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Obama and Franken wage subsidy plans offer echoes of ’80s Minnesota program

With their bottom-up approach to job creation, the proposals have similarities to a state economic recovery program known as Minnesota Employment and Economic Development.

With their bottom-up approach to job creation, proposals from President Obama and Sen. Al Franken echo a concept incorporated in a 1980s-era state program known as Minnesota Employment and Economic Development (MEED).

In an effort to bring down this country’s persistently high unemployment rate, Obama wants to provide a $5,000 tax credit to small businesses for each new employee they hire this year. The Obama plan would also reimburse businesses for any additional Social Security taxes they might have to pay if they increase wages or hours for existing employees.

Minnesota’s Al Franken also has weighed in on the jobs issue with his proposal to use $5 billion in funds from the Troubled Asset Relief Program (TARP) to provide direct wage subsidies to small businesses and nonprofit organizations that hire new workers.

Similar ideas were reflected in MEED, which took hold in 1982, when a national recession, then the worst since the Great Depression, pushed the unemployment rate in Minnesota above 10 percent.

In December of that year, a group of social activists met at Central Lutheran Church in downtown Minneapolis to consider steps they might take to combat the recession and its devastating impact on the state’s unemployed families. That meeting led to the creation of the Jobs Now Coalition, a new advocacy organization that promoted the concept of a direct wage-subsidy program.

The subsidy concept received a positive reception from the new state administration when Rudy Perpich returned to the state Capitol as governor in January 1983. “The economy was in a mess, and we needed an emergency program, just to get people working,” recalled Joe Samargia, who served as Perpich’s commissioner of jobs and training.

Rudy Perpich in 1983
Minnesota Historical Society
Rudy Perpich in 1983

With the support of the Perpich Administration, the Legislature provided a $70 million appropriation to launch MEED in 1983. The program offered a temporary wage subsidy of $4 an hour and a fringe benefit subsidy of up to $1 an hour to any employer who was willing to hire out-of-work Minnesotans and keep them employed for 12 months after the subsidies expired.

As Minnesota’s economy improved during the mid- to- late 1980s, MEED suffered some erosion of political support from critics who maintained that the wage subsidy program was no longer needed. By the end of the decade, the program had wound down and was not extended into the 1990s.

While MEED may not have been the unqualified success that its advocates had hoped for, the program did produce some impressive results during its first five years. Then, it helped provide jobs for more than 40,000 Minnesotans, many of whom had been receiving public assistance before gaining employment through MEED. But some companies that received the wage subsidies would have hired without them, a state-sponsored study later determined.

Today, more than 25 years after the state program was created, MEED still has its defenders. One of those is Steve Cramer, who heads the nonprofit Project for Pride in Living. Cramer helped launch MEED as a young staffer for the Minneapolis Urban Coalition in 1982.

“MEED did work,” he maintains. “It put people to work very quickly across all employment sectors (private, public and nonprofit) at a very affordable cost per job in comparison to what more indirect job creation measures cost.”

“Wage subsidies are really a form of cheap — free — capital for employers who know if they receive job subsidies, they will have to sustain the jobs without government help after the subsidy period runs out,” Cramer notes. “They are confident that they can maintain the jobs, but they are not so confident that they would add positions by accessing private capital under today’s terms, even if they could get a loan at their local bank, which is difficult to do in today’s financial environment.

“It’s also important to note that the president’s tax credit and the Franken direct subsidy plan are complementary, and if passed together would be the most powerful method to reach the very hardest to employ,” he says.

“The stakes are pretty high with the current recession,” Cramer adds. “So my fervent hope is that Washington gets it right!”