How can government create jobs

The Works Progress Administration WPA created during the Great Depression showed how a large-scale, federally funded, locally administered jobs program could address an employment crisis.

Through a similar program today, state and local governments could use federal resources to help job centers, public schools, nonprofits, and private companies hire workers to address critical needs during and after the COVID pandemic.

At its peak, the WPA provided jobs for up to 40 percent of unemployed Americans. If Congress funded a program that employed a similar share of the number of workers the Congressional Budget Office projects will be unemployed in , that program would create 6. Establishing a large-scale public employment program is daunting, but the WPA was up and running in four months.

And only six months after its creation through executive order, the WPA employed almost 2. The federal-state Unemployment Insurance UI program can be a powerful tool to help workers stay in the labor force. Reforming current UI program features and adding new ones could benefit more workers, including those who lose their jobs during the COVID pandemic. Expanding and strengthening short-time compensation programs also known as work sharing would allow employers to retain workers on schedules with fewer hours while still providing them prorated UI benefits and avoiding severing their employment relationships.

Short-time compensation programs already exist, but participation is limited among states and employers. Research on the Great Recession estimates that if every state had had an intensive short-time compensation program, over , layoffs would have been prevented.

States could leverage current federal support to adopt and promote short-time compensation programs, and the federal government could fund further study on how to best design and expand the programs. The federal government could also improve UI by introducing a form of wage-loss insurance and by creating more automatic and longer extensions of UI benefits during recessions.

States could expand and promote the use of partial UI claims, which allow qualifying workers to claim a reduced benefit while working part time. These steps could promote employment among displaced workers ; encourage labor force attachment ; stabilize the economy; and provide substantial benefits to eligible workers, their families, and their communities. A federal jobs program that subsidizes private-sector employers to hire unemployed, formerly low-wage workers could benefit employers that are struggling during the recession and could help workers earn an income and establish a long-term job.

This program could offer staggered federal payments of a full subsidy for the first three months of employment costs and a half subsidy for the next three months; the employer would guarantee to keep the worker on the job for at least another three months with no subsidy.

This approach is similar to one used by some state and local programs run with federal funding under the American Recovery and Reinvestment Act of ARRA in response to the Great Recession and by pilot programs funded and evaluated by the Department of Health and Human Services and the Department of Labor. To assist a broader group of low-wage workers than those Great Recession programs and help those workers move to permanent jobs, this new program would focus on private-sector business and not be limited to workers who are eligible for federal safety net benefits.

Because the program would be flexible, federal policymakers could scale it to create as many jobs as the private sector is willing to sustain. To safely restart the US economy, the public sector needs infrastructure in place to effectively trace and contain the spread of COVID Wealth creation occurs as the muscle component of employment diminishes and the brainware component increases. The work record of industrialized countries in the past century is clear.

In the United States, for example, the average workweek has fallen by roughly half since Among the benefits of wealth accumulation is the increase in leisure that it affords. Very poor nations are typically characterized by people who work most of their waking hours.

To do otherwise would be disastrous. The distinction between creating wealth and creating "work" can be illustrated by an economy that has experienced a catastrophic natural disaster. A well-known feature of market economies is that in the wake of a disaster, such as a hurricane or earthquake, employment and production tend to rise.

One conclusion from this observation might be that market economies routinely maintain armies of unemployed workers who are gratefully called into service by the new demands of rebuilding houses, roads and all of the other investments that were damaged or destroyed.

But clearly, these people are not better off because they are working long, hard hours. I doubt that this is the sort of "jobs creation" program voters have in mind when they cast their ballots, although I suspect that many government "jobs" programs operate much like a post-disaster cleanup program.

Many people support a government role in maximizing employment in the belief that markets will not optimally provide opportunities for everyone who is willing and able to work. But what sorts of opportunities should the government provide under this philosophy? Given the importance politicians generally assign to the task of creating employment for people, it is surprising how little they know about the nature of jobs creation in market economies.

Studies of the U. Because policy-makers have no clear foresight of where entrepreneurial energies will be directed in the future, it's impossible for them to predict where jobs creation "should" occur.

For example, two or three years ago, who could have predicted, let alone planned, that a rapidly growing occupation for young people would be designing home pages for Web sites? It is not surprising, then, that government policies which seek to direct the flow of entrepreneurial talents in a effort to promote "good" jobs, and presumably to discourage "bad" jobs, will have uncertain and potentially negative effects on economic prosperity.

