Page images
PDF
EPUB

Table A-2.CHANGE IN THE BUDGET'S DIRECT RESPONSE TO UNEMPLOYMENT FROM A TARGETED PUBLIC

EMPLOYMENT PROGRAM

[blocks in formation]

1 The indirect effect of the economic stimulus is estimated to
add $5,200,000,000 to private GNP and 125,000 persons to private
payrolls. The addition in GNP will reduce the Federal deficit by
another $1,700,000,000 and reduce State and local deficits by
$600,000,000.

2 $1,000 for administrative costs and fringe benefits for class A
jobs and proportionately less for the others.

Using $65 per week average food stamps and unemployment
compensation payment, times 52 weeks, rounded.

Using $150 per month for food stamps and the Federal share of AFDC payment, times 12 mos. In addition, States should save another $200,000,000 in AFDC outlays.

Type A job: Persons with 2 or more dependents, including at least 1 child, working fulltime.

Type B job: Single parent household heads with school-age children, working half-time.

Type C job: Persons with 1 dependent, working fulltime. Type D job: Individuals with no dependents, working fulltime.

3

OFFSETTING INDIRECT EFFECTS

The indirect effect of the additional Federal expenditures on the private economy will partially offset the net increase in the direct response budget. The increase in the deficit will be less than $3.5 billion because enrollees will spend their additional income increasing sales and production in the private sector. The $3.5 billion increase in the direct response budget is likely to have a “fiscal multipler” of 1.5, and thus increase private GNP by $5.2 billion. The additional consumer demand will increase private employment by 125,000, increasing Federal revenues by $1.5 billion and reducing unemployment related expenditures by $200 million. Under these assumptions, a program providing 750,000 targeted public employment positions will add $1.8 billion to the deficit-$2,400 per public job or $2,100 per job if the private jobs created by the economic stimulus are also counted.

The effect on State and local budgets will not be small either. The reduction in welfare will save these jurisdictions $0.2 billion. More importantly, the stimulus to the private economy will increase their revenues and further lower welfare costs by another $0.6 billion. In total, the savings will be $0.8 billion, or over a $1,000 per employee, if the foregoing assumptions are correct.

The savings to State and local governments are overstated to the extent that sponsors are required to contribute more than $1,000 per job in administrative costs, fringe benefits, and training. The savings are understated, however, if there is any displacement of regular workers by these new enrollees or if the reduction in the non-welfare unemployment saves these jurisdictions some money. Of course, if there is displacement of regular workers then the net new jobs created by this program is also overstated.

[blocks in formation]

We have estimated how the net cost per job would change if the public employment program described in the Budget Committee staff paper entitled, "Employment," was changed as follows:

(1) The average annual wage was changed from $6,820 to $6,000.
(2) The average annual cost per job was changed from $7,733 to $7,300.

The other assumptions remained unchanged. Namely,

(1) 32 percent of the job holders received only unemployment compensation of $75 per week.

(2) 28 percent received food stamps of $20 per week in addition to $75 weekly in unemployment compensation.

(3) 20 percent received $35 per week in food stamps and the federal share of welfare payments

(4) 8 percent received only food stamps equal to $20 per week.

(5) The remaining 12 percent receive nothing from the federal government.

The table below gives the cost for a million jobs program. Both the direct and indirect costs are roughly proportioned to the number of positions, the costs for programs of different sizes can be calculated easily. For example, a 700,000 jobs program would have a gross, direct, and net cost of $5.1 billion, $2.9 billion, and $1.5 billion respectively; or a 300,000 jobs program would have a gross, direct, and net cost of $2.2 billion, $1.3 billion, and $0.7 billion respectively.

[blocks in formation]

FEDERAL ASSISTANCE TO STATE AND LOCAL

GOVERNMENTS

« PreviousContinue »