Up Front

Around the Halls: How Do We Create Jobs?

Isabel V. Sawhill, Mark Muro, William A. Galston, Robert Puentes, and Gary Burtless

As the Obama administration gathers economists, academics and corporate executives at a White House “jobs summit” to consider how the government can spur job creation, scholars from around the halls of Brookings suggest a range of ideas from revisiting the National Infrastructure Bank to more investment in education and training.

In this edition:


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Creating Jobs in the Public, Private and Nonprofit Sectors
Isabel Sawhill, Senior Fellow, Economic Studies

I think the ideas suggested by my colleague Bill Galston [below] are all very sound. But let me elaborate a bit. During the 1970s, I was the Director of the National Commission for Employment Policy and lived through the entire experience with the New Jobs Tax Credit of 1977-78 and public service jobs under CETA. The problem with these approaches, as almost everyone knows, is that some of the money gets used to pay businesses or local governments to do what they might have done anyway. Still, most of the evidence from that earlier period was that both of these policies—one aimed at jobs in the private sector; the other at jobs in the public sector—had a net positive effect, creating more jobs per dollar spent than general stimulus. Public service employment programs also provided valuable government services. Despite complaints about “leaf-raking boondoggles,” administrative hassles and possible misuse of such funds, if there were ever a time to maintain public services, if not to increase them, the moment is now. Plus, funds sent to states and communities will be spent relatively quickly and will help to stop the downward spiral associated with government belt tightening.

Here’s another idea that merits serious consideration: providing help to the nonprofit sector. By including this sector in a jobs program, with state and local governments, we can take advantage of a huge network of institutions that work hard every day to improve the welfare of communities and individuals, that will also spend the money quickly, that have the capacity to spread the dollars widely, and that in the absence of such help, will need to shrink and thus become another drag on the economy. In an earlier commentary, I described in more detail, how temporary assistance to this sector might work, but other ways should also be examined.

My final idea for helping the economy recover and grow is to make any future extensions of unemployment benefits conditional on individuals either accepting a low-wage job (making them more attractive to employers but allowing them to collect partial unemployment benefits) or enrolling in community college training program so that they can qualify for higher-skilled jobs once the economy recovers. Many other advanced countries have used shorter work weeks combined with unemployment benefits as a way of preserving jobs. Although this approach is not problem-free (for example, it may retard needed market adjustments and the reallocation of resources), it has the benefit of keeping more people employed and productively occupied through what may be a very long recession.

murom_thumb.jpg CDBG: Right for a crisis?
Mark Muro, Fellow and Policy Director, Metropolitan Policy Program

Before we create jobs we have to preserve them, and one place we’re in danger of losing them is in local government, where increasing local fiscal stress—as detailed in a recent paper I co-authored with Chris Hoene of the National League of Cities— threatens to produce significant lay-offs and delayed projects in the next year.

What to do? How about let’s run some emergency money through the Community Development Block Grant, that familiar workhorse of community aid to localities.

I know, I know: CDBG—a flexible program that provides communities with resources to address development needs particularly in urban or struggling locales–is in many respects a program federal bureaucrats and auditors love to hate. Such arbiters have a difficult time holding the program accountable since there is so much flexibility and local variation in how funds are spent. Consequently, Team Obama has also been cool to the program, with many observers suspecting that CDBG was a target of “Sheriff Joe” Biden’s March memo to federal agency heads warning against the funding of “imprudent” projects with stimulus money.

And yet, it could be that the very characteristics that make CDBG a reviled program in good times (longstanding existence, great flexibility, direct local allocation, very broad but small-bore reach) make it a solid counter-cyclical job creation measure for metropolitan America.

