The White House Blog: Economy

Putting Americans Back to Work: Another Step Forward

This morning, President Obama signed into effect the HIRE Act, a jobs bill that provides small businesses with incentives to spur hiring and help put Americans back to work. Saying that "while this jobs bill is absolutely necessary, it’s by no means enough," the President pledged that this was just one step amongst many. The bill is The HIRE Act will:

• Provide tax cuts for businesses that hire someone who has been out of work for at least 2 months
• Help businesses to invest in their future by permitting them to write off investments in equipment this year
• Encourage job creation by expanding investments in schools and clean energy projects
• Maintain investments in roads and bridges

Before signing the bill, the President said:

A consensus is forming that, partly because of the necessary - and often unpopular - measures we took over the past year, our economy is now growing again and we may soon be adding jobs instead of losing them.  The jobs bill I’m signing today is intended to help accelerate that process.

I’m signing it mindful that, as I’ve said before, the solution to our economic problems will not come from government alone.  Government can’t create all the jobs we need or can it repair all the damage that’s been done by this recession.

But what we can do is promote a strong, dynamic private sector -- the true engine of job creation in our economy.  We can help to provide an impetus for America’s businesses to start hiring again.  We can nurture the conditions that allow companies to succeed and to grow.
 

President Barack Obama and Members of Congress applaud after the signing of the HIRE Act in the Rose Garden of the White House, March 18, 2010. (Official White House Photo by Chuck Kennedy)

So, You Want to Boost Exports? Have I Got a Program for You!

Last week, President Obama gave an important economic speech about his goal for the US to double our exports over the next five years.  Get this right, and we’re talking about two million good jobs making stuff here and selling it to other countries.

The President announced a set of initiatives that will help our firms sell into foreign markets, but I’d like to talk briefly about another policy the President and Vice-President have been touting of late: the (somewhat inauspiciously named) 48C Advanced Energy Manufacturing Tax Credit.

This is a 30 percent tax credit that can be used to offset the costs of investment in building clean energy equipment right here in the good old USA.  You heard me: we build it here to expand our own domestic capacity in clean energy manufacturing.  This helps on the import side by meeting more domestic demand with domestic capacity.  But we also start selling more of these goods abroad, complementing the goal the President set out in yesterday’s speech to boost exports.

The Recovery Act provided $2.3 billion for the tax credit, but the credit was so popular that we received many more qualified applications than we were able to accept.  As part of our jobs agenda to build off of Recovery Act successes, the President has called for a $5 billion expansion of 48C.  And note that because the tax credit offsets less than a third of the costs of an investment, it brings private-sector capital in from the sidelines – $5 billion in tax credits means $15 billion of total investment. 

With 48C, we don’t merely create good jobs today.  We lay the foundation for a vibrant, clean energy industry tomorrow.  The credit can support investments in advanced energy technology throughout the economy, from technologies like wind turbines and solar panels that create energy from renewable resources, to technologies like batteries and smart grid systems that store and transmit that energy, to technologies like advanced lighting that help conserve energy.  Not to mention investments in plug-in electric vehicles and their components, or investments in equipment to capture and sequester carbon dioxide or otherwise reduce greenhouse gas emissions.

Now, think about all of the above in the context of the President’s agenda, including job growth, clean energy, and exports.  We’ve got the world’s most productive manufacturers right here in America, and while we’ve historically used incentives to encourage the generation and the use of clean energy, we’ve never before taken that extra step to incentivize the actual manufacturing of the equipment used to generate clean energy here.

And there’s every reason to believe that this new output would be competitive both here and around the globe.

That’s what 48C does, and that’s why it’s so important that Congress enacts our proposed expansion of this program to help create the lasting opportunities working Americans need and deserve.

Jared Bernstein is Chief Economic Advisor to the Vice President

Exploring the Link between Rising Health Insurance Premiums and Stagnant Wages

The rapid growth in health care spending in the U.S. in recent years has placed an increasingly heavy financial burden on individuals and families, with a steadily growing share of workers' total compensation going to health care costs. Because firms choose to compensate their workers with either wages or with benefits such as employer-sponsored health insurance (ESI), increasing health care costs tend to “crowd out” increases in wages. Therefore, recent rapid increases in employer-sponsored health insurance premiums have resulted in much lower wage growth for workers.

