The EDA Center | at the University of Minnesota  
Commentaries on Greater Minnesota

Periodically we will present commentaries on topics of interest to community and economic developers across rural Minnesota. Below is a list of all commentaries with the most recent listed first.

 

Commentaries
A Renewed Focus on Jobs
October 2011
Jack M. Geller, Ph.D.
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I was recently in my car listening to one of those personal finance shows on public radio on a day when the Dow dropped 250 points due to a weaker than expected jobs report. Given that the news about the disappointing jobs report was being replayed every 30 minutes, the show's host said in jest to the guest being interviewed that he would try to get through the interview without using the word "job." Needless to say... he failed miserably.

Public officials of all political stripes now appear to have a renewed focus on jobs, as they are coming to realize that the term "jobless recovery" is nothing but an oxymoron. You simply cannot have a full economic recovery with 9 percent or more of your workforce sitting idle and unemployed. At the same time many politicians are acting schizophrenic in deciding what they want our government to do. Some point out forcefully that government does not create jobs... the private sector creates jobs. Yet without taking a second breath they are quick to chastise the government for not doing enough to create jobs. Only in politics can such contradictions make sense.

So now that it's official that jobs will be the central focus of our economic and political debate between now and the 2012 elections, I thought I might offer my take on the matter. Below I have outlined two simple principles that comprise my thoughts on stimulating a full jobs recovery:

Principle # 1 Every Job Counts: Our economy is comprised of jobs in the private, public and nonprofit sectors and they all are important to our economy. A worker in the private sector making $40K per year pays the same income taxes, property taxes and affects consumer spending the same way a government worker earning $40k. And a job layoff in state or local government affects the unemployment rate the same way a layoff in the private sector does. So if your priority is getting the workforce back to work understand that ALL JOBS COUNT. Accordingly, political efforts designed to directly or indirectly reduce the size of the public or nonprofit workforce may yield some other benefits, but it will certainly work counter to and slow down the recovery of jobs. As I noted a few months back it's like dancing the Cha-Cha, taking two steps forward and one step back.

Principle # 2 The Demand Curve Drives Jobs: For decades state and federal governments have tried gimmick after gimmick to encourage private businesses to create more jobs. These include tax credits and various forms of tax relief, de-regulation, tax increment financing, low-interest loans... the list go on and on. Former Governor Pawlenty was proud to call his JOBZ program "tax increment financing on steroids." The truth is that most of these schemes have had limited success in creating long-lasting jobs and they create other economic inequities that are more problematic in the end.


Of course the rationale behind these programs is the belief that if a company has a stronger bottom line it is more likely to create a job; but in many ways this is a false premise. Creating a job is not an act of generosity, charity or a quid pro quo for a government tax break. Rather creating a job is a rational business response to changing business conditions. When the demand for your goods and services exceeds your capacity to satisfy your customers' needs, you expand your workforce or risk losing customers to your competitors. Simply put, you can give the owner of the local car dealership all the tax breaks you want - heck - you can eliminate his taxes all together. But unless more people come through the door seeking to purchase cars or to have more of their cars serviced, there is absolutely no reason for the dealer to create jobs and expand his workforce.

And that is exactly where I believe we are with the U.S. economy today. Many corporations are in fine fiscal health sitting on significant amounts of cash, but the sustained demand that will spur job growth is simply not there. And in an economy where 70 percent of economic activity is associated with consumer spending, increased demand will always be directly tied to the resiliency and strength of the middle class. Unfortunately, many economic indicators suggest that the health of the middle class is not that good. In fact there are many economic indicators that suggest that the middle class has been shrinking for decades as income inequality continues to grow. Average wages have been stagnating or shrinking, and their faith in the stability of home ownership, which has been for many Americans their largest economic asset has been severely tested. So where will this increased demand come from?

Recently both President Obama and Governor Dayton have been on parallel tracks, holding forums across communities soliciting ideas on how to grow jobs. So here's my two cents: stop trying to create another tax credit or other jobs gimmick. Focus on stabilizing and strengthening the American middle class, for they are the true job creators. A strengthened and confident middle class will create a surge in consumer spending and the jobs will take care of themselves.

Geller is professor & head of the Arts, Humanities & Social Sciences at the University of Minnesota, Crookston. He also serves as the director of the federally-funded EDA Center at UMC. He can be reached at gelle045@umn.edu

This document was prepared by the University of Minnesota, Crookston under award number 06-66-05709 from the Economic Development Administration, U.S. Department of Commerce. The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the U.S. Department of Commerce.

The University of Minnesota is an equal opportunity educator and employer.

 
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