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The Stimulus Package: Why Not More Low Income Jobs?

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It is clear our Nation needs the stimulus package. But will it create sufficient jobs for persons on the lowest rungs of the job ladder? In midsummer, Larry Summers recommended that a stimulus package be targeted to low and middle income persons. Estimates for the cost of a job run from the Republican's estimate of $250,000 per job to Paul Krugman's estimate of $100,000 (or $60,000 in "net" cost after taking into effect the tax receipts from a stronger economy). Neither this price tag, nor the description of the functions to be performed, suggest that the program as structured will produce very many jobs for those having the lowest skills, experience and income.

There is, however, a need for low income jobs and such jobs can be created much more quickly and at a much lower cost. Indeed, the wage portion of a job at the current federal minimum wage rate of $6.55 is only $13,624. Adding a 25% fringe package would bring the cost to $17,030 per year. The "net" cost of such jobs would be significantly lower because without such a job the person would likely to be receiving welfare or unemployment insurance and an average cost to the federal government of $5,000 to $10,000 per year.

Of course, there is also the need for supervision, supplies, workers' compensation insurance, etc. but many public and non-profit employers would be only too willing to incur those costs in return for having an employee whose wages and benefit costs were paid by a federal program. These jobs could also be created very quickly. And while the jobs themselves might bring less of a benefit to society than some of the jobs to be created under the stimulus program as currently proposed, for the persons employed the jobs would provide important income, structure and dignity to their lives as well as providing the potential of a better job because of gaining a reference and job experience. In this regard, the motto of the welfare program in Los Angeles is particularly apt: "A job, a better job, a career."

Another way to create more jobs for those with lower skills would be to modify the bidding rules for infrastructure and other federal contractors. Although the current rules are designed to award bids to the lowest qualified bidder, such a bidder does not necessarily have the lowest "net" cost to the federal government because the current bidding systems takes no account of the real, measurable cost to the federal government of each unemployed person (from unemployment insurance, particularly when extended at 100% federal cost, welfare, taxes lost, food stamps and other safety net programs). In periods of high unemployment these costs are significant.

Suppose, for example, there are two options in rebuilding a road. One option would depend heavily on machinery and employ minimal, but highly skilled, high-priced workers while the other option would employ twice the number of persons (but persons of lower skills and lower pay) and less machinery. Using standard methods of determining the low bidder, the first option might appear to be the lowest. But is it necessarily?

If the federal government determined an average cost to it of an unemployed person taking into account all costs direct and indirect at a given level of each region's unemployment, these costs could be taken into account by providing a credit in the bidding procedure for each person employed. These "credits" would not, of course, be paid to the winning contractor; they would only be used in determining which contractor was truly providing the government with the lowest net cost.

By using a more global method of cost accounting, and asking bidders to reveal not only their costs but the number of workers to be employed, bidders would be encouraged during periods of high unemployment to use labor intensive methods of construction in circumstances where these methods actually saved the government total dollars expended. 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.

Such a system would permit low income persons to compete more fairly for a share of the stimulus package while also maximizing the number of jobs for each project.