Opinion Editorial: Why Piddle Around? Jobs and Economic Development

June 23, 2003


By John W. Courtney,
adjunct scholar Evergreen Freedom Foundation

Its no news that Washington has held for some time now the tormented title of Americas highest unemployment rate and most expensive unemployment insurance cost. What is news is the heightened awareness of the tie between the two.

In what has been dubbed the "Boeing Session," the Washington Legislature held a special session in early June 2003 to address what Boeing said were the highest unemployment insurance (UI) costs in the nation, costs that could keep Boeing from locating its newest production line, and all the jobs that go with it, in Washington state.

Quite simply, bad UI policy threatened to cost the state jobs and keep unemployment high. In the end, the Legislature made improvements to Washington UI and it may make the difference for Boeing.

But lowering UI benefits is not the only answer for Washington. How the state actually uses its benefits is critical. As state economic development gurus scour the state budget, asking: "Where do we find money to create jobs?" state agencies dole cash to claimants asking: "How long must we wait for jobs?" The opportunity to turn benefits into jobs is ripe. Sound familiar?

A Lesson from the Depression How not to do it
In 1935, with unemployment at 18%, President Roosevelt decided to fund jobs, not unemployment, and he created the Works Progress Administration (WPA). The WPA used government money for government jobs and was warmly received at first. But when it became apparent that many of the supposed jobs were merely "make work," the WPA lost favor and became rhetorically known as We Piddle Around.

Roosevelt reemphasized the project nature of the program, renaming it the Works Projects Administration and over eight years, the WPA built thousands of schools, bridges and other public projects. More importantly, 8.5 million people worked and reaped the financial and psychological benefits of work.

Unfortunately, the WPA was expensive and, according to many economists had little economic development effect on the national economy, which eventually climbed out of the Great Depression with monetary stimulus and the consequent private sector spending.

The lessons are simple: 1) real work works and "make work" doesnt, 2) private works not public works stimulate the economy and 3) costs must be controlled.

Promoting Work Today Subsidized Wages
The modern-day scaled-down cousins of the WPA are subsidized wage programs. They come in a variety of forms, but are widely underutilized in most states.

Subsidized wage programs take the money states spend on the unemployed and offer it to employers who agree to provide job seekers with a job, training and a regular wage. The subsidy normally funds about half of the employers wage cost for three to six months, providing an incentive and ensuring a partnership.

Wage subsidies have evolved to answer the criticisms of the Roosevelt era program. They: 1) create real work with employers who will not hire an employee for "make work," 2) promote economic development by targeting job creation and immediately increasing production and 3) contain costs by simply converting previously committed money.

An Example in Oregon
One such subsidized wage program operates in Oregon for unemployment insurance claimants. Over 10,000 employers have used it and they like the program. They like it so much that when surveyed by the state, over 96% that used the program were in favor of the program, and over 80% said it helped their business by: 1) lowering costs, 2) increasing their capacity, and/or 3) supporting expansion.

Unlike many economic development strategies, wage subsidies can be used by any employer who can add a new employee. This includes the small businesses that constitute over 90% of employers and account for the large majority of projected new hiring in the state.

Sound like economic development?

Consider the economic impact in modest-sized Oregon (pop. 3.5 million). In fiscal year 2001, over $25 million normally used to subsidize unemployment, through unemployment insurance, was used to subsidize jobs and injected back into the economy in the form of production. Wages paid in the economy were twice the amount of benefit checks, and the unemployed became producers in the economy, tapping the multiplier effect and adding to the tax base.

Compare this to other economic development programs, for example, tax credits that lure jobs from one community to anotherarguably a zero sum game. And consider the cost/savings:
In 2002, one in three of Washington unemployment insurance claimants exhausted their claims without finding work, costing the state well over $5,000 a piece. (Department of Labor, Employment and Training Administration)
Welfare recipients who need the most help spend years on welfare, costing nearly $10,000 per year and sometimes bumping into their five-year eligibility limits without finding work.
Typical wage subsidies range from $3,000 to $5,000.

Job Seekers
In the Oregon model, job seekers fared well too. State studies show that over 65% of participants found permanent jobs at the end of the program and that it increased their wages. Over 80% of participants approved of the program and would choose it again, if they could.

But is on-the-job training needed? If neighboring Oregon is any indicator, the majority of new jobs projected for the next decade will require short-term on-the-job training. This is just the type of training employers are expert in giving. And according to the W.E. Upjohn Institute for Employment Research, in a recent study on the subject, not only is on-the-job training critical, attaining it through subsidized wages is one of the most effective ways to help people move into work.

So, why not leverage what employers do well and upgrade the skills of thousands in the Washington state workforce?

Funding
How can Washington State fund jobs today?
Unemployment Insurance - divert part of the UI tax to a state-controlled fund similar to other diversions many states have (the Oregon model), or include it in the states training UI program.
Workforce Investment Act local boards can decide to fund on-the-job training as provided under the act at 50% of the wage for up to six months.
Welfare (TANF) include it in the state plan (many states already have).
NAFTA and Trade Adjustment Act allowable under the terms of the acts.
Food Stamp Employment and Training include it in the states plan

With so many cost-free ways to create jobs and economic development, one question remains: Why piddle around?

John W. Courtney is a Senior Fellow for The American Institute for Full Employment and an EFF adjunct scholar. He can be reached at (541) 273-6731.

Evergreen Freedom Foundation
A Non-Profit Public Policy Research Organization
PO Box 552, Olympia, WA 98507
(360) 956-3482, www.effwa.org

Contact: Jason Mercier, Budget Research Analyst
(360) 956-3482

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