Jobs – On the Topic of Employer of Last Resort

I promised last week that I would write a post where commenters who so desired could debate the merits of an ELR (employer of last resort) program.  Without writing everything I have been thinking about on this topic, I have decided to provide you with a few links for discussion, accompanied of course by some commentary.  If there is sufficient interest, there is certainly ample material floating around in my brain to write more on this subject.
first:  Marshall Aurback via Barry Ritholtz:
“To all of the “Chicken Littles” (including the president), who fret about “excessive” government spending, we would simply point out that it is far better to deploy government spending in a way that reduces unemployment instead of settling for having it rise as a consequence of this spending.
We therefore suggest a new approach: Government as Employer of Last Resort (ELR). The U.S. Government can proceed directly to zero unemployment by hiring all of the labor that cannot find private sector employment. Furthermore, by fixing the wage paid under this ELR program at a level that does not disrupt existing labor markets, i.e., a wage level close to the existing minimum wage, substantive price stability can be expected. A sizable benefits package should be provided, including vacation and sick leave, contributions to Social Security and, most importantly, health care benefits, providing scope for a bottom-up reform of the current patchwork health care system.
Government as ELR would not be introducing another element of intrusive bureaucracy into our economy, but simply better utilizing the existing stock of unemployed, who are now dependent on the public purse — especially the chronically long-term unemployed. The current system we have relies on unemployed labor and excess capacity to try to dampen wage and price increases; however, it pays unemployed labor for not working and allows that labor to depreciate and develop behaviors that act as barriers to future private-sector employment. Social spending on the unemployed prevents aggregate demand from collapsing into a depression-like state, but little is done to enhance future growth and demand, which can be done via the ELR by providing the currently unemployed with jobs, greater education and higher skill levels.
The ELR program would allow for the elimination of many existing government welfare payments for anyone not specifically targeted for exemption.”
One thing to note – I THOUGHT that I’d previously read ELR advocates saying that an ELR program would not replace unemployment benefits.  It seems to me that Auerback is saying that the ELR would replace unemployment insurance (note the final sentence in the quote above).    I actually wrote about this before – suggesting that in NYC we should pay people to clean the streets instead of paying them to sit home and do nothing – but of course there is a counterargument to that claim:  the point of UI is “insurance”  (money for basic expenses so you can spend time looking for a job instead of panicking to pay your basic bills) while people are looking for a new job – not “welfare.”   In traditional times that may be true, but if there’s any discussion of an ELR program, you can’t (in my opinion) allow people to collect unemployment insurance for upwards of a year, like many can do right now.
Anytime you talk about government creating jobs, the issue of “efficiency” or “productivity” always comes up.  It’s relevant because if the government spends $100k to create a job that isn’t “efficient,” perhaps the money could be used more productively.  In other words, instead of creating 10,000 jobs at a cost of $100k per job (note – that’s COST, not salary, as infrastructure projects have huge costs aside from salaries, obviously.  Perhaps the net salaries to the workers in this over simplified example are $50k)  building a hypothetical bridge to nowhere, why not create 40,000 jobs paying $25k each for people to sit at home?  “But Kid Dynamite, they are building something!”  Yes – a bridge to nowhere – the ultimate in non-productive infrastructure.   I’m certainly not in favor of paying people to dig holes and fill them back in (why waste the materials – just give them the money if you want to do that!) – and I’m not in favor of paying people to build a bridge to nowhere.  Even in infrastructure projects there is a cost/benefit analysis that must be undertaken.   I’m not advocating either of those solutions – only using them as boundary scenarios to illustrate the issue of “efficiency” and “productivity” which MUST be considered.
Felix Salmon digs deeper into some government data on the cost of job creation:
“What’s at issue here is a ratio: I’m talking about dollars per job created. To get that number, you take the number of dollars spent, and divide it by the number of jobs created. DeFazio, by contrast, subtly tries to change the denominator when he says that “$92,000 in direct government spending creates one job-year”: he’s taking dollars, dividing by jobs created, and then dividing again by the number of years that each job is expected to last.
In the real world, of course, if you spend $300,000 to create a job which lasts three years, then that’s one job created with your $300,000, not three jobs. Only in DC would people attempt to claim that their $300,000 had created three “job-years”.”
“A 5-mile stretch of highway, costing $50 million, creates a total of 79 jobs. That’s over $600,000 per job. Even if you divide that by two on the grounds that it’s a two-year project, that’s still $300,000 per job-year. In railways, a $15 million investment creates 12 jobs — that’s $1.25 million per job, and it’s a one-year project.
I’ve seen similar numbers surrounding hospitals, and higher numbers surrounding nuclear power stations — basically, infrastructure investment is an incredibly inefficient way of creating jobs.”
The bottom line is that, although we need not get a 100% return on capital for this spending, it’s essential that there is SOME efficiency/productivity/benefit in these projects – even infrastructure projects – otherwise, as I noted above, you could help a lot more people with the same amount of money.  A new bridge linking Jersey to NYC may be a good project – relieving congestion and improving worker productivity.  A bridge to nowhere is not a good project.
A final point to ponder (which will likely become relevant as this discussion evolves)  is “what is the purpose of a job?”  Some people claim it’s to keep people busy – to occupy their time and keep them out of trouble.  I’ll leave this to the reader to decide, but for me, that claim is hogwash.  People work to get paid.  If you have a job you absolutely love going to everyday and would do for free – kudos.  I’m happy for you – you’re a very  lucky person.  In my opinion, people work to get paid, and I don’t think I’m alone in this view.
-KD

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