Gov. Mark Dayton released his “Jobs Plan for Minnesota” [PDF] last week. The plan attacks three important problems but neglects three others.
Three problems tackled
First, many businesses cannot afford to hire needed workers at the going wage. In particular, businesses compare the benefit from hiring an additional worker with the cost of hiring that worker. Hiring another worker makes sense if the additional benefit outweighs the additional cost. The job plan reduces the cost of hiring an additional worker through the New Jobs Tax Credit. The credit provides $3,000 in 2012 and $1,500 in 2013 for hiring an unemployed worker, a veteran or a recent graduate, and thus makes it more likely that a firm will hire a new employee.
A second employment problem is that there is insufficient demand for the goods and services firms produce, so there is no point in hiring more workers. The governor’s plan aims at this problem through a bonding bill. For example, the bonding bill will make it profitable for construction firms to hire workers at current wages because they will have new projects that require more workers.
The governor’s plan zeroes in on the “skills gap” as the third problem. Briefly, some businesses want to hire workers but can’t find people with the necessary skills. The prescription for this malady is to promote training and match up potential employees with employers. The job bill does this by expanding the fastTRAC program and by creating a Minnesota Opportunity Grants Pilot Program.
Three problems missed
Unfortunately, the job plan ignores three other important problems.
First, employers may have trouble connecting with skilled employees. In particular, job seekers know the importance of networking in order to find a new position, yet the state could do much more to promote these matches. The Department of Employment and Economic Development could use more resources to ramp up its job-seeking tools and promote their use throughout the state. We must ensure that there are not job seekers living near Willmar who have the skills needed by businesses in Willmar but they are unaware of each other.
Second, workers might be geographically stuck. Suppose a company in Hibbing needs the skills of a person currently living near Austin, but the Austin resident cannot move because he or she is unable to sell their house. The state could ease this problem by devoting part of the bonding bill to setting up a mortgage-relief fund or a fund to help people move within the state for employment reasons.
Third, the market I sketched above presumes that wages will rise and fall in order to equilibrate the market. One way to deal with the skills gap is for firms to offer higher wages in order to attract workers who possess desired skills. The jobs bill short circuits these mechanisms by having the government subsidize firms who need skilled workers. Is this the right way to go? If firms and industries need skilled workers, and if the payoff to hiring those workers will mostly flow to the firms, why should society as a whole subsidize this?
Long-run concerns
One final concern I have is whether or not this plan promotes long-run growth. The plan as it currently stands doesn’t necessarily do this. The job tax credit, for instance, could simply lead to a temporary bump in hiring but no improvement in long-term employment.
Here are two suggestions to improve this part of the plan. One is to make sure that the bonding bill focuses on projects that increase Minnesota’s productive capacity. As Susan Riley and I discussed two weeks ago, investments in water and sewer systems along with expansion of pre-K education make the most sense.
Second, link the job tax credit to the need to increase the pool of skilled workers. The governor’s job plan proposes a $3,000 credit in the first year and $1,500 in the second for hiring a worker. How about increasing the credit $4,500 in the first year, $3,000 in the second year, and $1,500 in the third year on the condition that the firm invests in training the new worker?
We have an opportunity to both promote short-term employment and long-run growth. Let’s grab it.
Louis,
Doesn’t your comment in the Third “Problem Missed” (If firms and industries need skilled workers, and if the payoff to hiring those workers will mostly flow to the firms, why should society as a whole subsidize this?) also apply to the solution you promote in the Second “Problem Missed” ( The state could ease this problem by devoting part of the bonding bill to setting up a mortgage-relief fund or a fund to help people move within the state for employment reasons.)
Mr. Johnson, with the exception of the jobs training portion, isn’t Dayton’s plan just another stimulous? And isn’t this stimulous, like it’s porkier federal sibling to be funded by borrowing? And isn’t one of the main concerns being expressed by people the size of our growing public debt?
How then, is this going to inspire the confidence necessary for businesses to invest and grow? Isn’t this, truthfully, nothing but specious window dressing?
@#1
I am definitely not an expert on this, but I would guess that it is less of a problem because the mortgage relief does not directly pay firms for something they already need, but rather provides mobility for skilled workers to move as “natural” demand requires.
From 2000 to 2010, the working age population grew from 213 million to 238 million–an 11% growth.
From 2000 to 2010, productivity grew at a rate around 2.5% per year–a 25% growth (crudely).
Seems to me that there is a fundamental decline in the demand for labor, beyond the current slowdown. Falling wages are the biggest proof of an over-supply.
