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Doing the Recovery Right

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Green Investments and Full Employment

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Robert Pollin
Robert Pollin, professor of economics and co-director of the Political Economy Research Institute (PERI), is the author...

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The underdogs may have enough in the tank to surprise us again next year.

Spending the same money on education, or clean energy, would bring many more jobs—among other benefits.

First and foremost, the green investment project is a social justice agenda to the degree it promotes full employment at decent wages. For a generation coming out of the Great Depression, the goal of full employment was the moral centerpiece of economic policy around the world. But full employment has been off the radar screen since the elections of Margaret Thatcher in 1979 and Ronald Reagan in 1980. It has been easy to forget its transformative power as a policy goal.

Whether you can get a job--and if so, whether the job offers decent pay, a clean and safe environment and fair treatment for you and your co-workers--matters a lot to almost everyone. Correspondingly, unemployment can have a devastating impact on families, even with two wage earners. A full employment economy also means greater business opportunities for small and large firms and strong incentives for private businesses to increase their level of investment.

Since World War II, the closest we have come to full employment was in the late 1960s and late 1990s to 2000, when the unemployment rate fell to 4 percent and below. In both periods, low unemployment increased workers' bargaining power, which brought rising wages. Poverty fell as businesses were forced to hire people who had been left out. But in the 1960s the engine of employment expansion was spending on Vietnam, an immoral war. In the 1990s to 2000 job growth was driven by the irrational Wall Street dot-com frenzy. By contrast, a green investment program can underwrite a durable full employment economy precisely because it is environmentally sustainable and morally just.

The green investment project can advance a full employment agenda because it will create about seventeen jobs for every $1 million in outlays, whereas spending the same $1 million in the oil and coal industries creates about 5.5 jobs--i.e., the job-creation effect of green investments is more than three times larger than that for fossil fuel production. The main reasons for this disparity have nothing to do with whether the investments are green. Rather, there are two primary factors at play. The first is the higher "labor intensity" of spending on green projects--more money is spent on hiring people and less on machines, supplies and consuming energy. This becomes obvious if we imagine hiring construction workers to retrofit buildings or install solar panels, or bus drivers to expand public transportation offerings, as opposed to drilling for oil off the coasts of Florida, California and Alaska. The second factor is the "domestic content" of spending--how much money is staying within the US economy as opposed to buying imports or spending abroad. When we retrofit public buildings and private homes to raise their energy efficiency, or improve our public transportation systems, virtually every dollar is spent within the US economy. By contrast, only 80 cents of every dollar spent in the oil industry remains in the United States.

As a tool for fighting the recession, the green recovery project has as its first purpose injecting more money into the economy as quickly as possible. In this way, a $100 billion green investment program would create on the order of 1.7 million new jobs.

Over the longer term, though, the green investment agenda will not simply entail expansion in energy efficiency and renewable investment spending but also a corresponding decline in spending on oil, coal and natural gas. Yet this longer-term agenda can still promote a full employment economy. If we allow that every $1 million in new green investments will be matched by an equal fall in spending within the fossil fuel industry, we will still net about 11.5 jobs each time $1 million transfers from fossil fuels to clean energy (i.e., seventeen jobs for green investments minus 5.5 lost in oil, natural gas and coal). We spend about $600 billion a year in the oil, natural gas and coal sectors. Transferring, for example, 25 percent of those funds into energy efficiency and renewable energy projects would therefore yield about 1.7 million new jobs.

The importance of pursuing this agenda is underscored by the long-term effects of globalization on the US labor market. Over time, globalization is making more and more US jobs vulnerable to outsourcing to low-wage economies. In a widely discussed article in Foreign Affairs in 2006, Princeton economist Alan Blinder argued that increasingly services that can be carried over the Internet--including the telephone operators in India with whom we are familiar, but also back-office accountants, lawyers, engineers and laboratory technicians as well as their support staffs--can be supplied by employees in poor countries who work for, say, one-fifth the wages of their US counterparts. These would be in addition to the manufacturing jobs that have long been forced to compete with China and other low-wage countries. Blinder's conclusion is that something like 20 to 30 percent of all US jobs--in the range of 30 million to 40 million in all--are vulnerable to these outsourcing pressures. The only way to counter these pressures is for employment creation to be made a centerpiece of our public policy. The green investment agenda cannot fulfill this role on its own, but it can move us a good distance in the right direction.

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