Obama’s jobs plan

President Obama proposed a $450 billion jobs plan in his address to Congress on September 8. Several reporters have asked me for my opinion on this plan.

I think this plan is best described as an ambitious, “kitchen sink” approach to the challenge of creating jobs. The plan encompasses most of the proposals that have been made to spur job creation. Such proposals include extending (and expanding) the worker-side payroll tax cut and extended unemployment benefits, more infrastructure spending, more support for retaining teachers and other public sector employees, a payroll tax cut for small business employers, a special tax credit for small business employers that expand payroll, encouragement for work sharing, tax credits for hiring the long-term unemployed and veterans, some tax breaks for business investment, and encouragement of state and local flexibility in devising plans to help the long-term unemployed.

From the perspective of a purist policy wonk, who believes that he or she has figured out the ideal most cost-effective approach to encouraging job creation, the jobs plan might be disappointing. Rather than embracing one theory of how to encourage job creation, President Obama has embraced all theories.

However, given the urgency of the jobs needs of the U.S., and given that we probably do not have perfect knowledge or a political consensus about how to best create jobs, it is arguable that a diverse portfolio of job creation policies makes sense. The jobs plan can be seen as a frankly experimental approach to job creation.  The philosophy is, let’s try a wide variety of job creation proposals, and hopefully some combination of the proposals will address our diverse employment needs.

Given what I have said before on the topic of jobs creation, I would hope that if the proposal is enacted, that the legislation’s details would make it possible to pursue job creation proposals that I think are particularly cost-effective.  I would argue for making the payroll tax credit for expanding payrolls far more generous than in the President’s proposal, increasing the subsidy rate to at least 15% for expanded payrolls, and preferably even higher subsidy rates of up to 40%. Tax credits for hiring the long-term unemployed would be far more effective if at least some portion of them could be administered and managed by local job training agencies that could match the long-term unemployed with employers interested in hiring the long-term unemployed.  I would hope that the promise of flexible state approaches to helping the long-term unemployed could include programs such as MEED that actually create jobs for the long-term unemployed, rather than just programs such as Georgia Works that at best fill existing job vacancies.

I think that if the proposal is enacted, it probably would create jobs at a cost of around $100,000 per “job-year” created. (A job year is one job persisting for one year.) So the plan could create 4 million “job-years” compared to what would happen if none of the plan was enacted. (My assessment of job creation impacts is a little more optimistic than other analysts, who seem to be projecting impacts of 2.6 million job years or 2.1 million job years.)Of course, it is unclear how rapidly the proposal would be enacted, or if enacted, how rapidly the spending programs would get underway. Finally, job impacts of demand-side policies tend to lag a bit.  But I certainly think it is quite possible that the plan could lower unemployment in 2012 by over 1% compared to current projections. Other analysts agree with that assessment.

About timbartik

Tim Bartik is a senior economist at the Upjohn Institute for Employment Research, a non-profit and non-partisan research organization in Kalamazoo, Michigan. His research specializes in state and local economic development policies and local labor markets.
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