Exclusive Commentary

The 2012 State of the Union: Two Views

Elise Gould, Economic Policy Institute and John Bridgeland, Civic Enterprises - Posted January 25, 2012


In response to President Barack Obama’s State of the Union address on January 24, 2012, Spotlight has gathered reflections from two experts on each side of the aisle to address the question: what would the ideas and policies President Obama described during the State of the Union mean for low-income families in the year ahead?

Elise Gould

Economic Policy Institute

Last night, President Barack Obama addressed Congress and the nation, highlighting his plans for the upcoming year. The future economic well-being of families was a major theme in his speech. While he did not spend much time on the specific issues facing low income families, he did focus on the crisis of joblessness more broadly.

President Obama gave a clear message that jobs are important to working families. The number one priority to assist low-income families is to add jobs more broadly. There are 13 million officially unemployed and the labor market needs more than 10 million jobs to get back to full employment. Most likely, adding jobs and lowering the unemployment rate will immediately and directly impact job growth among racial and ethnic minorities, younger workers, and workers with low levels of education. The employment rates of these groups are more buffeted by business cycles. Furthermore, wages at the bottom end of the distribution are more responsive to changes in the unemployment rate, and will rise more quickly as the unemployment rate falls.

Therefore, policies to stimulate job growth are of utmost importance to working families. 

President Obama discussed several specific policies that would stimulate demand and thus, jobs.  Creating manufacturing jobs and keeping jobs in the United States was high on his list though he failed to stress exchange rate policy, which is by far the most important lever for helping manufacturing. He did mention the importance of immediately passing the payroll tax cut to assist families and spur demand. What he noticeably left out of his speech is the importance of extensions to unemployment insurance (UI) benefits.

Spending on extended UI benefits is a very effective way to inject money into the economy, since that money is spent immediately by cash-strapped, long-term unemployed workers. This spending creates demand for goods and services, which takes workers to provide, so it generates new jobs. These important macroeconomic effects are over and above the fact that unemployment insurance benefits directly keep families out of poverty—in 2010, UI kept 3.2 million people out of poverty.

It’s important to note, however, that even the most aggressive jobs program – one that somehow got us quickly back to the unemployment rate of 2007, before the Great Recession began – won’t be enough to solve the problems facing low income families. There was a time when poverty fell sharply as the economy grew; that time is no more. Growing economic inequality over the last 30 years has been a prime reason why those at the bottom and middle of the income scale have not seen their livings standards keep up with overall income growth.  A real poverty agenda needs to steer substantial resources to low-income families so that they too can see the gains of a growing economy and have real opportunities for a decent life.


John Bridgeland

Civic Enterprises

In last night’s State of the Union address, the President threw down a gauntlet for this year’s election. The defining issue of our time, he said, is how to keep the American Dream alive at this “make or break” moment in our history where we may be the last generation to climb the economic ladder higher than our parents did.
 

The President is right that the ladder is getting harder to climb. Almost one in two Americans are trying to make ends meet on earnings that classify them as poor or low-income, and social mobility in America is now lower than most of our European counterparts and Canada.

It is impressive that President Obama has been able to steward our economy back from the brink and his policies have led to the creation of 3.2 million private sector jobs over the last two years.  But encouraging manufacturers to come back to America won’t be enough to stop the rising tides of competition that led to the outsourcing of low skill jobs to countries with lower costs of labor in the first place.

The long-term strategy is to ensure American workers have the complex skills American businesses need for the jobs they create here. At the height of the recession, 53 percent of business leaders reported they were struggling to find workers with “the skills, training, and education their company needs,” despite unemployment near 10 percent.

Closing the skills gap won’t be achieved before the election. But whether or not the American Dream will continue depends in large part on whether or not American education can keep pace with the demands of American businesses and the educational attainment of global workers. While the U.S. leads the world in educational attainment among 55 to 64 year olds, it is currently in 4th place among 35 to 44 year olds and 10th place among 25 to 34 year olds. And that is the ultimate reason the ladder is getting harder to climb. As the White House Council for Community Solutions identified, there are 6.7 million “disconnected youth” out of school and work, costing the taxpayer $1.6 trillion over their lifetimes. We need all hands on deck.

At a time when other countries are doubling down on education, tight budgets are forcing thousands of school districts and community colleges to make cuts and this is a situation we cannot afford. Research teaches us the key levers of mobility: only two percent of individuals who finish high school, work full-time, and have stable families before having children end up poor, while 72 percent of individuals who do none of these things end up poor.
 


The first step is to answer the President’s call to raise the compulsory school age to 18. Over the last decade, progress in the 21 states that have done this has shown it is possible to reduce the dropout crisis. Additionally, many states that require their students to stay in school until 18 have seen gains in their graduation rates. A high school diploma and some college education are critical steps to an educated workforce. As the President said, “we can’t bring every job back that has left our shore,” but we can train every worker for the jobs of tomorrow. 


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