By Phil Ciciora
U of I News Bureau
CHAMPAIGN — Investments in education and infrastructure, along with a balanced budget, are chief among the public policies that boost a state’s employment, according to a new paper co-written by a University of Illinois labor expert.
A higher employment rate generally improves well-being, reduces poverty and increases tax revenues, and policies that support employment tend to have numerous positive ripple effects for states, says Robert Bruno, a professor of labor and employment relations on the Urbana campus.
“The public policies that ‘work’ for workers are all investments using taxpayer dollars,” Bruno said. “Government investments in transportation infrastructure and in the education of residents of all ages all support employment.”
The research is a national investigation into an assortment of labor market and economic policies that support employment. The policies could be implemented in any of the 50 states and would work successfully to spur employment, Bruno said.
Among the 35 different economic phenomena investigated in the study, the authors found four policies that most directly support employment:
- Improving the share of the population with a bachelor’s degree.
- Increasing the number of 3- and 4-year olds in early childhood education programs.
- Improving and expanding infrastructure, including roads, bridges, highways, subways, railroads and waterways.
- Reducing the average travel time for workers who commute.
“Governments use policies to impact the efficiency of labor markets,” said Bruno, who also is the director of the Chicago-based Labor Education program. “These four specific policies are designed to increase employment by encouraging people to look for work, make it easier for people to get to work, provide support for people who are working and help people become qualified to work.”
Improving the share of the population with a bachelor’s degree increases a state’s human capital, productivity, and technological and innovative capacities. A 1 percentage-point increase in the share of the population with a bachelor’s degree is statistically associated with a 0.80 percentage-point increase in the employment rate, according to the study.
Similarly, a 1 percentage-point increase in the share of 3- and 4-year old children enrolled in state early childhood education programs would have a positive effect on the working-age employment rate.
“It also improves educational outcomes for children later in life and also supports employment as parents, particularly mothers, re-enter the workforce instead of staying at home with their kids,” Bruno said.
Improving and expanding a state’s transportation infrastructure provides jobs to construction workers over the short term and, in the long term, allows businesses to efficiently bring their products to market.
“As a result, a 1 percentage-point increase in the share of state highway expenditures is statistically associated with a 0.39 percentage-point increase in the working-age employment rate,” Bruno said.
Reducing the average time to commute to work not only increases worker-to-firm connectivity but also improves economic output by providing workers with more time to engage in productive activities rather than sitting idle in congested traffic. According to the study, a 20-minute drop in mean travel time to work would increase the working-age employment rate by 0.09 percentage points.
The study also found one additional government policy that indirectly supports employment: having a balanced budget with enough of a “rainy-day” surplus to see states through lean economic times.
“Higher state budget surpluses improve investor confidence in states and ensure that funds are available during recessions and other economic downturns,” Bruno said. “While not a labor market policy, decisions to raise the necessary revenue to balance or create state budget surpluses are strongly correlated with an increase in the employment rate.”
The paper also presents a data-driven policy proposal tailored for the state of Illinois and its current economic plight.
If the state’s flat personal income tax rate were retroactively increased from 3.75 percent to 4.75 percent, the state would generate an additional $3.5 billion in tax revenue. Bruno’s proposal calls for dedicating the new revenue to five government expenditures: $375 million each to be spent on public higher education, infrastructure, mass transit systems in the Chicago metropolitan area and early childhood education programs. The remaining $2 billion would be earmarked to reduce the state’s structural deficit and meet the required income tax revenues needed to implement the budget.
These public policy changes would boost employment in Illinois, Bruno said.
“The working-age employment rate would increase by up to 2.4 percentage points in Illinois, accounting for nearly 180,000 new jobs created,” he said. “The policy changes would also add at least $2 billion on net to the Illinois economy, even after accounting for higher income taxes paid. Clearly, the benefits significantly outweigh the costs. It’s a clear signal that the state of Illinois should take steps to increase investments in public education and public infrastructure, and then balance the state budget.”
The paper is part of the School of Labor and Employment Relations’ Project for Middle Class Renewal. The project’s mission is to investigate the working conditions in today’s economy and elevate public discourse of contemporary public policies and practices impacting labor and workplace issues, Bruno said.
Bruno’s co-author is Frank Manzo IV of the Illinois Economic Policy Institute.