Laura Tyson Says Fix the Jobs

This is part of the series highlighting supporters of pro-jobs policies. An updated list of supporters can be found here.

Laura Tyson was the Chair of the National Economic Advisors and Director of the National Economic Council during the Clinton administration. She is currently a professor at the Haas School of Business at UC Berkeley.

In September 2010, as the economic stimulus was winding down, Tyson began calling for more stimulus. Specifically, she believed infrastructure investment would aid the slowly recovering economy. In support she stated:

“The 2009 fiscal stimulus package is working: it has added around 3% to the level of GDP and about 3 million jobs relative to what would have been the case otherwise, and there is more to come since about 36% of the stimulus is yet to be spent. But the package ends next year at a time when the unemployment rate will still be well above 9%. So there is a strong economic argument for additional fiscal measures targeted at job creation.

A significant and sustained increase in infrastructure investment by federal, state and local governments should be a priority. Unlike most other forms of stimulus, spending on infrastructure both increases demand when the spending occurs and increases the supply and growth potential of the economy over time. The demand-side case for infrastructure investment is well documented. According to the Congressional Budget Office, infrastructure spending is a cost-effective demand stimulus as measured by the number of jobs created per dollar of budgetary cost. Moody’s estimates that $1 of infrastructure spending increases demand and the level of GDP by about $1.59.”

More recently, in early 2013, she wrote about the effects of sequestration in the recovery:

“According to the International Monetary Fund, fiscal policy will reduce gross domestic product in the United States by 1.8 percent this year.

Since 2011, proponents of fiscal austerity have repeatedly raised concerns that the large increases in the government deficit caused by both the recession itself and discretionary fiscal stimulus would lead to a spike in long-term interest rates. Bill Gross, the bond-market savant and influential chief executive of Pimco, warned that a spike would occur by the late summer of 2011. The downgrading of United States government debt in August 2011 after the Congressional showdown over the debt limit amplified these concerns.

But long-term interest rates did not spike; instead, they fell to historic lows in 2012 and are currently less than 2 percent, despite further increases in government debt. The experience of the last four years demonstrates that there is no simple predictable relationship between the government deficit and long-term interest rates. The relationship depends on economic conditions. Under current conditions, as long as the recovery remains weak, with considerable slack between actual and potential output, subdued inflationary expectations and highly accommodative monetary policy, long-term interest rates are likely to remain low.”

“As William C. Dudley, president of the Federal Reserve Bank of New York, observed in a recent speech, the United States has the opposite of the fiscal policy we need: too much fiscal contraction in a still-vulnerable economy now, without a credible plan to reduce the federal budget deficit in the long run.”

She is also concerned about quality of the job recovery, highlighting difference between the jobs that disappeared during the recession to the jobs that are becoming available during the recovery:

“During the recession, employment declined across the board, but 60 percent of the net job losses occurred in middle-income occupations with median hourly wages of $13.84 to $21.13. In contrast, these occupations have accounted for less than a quarter of the net job gains in the recovery, while low-wage occupations with median hourly wages of $7.69 to $13.83 have accounted for more than half of these gains. Over the last year, more than 40 percent of job growth has been in low-paying sectors including retail, leisure/hospitality (hotels and restaurants) and temporary help agencies. Many of these jobs are not only low-wage but also part-time for economic reasons.”

Finally, she is worried about the long-term unemployment crisis and low labor-force participation:

“The long-term unemployed account for about 36% of total unemployment, down from nearly 46% in March 2011 but still far above the previous peak of 26% reached 30 years ago.”

“Moreover, both the short-term and long-term unemployment rates underestimate the slack in the labor market caused by the significant and sustained decline in the labor-force participation rate (LFPR) since the recession began. In 2007, 66% of Americans were working or actively seeking work; today, that number stands at 63%, the lowest level since 1977.

If the LFPR had remained at its pre-recession high, the unemployment rate today would be nearly 12%. If it had stabilized when the unemployment rate peaked in October 2009, unemployment today would be over 9%.”

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