|
Notes on the Social and Economic Benefits of
Job Creation in Kansas City’s 3rd District
SPECIAL REPORT 04/01
By Mathew
Forstater, UMKC
Any comprehensive community
development project will be limited unless it includes job creation as a top
priority. Unemployment harms individuals, families, neighborhoods, and
communities; job creation brings real, tangible, direct and indirect social and
economic benefits, not only for those employed, but for all members of the
community as well as the community as a whole. The economic benefits are both
microeconomic and macroeconomic, and there is also an important mutually
reinforcing relation between these economic benefits and the social benefits.
Nobel-prize winning economist
Amartya Sen has pointed out that there are three different aspects to
employment: the income aspect—employment provides income security for the
employed; the production aspect—employment results in increased
production of goods and services; and the recognition aspect—the employed
person is engaged in a worthwhile activity. When members of the community are
employed at productive jobs, the person employed has income and recognition, and
the community gets better and more goods and services. In addition, there are
not only the initial benefits of job and income security and more and better
public and community services. There are also the numerous indirect
benefits—the economic and social multipliers—that accompany these. On
the economic side, the initial job and income growth associated with employment
translates into further increased spending and rising incomes throughout the
community. The social multipliers concern the benefits to individuals,
families, neighborhoods, and communities of decreased crime, drugs, and family
disruption, and increased and strengthened security, education, health care for
the infirm and the elderly and environmental protection.
Let us look briefly at 16 specific potential benefits of
real job creation in our community.
1. Job creation increases financial security and
promotes higher living standards
When individuals are unemployed, they are
without a means of supporting themselves and their families. To take care of
their ongoing needs and those of their children and other dependents, they must
therefore resort to one or more of the following: 1) deplete savings; 2) incur
additional debt; 3) rely on public and/or private assistance of some kind. Of
course, as will be discussed below, we also know that a small percentage of
individuals faced with such a situation will resort to income-generating crime.
In all of these cases, individuals and families face increasing financial
insecurity and a lower standard of living, with all their attendant effects.
Job creation therefore increases financial
security and promotes higher living standards. Families will be able to save,
or at least not deplete their savings, or deplete it as much. Debt accumulation
will be diminished or even reversed. The stress on public coffers and private
agencies will be relieved. Living standards will be increased, with all of the
resultant beneficial effects, some of which will be discussed below.
2. Job creation results in increased spending,
translating into higher sales and profits for businesses.
When a community suffers from high
unemployment, it is denied important purchasing power. Local businesses will
lack the sales they need to support investment and employment. Additional
layoffs may occur, exacerbating these problems.
By providing a steady income stream, job
creation supports spending. At least some of that spending will support local
businesses, resulting in another round of support for individuals and families
in the community. Local firms will enjoy the business they need to encourage
investment and additional job creation.
3. Job creation is the key to good physical and mental
health.
Individuals who are unemployed are
much more likely to lack health insurance. Parents are much less likely to take
their children to the doctor if they lack the ability to pay for expensive
health care. Studies have shown that unemployment is directly related to ill
physical and mental health, as well as poor pre-natal care.
Individuals who are unemployed
often blame themselves, leading to depression. Financial insecurity associated
with joblessness creates stress and anxiety. The unemployed often are unable to
provide a healthy diet for themselves and their children. There are now many
studies demonstrating the direct relation between unemployment and a variety of
mental health problems, including suicide.
Job creation supports good mental
and physical health. Employed persons are more likely to have health coverage
or the ability to pay for health care. Being engaged in productive activity
supports good mental health (recall Sen’s citing the recognition aspect of
work—the feeling that one is contributing to society and taking care of
themselves and their children).
4. Job creation is the best weapon in the battle against
poverty.
Unemployment is a major cause of
poverty. Those who are unemployed are much more likely to be living below the
poverty line. Job creation is the best antidote for poverty—as cited above, it
support saving, diminishes debt accumulation, and supports spending.
5. Job creation results in decreased crime.
Many studies now demonstrate the direct
relationship between unemployment and income-generating crime. The major factor
in the decline in many types of crime in many regions during the 1990s was the
lower unemployment rates and stronger economic growth. Most individuals would
prefer to support themselves in a legal manner, rather than live a life of
danger and fear by resorting to criminal activity.
Job creation decreases crime rates. This has
many strong, positive secondary effects. Less crime means less people in the
courts, the prison system, on parole. Less crime means less victims of crime.
Less crime means a safer community.
6. Job creation promotes healthy state and local
government budgets.
Unemployment results in higher
government spending and lower tax revenues. Government spends more on various
forms of assistance for the unemployed and their dependents, as well as on the
secondary impacts of unemployment (e.g., higher crime rates, etc.). Tax
revenues fall because unemployment lowers incomes and spending. Both income and
sales tax revenues fall. Higher government spending and lower tax revenues mean
budgets out of balance. To address their budgetary problems, governments will
try to increase taxes and cut spending, exacerbating the economic problems.
Job creation results in higher tax
revenues and eases government spending in certain areas. Working people pay
income taxes and spend on goods and services that are taxed, increasing local
and state tax revenues. The employed will no longer require public assistance,
so government spending will fall. Spending will also fall on the secondary
effects (lower crime rates, etc.). Job creation promotes healthy government
budgets, allowing lower tax rates and allowing spending in other important
areas.
