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Center on Education and the Workforce
The American Response to financial
crisis: Lessons for low and middle-income countries
Presentation by Anthony P. Carnevale At
The World Bank Forum On
Maintaining Productive Employment In Times of Crisis
April 29, 2009
The American response
Center on Education and the Workforce
Simultaneous Two-Part Recovery Plan
1.Stimulus
1.Re-regulating and re-financing
Center on Education and the Workforce
The American ResponseStimulus
(1)Classic Keynesian consumption led stimulus, (2)Targets spenders with additional funding for automatic
stabilizers and (3)Invests in infrastructure for modernization in key sectors
including energy efficient infrastructure, healthcare and education.
Re-regulating and re-financing
Troubled Assets Relief Program (TARP) targets financial institutions to overcome the short-term perspectives of banking and financial institutions.
Center on Education and the WorkforceSource: Georgetown University Center on Education and the Workforce’s Analysis of Macroeconomic Advisers (MA) Long-term Economic Outlook, March 2009
Figure 1: With stimulus package, employment growth
set to resume in 2011
163.9
143.6
147.2
96.0
121.0
146.0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Mar 01-Nov 01
recession
Jul 81-Nov82
Jan 80-Jul 80
recession Dec 07-present
recession
Jul 90-Nov 91
Start of Stimulus
Source: Bureau of Labor Statistics, Employment Situation, various years Center on Education and the Workforce
Less than 4 years of High School
4.6%
10.1%
4 or more years of High School, no College
2.9%
5.8%
2.9%
Some college, 1-3 years 4.2%
1.3%BA and above
2.1%
4.4%
All
0.0%
4.0%
8.0%
12.0%
16.0%
20.0%
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Nov 73-Mar75Recession
Jan 80-Jul 80Recession
Jul 81-Nov 82Recession
Jul 90-Mar91Recession
Mar 01-Nov 01Recession
Dec '07-presentRecession
Figure 2: Least educated are most vulnerable in economic downturns (unemployment rates by education)
The jobs created will require a broad spectrum of training and education levels.
The following slides show the industries and occupations where the stimulus jobs will be created as well as their education and training requirements.
Center on Education and the Workforce
•The American Recovery and Reinvestment Act (ARRA), 2009 will help the least educated the most.
11,000
26,000
50,000
98,000
99,000
158,000
214,000
240,000
244,000
345,000
408,000
499,000
604,000
678,000
Jobs Created by Industry, 2010Q4
Construction (18.5%)
Retail Trade (16.4%)
Leisure and Hospitality (13.6%)
Manufacturing (11.1%)
Professional and Business Services (9.4%)
Government (6.6%)
Education and Health Services (6.5%)
Financial Activities (5.8%)
Wholesale Trade (4.3%)
Other Services (2.7%)
Transportation and Warehousing (2.7%)
Mining (0.7%)
Information (1.4%)
Utilities (0.3%)
3,675,000 Total
Center on Education and the WorkforceSource: Romer and Bernstein (2009) based on their estimates of the effects by Industry from Mark Zandi’s “The Economic Impact of a $600 Billion Fiscal Stimulus Package,” Moody’s Economy.com, November 28th, 2008
Figure 3: Stimulus jobs created by industry
8,338 (0.2%)
133,757 (3.6%)
216,654 (5.9%)
245,937 (6.7%)
458,275 (12.5%)
468,504 (12.8%)
497,820 (13.5%)
512,320 (13.9%)
523,007 (14.2%)
609,388 (16.6%)
-
Service occupations
Sales and related occupations
Management ,business & ,related occupations
Construction &extraction occupations
Professional and related occupations
Office &administrative support occupations
Production occupations
Transportation &material moving occupations
Installation ,maintenance & ,repair occs
Farming ,fishing ,and forestry occupations
3.7 million Total
Source: Carnevale, Strohl and Smith’s analysis of March CPS data, 2005-2007 (pooled sample) Center on Education and the Workforce
Figure 4: Stimulus jobs created by occupation
Center on Education and the WorkforceSource: O*NET Education and Training by Occupation
1,007,344
336,807
287,303
338,514
1,704,032
High School or Less (46%)
Some College (9%)
Post-secondary Certificate (8%)
Associate's degree (9%)
Bachelor's degree or higher (27%)
3,675,000 Total
Figure 5: Stimulus jobs help the least educated the most
But a substantial share require some college or better
*Non-degreed jobs include high school dropouts, high school graduates, post-secondary certificates and some college but no degree.
Source: O*NET Education and Training by Occupation Center on Education and the Workforce
Figure 6: 45% of non-degreed* stimulus jobs require at least
1 month of formal classroom training
Formal Classroom Training
586,000(25%)
677,201(29%)
251,661(11%)
286,609(12%)
243,358(10%)
291,022(12%)
None Up to 1 month 1-3 months 3-6 months 6-12 months 1 or more years
45%
•We rely on a mix of Keynesian stimulus and automatic stabilizers whereas Europeans rely more on automatic stabilizers within a more robust welfare state
•In both cases there is substantial infrastructure in place for effective policies that can reach people within and outside labor markets in times of crisis
•We are focused on growth and distribution at the margin, not development. We are currently fighting a short-term risk/fear of deflation, and are less concerned about long term risk of inflation, in part because of our unique currency position
What is unique about the American response, especially compared with developing nations, is the context in which
it occurs
Center on Education and the Workforce
What’s good about the Obama stimulus package that may be transferable
Center on Education and the Workforce
•Timeliness: Otherwise there is a risk that stimulus can be pro-cyclical, increase volatility and reduce long term growth
•Customization: Doesn’t emphasize tax cuts at a time when tax cuts would be used to reduce public and private debt and not stimulate employment
•Balance: Mixes short term relief with long term investment
•Farsighted: Focuses short term income, nutrition and healthcare assistance on part-time working mothers and children beyond the reach of conventional economic policy instruments
Concerns
Center on Education and the Workforce
• The financial crisis may become a fiscal crisis because stimulus increases public debt
• Long-term debt raises intergenerational equity concerns and reduces future growth
• Long term government spending and investments crowd out private
investments
Dependency on external financing encourages more fiscal stimulus in good times and limits the ambit for stimulus in bad times
Limited foreign assistance needs to balance continued economic development with humanitarian aid
Automatic stabilizers are relatively weak which reduces the ability of added stimulus to smooth cycles.
Stimulus requires strong currencies and reserves and the investor confidence they bring
Stimulus slows to a trickle in the informal sector and has to be balanced with targeted programs for income support family planning and healthcare, especially for women and children
Center on Education and the Workforce
There May Be Special Problems for Stimulus in Developing Nations
There seems to be only two reliable rules for economic and social policy that apply equally in developed, middle income and developing economies
Rule #1 Adapt solutions to national conditions
Rule #2: Never forget rule #1
Center on Education and the Workforce
There is only so much others can learn from the US Experience:
Don’t make our mistake. Balance innovation and regulation of financial markets as financial markets evolve.
Center on Education and the Workforce
The Most Important Lesson to Learn From
the US Experience
• Coordinate fiscal and monetary policies • Beware of policy changes in the developed nations
(Mexico 1980)• Be timely, depending on the projected length of the
recession• Balance short term safety net and income-support
with long-term investment • Emphasize investment in human capital• Customize policies to serve local humanitarian and
economic conditions• Target family planning as well as women’s and
children’s health and nutrition to avoid intergenerational damage
• Ensure that most spending and tax cuts are temporary so it won’t affect long-term government debt
Center on Education and the Workforce
In addition