President Franklin D. Roosevelt during the depths of the Great Depression tirelessly pushed for innovation, saying: ‘It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something.”
Trying something that actually has worked before makes even more sense. And U.S. Sen. Al Franken has reached back into Minnesota’s recent history to produce a sound proposal for creating more private-sector jobs.
It stands out as one of the better ideas as federal and state leaders look for quicker ways to reduce unemployment. Franken’s $10 billion bill, “Strengthening Our Economy through Employment and Development” (SEED), proposes direct federal subsidies to businesses to help pay the wages of new workers.
SEED, which Franken wryly dubs “Cash for Jobs,” borrows heavily from a state-level policy called the Minnesota Emergency Employment Development Act (MEED), launched in 1983 toward the end of another harsh recession.
The 1983 MEED program has won praise from a number of credible national experts, including workforce and economic development guru Tim Bartik of the W.E. Upjohn Institute for Employment Research, in Michigan, who outlined the benefits at a presentation in the Twin Cities in November.
About half of Franken’s SEED money, drawn from bank repayments for federal TARP funds, would pay small and midsized businesses and nonprofit organizations 50 percent of the hourly wage for a new worker for one year, with a cap of $12 an hour in federal dollars in most cases.
Another $1 an hour in federal funds would be available to subsidize health care coverage. To qualify for the full wage subsidy, an employer would need to keep the new worker on payroll for 15 months, and employers could not use the program to replace existing workers or to fill existing vacancies.
Franken’s plan could dovetail with President’s Obama’s proposal for $33 billion in wage subsidies through tax credits for new jobs, and the SEED bill offers these particular advantages:
- No new bureaucracy. SEED would be administered through the federal government’s already existing Workforce Investment Act program.
- Efficiency. Wage subsidies create more jobs for less cost than many other approaches to economic stimulus. Upjohn’s Bartik estimates that the federal government spent more than $100,000 for every job created under the 2009 stimulus package but might spend closer to $30,000 using the MEED model.
- Timeliness. Rapid implementation could spur real jobs at a time of high unemployment, as business owners already contemplating hiring decide that the wage subsidy overcomes uncertainty about the economic outlook. Caveat: Some dollars for the program will undoubtedly fund hires that would have happened without the subsidy.
- Good jobs and training. Only jobs paying a minimum of $9- or $10-an-hour would qualify, and SEED would cover half the wage of workers earning as much as $24 an hour. The subsidies help employers through the low-productivity period that occurs when a new hire first comes onboard, thus the program would underwrite on-the-job training that benefits both the employer and the worker. Returning veterans would qualify for slightly higher subsidies.
- Credit crunch relief. The subsidy could serve as working capital for employers at a time of tight credit in U.S.markets. This is an important challenge especially for small firms that suffer because of the high costs for small-sized loans and shortages of collateral.
- Temporariness. The limited amount of federal funding available for private-sector wage subsidies and the two-year time frame proposed for SEED makes it unlikely that it would skew employers toward an inefficient mix of more labor and less capital equipment for the long run.
The SEED program would set aside another $5 billion from TARP funds for an energy-efficiency initiative by the public-sector to retrofit schools, libraries, other public buildings, public housing and vacant and foreclosed homes.
These funds would be made available to financially strapped state and local governments and Indian tribes. For this public-sector component, the federal SEED proposal veers away from the MEED model of broad wage subsidies, pursuing a laudable goal of energy conservation.
But this part of the SEED could result in as much spending on building materials as on wages.
At this juncture, Minnesota could benefit from a federal program based on MEED. The state alone has lost about 130,000 jobs in the last two years. And in the 1980s, the modest MEED program helped put more than 7,000 Minnesota workers back on the job in six months.
“Minnesota needs jobs, now,” says Kris Jacobs, veteran leader of the JOBS NOW Coalition. “This is not just an ordinary downturn in the business cycle.” Time to try something — something that’s been tried and rings true.
A version of this column originally appeared in the Saint Paul Pioneer Press on February 4, 2010.
Matt Kane is policy and research director and Dane Smith is president of Growth & Justice, a progressive Minnesota think tank that focuses on public policies that it believes can lead to economic growth and expanded prosperity.