But this technology must necessarily have been supplanted by the invention of electronic calculators, and already miniature personal computers are making calculators obsolete. The question of whether the 2 percent inflation target is appropriate or not is an important one, but for the purposes of this paper we take this target as given.

The case for nonzero inflation targets and the case for nominal wage growth targets consistent with price targets can be found in Bivens and Bivens , respectively. Some fiscal stabilization policies, however, do not require legislation in order to kick in during recessions. While this asymmetry of effects of interest rate policy rate cuts do not spur growth much, but rate increases reliably tamp growth down has been known for decades, it has received crucial recent rigorous confirmation in a paper by Angrist, Jorda, and Kuersteiner Bivens provides a quick overview of the arguments surrounding the Fed and full employment.

We should note that EPI practices what we preach: EPI is a key member of the Fed Up coalition, which exists precisely to focus lots of attention and resources on convincing the Fed to be more aggressive in pushing the economy to full employment. The next section also notes a role for tighter monetary policy and more expansionary fiscal policy that is targeted as a way to ensure that the jobs generated by macroeconomic full employment are spread as widely as possible across communities.

Essentially, as Bishop and Bartik demonstrate, the job-creation tax credit induces employers to use more labor and less capital and other inputs for producing a given amount of output. So, a fast-food restaurant thinking of investing in kiosks might instead hire an extra cashier should a job-creation tax credit be offered to them. Some might naturally ask if providing federal funds to directly hire workers does not just constitute fiscal expansion aimed at boosting aggregate demand.

We think this strategy can be reasonably well distinguished from simple fiscal demand management, however. For one, the direct employment generation could be financed by tax increases that reduce aggregate demand. For another, while the goods and services that most direct employment proposals envision being produced clearly boost living standards and quality of life, they may well not boost measured gross domestic product think community beautification, for example.

Finally, Tcherneva argues that direct employment program wages could be set below market wages, hence providing no upward pressure on wage growth that would result in inflationary pressures. In terms of absorbing job losses from recessions, the research on work-sharing is clear—see Baker She finds modest employment gains. Goldin highlights that extremely long weekly hours at the top of the earnings distribution are strongly associated with the failure to close gender wage gaps at the top of the earnings distribution.

She recommends business and organizational changes to reduce these long hours, which she argues disproportionately advantage male workers. Gould et al. The overtime rule is currently in some legal uncertainty and has not been enforced yet. Infrastructure projects are often assumed to be undersupplied by private markets because of their natural monopoly characteristics large upfront costs and low marginal costs. Bivens et al. The view of job creation as a pure transfer rests on a very stylized model of labor markets—wherein these markets are perfectly competitive: workers can always instantly find alternative employment should they lose a job, and employers can always find a perfect substitute instantly for any worker that quits.

For serious evaluation of skills-shortage claims, see Burtless , Cappelli , Mishel , Shierholz , and Weaver and Osterman Of course, skills shortages are highly dependent on the state of the business cycle, so some of these analyses might change with the most up-to-date data, but given that we hear loud claims of shortages throughout the business cycle, the default position should be skepticism that shortages exist. Outright recessions should be fought with much larger automatic stabilizers programs like unemployment insurance and food stamps—which ramp up spending through formulas and eligibility requirements rather than having to wait on new legislation—as well as progressive taxes that give people tax cuts automatically when their annual income falls , combined with greater automaticity in the aid to state and local governments that was so effective during the Great Recession.

For example, when the American Recovery and Reinvestment Act ARRA picked up state Medicaid bills for two years and ramped up highway spending, state and local spending did not drag on growth. As soon as the ARRA provisions faded, the state and local government sector became a historically large drag on growth. This number is obviously plucked from the air.

But if a POE program actually managed to see 10, workers hired on average in each of the largest cities in the United States, I think one would have to consider that a huge success.

See Mishel et al. Baker, Dean. Bishop, John, and Timothy Bartik. Economic Policy Institute Briefing Paper no. Bivens, Josh. Is 2 Percent Too Low? Economic Policy Institute. Blyth, Mark, and Eric Lonergan. Bureau of Economic Analysis. Various years. National Income and Product Accounts [data tables]. Bureau of Labor Statistics. Burtless, Gary. Brookings Institution website, July Cappelli, Peter.

