the jobs crisis and stimulus policy lawrence mishel president, epi

The Jobs Crisis and Stimulus Policy

Lawrence MishelPresident, EPI

www.epinet.org

Recession: Costing Jobs and Wages, Generating

Inequality• Employment losses are steep.• Unemployment will continue to grow.• Particular groups have been hit hard.• Recession has resulted in wage and

income losses.• Recession has renewed growth of

inequality.

A jobless recovery

• Jobs down 2 million since recession began.

• Greater job loss than in earlier recessions.

Employment change 26 months into a recession.

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

70s recession 80s recession 90s recession Currentrecession

Per

cen

t ch

ang

e

Private sector

Total

•Unemployment up from 3.9% to 6.0%

•Labor force growing minimally

Source: Mishel, Lawrence, Jared Bernstein, and Heather Boushey. 2003. The State of Working America 2002-03. Cornell University Press.

Monthly unemployment rate 1989-2002

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%19

89

1991

1993

1995

1997

1999

2001

Unemployment will stay high throughout

2003.


EPI Unemployment Forecast

5.8%

5.9%6.0% 6.0% 6.0%

5.9%

6.0%

6.2%

6.3%

6.4%

5.5%

5.6%

5.7%

5.8%

5.9%

6.0%

6.1%

6.2%

6.3%

6.4%

6.5%

2002q4 2003q1 2003q2 2003q3 2003q4

Un

emp

loym

ent

Rat

e

EPI projection Pessimistic

Wage Growth: Slowest rate since mid-1990s


Average hourly earnings growth, 1995-2002

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

95q1

95q3

96q1

96q3

97q1

97q3

98q1

98q3

99q1

99q3

00q1

00q3

01q1

01q3

02q1

02q3

• Household incomes fell for the bottom 95% from 2000 to 2001.

• Typical household lost 2.2%, or $934 annually.

• Unemployment increase in 2002 causing further decline in household incomes.

Household Incomes


Average household income growth, 1995-2000 and 2000-01, by income fifth.

1.6%2.1% 2.0% 2.2%

2.6%

3.6%

-2.9%

-2.3%-1.8%

-1.0%-0.6%

0.4%

-4.5%

-3.5%

-2.5%

-1.5%

-0.5%

0.5%

1.5%

2.5%

3.5%

4.5%

1st Fifth 2nd Fifth 3rd Fifth 4th Fifth 80-95% Top 5%

1995-00 2000-01

CRITERIA FOR EFFECTIVE STIMULUS

1. Generate Growth and Jobs

• Create more customers (i.e., demand)--consumers & government.

• With unused capacity, investment incentives are ineffective.

• Spending is more stimulative than tax cuts.

• Tax cuts are a more immediate stimulus.

2. Be Fiscally Responsible

• Temporary tax cuts

• Temporary spending

• Leave long-term fiscal balance untouched

• Permanent measures unnecessary

3. Timing

• Economy needs some immediate stimulus.

• Impact of stimulus must be felt over the next 15 to 18 months.


4. Stimulus must be fair

• Should lessen, not exacerbate inequalities.


5. Stimulus should target currently existing

unmet needs

EPI Plan

• Outcomes

–Generates 1.5 million jobs

–Lowers unemployment by 1%

–Generates 2% additional growth

Temporary Spending ($110 billion)

• Grants to states to preserve health, education, law enforcement, and other services ($50 billion)

• School renovation and repair ($25 billion)

• Unemployment insurance: extend benefits and expand eligibility to part-time and low-earning workers ($25 billion)

• Other measures ($10 billion)

Temporary Tax Cut: A Wage Bonus

($65 billion)

• Rebate of 3.5% of first $15,000 in wages

• Comes from general revenue

• Benefits 149 million workers

• $525 for first $15,000 in wages, or $1,050 for family with two such workers

the jobs crisis and stimulus policy lawrence mishel president, epi

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