The places of apparent labor shortages generally fall into 2 categories: those employers who don’t want to pay wages commensurate with job requirements and historic wage packages; and, a genuine few cases of a shortage of (a relative few) skilled workers that the employer apparently has no incentive to train and retain.
As we all know, unemployed, under-employed, and under-paid workers all act as a drag on the economy, pulling a sluggish economy further down.
It would probably be wise to take a step back.
We tend to treat all businesses as the same and they aren’t. If the Governor heard the same things I did at St. Cloud he heard the big business whine about taxes, and the small business discussion about consistent rules and that wasn’t really a complaint. Both businesses were expanding and neither was very concerned about purchasing labor. But they were also in a large labor market.
My impression is that business people complain about skills because they make bad hiring decisions, or are bad managers or supervisors and have to blame it on something. As the Mr. Johnston points out you fix labor shortages by raising wages. If that’s not working take the best talent you have and train them. What business have is a shortage of skilled labor at a price they want to pay.
The immobility of labor is a problem for businesses that require traditional shift work. It isn’t just housing that makes labor immobile but also two income families particularly with uncertainty in the job market.
Bonding for these programs is not a good idea. Bonding for infrastructure and deferred maintenance of public facilities is good. There you are dealing with a labor force that is well paid, and mobile because that is the nature of the construction industry. Although I would argue tearing down or selling some under used public structures may be in the best interest of the state. The government is the only group that can deficit spend in the short term,at lower risk than business.
“The job bill … expand[s] the fastTRAC program and by creating a Minnesota Opportunity Grants Pilot Program.”
Bad idea because it’s just more government bureaucracy that may or may not hit the target. And it’s not training, it’s education.
A better idea would be have the employer train the new employee in the specific job tasks that are required, with the promise that government will help defray the costs.
Rather than pay for a vague, ambiguous education program, let the employer write off the cost of their internal job training, conducted by their own trainers, at twice the training cost.
This will incentivise the employer to take on new hires because they will be trained on the specific job tasks, not simply educated, and the government will subsidize it through the tax code.
If the hiring incentives go to small businesses that just haven’t been able to afford to add employees, it will be worth spending the money.
Large companies hire when they need people, making subsidies a gift from us to them.
Thomas: The lack of government investment is what perpetuates recessions, which is exacerbated by deliberately reducing revenue in the belief the economy will magically grow in response.
Europe, courtesy of the IMF, is suffering from this delusion right now. Call it “Chicago School Madness.”
Lest my conservative friends think I’ve gone over to the dark side, let me make it perfectly clear that I oppose any and all government subsidy to any private enterprise.
My only point was to point out the governor’s plan to close the “skills gap” is not only philosophically flawed, but flawed in design even as a solution for people who believe in government-subsidized job training.
That is, if one were to implement such a thing, it should be job/task-oriented training delivered by the company trainers, not government educators teaching “job skills” of questionable relevance.
And companies can already deduct the cost of technical/job training if it directly relates to the delivery of their product or service, so to have any value you’d have to at least double or triple the deduction for it to serve as a hiring incentive.
Someone needs to actually measure how the job creators have done lately.
Even my 89 year old mother knows that the only people who can create jobs during a recession is government. That’s how her father her family during the 30’s.
Whether you like government jobs or not a job generates a positive impact on the economy. The trick is to make them temporary and focus on things that are needed to make us more competitive in the future.
While I certainly agree with “investments in water and sewer systems along with expansion of pre-K education”.
I would also like to see tax reform. A good start would be to eliminate tax expenditures. Then lower rates and broadening the base. Something similar to what Pawlenty’s tax reform committee came up with.
When government “creates a job,” it has to take money from someone and give it to someone else. It takes money from someone who could have spent that money in the economy and gives it to someone else to spend in the economy.
People who think this is generating a positive impact would also believe in perpetual motion machines.
Tax breaks don’t create jobs. Outside the executive levels of a business you don’t hire people unless you have work for them them to do, no matter how cheap they are.
The government can’t manipulate the private sector into hiring. And low wages will depress the larger economy while extending inequality.
The government can do three things to create jobs. 1) it can create jobs directly by build and repairing infrastructure, and expanding government services. 2) It can provide education and retraining so employers either have a pool of suitable employees or can retrain the ones they have. 3) The government could create a statewide healthcare program that would save MN business’s and citizens billions of dollars thereby freeing up that capital for expansion and consumer spending.
The problem is you have to pay for all this stuff and the Republicans will block any efforts to raise the necessary revenue.