Reports from the Economic Front

by Martin Hart-Landsberg

Jobs and Military Spending

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Everyone is talking about jobs, and the reason is because it has become apparent that, at best, we are facing a jobless recovery.  In fact, one has to wonder what it means to speak of recovery if large numbers of people remain un- or under-employed.

So, how should we start thinking about developing a desirable jobs program? Probably one of the best places to start is with military spending and the gains (which are many) from shifting spending from the military to more socially beneficial uses.

In a 2009 update of an earlier study, economists Robert Pollin and Heidi Garrett-Peltier use the Department of Commerce’s input-output table of the U.S. economy to determine the employment effects of “spending $1 billion on alternative sectors within the U.S. economy, including military spending, clean energy, health care, and education.”  To be complete, they also examine the employment effects of an equivalent tax cut.

The job outcomes for each sector combine three different employment effects:

  • Direct effects, which include the jobs created by producing the specific goods and services in the targeted sector.
  • Indirect effects, which include the jobs created in other sectors to produce the goods and services needed to support the production activities in the targeted sector.
  • Induced effects, which include the jobs created by the spending of workers who gain employment through the above direct and indirect effects.

The outcomes differ between sectors because the sectors differ in their labor intensity, domestic content, and compensation per worker.

And now for the results.  As Figure 1 (taken from the study) shows, spending on the military produces the fewest jobs.

job-comparison.jpg

Of course compensation levels in each sector are different. Military jobs are the highest paying, but the overall compensation differences between the various alternatives narrow when we include the jobs created by indirect and induced effects.

The authors try to highlight the trade-offs between job creation and compensation by dividing the jobs created by each spending alternative into three separate pay categories: jobs that pay less than $32,000 a year, jobs that pay between $32,000-$64,000, and jobs that pay over $64,000.

As Figure 2 shows, “for the most part, spending on clean energy, health care, and education generates more jobs of all kinds—low, mid-range, and high-paying.”

income-distribution-comparison.jpg

In short, spending on the military or cutting taxes is just not a very effective way to generate jobs.  And when one considers the social benefits from education, health care, a more sustainable economy (and a more peaceful world), the policy conclusion becomes even clearer: we need to begin restructuring our spending priorities, and fast.

Makes you wonder why military spending (in real terms) keeps rising.  In fact, it rose (in real terms) at an average rate of 8.1 percent a year from 2001-2008; the economy, by comparison, only grew at the average annual rate of 2.4 percent over the same period.

Written by marty

November 25th, 2009 at 5:03 pm

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