Friday, July 11, 2003

A Harvard economist looked at several aspects of the economy to determine which ones help create jobs, especially good, high-paying jobs. It turns out that consumer spending isn't a very good job creator at all -- which is significant right now because the whole point of tax cuts (Bush's cure-all for everything that ails the economy, and the solution of certain me-too Democrats) is to increase consumer spending. Tax cuts haven't turned unemployment around, and it's doubtful they will.

By contrast, good old-fashioned government social spending actually does create jobs.

Jeff Madrick wrote about this in yesterday's New York Times:

James Medoff, a Harvard University economist, has explored the job-creating benefits of different categories of spending. His main research...was done in the early 1990's. But he has completed a partial updating and says the conclusions still apply today.

Mr. Medoff created a measure that included the number of jobs produced by a dollar of spending and the level of pay and benefits those jobs provided. Combining the two resulted in a labor market "score." He then examined how highly capital investment, consumption and various government spending programs scored — that is, added good jobs to the economy.

Private investment in durable goods did especially well, Mr. Medoff found, creating a reasonable number of jobs on average but ones that pay especially well. Thus, more capital investment is an excellent way to create good jobs.

But the nation's spending on education programs did even better. It created many more jobs per dollar spent, and they paid fairly well, if not as well as jobs derived from capital spending. Government health care spending also produced many well-paying jobs. Other government spending programs conducive to good job growth were for highways, water and air facilities, and police and firefighters. Military spending also added good jobs, but not at an equivalent rate.

The weakest job-creating spending on average was consumption itself, which is exactly what is driving the economy today. Tax cuts of both Democrats and Republicans are intended to stimulate just that. But such spending may well not create an adequate number of jobs, partly because so much leaks to imports.


So don't hold your breath waiting for that big turnaround in employment.

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