Recent data from the Bureau of Labor Statistics' "Employer Costs for Employee Compensation" (ECEC) survey can shed light on this issue. According to the ECEC data, workers' inflation-adjusted average total compensation per hour increased by 1.3 percent per year from 2000 to 2009 (from $26.23 per hour to $29.39 per hour in 2009 dollars)¹  However, the annual growth rate of average wages and salaries during this period was much lower. More specifically, if one subtracts out the employee share of health insurance premiums², workers' average hourly wage and salary compensation increased by just 0.7 percent per year from 2000 to 2009. As shown in the following figure, the corresponding growth rate in ESI premiums (including both the employer and employee share) was much higher at 5.1 percent per year.

March 12, 2010.

As a result of these very different growth rates, the fraction of workers' total compensation going to employer-sponsored health insurance premiums increased from 7.4 percent in 2000 to 10.3 percent in 2009. If the growth rates in both workers' average total compensation and in employer-sponsored health insurance premiums remain at their recent rates, this share will increase to 15.0 percent by 2019 and will continue to increase thereafter. Thus in the absence of reform that slows the growth rate of costs, a steadily increasing share of workers' total compensation will be eaten up by health insurance premiums.

The increase from 2000 to 2009 in the average share of workers' total compensation going to ESI premiums is even more striking when one considers that a steadily declining share of workers and their dependents are covered by ESI. More specifically, according to the most recent data from the U.S. Census Bureau, the share of non-elderly adults and children covered by ESI fell from 68 percent in 2000 to 62 percent by 2008. This decline was to a large extent driven by a decline in the fraction of firms offering ESI to their workers, which fell from 69 percent in 2000 to 60 percent in 2009.³ Thus if one focused only on those firms that offered ESI during this period, the trends outlined above would be even more striking.

These trends, along with recent empirical research⁴ on this issue, make clear that increasing health care costs are reducing the wage growth of American workers below what it otherwise would be. The President's Proposal for health insurance reform would genuinely slow this growth in costs, allowing workers to enjoy more of the benefits of their productivity increases in the form of higher take-home wages.

Christina Romer is Chair of the Council of Economic Advisers
Mark Duggan is a Senior Economist at the Council of Economic Advisers who focuses on Health

Recovery Act in Action, #3: Tracking the Ripples

Editor's Note: In case you missed them, read Part 1 and Part 2.

Throw a rock in a still pond and you will observe many ripples.

Throw a Recovery Act program in a stagnant economy and you will observe many jobs.

Therein lies the lesson from our latest entry of the Recovery Act in Action, thanks to some truly thorough journalism by Robert Gavin of the Boston Globe.

Gavin looked at the ripple effects, or—if you want to be boring—multipliers, from $77 million in Recovery Act contracts awarded to Reveal Imaging Technologies (RIT), a manufacturer of airport security equipment in Bedford, MA.

RIT reports that thanks to the Recovery Act-funded contracts from the Transportation Security Administration, they’ve added nearly 40 jobs over the past year and they’re still hiring.  They’ve expanded their plant capacity, more than doubling the size of their facility.

But what Gavin’s article shows is that beyond these direct hiring effects, there’s a lot more upstream and downstream job creation generated by this type of activity.  So far, RIT has subcontracted parts of its Recovery Act projects to 21 other companies in 12 states “that make components or provide services for its advanced scanning machines.”

For example, an RIT subcontract helped reduce planned layoffs at a firm that assembles conveyor systems.  Same with a machine tool shop, whose “metal cutting machines, silent several months ago, are humming again” thanks largely to another RIT subcontract.

I spoke to the owner of that machine shop, Jack McGrail.  He told me that most of 2009 was pretty dismal and that if things didn’t improve he was going to have to let some folks go.  Then, in November, the RIT order generated by the Recovery Act came in, and, as Jack said, “it saved me from laying two guys off and I was able to add one more.”

That’s one type of multiplier effect—the jobs created by firms providing inputs to the final product.  But there’s another type that’s also important: the activity caused when people earn more and go out and spend it.  Gavin picked up this kind of activity too by visiting Rebecca’s Café, a restaurant near RIT that reports a 15% increase in sales since RIT expanded its workforce.

The evidence around the RIT case supports something economists have known since Keynes taught it to us: the jobs you directly create through government spending at a time of recession are just the tip of the iceberg. 

Thanks to the Recovery Act, there are hundreds of thousands of teachers in classrooms and police on the beat, construction workers fixing roads, weatherizing and rehabbing buildings, engineers building out the smart grid and planning new high-speed rail lines, and much more.  But as with RIT, for each one of these jobs, there are many others helping to supply materials and services to these firms and workers.

We’ll be throwing a lot more stones in the water in coming months, and I’ll be sure to keep posted on both the splash and the ripples.

Jared Bernstein is Chief Economic Advisor to the Vice President