The Direct Approach

When talking of job creation, many will likely have noticed the vacuous nature of the economic conversation. Whether you are a conservative proposing tax cuts and regulatory cuts or a liberal advocating increased education and infrastructure spending, job creation is always cast in the same light. It is depicted as the derivative result of some other policy.

Just take the following examples. Increased education spending, it is said, will increase the economy’s capability to produce the high-tech jobs of tomorrow (whatever they might be). Tax cuts will cause investors to spend more on factories and equipment resulting in more hiring. Boosting social programs will allow consumers to spend more in economic downturns. Cutting regulations will allow jobs to be created more easily. Starting to see the pattern? In a sense, these policies can be referred to as “indirect” job creation efforts. Job creation is the result of some ripple effect caused by a government policy or project that does something else in the immediate time frame. Both the left and the right rely on these assumptions and arguments and they form the basis of neoclassical economic theories on government policy.

Note. The White House released a report in May 2009 that estimated job gains from the Recovery Act. It had three definitions of government sponsored job creation: direct, indirect, and induced. Direct jobs are those created strictly for a particular project (paving a road). Indirect jobs are those created in the industries providing supplies for the project (cement manufacturers). Induced jobs are those created elsewhere in the economy through various ripple effects caused by increased income (a local restaurant profits from increased nearby activity). My definition of indirect job creation invokes both the latter two.

But they have their limits. For one thing, talk of full employment has utterly faded from the policy world and from the economic catalog of the mainstream left. And we can see the results. Throughout the developed world, employment recovery has been agonizingly slow even as economic growth (sort of) returns, corporate profits soar, and stock markets approach their previous highs. In parts of Europe, employment recovery is nonexistent and unemployment remains at depression levels. In America, while unemployment rates might have dropped, underemployment is abnormally high. Many people are stuck with low paying, low-skilled jobs that will do nothing to secure their long term finances.

Clearly, our policy prescriptions have been limited in their effectiveness. Now, none of this is to say that pursuing indirect job creation is a bad thing. As I said, all kinds of government policy (even policy not specifically targeting employment) depends upon economic ripple effects. But the fact remains that current Western efforts haven’t adequately addressed long-term employment problems. And more needs to be done.

As you can probably tell from this article, that something revolves heavily around direct job creation efforts, government policies and projects done with the sole purpose of increasing the number of employed people and jobs. I drew my initial inspiration from the Roosevelt Institute itself. One of its namesakes, FDR, become a modern liberal icon precisely because of jobs he directly created through the New Deal. Other sources include the Congressional Progressive Caucus which has released several proposals containing direct-hire public works corps. These kinds of policies are incredibly varied. They can include anything from expanding the military, rehiring conventional public sector employees, to recreating the Civilian Conservation Corps.

In whatever form it might come, reviving direct hiring would not only create more jobs more quickly, but it would tear open the political straight jacket the left trapped itself in by supporting austerity. But there’s another plus. Full employment, a goal that’s been neglected by progressives since the 1970s, could be revived as a legitimate vision. The damning statistics behind unemployment fail to convey the massive costs to society of long-term joblessness, costs that hinder current indirect job policies: skills deterioration, loss of employability, disengagement from economic life, etc. Ending mass joblessness via direct hiring represents one of the many proverbial silver bullets needed to tackle these and many other societal ailments.

I’ll end with this. Direct hiring has its political weaknesses. Those must be addressed but first, there needs to be a definitive model with firm academic backing. There is and it’s the one I’ll address next time: the government becomes an employer of last resort through a job guarantee.

 

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