The case for a new Works Progress Administration
In a press conference last Friday, President Obama said that reasonable progress had been made in restoring the private-sector jobs that were lost since the financial crisis but that progress in restoring lost jobs in state and local government had been slower. As this observation is conventional wisdom at this point, it’s surprising that it got any media attention. The more interesting question to ask is why the hiring at the state and local levels has not bounced back as quickly as private-sector hiring.
A post on the New York Times‘s Economix blog by Ben Polak, chairman of Yale’s economics department, and Peter K. Schott, a Yale economist, attempts to answer that question. Polak and Schott begin by laying out the data:
[W]hile the latest recession was particularly deep, the recovery in private-sector employment, once it finally started, has not been particularly slow by recent historical standards….
But since the latest recession began, local government employment has fallen by 3 percent, and is still falling. In the equivalent period following the 1990 and 2001 recessions, local government employment grew 7.7 and 5.2 percent. Even following the 1981 recession, by this stage local government employment was up by 1.4 percent…
Without this hidden austerity program, the economy would look very different. If state and local governments had followed the pattern of the previous two recessions, they would have added 1.4 million to 1.9 million jobs and overall unemployment would be 7.0 to 7.3 percent instead of 8.2 percent.
Despite continuing layoffs in the public sector, the appetite in Congress seems to be very slight for new fiscal transfers to state and local governments to increase their payrolls. One reason for Congress’s lack of interest is that changes in state tax collections show a wide disparity in economic activity across the country. From 2010 to 2011 tax collections increased a measly 0.4 percent in Hawaii, while leaping 44 percent in oil-and gas-rich North Dakota, according to the Tax Foundation.
Some state and local governments are even considering eliminating certain taxes. North Dakota is voting on a constitutional amendment to abolish property taxes across the state. Other states, like California, are considering tax increases in the fall to balance big holes in their budgets. Every state and local government faces different economic circumstances and expectations for public services. Those variations are reflected in the views of House and Senate members. There is no national consensus on the need for additional stimulus.
I have also written about the enormous fiscal burdens faced by state and local governments as they own up to pension liabilities they have accumulated off their balance sheets. The Government Accounting Standards Board will soon require state and local governments to report their pension liabilities alongside other liabilities, such as long-term debt, on their financial statements. This will likely trigger higher annual contributions to pension plans for most states and cities whose pension plans are underfunded. Barring an enormous increase in economic activity, there is no fiscal space to meet the increased pension payments while maintaining current levels of state and local workers.
If President Obama wants to spur hiring he should go to Capitol Hill and fight for a program along the lines of the Works Progress Administration. Rather than pass the hiring baton to state and local governments, he should add workers to the federal government’s payrolls as FDR did during the Great Depression. I believe American taxpayers would be more open to pay for a national jobs program to build public works projects than to closing deficits in far-away states. The size and success of the program was quite impressive:
The Works Progress Administration was the largest and most ambitious New Deal agency, employing millions of unskilled workers to carry out public works projects, including the construction of public buildings and roads, and operated large arts, drama, media, and literacy projects.
It fed children and redistributed food, clothing, and housing. Almost every community in the United States had a park, bridge or school constructed by the agency, which especially benefited rural and Western areas. The budget at the outset of the WPA in 1935 was $1.4 billion a year (about 6.7 percent of the 1935 GDP), and in total it spent $13.4 billion.
At its peak in 1938 it provided paid jobs for three million unemployed men (and some women), as well as youth in a separate division, the National Youth Administration. Headed by Harry Hopkins, the WPA provided jobs and income to the unemployed during the Great Depression in the United States. Between 1935 and 1943, the WPA provided almost eight million jobs. Full employment, which emerged as a national goal around 1944, was not the WPA goal. It tried to provide one paid job for all families where the breadwinner suffered long-term unemployment.
The WPA was a national program that operated its own projects in cooperation with state and local governments, which provided 10%-30% of the costs.
Americans need work, but adding state and local jobs that likely cannot be funded once federal funds run out is an approach that is not politically feasible. State and local governments could borrow to pay their part of a WPA project, or opt out entirely if there was not a need locally for the program. Part of the problem with the first stimulus was that it benefited well-to-do communities rather than concentrating economic assistance where it was most needed, i.e. California, Nevada and Rhode Island.
President Obama needs to look back into history to find solutions for America’s hiring malaise. And then get up on Capitol Hill and fight for it.