Will the Stimulus Package Produce Only Low-Wage Jobs?

This post was written by Dr. Art Pitz on March 4, 2009
Posted Under: Economic History

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One of my readers emailed this excellent question in response to two of my previous posts, “Abraham Lincoln’s Economic Stimulus Package” and “When Deficit Spending Worked Wonders.”  Let me begin with Lincoln and the Transcontinental Railroad, which produced a sizable number of construction jobs that paid reasonably well and a strong  multiplier effect.

The problem was not so much the pay but the danger in those jobs. Workers often had to work in difficult weather conditions a long way from anything in particular.  Shelter was rudimentary as well as sanitation.  More importantly, it was very hard work and there were a fair number of accidents on the job in the days of no workman’s compensation. 

Mural in Coit Tower in San Francisco created through the Public Works of Art Project in 1934 ( photo by sarah1rene http://flickr.com/photos/sarah1rene/ under Creative Commons license)

Let’s fast forward to the Great Depression and the New Deal.  Here, it is true that most of the new government jobs only paid minimum wage. The Works Progress Administration (WPA) was a case in point.  It employed eight million people, but mostly in minimum wage jobs. But, very little work was available so this was better than nothing.  Further, the New Deal didn’t want to attract workers away from the good-paying jobs that did exist.

It is highly unlikely that the jobs the Obama Stimulus Plan will “create or save” will be primarily minimum wage. The money in the plan will go mostly to private firms through contracts, not to direct employment. True, beginning with Bush, the federal government did nationalize Fannie Mae and Freddie Mac along with several big investment banks. But, nationalization in the financial sector has not produced low wage jobs.

It is better to pay attention to the example provided by FDR during WWII.  Here, there were millions of defense-related jobs.  And, they paid quite well–so well, in fact, that most workers were able to save a considerable amount especially in WWII Savings Bonds.  Part of this was enforced savings. There were few consumer goods available during the war due to wartime rationing and because most industries had retooled to produce weaponry.

The current Stimulus Plan will not rely on defense-related jobs.  While the U.S. is engaged in two wars, it is not likely that the U.S. government will move to mass produce vast quantities of weapons, and it is questionable whether we have the manufacturing base to do what we did during WWII.  To be effective, the Stimulus Plan will have to produce better-paying jobs through private sector employment. Fortunately, jobs in many of the areas targeted by the Stimulus Package, such as construction, have had moderately good pay and benefit in recent years, thanks in part to the influence of labor unions.

I don’t think the jobs resulting from the Stimulus Plan will be primarily low wage jobs, but what do you think?

Dr. Art Pitz
The Professor’s House

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Reader Comments

Politically speaking, many low wage jobs are more effective than a few high wage jobs. A small amount of disposable income in the hands of many is desirable.

The question(s) we should be asking are: Is the Stimulus a Keynesian/flawed effort to cure economic woes and pay off campaign promises?

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