Navigating the Jobs Crisis: Direct Job Creation - Lessons from Argentina

If the U.S. government creates a permanent, voluntary public employment program that offers a living-wage job to anyone willing and able to work in a public service project, unemployment will be addressed directly.
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As part of the Roosevelt Institute's 10-part series on the Jobs Crisis, running on the New Deal 2.0 blog from Nov. 12-27, I was asked to reflect on what can be done to get Americans working again. Here's my take.

What has now become the standard government response to a recession -- pump priming -- is a gamble, and it is time to abandon it as a tool for economic recovery and job growth. It takes too long to produce results and one never knows how much demand the government must pour down a leaky economy to turn it around. It is a risky strategy, which is why President Obama reminded us again on a few days ago that unemployment is a lagging indicator. Yet, there are no good reasons for putting up with high unemployment when we have an effective solution at hand. This is why I add my support to the growing list of those calling for direct job-creation programs.

While policy-makers cling to the astounding belief that the government can neither create jobs nor find enough useful things for the unemployed to do, a much poorer country with presumably fewer resources and less effective government was able to do it just a few years ago. The country is Argentina, which did not settle for a jobless recovery when its economy plunged in its worst post-War recession; instead, it immediately launched a public employment program, known as the Jefes Plan to deal with the crisis.

Just like the New Deal in the 30s, the Jefes plan was up and running in only a few months. In January 2002, the jobs program was signed into law as an emergency measure and five months later it began putting 500,000 people to work. Twelve months after that, it had employed 2 million people, or 13% of the labor force. The program offered a part-time, minimum wage public sector job to any unemployed head of household willing to work in a community project. The price tag of the Jefes plan was less than 1% of GDP.

Unemployment did not wait for the economy to recover to start falling. Instead, even before GDP posted its first positive growth numbers, the unemployment rate had already fallen by 25% -- from its peak of 24% in mid-2002 to 18% a year later. It continued falling precipitously as the economy recovered to move into single-digit territory three years after that. This is a dramatic and expedient reduction in the jobless numbers, given their extraordinary levels -- a decline only possible with direct job creation. And the Jefes Plan, by most measures, created much needed and useful work.

In a matter of months, Argentina had organized projects at the federal, state, and local levels. These included large-scale infrastructure investments and massive recycling initiatives, water irrigation and soil renewal projects, health care and daycare centers, food kitchens and homeless shelters, public libraries and recreational programs, subsistence farming and elderly care programs, family violence attention centers and many others. Public sector jobs provided employment, income, on-the-job training, and education to participants. Projects transformed communities and had a positive impact on women and children. Parents who took the Jefes jobs enrolled their kids in school and took them for routine health checkups and vaccinations, as per program requirements. Women turned up for work in large numbers as heads of households and produced useful output, participated in community rebuilding, and took leadership roles in the organization of these projects. Jefes spurred private-sector job creation as well (estimates place the multiplier effect of the program at 2.57), and many workers transitioned from their public Jefes jobs to better-paid private sector employment.

While in the U.S. Congress keeps extending unemployment benefits, the Argentine government chose to put the unemployed to work. When our politicians forecast a jobless recovery ahead, policy makers south of the equator speak of reaching full employment by creating and safeguarding jobs by private and public means.

It is no coincidence that macroeconomic stabilization programs that contain an explicit direct job creation package produce robust job creation and economic growth more quickly and vigorously than the unreliable and inefficient pump-priming approach.

If the U.S. government creates a permanent, voluntary public employment program that offers a living-wage job to anyone ready, willing, and able to work in a public service project, unemployment will be addressed directly as it develops during recessions. And this very same program will serve to turn the economy around. Such a program will fluctuate counter-cyclically with the business cycle, and unemployment will no longer be a lagging indicator. As the economy recovers, public service workers can move back into private-sector jobs.

If Argentina was able to find productive work for its unemployed, surely the U.S. could do it too. It is time to abandon the wasteful pump-priming model along with defeatist attitudes about government job creation. It's time for a Rooseveltian resolve.

This post originally appeared on New Deal 2.0.

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