We Need More Action on Jobs and Wages

Mark Price |

The evidence is indisputable: aggressive action by the federal government to create jobs worked.

As of December 2010, federal action on the economy saved 400,000 Pennsylvania jobs and prevented a rise in the state’s unemployment rate to 15%.

Compared to two previous “jobless recoveries,” Pennsylvania is also adding jobs faster in the current economic expansion. Eighteen months after the end of the 1991 and 2001 recessions, employment in Pennsylvania had declined by roughly 35,000 jobs. As of December 2010, 18 months after the official end of the Great Recession, employment in Pennsylvania was up by 24,200 jobs.

But we need more action on jobs and wages. Despite some good news, the unemployment rate in Pennsylvania remains at 8.5%, and the state is still short of full employment by an estimated 300,000 jobs. While these figures do not imply that federal action was ineffective, they do illustrate that not enough has been done to replace the thousands of jobs lost as a result of the collapse of the housing bubble.

One of the reasons that the private economy will be slow to pick up the slack from the federal Recovery Act is the erosion of middle-class workers’ wages over the past three decades as much of the gains from growth have gone to a thin slice of the highest earners. Typical workers have lost $3,000 to $3,500 in annual earnings due to the three-decade rise in inequality. Slow wage growth will continue to hold down consumption over the next several years, according to the Congressional Budget Office.

U.S. House Republicans are now proposing $61 billion in spending cuts that will decelerate the economy. These cuts are being proposed by legislators wrapping themselves in the mantle of deficit reduction, even though the tax cuts they insisted on for the wealthy in December cost $139 billion and will have almost no positive impact on the economy.

In this still-fragile recovery, it is critical that policymakers not fixate on the wrong deficit.  For Main Street families, the jobs deficit and the wage deficit matter a lot more than the federal fiscal deficit. Moreover, more action to address the jobs and wage deficits—eliminating the shortfall in jobs since the recession began and the shortfall in middle-class wages that has built up over three decades—is the best way to restore robust economic growth that will drive down America’s fiscal deficit.

Although the options available to Pennsylvania lawmakers to boost employment are limited, here are a few ideas that would move us in the right direction:

  • The state should increase its bond-financed investments in infrastructure, transportation, schools, and energy efficiency retrofits. By ramping up construction projects now, the state will not only create additional jobs; it will also get much better value for money because bid prices can be as much as 20% lower when the industry is in the doldrums and contractors are desperate for business.
  • The state should modernize its unemployment insurance rules and capture $289 million in federal dollars still available for the low-income unemployed.
  • The state should join 17 other states by enacting a work-sharing law that allows employers, on a voluntary basis, to permit their workers to claim part-time unemployment insurance benefits when those workers see their hours cut back because of the slow economy. This helps avoid layoffs and allows employers to retain workers with valued skills.
  • Fourth, the state should invest in innovative workforce and economic development programs that help strengthen Pennsylvania’s critical industries.
  • Fifth, to get started on the wage deficit, the legislature should raise the state’s minimum wage and enact an economic development accountability bill requiring companies receiving state business subsidies to pay market-based wages that are not near the bottom of their industry. The new administration and the legislature should also establish a “Task Force on the Pennsylvania Middle Class” to generate additional proposals for lifting wages and reducing income polarization in the private sector.

Learn more by reading the Keystone Research Center’s latest briefing paper, Economic Recovery Part Two: We Need More Action on Jobs and Wages.