18 Million Jobs by 2012
Bringing State and Local Governments Back to Health
California's budget is in a deep ditch, with an eye-popping 56 percent gap between expected revenues and spending commitments. Most other states are also staring at huge revenue shortfalls. The jobs recovery will not succeed until this situation is stabilized. How could it be otherwise? State and local governments account for about $2 trillion in annual spending, or 14 percent of GDP. Either directly or indirectly through their supply purchases, they generate 30 million jobs, 20 percent of the entire American workforce.
They are also the institutions most responsible for delivering basic needs to people--education, healthcare, support for the needy, public safety and infrastructure.
Unlike the federal government, nearly all state and local governments are required to balance their operating budgets every year. In a recession, tax revenues decline in step with the decline in people's incomes, spending levels and property values. This means that state and local governments almost inevitably fall into crisis in a recession. There are only two ways to avoid this within our current fiscal arrangements. The first is to build up a major surplus of "rainy-day funds." But keeping large amounts of cash on reserve is very difficult to do even during healthy economic times, given that the demands for health, education and public safety programs are persistent. The other way for states to avoid cutbacks during a recession is to receive financial injections from the federal government.
The February 2009 recovery program provided $144 billion in support to offset that year's state budget shortfalls. This money was well spent. I know this firsthand through my own employer, the University of Massachusetts. We received around $50 million last year, which enabled us to prevent hundreds of layoffs. The layoffs would have sent shock waves throughout the region, since UMass is the largest employer in western Massachusetts. One can tell comparable stories in scores of communities around the country. Another roughly $200 billion is needed now. The Obama administration is supporting measures that would amount to perhaps $30-$50 billion.
Increasing support for state and local government activities should not be seen as merely a short-term stopgap but also as a major element of a longer-term job-creation agenda. The main activities supported by state and local governments are all effective sources of job creation, in comparison for example with military spending. Thus, infrastructure projects create 40 percent more jobs per dollar than spending on the military, healthcare creates 70 percent more jobs and education creates 240 percent more jobs. So if the government just moved its 2008 budget of $188 billion for Afghanistan and Iraq into support for education and infrastructure programs at the state and local levels, this alone would produce a net increase of about 2.3 million jobs per year.
Scaling Up the Green Recovery
One of the Obama administration's main jobs initiatives is retrofitting buildings, especially private homes, to make them more energy efficient. The president has described home retrofitting projects as a "sexy" way to save money. In fact, even relatively small investments in home retrofits, in the range of $2,500, can pay for themselves in three to four years, since they can lead to monthly energy bills falling by between 25 and 30 percent. These measures also produce rapid environmental benefits, since raising energy efficiency is the easiest way to cut greenhouse gas emissions.
Despite these attractions, private investments in retrofits have not expanded quickly enough to serve as a major jobs engine. The private market for retrofits remains underdeveloped. This is because homeowners are understandably wary about making investments when they are cash-strapped and their home values have collapsed. They are also not eager to face the hassles of dealing with banks, utility companies and work crews. This could all change rapidly if banks, utilities and community organizations could, in various combinations, figure out how to make retrofits easy and widely accessible for homeowners.
In the meantime, the government needs to take the lead by immediately advancing a major nationwide retrofitting initiative. The opportunity is enormous. There are roughly 24 billion square feet of building stock in hospitals and healthcare, education and government buildings. This is about 20 percent of all US building stock. Retrofitting these buildings would cost about $150 billion. If we assume this program is implemented over three years, at $50 billion per year, this would generate about 800,000 jobs per year over those three years. Retrofits are a highly efficient source of job creation, since all the work must be done within local communities, and a large proportion of the budgets go to hiring workers, as opposed to buying equipment, land and energy.
This government-led project could be the launching point for a larger effort to build the institutional and market support for retrofitting remaining private-sector structures on an economy-wide scale. In addition to private hospitals and schools, the potential market for private retrofits for commercial and residential buildings is in the range of $650 billion. If even 20 percent of these buildings were retrofitted by the end of 2012, it would create another 800,000 jobs per year. Retrofitting alone could thus generate about 1.5 million of the 18 million jobs we need to create by the end of 2012. About 600,000 of them would be in construction, making up for one-quarter of the 2.6 million construction jobs lost since mid-2007.
Of course, the broader green investment project will need to expand well beyond retrofits to encompass public transportation, electrical grid upgrades and the creation of a competitive renewable-energy manufacturing sector. These will all be major sources of job creation over time. The same is true for investments in rebuilding our traditional infrastructure of bridges, roads and water management systems. But if we are serious about creating 18 million jobs within three years, retrofitting is the place to begin.