WPA Revisited: Should Government Create Jobs Directly?

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THE STASH NOVEMBER 6, 2009

WPA Revisited: Should Government Create Jobs Directly?

Paul Krugman wants lawmakers to create a modern version of the Works Progress Administration, an important New Deal-era agency which put millions of people to work on public infrastructure projects:

A question I’m occasionally asked at public events is, why aren’t we creating jobs with a WPA-type program? It’s a very good question. ...

You can make a pretty good case that just employing a lot of people directly would be a lot more cost-effective; the WPA and CCC cost surprisingly little given the number of people put to work. Think of it as the stimulus equivalent of getting the middlemen out of the student loan program.

Putting aside the standard concern about central planning, there are some unintended consequences that could come with a modern WPA. This 1990 paper by Robert Margo points out that the long-term unemployed with Depression-era WPA jobs were more likely to be unskilled, and when economic conditions picked up, were less likely to get back into the private sector:

The results indicate that employment growth had an insignificant (though negative) effect on the probability of holding a long-term job with the WPA; thus the long-term unemployed on work relief were not very responsive to improved economic conditions. Long-term unemployed not on work relief, however, were responsive to improved economic conditions -- the incidence of long-term unemployment, among persons not on work relief, was significantly lower in states with higher-than-average rates of employment growth.

So what happens if we create a new WPA, employment growth resumes, and there are large numbers of WPA-type workers who don't want to give up their jobs? What makes our era different than the Great Depression is that we (hopefully) won't have a war-driven employment boom to help encourage people to leave public works jobs. You could argue, as David Leonhardt and Noam do, that some other sort of employment boom could be coming. But for the pessimists like me, a creakier job market would mean that it'll be relatively more attractive to an unskilled worker to hold onto a WPA job than to take on riskier private-sector work. Would lawmakers then decide to terminate the program and send these workers back on unemployment? Do we transition these workers into some sort of new long-term social security program? Or do we just keep the WPA for good?

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posted in: the stash, economy, paul krugman, robert margo, private

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