In the recently released budget we can see what the Obama administration's priorities are for the economy, and perhaps get a sense of how we might expect it to spur economic growth and reduce unemployment.
The budget contains some items that might help in that process, but other key areas go lacking.
I want to focus on how well the budget addresses the aspect of structural unemployment, the biggest challenge policymakers face in reducing the ranks of the unemployed. (I recently discussed a different budget aspect, that of how it might impact consumers' incomes and spending.)
Judging on "give a man a fish and he'll eat for a day, but teach a man to fish and he'll eat for a lifetime," the budget was mostly giving fish rather than teaching how to fish. Let's start with the big challenge of structural unemployment, as that cannot be easily solved with simply increasing overall economic growth. The housing bubble distorted many workers' career decisions and we are now left with a very high rate of unemployment in construction, while employers in certain other industries face difficulty finding talent. We might try to reduce the high unemployment rate in construction by creating construction jobs, but that really doesn't change the fact that we need fewer construction workers and more healthcare and knowledge workers.
I discussed research from the Kansas City Fed that demonstrates that funds spent on training workers to fit jobs employers need to fill might be far more effective in reducing unemployment than by creating jobs that unemployed workers are qualified to do. What we learned from that research is that, for an investment of a mere $79.5 billion or so (a pittance in the grand scheme of $3.8 trillion in outlays for 2013) in retraining workers and matching them to potential employers, we might reduce the unemployment rate by about a percentage point or so.
Instead, what we see in the budget is that we have projected outlays for such programs at, well ... umm ... precisely zero. But we are investing quite a bit of funds to maintain employment in some industries at levels that are probably not dictated by free-market forces. I'm not going to quarrel with spending on infrastructure per se. We do need better roads, bridges and broadband, as that is what helps drive productivity and improve competitiveness of our country and profitability of our companies. When they become programs designed to reduce unemployment rather than improve productivity is when I wonder about priorities.
The budget outlines "an upfront investment of $50 billion from the surface transportation reauthorization bill for roads, rails and runways to create thousands of quality jobs in the short term." Notice the phrase "in the short term" and think of my "give a man a fish" reference earlier. When these programs are completed, what next?
Then we get to the section of "Education and Skills for American Workers." There are no funds allocated towards retraining those construction workers once they complete the short-term projects, nor towards helping any of the other unemployed whose skills don't match employers' needs to actually fill current job openings. We see $30 billion in funds allocated to modernize school buildings, but what about modernizing workers' skills?
These are easy policy prescriptions because they can provide a boost to employment in the short term. And the president will campaign on a drop in the unemployment rate, no matter how short lived, rather than an improvement in the educational quality of the workforce, no matter how long lived.
We also have funding of $850 million for Race to the Top, which "implements systemic education reforms in five critical areas, including early learning and care. The Budget also provides $300 million in new resources to improve child care quality and prepare children for success in school." And another item describes "a new $5 billion competitive program that will challenge states and districts to work with their teachers and unions to attract, prepare, and reward great teachers to help students learn."
My pet project is improving education. These budget items sound like nice ideas, but the funds are miniscule relative to how many children are in school and what we might hope to achieve. If the problem really is that would-be workers don't have skills employers want, even though employers are going begging for workers with certain skills, can't we do a little better than this in improving our competitiveness? After all, we rank below Estonia and Slovenia in the Organization for Economic Cooperation and Development's student assessment exams in science and math. And we wonder why jobs are going overseas.
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