Lessons from the New Deal Public Employment Programs

Nancy E. Rose is professor and chair of economics at California State University, San Bernardino. She is author of Workfare or Fair Work (1995) and Put to Work (Monthly Review Press, 1993, 2009).

Nothing before or after the 1930s has matched the magnitude of the FERA, CWA, and WPA—programs that provided work each month for several million people, paid decent wages, and developed innovative projects in construction, the arts, and the production of consumer goods.

The economic crisis that began in December 2007 warrants a similarly ambitious response. The job creation anticipated as part of the American Recovery and Reinvestment Act of 2009 is a start. However, we can do much better. Important lessons for the current era can be learned from the earlier New Deal programs. I will elaborate what I see as six main lessons.

1. A Large and Innovative Public Employment Program Is Possible

The FERA, CWA, and WPA show that it is possible to implement expansive and creative public employment programs. During the Great Depression, when the labor force totaled approximately fifty million, from 1.4 to 4.4 million people each month were put to work on these programs. A range of projects was developed. The myriad construction projects throughout the country are reminders of this, as are the plays, murals, posters, and other works of art.

Job creation programs were brought back, on a smaller scale, during the 1970s. The recession of 1969-1970, which ended the long economic expansion of the 1960s, led to the Public Employment Program (PEP) in 1971. Three years later the Comprehensive Employment and Training Act (CETA) replaced the PEP, as well as other War On Poverty work and training programs, with an all-inclusive program. It included Public Service Employment (PSE), which continued the job creation program of the PEP.

While PEP and PSE marked the return of job creation, they were far more constrained than their 1930s’ predecessors. Most importantly, they were only allowed to develop work in services; the construction and production-for-use projects that were such critical components of the earlier programs were absent. And PEP and PSE were small in comparison to the earlier programs. The high point was reached in March 1978 when 742,000 people were put to work on PSE. Yet this was only one-sixth of the 1930s maximum—even though the labor force had doubled in the intervening years. And while the 1930s’ programs at their peak created work for one-third of the unemployed, PSE provided jobs for only 12 percent of the jobless at its high point.

In spite of these constraints, a good deal was accomplished. Classroom and on-the-job training projects were set up, focusing on people who were more marginal to the labor market. Public sector projects included maintenance and repair of buildings and equipment, and expansion of activities in institutions such as hospitals, law enforcement agencies, and recreation centers. CETA participants, commonly known as “CETA workers,” were often given jobs alongside people who were regularly employed in public sector and nonprofit agencies. In fact, many institutions developed during the 1970s, such as women’s health clinics and food cooperatives, ran on shoestring budgets and depended upon CETA workers to function.

It is probably not surprising that the 1970s’ programs were plagued by many of the same criticisms that surrounded the FERA, CWA, and WPA. Charges of inefficiency and unnecessary “make-work” were the most frequent. They were accompanied by complaints that CETA workers were substituted for normal government employees, payments were too high, and the entire program was too expensive and riddled with graft and corruption. And, as in the 1930s, contradictory mandates meant that these criticisms were often accurate. One result was the development of CETA’s Private Sector Initiative Program (PSIP) in 1978, as funds were taken away from public employment and directed instead to the private sector. And when Reagan became president in 1981, he quickly eliminated PSE and allowed the entire CETA program to expire the following year.

Not surprisingly, given the dominance of right-wing economic policy since that time, job creation programs have been absent until the need to respond to the economic crisis with its escalating unemployment led to their return. These plans represent a beginning, but compared to earlier programs, especially the FERA, CWA, and WPA, they show a distinctly constricted vision. Most importantly, there is no grand federal program, as existed during the 1930s, or even during the 1970s. The Recovery Act calls instead for creating or saving 3.5 million jobs over the next two years by channeling funds to already existing federal and state agencies, which in turn will directly create jobs or, more likely, contract projects out to the private sector. And only about one-third of the funds will be used in direct government spending, as the rest is going to tax relief for working families, state fiscal relief, and transfer payments such as Social Security and extended unemployment benefits. This focus on working families is a huge improvement over the tax cuts for the rich and other right-wing policies that have been the norm since the early 1980s. Yet more could be done.

Even this 3.5 million pales in comparison to the earlier programs, especially since the labor force has grown to almost 155 million people. The relatively small scope of the current Recovery Act is especially troubling given the continually escalating unemployment. In May 2009, when this is being written, the official unemployment rate reached 9.4 percent. This meant that 14.5 million people were officially unemployed, as the number of unemployed has increased by 7 million since the crisis began. But the official unemployment rate underestimates the real extent of economic misery. The unemployment rate is well into double digits when “hidden unemployment” is added. This includes “discouraged workers” who drop out of the labor force because they can’t find jobs, as well as involuntary part-time workers, who want full-time jobs but can only find part-time work. No account is taken either of those working full-time at jobs below the poverty level. Not surprisingly, all of these numbers have been rising, as have the numbers of people who are “long-term unemployed,” and out of work for more than twenty-seven weeks. This should be recognized for the national calamity that it is.

