Government Can't Create Jobs

...There is little conclusive evidence that the earnings of PEP employees were improved after participation in the program...

...If businesses can't shift the added tax, other costs will have to be reduced—namely, investments, purchases, and payrolls...

...Few people in these categories were likely to have been eligible for much in the way of welfare or unemployment benefits...

...Skilled auto and construction workers are not apt to line up for such jobs as school and park aides, so serious unemployment problems would remain...

...In any case, the idea of public jbb creation loses much of its sex appeal when presented as a plan to increase employment by lowering wage rates...

...Taking a midpoint between Fechter's estimatessay, 30,000 jobs per billion dollars—nine million jobs would cost $300 billion...

...The uninsured unemployed are far more likely to apply for such jobs...

...By the most pessimistic estimate, it would cost $720 billion...

...The inevitable result is less private employment...

...Again, private employment contracts as public employment expands...

...Communist countries generally solve such problems by assigning people to places and jobs, whether they like it or not, paying no unemployment benefits, and putting the unemployed in jail for "parasitism...

...We are considering using hundreds of billions of dollars, never asking where the money came from, to employ anyone who wants to produce low-priority services on whatever terms are necessary to induce all job seekers to accept the jobs...

...Taxpayers are simply buying the services of new government employees (services which were not considered worth their cost in the best of times) rather than buying products and services of their own choice...

...If businesses pass the expense along in higher prices, sales and employment willfall...

...And such figures are still ignoring any displacement of private employment as a result of competition for labor, or as a result of the taxes, borrowing, or inflation used to finance more government jobs...

...Given a decision to inflate, it would create more real wealth to put the shot of new money (and new jobs) directly into the private sector, because more resources would then go into building factories and houses rather than into hand-to-mouth consumption...

...And it can't just be compulsory to take a job of your choice, since we might all choose to be editors of Ramparts...

...Such considerations have given rise to an appealing but empty slogan: "A guaranteed job for everyone willing and able to work...

...A study by Alan Fechter, published by the American Enterprise Institute, figures that the usual job-creation program creates 12,500 to 50,000 jobs per $1 billion devoted to the purpose...

...Suppose we finance the public service jobs by reducing other spending—perhaps closing a military base, canceling a defense contract, or firing local police and firemen...

...In a zero unemployment society, government would have -to assign people to do the tasks that need to be done...

...Though the program claimed to help the disadvantaged, the PEP employees had considerably more schooling, on the average, than did the unemployed as a whole...

...Private employment that would have been associated with private uses of lendable funds is replaced by public employment financed by public borrowing...

...Trading Jobs for Welfare Having said all that, it must be admitted that there are some conceivable circumstances in which an increase in government employment might not be completely offset by a decline in private employment...

...20 The Alternative: An American Spectator February 1976...

...Suppose we instead finance the added public payroll with higher business taxes...

...The 1975 report of the Council of Economic Advisers, for example, estimated that the increased unemployment benefits in January "would induce an increase in the unemployment rate by about 0.7 per cent...

...There are several reasons to suspect that very little of the money for a large public service job program will actually come from reduced welfare and unemployment benefits...

...A second way that public employment might make a net addition to total employment is by shifting the national payroll from high wage to low wage jobs (e.g., Arthur Burns suggests exempting the public sector from minimum wage la'ws...

...As the government peddles more of its Treasury bills and bonds, it causes interest rates to be higher than otherwise...

...And it depends on the relative after-tax rewards available for not working...

...At this point, we are off to see the Wizard of Oz, caught up in the fairytale quality of the whole enterprise...

...The government has to offer a return that will induce savers to put their money into government securities rather than into stocks, corporate bonds, or savings ac18 The Alternative: An American Spectator February 1976 counts at banks or savings institutions...

...That probably explains why fiscalists are rarely heard advocating high interest rates as an expansionary policy...

...But with guaranteed jobs available in each community, we would run into problems of how to induce people to move to areas, or to train for occupations, where workers are needed...

...If the jobs are not attractive, then they are superfluous...

...Moreover, the nature of spending by public employees would probably be quite different from that of the average taxpayer...

...If the government employed all those who are seeking work at terms they would voluntarily accept, then many who are discontent with their present jobs would quit or arrange to get fired in order to switch to public jobs...

...It is true that the higher interest rates resulting from larger federal budget deficits will induce people to hold smaller cash balances, thus increasing velocity (the amount of GNP purchased in some period with a given amount of money...

...Since the stated objective, in slogan form, is nothing less than zero unemployment, it presumably must be made illegal to quit a job, ,or to refuse one...

...Sar Levitan estimates that the budgetary cost of the 1971 Emergency Employment Act was reduced by about one-third through savings in social welfare expenditures and increased taxes from those employed by the program...

...But we don't need an elaborate public employment scheme to increase the money supply, and the stimulus is a result of the monetary policy, not of the public employment program...

...Moreover, in order to keep people from quitting jobs to apply for public service jobs, a large public employment program can be expected to require a substantial period of unemployment for those applicants who were previously employed, so many might be nearing the exhaustion of their unemployment benefits...

...Not one of the various boosters of federal job creation, however, has really grappled with a rather fundamental question: Where is the government going to get the money to pay these people...

...In a normal year, more than half of the unemployed have either quit their former jobs, have never worked before, or have not worked in some time—none of these people are eligible for unemployment insurance, so putting them in public service jobs would not reduce the cost of unemployment insurance benefits...

...Any semblance of individual choice, freedom, rights, or democracy would have to go...

...In these cases, there is a decline in government employment to finance an increase in government employment...

