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The effect of government subsidies on the job market

Marketplace Staff Sep 30, 2010
Help Not Wanted

The effect of government subsidies on the job market

Marketplace Staff Sep 30, 2010


Kai Ryssdal: On the way out of town last night, Congress did manage to agree to keep the government up and running. The emergency spending bill that passed lasts until early December. But not everything’s covered. Among the line items that have got no more money is a popular job-creation program from the 2009 economic stimulus bill.

Marketplace’s Mitchell Hartman has been following the saga of the Temporary Assistance for Needy Families Emergency Fund, as it’s called in bureaucratese.

Hi, Mitchell.

Mitchell Hartman:Good to be here, Kai.

RYSSDAL: So this program is done, at least for now. Let’s get the basics out of the way: How much did it cost and how did it work?

HARTMAN: It’s cost $1 billion, which if you do the math, that is 1,787th of the total stimulus. And it has put roughly 250,000 people back on payrolls in 38 states; places like California, Illinois, Ohio and Mississippi. Now, the way it works is that states get extra money to subsidize wages for workers who are struggling with layoffs. They can put the money right into existing programs, things like job training, welfare to work, summer jobs for young people. And the way the subsidy works is that the federal government pays part, some cases actually is pays all of the person’s wage. This can be a private employer, a non-profit or a government agency — it doesn’t really matter.

RYSSDAL: Let’s be clear here: This is the government paying private, or at least part of private sectors, salaries.

HARTMAN: Right. And some people don’t think that’s such great economic policy. That’s partly why Republicans in the Senate blocked another round of funding for this. On the other hand, economists that I’ve talked to say this is actually a pretty effective way to get people back to work and especially lower-skilled workers who may need on-the-job re-training. It leads directly to a job and a paycheck. You know, infrastructure spending takes a while to get ramped up, tax cuts that encourages businesses to hire, they may hire someday but not necessarily now. And so you do have prominent Republicans like Haley Barbour, the governor of Mississippi, pulling for this particular stimulus program to get more funding, because they say it’s actually working.

RYSSDAL: OK but isn’t that kind of cheating? How stimulative is it really if the government is paying subsidies to convince employers to hire new people?

HARTMAN: Well, I was really curious about this myself. So I called up business owner Dalyn Patterson in Linden, Tenn. This is in rural Perry County. She and her husband Bert own Armstrong Pie Company.

Dalyn Patterson: We make little fried turnovers, we make frozen pie crusts and we also have a cookie line we’re coming out with.

HARTMAN: Now, Patterson has 18 employees total, and 12 of them were hired under the stimulus. So Armstrong Pie hasn’t paid a dime of their wages or their workers’ comp. These people make about $8.50 an hour. I asked Dalyn Patterson if she’d have hired up so much without the wage subsidy.

Patterson: Yeah, we would have hired ’em anyway; we wouldn’t have hired ’em as fast. You know, we probably would have started out slower, but since we were able to hire more drivers, of course, that opened up our route and our territory that we were delivering pies to.

RYSSDAL: Did you ask her, Mitchell, whether she’s going to keep these workers now that the subsidies are going away?

HARTMAN: Well yeah, and she surprised me by saying, yes, she will, she’ll keep all of these employees and foot the bill. Especially since she’s trained them basically at taxpayer expense. And I suspect a lot of employers will keep at least some of these new employees. A key question is, can they support those payrolls with sales?

Look, in the final analysis, states could also jump in and pick up the tab for these subsidized wages themselves. But they’re also strapped for cash, so they’re going to wait ’til Congress comes back, hopefully after the election, and adds more money for this back into the budget.

RYSSDAL: It’s going to be a busy lame duck session, I think. Marketplace’s Mitchell Hartman, at the Entrepreneurship Desk up at Oregon Public Broadcasting. Mitchell, thanks a lot.

HARTMAN: You’re welcome.

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