Investing In Education, Childcare & Public Works Will Grow our Economy

Governments utilize policies to impact the efficiency of labor markets. These 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, create opportunities for employment, and help people become qualified to work.

This analysis comes from a report, conducted by researchers at the Illinois Economic Policy Institute and the Project for Middle Class Renewal at the University of Illinois at Urbana-Champaign. The report is a national investigation into an assortment of labor market and economic policies that support employment and should be fully implemented in Illinois.

There are four public policies that directly support employment:

• Improving the share of the population with a bachelor’s degree increases a state’s human capital, productivity, and technological and innovative capacities. A one 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.
• Increasing the number of three and four year olds in state early childhood education programs improves outcomes for children later in life and supports employment because parents, particularly mothers, re-enter the workforce instead of staying at home with their kids. A one percentage-point increase in the share of three and four year old children enrolled in state early childhood education programs also has a statistically significant impact, increasing the working-age employment rate by 0.07 percentage point.
• Improving and expanding roads, bridges, highways, subways, railroads, and waterways all provide direct jobs to construction workers over the short term and allows businesses to efficiently bring their product to market in the long run. As a result, a one percentage-point increase in the highway share of state expenditures is statistically associated with a 0.39 percentage-point increase in the working-age employment rate.
• Reducing the average travel time commuting to work increases worker-to-firm connectivity and improves economic output by providing individuals with more time to engage in productive activities rather than sitting idle in congested traffic. A 20-minute drop in mean travel time to work would increase the working-age employment rate by 0.09 percentage point.

In addition, there is one government practice that indirectly supports employment:

• Higher budget surpluses in state government improve investor confidence in states and ensure that funds are available during recessions and other economic downturns. A one percentage-point increase in the state’s budget surplus over total revenue is associated with a 0.20 percentage-point increase in the working-age employment rate.

There are nine additional policies and factors examined that have no apparent direct impact on the working-age employment rate. Among these are “right-to-work” policies and the state-level unionization rate. Contrary to political rhetoric, a higher union density does not reduce employment and related policies to limit the power of labor unions have no discernible impact on the working-age employment rate. Small or modest increases in state sales taxes and corporate income taxes all also have no direct statistical impact on the employment rate. However, tax revenues do enhance the capacity to produce spending on the five major areas that were found to strongly support employment.

The Need To Invest In Illinois’ Infrastructure

When the government invests in its road and other transportation infrastructure, businesses and workers become more connected and have more time to engage in productive activities. Physical capital investment supports both workers and employers. When the government invests in educating residents of all ages, businesses and workers become more innovative, more productive, and more efficient.

Human capital investment supports both workers and employers. When the government balances the budget and carries over surplus revenues, the savings– which can be invested– are an investment in the future. Businesses and workers know that their government is responsible and will be able to make critical training and infrastructure investments in the future, especially during economic downturns when they are severely needed. A budget surplus supports both workers and employers.

But Illinois’ transportation and water infrastructure is massively underfunded. Without a change in federal funding, the State will have to increase revenue by $2.75 billion annually to maintain and modernize its infrastructure over the next decade and beyond.

Currently, 42 percent of Illinois’ major roads are in poor condition. Poorly maintained roads lead to increased numbers of vehicle crashes, which cost Illinois drivers $3.7 billion a year. It also leads to extra traffic congestion, which besides being frustrating, annually costs the state $9.2 billion (ILASCE, 2014). The lack of state funding shifts costs onto residents while threatening their safety.

Analysis from the Illinois Economic Policy Institute. For further reading:

Policies that Support Employment: Investments in Public Education, Investments in Public Infrastructure, and a Balanced State Budget

Illinois’ Two-Headed Beast: Unfunded Pension Liabilities and Unfunded Infrastructure Needs