UA professors debate merits of Obama Jobs proposal

With the background of a national unemployment rate at 9.1 percent and confidence in the economy at an all time low, President Barack Obama introduced his long awaited plan to Congress on Sept. 12.

In an open letter to Congress, Obama explained his reasoning: “To create jobs, I am submitting the American Jobs Act of 2011, nearly all of which is made up of the kinds of proposals supported by both Republicans and Democrats, and that the Congress should pass right away to get the economy moving now.”

At ten percent, Alabama has a higher unemployment rate than the national average, according to the U.S. Bureau of Labor Statistics. For this reason, many Alabama students who are soon to be entering the job market are worried about their future prospects.

“I don’t think anybody feels good about the future,” said Greg Banks, a senior majoring in music. “I don’t trust the current government to [improve the economy] and only time will tell if new government will make it better.”

Mark Zandi from Moody’s Analytics, which helps capital markets and credit risk management professionals cope with an evolving marketplace, said the President’s proposal would create nearly two million jobs by November of next year, bringing the unemployment rate to eight percent.

Carl Ferguson, former director of the Center for Business and Economics Research and an Emeritus Professor at Culverhouse School of Business, believes Zandi is right.

“If fully funded, there is little doubt that the American Jobs Act will produce a significant increase in jobs across America,” Ferguson said. “Estimating the economic impact of government and private sector spending is an inexact science.  However, I think the estimate of 1.9 million is a good estimate.”

Not all support Obama’s plan, however.

“An easy way to gain some insight into whether this is a good plan is to note that $447 billion divided by two million is $223,500,” said economics professor James Cover. “That is, if Mark Zandi is correct, the cost to tax payers of each job created is over $200,000.  Do you think this is a reasonable price for taxpayers to pay for a new job?”

In order to fully understand the reason for the disagreement over whether the plan will work, it is helpful to know what’s in the bill.

First, the American Jobs Act calls for a small business tax cut, which is designed to stimulate growth, and an additional tax cut for any business that hires or increases wages.

The proposal also calls to cut the payroll tax for workers in half, which the White House believes will net a “typical family” savings of $1,500. The plan also calls for increased spending on infrastructure projects across the country, including repairing crumbling bridges, roads and more than 35,000 schools.

It also creates a new credit for employers who hire workers who have been out of work for more than six months, and makes it illegal for the unemployed to be discriminated against in the process of finding a job.

Despite his support of the bill, Ferguson understands that it may not work even if passed in full, which seems very unlikely in the current political atmosphere.

“Following a recession, corporations are typically very slow to rehire, particularly when there is uncertainty about future demand for their products and when they want to rebuild their profit picture,” Ferguson said. “For example, federal government spending on infrastructure pays for construction projects, which in turn put people to work.

“But what if executives choose to keep workforce at a minimum in anticipation that spending levels will fall to previous levels as soon as the project is finished?”

Cover said the main point is that the cost of each job is very expensive.

“If the plan were passed and implemented, it would mainly benefit people who are already employed,” he said. “Plus, once the spending is finished, what will happen to the jobs?  If the spending will create jobs, the jobs will be lost once the spending stops.  All the plan will do is misallocate resources. It will keep the economy from adjusting to a natural full employment equilibrium.”

Despite concerns from some on campus, there is a large group who supports the bill.

“The sole goal of the bill is to put more Americans to work, reward American businesses who hire more, and help the middle class save more of their own hard-earned money,” said UA Democrats President Jamie Woodham. “It will also vastly renovate the American public school system, repair public transportation infrastructure, and work to employ thousands of unemployed veterans who fought to defend our nation. To be against the American Jobs Act is to be against small businesses and the improvement of the American middle class.”

It is very easy to demonstrate and document the positive effects of government spending on job creation and corporate and consumer wealth, Ferguson said. Only time will tell if the leaders in Washington will listen to the concerns of those they represent on both sides.

“Sadly, I am not optimistic,” he said.

 

 

Comments powered by Disqus

Please note All comments are eligible for publication in The Crimson White.