Evidence from a Clustered Randomized Experiment. Da Costa, Pedro. Goldin, Claudia. Hunt, Jennifer. Mishel, Lawrence. Ithaca, N. Stat online database.

Paul, Mark, William Darity Jr. Pollack, Harold. Shierholz, Heidi. Palley and Gustav A. Horn, eds. Spross, Jeff. Center for American Progress.

Tcherneva, Pavlina R. Department of the Treasury. Accessed March 22, , at www. Weaver, Andrew, and Paul Osterman. Wilson, Valerie. Wilson, Valerie, and Janelle Jones. Zandi, Mark. Report Jobs and Unemployment Recommendations for creating jobs and economic security in the U. Download PDF Press release. The most important task facing policymakers is ensuring that aggregate demand spending by households, businesses, and governments at the national level is high enough to support maximum sustainable levels of employment or macroeconomic full employment.

This aggregate demand management is the task of macroeconomic policy—specifically, fiscal, monetary, and exchange rate policies. If aggregate demand is too low, no other job creation strategy can work at scale until the shortfall is fixed.

We need to make sure the resulting job growth is widely shared. Complementary policies should be enacted to ensure that the maximum sustainable level of aggregate demand nationally is spread as widely as possible across workers, regions, and communities.

Efforts to reduce working time include paid family and medical leave, paid vacations, allowing work-sharing subsidies in the unemployment insurance system, and preserving recent increases in the salary threshold below which hourly workers automatically qualify for overtime pay. To ensure that the maximum national level of aggregate demand is spread widely across regions and communities, we can use the strategic deployment of public investments like infrastructure, energy efficiency, and early child care and education.

These investments are crucially important to undertake even if they result in no net new jobs at all. But their deployment can be prioritized in part based on their potential for creating jobs in communities that need them. In the jargon of macroeconomists, this means leaning more heavily on targeted fiscal policy and less on untargeted monetary policy to maintain nationally appropriate levels of aggregate demand. Government investment in new, innovative businesses has helped many companies grow into household names.

Then there are the basic regulations, which create a level playing field for businesses so, for example, when you go to a gas station a gallon is a gallon, the aspirin you buy at the pharmacy is really aspirin, and the ground beef is actually beef.

These basic kinds of rules prevent economically costly damage to consumers and public health. The courts enforce contracts, and markets are regulated so investors can invest with some confidence that the information they receive is honest.

Government spending is also an important part of the economy. Millions of people work for the government and millions more are employed in government-funded work and all those dollars flowing into the economy create even more jobs.

For example, the Federal Highway Administration periodically estimates the impact of highway spending on direct employment, defined as jobs created by the firms working on a given project; on supporting jobs, including those in firms supplying materials and equipment for projects; and on indirect employment generated when those in the first two groups make consumer purchases with their paychecks. Today, though, is a special time when it comes to the role of government. The lingering consequences of the Great Recession—the housing crisis, the jobs crisis, the fear among businesses to invest their earnings despite record profits—continue to push against faster economic growth and job creation.

In short, the economy continues to suffer from a lack of demand. Monetary authorities have already pushed interest rates down to zero. Congress needs to step up and focus on expansionary fiscal policy. Unless Congress acts, the private sector will continue to generate insufficient demand. Because customers have less money to spend due to the collapse of the housing bubble and the ensuing high unemployment, businesses have little incentive to hire and invest.

The federal government can help with this. It can take measures to create private-sector jobs by moving up investments that the public needs anyway—investments in roads and bridges, investment in changes that the country needs to make, such as the movement to a more energy efficient cleaner economy, investments in education and research and development. We know this most recently from fighting the Great Recession. The analysis of economic multipliers is well known and economists have found that the multipliers are largest when overall demand is weak, like current economic conditions in the United States.

The American Recovery and Reinvestment Act of and other steps taken to address the Great Recession targeted funds toward a variety of specific job-creation efforts that have been shown to have created jobs and been cost-effective. The steps taken in early brought the economy back from the precipice and created millions of private-sector jobs.

Private employers have added jobs for 18 straight months, including over , jobs in manufacturing since its low point in late Overall, the private sector has added 2. We know that overall, the Recovery Act created or saved millions of jobs.