Democrats crushed it Tuesday night, suggesting that resistance is far from futile, and, though we should take care not to over-interpret these outcomes, perhaps revealing a backlash against President Trump. This brings me back to a theme I recently introduced on this page: When the pendulum does swing back, the Democrats need to be ready. In that spirit, I’d like to suggest a specific idea that they should be actively developing.
First, however, a bit of politics. There’s a rigorous debate on whether Democrats should campaign wholly against a historically and deservedly unpopular president and avoid getting hung up on policy arguments. That call is above my pay grade. My point here is far simpler: If they do regain power, they’re going to need to do stuff, and they’d better be ready. Just look at the counter example of contemporary Republicans, who are (were??) great at winning but clueless once in power.
One idea for Democrats to elevate is direct job creation. That is, even at low unemployment, a lot of people can’t find gainful work. That’s bad for them, bad for their communities, bad for growth, and bad for politics. These people have been hurt by trade, by technology, by the aging of old industries, and, in some cases, by health and skill deficits.
I’m not talking just about the white working class in the Rust Belt or the coal region; I’m also talking about people in jobless enclaves in cities with otherwise vibrant economies.
A role for government in job creation is by no means a radical idea, nor is it inconsistent with conventional economics, which allows for such intervention in the case of market failures. Well, if a bunch of people are left out even as we close in on full employment, that’s a costly market failure. And if you’re okay with the Federal Reserve as the lender of last resort when credit markets fail, as was the case in the financial crisis of 2008, then you should apply the same standard to labor markets. Banks facing credit constraints are no more economically important than workers facing inadequate job opportunities, and the latter are a lot more politically sympathetic.
Direct-job-creation policy exists on a continuum, going from least to most interventionist. At the less-interventionist end are policies in which the government subsidizes wages for a set period. A group of researchers from Georgetown University recently completed an exhaustive evaluation of 40 years of subsidized employment programs, and they concluded that “[s]ubsidized employment programs and policies are underutilized, potentially powerful tools for lifting up workers in or at risk of poverty.” A key point of the research is that such programs “would be valuable throughout the business cycle for those with serious or multiple barriers to employment.”
The “throughout-the-business-cycle” point is crucial. We’re not talking about just helping people find jobs in recessions. We’re talking about people and places where recessionary conditions prevail even while everywhere else is doing well.
Some of the most effective programs in this space coordinate with local employers to ensure program participants are training for in-demand occupations. Thus, programs at this end of the continuum address both demand and supply-side shortcomings, and they are often directed at particularly disadvantaged workers facing steep barriers to labor market entry. Along with basic skill deficits, such barriers can result from minor physical or cognitive disabilities, long-term unemployment, discrimination or criminal records.
Before you assert this couldn’t happen here, be aware that during the last recession, the federal government implemented a successful program from this model. Most states took advantage of the program, using $1.3 billion to place around 250,000 low-income people in jobs in less than two years. While employers typically received the subsidy for relatively short periods (less than a year), participants often remained in the job market. One careful study from Florida’s version of the program found that, relative to a control group, participants’ work and earnings went up not just during the program, but after it as well, suggesting lasting benefits.
At the other end of the continuum, we have much more ambitious proposals wherein the federal government provides a public-service job for which it pays a living-wage salary and benefits. In a forthcoming paper, economists William Darity Jr., Darrick Hamilton and Mark Paul advocate for the creation of a National Investment Employment Corps, or NIEC, that provides employment grants to state and local government projects “designed to address community needs and provide socially beneficial goods and services to communities and society at large.” Infrastructure, energy efficiency, community development, education, elder care and other projects could all receive funding through the NIEC. Darity et al. estimate the mean salary would be about $32,500. They scale their program to eliminate involuntary unemployment and substantially reduce poverty, leading to an annual cost of nearly $600 billion, which is close to what we spend on defense, so, like I said, theirs is a highly ambitious version of this idea.
But regardless of scale, the punchline remains the same. This is an idea whose time has come, as can be seen by support for direct job creation from progressives, centrists and even some on the right, including Trump’s chief economist. That last endorsement may sound surprising, but it’s consistent with Trump’s populist win, if not his Republican-donor-based agenda (I note in passing that Trump’s proposed tax cut, by significantly increasing the deficit, implies fewer resources for direct job creation). If Tuesday night’s victories for Democrats mark the beginning of something new in our politics, and if Democrats are willing to get to work on ideas like this one, actual help may be on the way for those who need it.