Lower-wage jobs can spur the economy

Everyone agrees we need more jobs -- and perhaps more stimulus money to pay for them. But what jobs, for whom and at what cost? Last year, economist Paul Krugman estimated that the first stimulus would create jobs that cost $100,000 each ($60,000 “net” after taking into account the tax receipts from a stronger economy).

There is, however, a need for lower-income jobs, and such jobs can be created quickly and at a much lower cost. Indeed, the wage portion of a minimum-wage job -- even at $8 an hour, the comparatively high rate in effect in California -- is only $16,640 per year. Adding a 35% benefits package would bring the cost to only $22,464 per year. The “net” cost of such jobs would be even lower, because those who get them would no longer be receiving welfare or unemployment insurance, which costs $8,000 to $10,000 a year. Although employers would still have to foot the bill for things such as supervision, supplies, workers’ compensation and the like, many would be only too willing to incur those costs in return for federal help with wages and benefits.

Indeed, Los Angeles County is pioneering a program along these lines. Using stimulus dollars, the Department of Public Social Services is creating 10,000 jobs paying $10 an hour for 40 hours a week, primarily for recipients of CalWorks, the state’s primary welfare program for families. Participants are paid by a county contractor and placed in subsidized jobs that match their skill levels and goals in all sectors of the economy. The “host” employer provides supervision equal to 20% of the wage cost, and must create jobs that do not displace existing employees. Even when administrative and other costs are included, a $20,000-a-year job costs the county very little and adds only about $16,000 to what is already being spent by the state and the federal government in welfare grants.

Of course, there are substantial indirect savings to society as well when people are employed, such as reduced healthcare costs and reduced exposure to the criminal justice system. (By way of comparison, the county has found that about $3.50 was saved for every dollar spent to relieve homelessness through rental subsidies for those on general relief.) Of equal importance, a jobs program also allows workers to gain valuable experience and an even more valuable reference.And because the program uses existing employers, who need more help than they can now afford, job creation can be rapid.

Another way to create more jobs for those with lower skills would be to modify the bidding rules for federal contractors. Now bids are awarded to the lowest qualified bidder, but, in reality, such a bid does not necessarily have the lowest net cost to the federal government. That’s because the system takes no account of the real, measurable cost of each unemployed person, including unemployment insurance, welfare, taxes lost, food stamps and other safety-net programs. In periods of high unemployment, these costs are quite high.

Suppose, for example, there are two options for rebuilding a road. One depends mostly on the use of machinery and employs a minimum number of highly skilled, high-priced workers. The other employs fewer machines and twice the number of people, who have lower skills and are paid less.

Using standard methods of determining the low bidder, the first option might appear to be the lowest. But is it necessarily? If the second employer got a credit for the amount he or she saved the government by creating jobs and taking someone off the unemployment rolls, the outcome might change. The size of the credit would be determined, region by region, by figuring the costs of allowing that person to stay unemployed, and it would increase during hard times. The cost of a particular project could be somewhat higher to the contracting agency, but the federal government as a whole would experience lower costs because of offsetting savings in other programs.

James N. Adler worked in the Kennedy and Johnson administrations and was one of the drafters of the Economic Opportunity Act of 1964. He is a longtime member of the Los Angeles County Public Social Services Commission.