Michael Strain

Private Sector, Not Government, is Key to Job Creation

Senator Bernie Sanders wants the federal government to provide a $15-per-hour job to every American who wants one. Senators Kirsten Gillibrand and Cory Booker — both likely 2020 Democratic presidential aspirants — have expressed support for the idea as well.

It’s hard to overstate the silliness of this proposal, as many pointed out last week.

In 49 states, the bottom 25 percent of wage earners are paid less than $15 per hour. There are two states, Arkansas and Mississippi, where half of all workers earn hourly wages less than $15. Throw in benefits, and my back-of-the-envelope calculation finds over 80 million workers who earn less per year than the government would be obligated to pay them under this proposal. And in addition to workers, more than 100 million non-working Americans would be free to avail themselves of this guaranteed job, as well.

Taxes could never be raised and existing programs could never be cut enough to finance this policy at the level required. The government could not possibly come up with enough jobs to satisfy its obligations under this plan, and it would wreak havoc on the private economy.

Case closed? On Senator Sanders's idea, yes. But there are two larger issues here worth discussing.

The first is the government’s role in ensuring that people who want jobs can get them.

The right place to start is with policies to help individuals become more successful workers. One example is the federal earned-income tax credit, which uses taxpayer dollars to subsidize the earnings of low-income, working households. By increasing the financial rewards of working, previous EITC expansions have pulled people into the workforce. Or take work-based learning programs, like apprenticeships, which can be successful by combining skill-building with formal instruction in order to increase workers’ productivity and wages.

But in addition to focusing on workers — and beyond monetary policy’s role in sustaining a full-employment economy — there is a place for (microeconomic) solutions involving employers. Senator Sanders’s proposal is cartoonish, but targeted efforts to help ensure that jobs are available can be reasonable.

The goal of such efforts should be the creation of new jobs, in the private sector, that would not exist in the absence of the program. These policies should be in place during economic downturns, when the demand for workers is weak. Their focus should be on particularly vulnerable workers, with the goal of building skills and experience that will help people succeed over the long term, after the economy has recovered.

The US has some experience with this. In 2009 and 2010, as part of the government’s response to the Great Recession, 39 states and the District of Columbia operated subsidized employment programs using a federal emergency fund, placing more than 260,000 low-income workers into (mainly) private-sector jobs, at a cost of $1.3 billion. Importantly, states had significant flexibility in how they designed and implemented their programs, though the basic structure was similar: The wages of participating workers were paid in their entirety or in part with public funding.

There is some evidence that this program helped disadvantaged workers to stay active in the labor market during the recession and that employers reacted to the subsidy by creating jobs that wouldn’t have existed without it.

Economists don’t know much about the long-term employment effects of this program, and it was relatively small. But even during the current expansion, a demonstration project carried out in a depressed local labor market could be a good idea to help economists learn more about how these subsidies should be structured and how they affect workers.

The second larger issue worth discussing in light of Senator Sanders’s proposal is the notion of “good” and “bad” jobs. It’s common to hear some on the political left describe many jobs as “bad” — as beneath the dignity of what a reasonable person should expect from employment.

True, working in a hot kitchen, cleaning bathrooms, doing manual labor outdoors in the summer heat and the like can be physically demanding, and such jobs often pay relatively low wages. It’s easy for someone like me who works in a comfortable office and pecks at a keyboard to extol the dignity and virtue that comes from work.

But you know what? Work confers dignity and is virtuous. Flipping burgers for $10 an hour isn’t a “bad job.” It’s an opportunity to build skills and climb the employment ladder. It’s an opportunity to provide for yourself and your family. It’s an opportunity to make a contribution to your community and to society.

Through programs like the earned-income tax credit, public policy should support low-wage workers, helping to ensure that no one who works full time and heads a household lives in poverty. And public leaders shouldn’t denigrate — even unintentionally — the jobs held by millions of American workers. That message is counterproductive. All leaders should encourage work. Messages matter.