Think about it. That CDBG is an existing formula program that has been around for a while means it is well understood by federal, state, and local governments and staff and can work smoothly and fast. That it’s flexible means it may allow local ingenuity to get money into job-creation quickly. And meanwhile, its breadth and orientation to urban and struggling communities means it can expedite resources to many of places and types of people that need help most. For all of these reasons, then, it may well be that a pulse of CDBG funding might well be as good a bet for near-term job creation as any of the other emergency measures being bandied about this month, whether it be direct temporary aid to cities, a public service employment program, or a fast-track transportation bill.

Nor is this just an opinion. As it happens, the nation is in the midst of a heavily monitored field test of federal programs’ job impact. That test is also known as the Recovery Act, and the act provides $1 billion to fund CDBG awards the impact of which we can study. What, then, do the job-production numbers at Recovery.gov’s accountability pages say about how CDBG is performing? Well, a quick drill-down using the value of various CDBG awards, the number of recipients, and the job results reported to federal authorities finds that, sure enough, CDBG is performing admirably—or more than admirably. According to the government’s information, CDBG is being actively utilized to build a community building in Tucson; renovate a library in Elizabeth, NJ; install storm drains and update streetlights to LED lighting in San Jose; and fund improvements to a microbusiness enterprise center in Albany, GA. Going deeper into the government’s giant spreadsheets, we find that some 824 CDBG grants traceable in the database are delivering a job for every $7,000 of federal outlay while for the rest of ARRA’s programs jobs are resulting at the rate of one for every $56,000 spent. That’s pretty good, and what’s more, the program’s efficiency seems to be corroborated by a similar analysis of 2005–2008 grants made through the regular budget cycle. The bottom line: CDBG may not be cutting-edge but it generates jobs effectively while delivering valuable projects to distressed places.

Long to short, then, Congress and the White House should take another look at CDBG. A familiar old program with Great Society-era virtues and flaws might well be a truly smart vehicle for getting job creation in the right places, quickly and efficiently.

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National Infrastructure Bank, Guaranteed Loans, Tax Credits
William Galston, Senior Fellow, Governance Studies

Writing in the December 2 Wall Street Journal, Council on Economic Advisors Chair Christina Romer laid out the concerns that have prompted President Obama to convene a “jobs summit.” While she did not offer specific proposals, she did convey a broad sense of direction: “Given the budget deficits this administration inherited, it is critical to leverage scarce public funds. More fundamentally, when businesses seem hesitant to hire and productivity is surging, we need to harness the private sector, bringing large and small firms off the sidelines to boost job creation.”

Authors

Fair enough. Now, what exactly should we do? Here are a few ideas.

Candidate Obama had called for the creation of a National Infrastructure Bank that would use a modest amount of federal startup capital to leverage the private funds needed to sustain a long-term increase in desperately needed infrastructure investment. The bank, headed by an independent board of governors, could bring some much-needed discipline to an allocation process now dominated by congressional self-dealing and log-rolling, and it could put lots of people back to work building our future. It’s time for President Obama to resuscitate this idea and to push for it—hard.

• There’s mounting evidence that many solvent small and medium-sized businesses are being denied the credit they need to sustain their operations and bring on new employees. The government needs to do what is necessary to break this logjam. If banks have become excessively risk averse, the government might consider guaranteeing, say 90 percent, of the amount lent to small and medium-sized businesses that meet reasonable conditions of credit-worthiness. If banks are being held back by bad loans currently on their books, maybe it’s time to return to TARP’s original but never really fulfilled purpose—namely, getting some of those loans off their books.

• Although there are lots of good arguments against offering tax credits for new workers, a carefully crafted approach could make it harder for employers to game the system and would increase the jobs bang for tax-expenditure bucks. Alan Blinder neatly lays out all the relevant considerations in a recent Wall Street Journal article (November 16, A23).

No matter what we do, we’re almost certainly in for an extended period in which our resources—capital, plant, equipment as well as labor—will be underutilized. That’s the price we have to pay for badly overshooting a sustainable level of consumption for more than a decade. But sound, efficient public policy can speed the transition and give new hope to the millions of Americans who are in the process of losing their livelihoods.

