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Two Roads to Job Creation
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President Obama hosted a job summit meeting today in Washington. For the uninitiated, here are two broad, simplified ways to think about what Washington could do to increase hiring opportunities.
It could:
Continue to promote growth in economic output, and hope that the increased demand for goods and services will eventually create jobs.
Try to promote job creation even at a given level of economic output.
Many of the stimulus measures the government has taken so far fall under the first strategy. Tax cuts, extensions of unemployment benefits and other policies that give people more money to spend have the effect of raising demand. If companies see demand rising - i.e., they're getting more orders for their goods and services - they will probably hire more workers to help fill the orders.
In recent months, though, Productivity has been rising, and companies have filled more orders and made more products with fewer people. If productivity continues to skyrocket, it means that additional economic growth probably won't have much impact on hiring, at least in the near-term.
Examples of these types of policies would be some sort of payroll tax credit, which makes it cheaper for companies to hire more people; the companies may then choose to use labor, rather than machinery or other capital goods, to expand. A work-sharing program, in which employers reduce their workers' weekly hours and pay and governments make up some of the lost wages, would similarly keep more people working without directly stimulating more demand.
Another alternative would be directly creating public sector jobs, along the lines of the Works Progress Administration from the 1930s.
The W.P.A., and subsequent incarnations like the Comprehensive Employment and Training Act in the 1970s, added millions of Americans to the government's payrolls. In many cases, the projects that workers were hired for do actually added economic value (constructing a bridge, say). But in other cases, the goal was just to get people working again, no matter the immediate market value of their work (like painting a mural in a public park, which may have cultural value but few obvious monetary benefits).
But job creation in and of itself, of course, is not the final goal. The ultimate goal - or hope - is that putting people back to work will allow them to spend more money and bolster demand, thereby lifting output, thereby lifting employment, thereby lifting output further, and so on.
In other words, in an ideal world, employment growth and economic growth would feed each other. It's sort of like one of those executive desk-toy doohickeys with the metal balls, known as a Newton's cradle. The difference between the two strategies above is which steel ball, employment or output, gets picked up first - and which would produce the most momentum, so that the balls can keep bouncing ad infinitum without any additional intervention from an external force (in this case, the government).
Traditionally the government seems to emphasize strategy No. 1 - output growth first - with the view that increased demand will help the private sector allocate new jobs where they're most needed, making any new jobs more sustainable. But to politicians - who, at least in theory, answer to voters and not businesses - the longer the lag between the pickup in demand and the pickup in jobs, the more attractive the second strategy starts to look.
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