7. Job creation can result in increased productivity.
When there is high unemployment, job
security is low. This can affect worker productivity. Employment also results
in a healthier labor force, and studies have shown that better health means
higher productivity. There is a strong relationship between income and
nutrition, and nutrition and productivity. It is a short step from these facts
to the acknowledgement that job creation can increase productivity. In addition
to these ‘micro’ factors affecting productivity growth, there are also ‘macro’
sources of higher productivity. Higher employment means strong growth of demand
and higher capacity utilization, increasing productivity. Higher productivity
mans more efficiency and lower costs, which can translate into lower prices,
higher profits, and more investment, employment and prosperity.
8. Job creation is good for the elderly.
Job creation supports the elderly in a
number of ways. Many elderly are dependents, and so job creation increases
their security. Job creation supports government budgets, also key to many
services upon which the elderly depend. The employed themselves are future
elders, and so the long term security of the elderly is supported by job
creation, by supporting savings and slowing debt accumulation.
9. Job creation supports public and social goods and
services.
As already stated, unemployment
decreases tax revenues and puts extra demands on government budgets as well as
private agencies, resulting in less public and social goods and services. This
includes fewer people employed in these types of positions. By supporting
healthy government budgets, job creation supports public and social goods and
services. In addition, some of the new jobs can (and should!) directly support
such services.
10. Job creation improves income distribution and
reduces inequality.
There is a direct relation between
unemployment and inequality. Job creation promises to improve income
distribution and reduce inequality. The social benefits of decreased inequality
have been well-documented. Of particular significance are the ways in which
inequality makes everyone worse off, including the rich. Increased
inequality can threaten democratic institutions and damage social cohesion.
Even the symbolic value of job creation at this time should not be
underestimated.
11. Job creation can improve conditions and promote
investment in the poorest communities.
Job creation can result in improved
economic and social conditions in the poorest areas. It is known that low-wage
workers tend to live in poorer communities and spend a larger portion of their
income locally. Thus, job creation will result in increased spending in the
neediest regions, which can further increase employment where unemployment is
the highest and most burdensome. Lowering poverty rates will increase the
inducement to invest in poor neighborhoods, with a positive impact on economic
and social conditions.
12. Job creation will allow children to return to school
or complete more years of schooling, and provides other benefits for children as
well.
Unemployment is directly related to
increased school dropouts. Families where the parents are unemployed often need
their children of working age to work to help chip in to support the family.
Job creation will thus allow children to return to school of complete more years
of schooling. In the long run, this results in a more educated, better skilled
labor force, increasing productivity, with beneficial effects for all.
Job creation benefits children in
other ways as well. Unemployment is directly related to family disruption such
as divorce, so job creation actually supports families. Children also benefit
from better health and nutrition, and from having role models. These benefits
of job creation should be emphasized.
13. Job creation can stimulate output, income,
consumption and investment.
Unemployment means lower output, income,
consumption and investment. Job creation will increase output and income, which
will result in more consumption spending, and ultimately increase the inducement
to invest.
14. Job creation increases worker morale, and reduces
discontent and labor strife.
The psychological impact of joblessness,
as well as the effect unemployment has on decreased job security for the
employed, have both already been noted. Job creation and high levels of
employment increase worker morale and reduce worker discontent and labor
strife. This can also impact positively on productivity as well.
15. Job creation can spur technical and organization
innovation.
Unemployment means low demand and
stagnant wages, which translate into low incentives for firms to innovate. Job
creation, through its positive impact on demand and wages, increase firms’
incentives to retool and implement new organizational and technical
innovations. This leads to further productivity growth, lower prices, ghigher
profits and investment.
16. Job creation promotes community.
Unemployment not only depresses individuals:
high unemployment can depress the entire community, not only economically but in
terms of the sense of community itself. Job creation ignites hope in both
individuals and communities. It promotes social and political cohesion. Job
creation creates stakeholders in neighborhoods and communities, increasing
social and political stability. These impacts should not be overlooked or
undervalued.
Mutually Reinforcing Relation
Between Social, Micro, and Macro Benefits
It may not be the case that the
total benefits of job creation are a simple summation of the social,
macroeconomic, and microeconomic benefits. Rather, there may be a mutually
reinforcing dynamic at work, in which benefits in one area increase the benefits
in others. In other words, the principle of cumulative causation may apply, in
which positive feedbacks and reinforcing dynamics predominate. One good example
where this may apply is productivity growth. There are both macro and micro
sources of productivity growth and these may be mutually reinforcing. A number
of the social benefits may also affect productivity through increased job
security, etc. The total effect may therefore be greater than the sum of the
individual impacts. These are the social and economic multipliers that result
from job creation, and benefit individuals, families, neighborhoods, and
communities in multiple ways. 
The opinions in this report are the authors and do not necessarily reflect
the views of the Center for Full Employment and Price Stability. The Center is a
non-partisan, non-profit policy institute at the University of Missouri-Kansas
City dedicated to promoting research on and public discussion of issues related
to macroeconomic policy. The Center is interested in your feedback on the ideas
put forward in its publications. Please direct your comments to the author of
this Special Report Mathew Forstater. He can be reached at the address provided here.
|