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Better Targeting of Funds Needed
Robert Puentes, Senior Fellow, Metropolitan Policy Program

With all the hubbub around job creation it is easy to overlook the fact that the federal government did provide guidance on how best to geographically target funds for highway projects in the American Recovery and Reinvestment Act (ARRA). That law directs transportation agencies to place priority on “Economically Distressed Areas” for project selection of ARRA funds.

Ok, makes sense. It is natural to want to boost jobs in those communities that are suffering. Unfortunately, that specific policy is flawed, leading to unintended consequences.

The guidance is based on an “economically distressed” definition (albeit modified) from 1965’s Public Works and Economic Development Act. Specifically, the federal highway administration considers an ‘economically distressed area’ any county that maintained either:

  • A per capita income of 80 percent or less of the national average
  • An unemployment rate that is, for the most recent 24-month period, at least 1 percent greater than the national average

The first problem with this qualification system is an unintended preference towards non-metro counties. The primary culprit is the use of 2007 national per capita income comparisons without cost-of-living controls, which make lower-income those areas appear worse off than they may be. About two-thirds of our nation’s counties are non-metro, yet they make up three-quarters of those considered economically distressed.

The second problem was ARRA did not include any accountability for prioritizing investments towards economically distressed areas. Thus, whether federal roadway funding flows to these counties or not, there is no method to judge performance. This lack of comparable baselines or minimum thresholds creates empty rhetoric.

Steering investments toward economically distressed counties could easily be improved through more thoughtful policy construction. Adding a cost-of-living control would greatly balance qualifying areas, both for dense and rural locations. Also, including accountability clauses could steer more desired investments towards these areas.

burtlessg_thumb.jpg The Humanitarian Approach to Job Creation
Gary Burtless, Senior Fellow, Economic Studies

What is essential both on humanitarian grounds and for faster job creation is the continuation of some stimulus programs that are currently scheduled to expire. Congress should extend current unemployment protection for workers who have lost jobs as a result of the downturn. The February 2009 stimulus package provided extra unemployment benefits beyond the 6 months that are ordinarily available to laid-off workers. For workers who exhaust their regular benefits after January 1, 2010, many of these benefits will no longer be available. The stimulus package also made federal subsidies available to help jobless workers pay for continued health insurance if they lost their insurance when they lost their jobs. Both these vital protections should be extended through 2010. Most observers agree that the assistance we provide to the long-term unemployed through benefits is quickly spent by recipients and recycled through the economy.

If unemployment is likely to remain over 9 percent for an extended period, as now seems likely, there is a compelling case for more public infrastructure investment. Given high unemployment in the construction and capital goods industries and low federal borrowing costs, it makes sense to invest in public capital projects over the next few years, when such investments will be relatively cheap. The October 2009 unemployment rate in the construction industry was nearly 19 percent; in durable manufacturing it was nearly 13 percent. Some unemployed workers in these industries could quickly go back to work if the federal, state and local governments increased public infrastructure spending above planned levels.

Finally, it makes sense to boost total government spending on post-secondary education and training. First, this industry directly employs millions of workers, both in public and private institutions. The Department of Labor estimates that 1.7 million teachers were employed in 2006, and millions of additional workers are employed in administrative and support positions. Employment in post-secondary education has held up well, but the budget problems of state governments will force sizeable cutbacks if the federal government does not continue or expand the state fiscal relief provided in the 2009 stimulus package. Second, high unemployment rates have increased the number of adults who are eager to improve their job skills. Investment in better credentials certainly makes sense. For most working-age people, the biggest single cost of attending college or participating in a full-time training program is the earnings they forego. When the unemployment rate is high, the “opportunity cost” of schooling drops close to zero for many of the unemployed and underemployed. It would be a tremendous loss if hundreds of thousands of potential students and trainees are turned away from post-secondary institutions as a result of state budget cutbacks.

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