...Pete Hamill said much the same in the Village Voice...

...Yet the willingness to work is not an absolute, of course, but depends on the type of work offered, the location, and the pay and benefits...

...Of those who had been employed under the Public Employment Program as of February 1973, 39 percent were under 21 years of age, and 44 percent had been unemployed for more than 15 weeks...

...It may be objected that those employed by public service jobs will use their higher incomes to buy new houses and cars, or whatever, and workers in the industries that benefit from this spending will spend more too, sending ripples of new income through the economy...

...There is no obvious net effect on total demand or employment...

...With unemployment benefits available, however, it would not be a simple matter to get the displaced $20,000 workers to accept the $10,000 jobs...

...Guaranteed Employment All of the past and present public employment programs have been inherently unfair, because they have been available to only a tiny fraction of the unemployed...

...The government, unlike private The Alternative: An American Spectator February 1976 19 employers, can force consumers to buy its services, and thus cover any and all labor costs...

...Suppose we finance the added public payroll by increasing federal borrowing...

...The notion that this spending will somehow "trickle up" toward the depressed markets for costly new houses and consumer durables is not terribly persuasive...

...If such jobs are attractive, they must be rationed according to the whim of some bureaucrat or politician...

...If one million $20,000-a-year jobs are lost as a result of the taxes, borrowing, or inflation used to hire more government employees, the proceeds could then be used to finance two million $10,000-a-year government jobs (if the Civil Service didn't mind...

...In short, the notion that public service jobs could merely replace spending on welfare and unemployment benefits is mostly an illusion...

...The higher real interest rates discourage whatever private credit-financed expenditures would otherwise have been induced by lower rates—including borrowing for capital equipment, mortgages, and auto loans...

...Because the incomes of public service employees are lower and less permanent than average, relatively more will be spent on nondurables, such as food and clothing, and on used cars...

...Thenet addition to the incomes of public service employees (above whatever they were living on before) will indeed increase their spending, but only by as much as the spending of taxpayers is reduced...

...Terrence McCarthy, an editor of Ramparts-, considers it "necessary that work be made compulsory for all adults in good health...

...There is never a shortage of low-paying, unpleasant jobs...

...When we are talking about providing permanent jobs for something like eight million unemployed plus another million who stopped looking for work (but presumably did not stop eating) due to discouragement, the question of financing can hardly be blinked away...

...The $6.1 billion bill passed by the Senate in April, for example, did not even pretend to create jobs for more than a tenth of those who claim to be looking for work (and pretend is the right word...

...If the tax is shifted to stockholders, stockholders will have less to spend...

...If we don't provide jobs," said Senator Schweiker, "the workers will go on welfare or unemployment insurance...

...But such a figure, even if it were believable, could not be extended to a much larger program, because there are other reasons for collecting welfare or unemployment benefits besides inability to find a jab...

...Only 29 percent of the PEP employees were women, the major recipients of AFDC welfare, and only 11 percent had been recipients of public as-sistance...

...As is typical of such studies, the author simply avoids the main question of whether or not an increase in government employment is offset by a decrease in private employment: "The question of program financing," says Fechter, "is not examined in this study...

...Finally, suppose we finance the added public payroll with new money...

...The odds against drawing more and more public service employees out of the pool of insured unemployed and able-bodied welfare recipients presumably diminishes as the job program grows...

...Secondly, those among the unemployed who are covered by unemployment insurance account for only half to two-thirds of the total, and are a relatively elite group who are least apt to be attracted by low-paying, temporary government jobs...

...What is absurd in the extreme does not become brilliant by being adopted in part...

...Private employers who couldn't pass on a comparable labor cost would go out of business, because of inability to compete with the government for labor...

...A government with such total control over the fate of individuals could not possibly be controlled by them...

...Suppose the government payroll is expanded by increasing the taxes paid by individuals...

...The only evident effect is to switch the nature of government employment, or of employment dependent on government purchases, into activities which were previously considered less essential...

...In 1973, about 84% of the mothers receiving AFDC welfare were not employed, and only 11.5% were, actively seeking work...

...With the higher tax burden, those taxpayers would clearly be unable to spend as match on, say, housing and cars...

...Yet this cannot possibly be a dollar-for-dollar trade, if only because people are not likely to accept jobs that offer no higher income, after taxes, than can be obtained without working...

...First of all, the able-bodied portion of the welfare population consists mainly of female-headed households with small children, and these women are often not looking for work because they are not qualified to earn enough, even in public service jobs, to net a sufficiently higher income from work than from welfare, after paying child care expenses...

...The effect is equivalent to an addition to the money stock, but the evidence indicates that effect of interest rates on velocity is very small...

...Some such scheme has been enthusiastically endorsed in such diverse journals as the New Republic and Fortune, and by economists as different as the liberal Melville Ulmer and the conservative William Feltner...

...Some American commentators, afflicted with an unemployment fetish, do not shrink from adopting a similar "cure...

...The government should be, as Michael Harrington put it, "the employer of first resort...

...The estimated number of jobs needed, nine million, also ignores the increase in the number of job seekers (especially housewives and teenagers) that would surely arise in response to such a guarantee of employment on terms sufficiently pleasant and lucrative to induce everyone to work...

...A sizable increase in the rate of growth of the money supply will generally stimulate employment for a while, when starting from a position of high unemployment...

...There is considerable evidence, from Stephen Marston and others, that when unemployment benefits run out, people miraculously find jobs very quickly...

...The first such circumstance is measured by the degree to which the added government payrolls are matched by a reduction in spending on welfare and unemployment benefits...