
Allen H. Gutheim of Wharton Econometric Forecasting Associates estimates that the $5.5 billion House plan would lift employment by 40,000 jobs by the end of 1984, far below the 320,000 the plan's supporters forecast. And in 1983, the program would actually cost the economy 20,000 jobs as money consumers would have spent elsewhere winds up paying for the increased tax.
Delays caused by the need to plan and let out contracts also have troubled earlier public works efforts. For example, the Local Public Works Program, approved by Congress as a result of the 1974-75 recession, had peak outlays in the second quarter of 1978 - some three years after the economy had hit bottom and started to improve again. Public-service programs
Jobs can be created rapidly through spending on labor-intensive service programs like day care, rather than building or rebuilding structures. Unlike public-works programs, special training is not needed. So workers who lack skills or those who need retraining can be helped.
''In a highway program, in six months only 50 percent of the people are on the job. With public service it can range up to 90 percent,'' notes an aide to Representative Aspin, who recently published a report on the costs and benefits of various job creating programs.
But public-service plans have a variety of drawbacks, critics say. Speedy job creation can lead to fraud and waste. And local and state governments often are tempted to use public-service funds to pay regular employees, lowering the programs' impact.
Finally, the cost of creating such jobs is fairly high for the nature of the work performed. Aspin's data indicate a public-service job costs between $11,900 and $20,000 versus $30,700 to $53,800 for a regular public-works job. ''In terms of a cost-benefit analysis, they are not cost beneficial,'' says Columbia University economist Ann Bartel. Tax credits
Senate Finance Committee chairman Bob Dole (R) of Kansas says he is looking at changing the tax code ''to see if we might encourage businesspeople with tax credits to take more people back into the work force.''
Offering such credits would lower the effective cost of hiring new workers.
''I would not expect major results from it, but there is some evidence that as you come out of a recession it can be very effective in speeding the expansion of employment,'' says John Palmer, senior fellow at the Urban Institute in Washington.
But critics argue that this approach only increases the taxes someplace else. Another negative effect, says Chamber of Commerce economist Rahn, is that such a credit might encourage firms to substitute labor for capital, thereby reducing US productivity. Minimum-wage changes
The Reagan administration is examining ways to reduce the minimum wage firms must pay in a bid to reduce unemployment. In one such scheme, an individual could get a voucher for his unemployment benefits and turn the voucher over to a firm willing to hire him. This would reduce the firm's labor cost by the amount of the unemployment benefit. Economists say lowering the minumum wage would have the most pronounced impact on young and low-skilled workers. One major drawback to the voucher scheme is that a firm could lay off current workers and hire the unemployed in a bid to trim labor costs. Training programs
Senate Democrats propose spending $200 million to help retrain displaced workers for positions in fields where jobs are available. But retrained workers would be ''dumped into a labor market where the number of jobs is inadequate,'' notes economist Bosworth.