September 9, 2011

Key Points of Obama's Jobs Plan a Mixed Bag

Bruce Yandle

Distinguished Adjunct Fellow

President Obama’s jobs speech touched on several key areas for stimulating employment growth, including reduction of payroll taxes, continuation of unemployment benefits, targeted infrastructure, and school renovation spending and hiring teachers.

The reduction in payroll taxes paid by workers will raise family disposable income and lead to increased spending and debt reduction. There is an immediate stimulus associated with the individual payroll tax cuts. The cut in payroll taxes paid by employers will likely first lead to higher profits and then later to increased hiring if and when consumer demand increases enough to justify business expansions.

Continuation of unemployment benefits is a two-edged sword. It helps individuals and families support an ongoing job search in a high unemployment economy. It also enables individuals to wait for a better job than the one they might take immediately. Since the U.S. currently has a higher level of unfilled job openings than would normally be associated with a high level of unemployment, it is possible that part of the unfilled jobs is explained by continuation of unemployment benefits.

Increasing federal spending on infrastructure projects makes the claim of stimulating construction employment and is a repeat of the 2009 stimulus. In 2009, some $21 billion of stimulus money was targeted for construction and other grants. The Bureau of Labor Statistics employment sector involved is called Heavy and Civil Engineering Construction.

From December 2009 when Heavy and Civil Engineering Construction was at bottom with 807,000 employed to August 2011 when employment rose to 841,000, 34,000 workers were added to construction payrolls. If we assign all the hires to the $21billion 2009 stimulus, then $100 billion spent now might generate 170,000 jobs. Each hire will be important, but in total the effect is small.

As to hiring teachers, total employment in local government education (August 2010 to August 2011) is down by 200,000 nationwide. Education employment in state government for the same period shows no change.  In short, there is no indication of serious loss of jobs when viewing state government education employment data; there is a loss of 200,000 when viewing local government data.  The Bureau of Labor Statistics August 2011 unemployment rate for education and health services, not seasonally adjusted, which contains teachers and other educators, is 6.3%, one of the lowest unemployment rates for any sector, and a bit lower than 6.7% in August 2010.  While the president implied that teachers were facing serious payrolls cuts, the data offer a mixed bag of evidence.  There are job losses, but the sector is one of the healthier in the overall labor market.

Update: Last Paragraph Was Revised 9/12/2011