President Obama’s Job Plan: a step in the right direction

The above table  originates with The Economic Policy Institute in a piece by John Irons.(’s-proposals/)

It is an informed statistical  attempt to estimate the employment impact of the new initiatives announced by President Obama in his special address to the American Congress last night. The speech was both passionate and eloquent and it is excellent that the President intends to stump the country to encourage the public to support the measures.  But it is the concrete details that we need to consider.

Note that the various elements of the plan detailed in the column at the left in the table above under the heading new initiatives is accompanied by an estimate of the appropriate multiplier that ought to be applied to each of the components of the spending. These multipliers are modest and possibly underestimate the impact. Once computed the overall fiscal impulse of the entire program including the 162 billion of already established on-going initiatives is shown in the GDP data as increasing the GDP by 3.3% in 2012 and 0.3 % in 2013. This is then translated into a jobs response based on previous statistical data relationships as creating 3.982 million new jobs in 2012 and  358 thousand in 2013., with 1.644 million accounted for by ongoing programs and 2.258 million accounted for by the new initiatives. This would then lower the unemployment rate by more than 1 %. by the end of 2012. But the challenge is large and the overall program rather modest. In addition there is the problem of absorbing new entrants to the labour force and those who are discouraged or marginally attached workers but who will return to seeking work once rates of unemployment are lowered.

In August 2011 there were  according to U.S.Bureau of Labour Statistics 13.967 million people in the labour force of 153.5 million who were unemployed. In that same month new entrants to the labour force amounted to 1.24 million and those who were re-entering the workforce amounted to 3.5 million. Those leaving their jobs numbered 963,000. In addition there were a large number of workers who were marginally attached to the work force but because they had not searched for work in the past 12 months were counted as out of the workforce. If employment conditions improve some of these people will return to actively looking for work. So to lower the rate of unemployment by one percentage point to 8 % requires at a minimum the creation of 128,000 new additional jobs per month beyond the 125,000 to cover new entrants to the labour force. The Obama plan appears to accomplish this.

The only drawback to the plan beyond its somewhat modest size is the insistence , for political reasons I presume, on linking the programs to future cuts in spending and tax increases that will have the objective of cutting back on ”entitlements” like medicare and medicaid and possibly social security.It is not yet clear when these proposed measures will take place but in order to maximize the positive impact of the jobs plan they should be separated from the present by a significant long period of time. Otherwise the notion of Ricardian equivalence, that is debts today will be taxes tomorrow will be proclaimed by those who support the Robert  Barro style fiscal conservative position as an argument against a deficit financed jobs program. However, no one should misunderstand the reality that it is a political choice to make this linkage. I would even go so far as to say do not consider these rollbacks and cuts until 5 % unemployment has been restored. Then with prosperity restored it will be possible to assess the need for restructuring and assess all the possible options. As it now stands because of the previous agreement on the debt ceiling there will already be certain cuts in 2012 which have the effect of  nullifying some of the job stimulus contained in this proposal unless they are rolled back.


About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
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