2. Develop Responses to Criticisms of Make-Work and Inefficiency

Anticipation of criticisms of public employment programs as inefficient “make-work” may well have helped prevent the development of a job creation such as the FERA, CWA, and WPA, and the smaller CETA program of the 1970s. The belief that one of the functions of government should be to assure sufficient employment, in part by creating jobs, has been off the public agenda since the early 1980s. This absence has been bolstered by the now commonly accepted “wisdom” of several decades of conservative, neoliberal ideology, which argues that as much economic activity as possible should be left in the hands of the private sector.

If we want to revive support for government employment programs, we need to develop responses to time-worn criticisms of make-work and inefficiency. This involves both a broad understanding of the genesis of these criticisms as well as an understanding of the elements of the New Deal jobs programs that did in fact lead to inefficiency when compared to the private sector.

First, it is helpful to put in perspective that allegations of inefficiency have become a knee-jerk reaction routinely made towards a range of government services. In this view, the government is seen as inefficient simply because it does not operate on profit criteria—the lack of a profit motive automatically leads to inefficiency. This contrasts to the private sector, which does base decisions on profits. Therefore, the private sector is efficient, whereas the government is inefficient. The dominance of this view since the early 1980s has helped lead to contracting out a range of government services, from collecting garbage to operating prisons.

Fortunately, one result of the current crisis is that increasing numbers of people are beginning to question this ideology, and more generally, capitalism as an economic system. A Rasmussen poll taken on April 9, 2009, found that only slightly more than half of adults in the United States believed that capitalism was better than socialism. As was also the case during the 1930s, economic crisis—that brings with it escalating unemployment, not to mention bankruptcies in the financial sector and the collapse of home equity—causes wider questioning of the system that bred these problems.

In addition to this general understanding of criticisms of make-work and inefficiency simply because the government is providing goods and services, it is helpful to look at the aspects of the New Deal programs that did, in fact, often lead to inefficiency and make-work. The bottom line is that these situations were caused by the dual nature of the work programs, as both work and relief for the unemployed.

The first and most important response is that charges of inefficiency and make-work followed in large measure from the programs’ often contradictory mandates. This was particularly clear with regulations that the projects use a maximum of labor and a minimum of machinery in order to create jobs for as many of the unemployed as possible with the available funds—in other words, they were supposed to make work. Further directives to avoid both replacing normal government operations and competing with the private sector easily added to the perception that the jobs created were make-work. It was reasoned that if the work was important, the government would already be providing it.

Four additional factors contributed to inefficiency and make-work on the work programs. In investigating this, it is helpful to remember that efficiency is measured by the amount produced (generally the monetary value) divided by the number of hours of labor. Therefore, aspects of the work programs that contributed to additional labor hours translated into inefficiency compared to production methods in the private sector.

One factor stemmed from using prevailing wage rates to determine the number of hours a person could work (the total amount someone could earn that is, budgetary deficiency, was divided by the prevailing rate). This led to many situations in which skilled workers were allowed fewer hours of work each week compared to less skilled workers. As a result, there was more rotation of skilled workers, which was often disruptive and caused inefficiency by industry standards.

A second factor was that many of the construction projects continued to operate in bad weather. In contrast, private sector firms would often temporarily shut down in inclement weather. This situation arose because the work programs were simultaneously work and relief, and while it would have been antithetical to increasing profits, one of the purposes was to provide income for the unemployed.

A third factor stemmed from the practice of selecting male heads of household instead of younger, and sometimes stronger, workers. This was considered sufficiently important that periodically throughout the 1930s, reminders were made about the importance of choosing the father to work on the programs in order to help ensure that men continue to be seen as the head of the family. However, in response to criticisms of inefficiency on the projects, there were cases of choosing younger workers instead of male heads of households.

A fourth factor that contributed to inefficiency and make-work on the New Deal work programs was their temporary status. Throughout the 1930s, Congressional appropriations were periodically needed. This made long-term planning virtually impossible, and led to many projects that were rather quickly developed. Most notably, the CWA provided numerous examples of hastily developed projects, some of which did not even have enough tools for all of the workers. However, this was not surprising in light of the haste with which the program was developed. An additional two million of the unemployed were put to work within two months, between mid-November 1933 and mid-January 1934, in order to help prevent another Depression winter of increased despair and increased protest.

As a final note on this topic, it is instructive to further investigate the notion of make-work. What types of work are necessary? It is telling that common examples of make-work during the 1930s were “leaf raking” and “snow shoveling.” In response, in 1934 maintenance activities were prohibited on the work programs. However, these activities are much like housework—noticed when they are not done, but otherwise taken for granted.

3. Ensure Fair Treatment Regarding Gender, Race, and Immigrant Status

Gender and racial discrimination was endemic to the New Deal work programs. As described repeatedly throughout this book, payments were lower, on average, for women and people of color, and they experienced more difficulty establishing eligibility and obtaining placements on all three programs. In fact, this reflected general societal norms at that time.

Needless to say, we can expect that in current job creation programs care would be taken care to avoid inequality based on gender and race. We would expect that payments and eligibility would be administered fairly. In addition to this, we should acknowledge the sometimes subtle effects of sexual harassment and take further steps to encourage women to participate on construction projects by making this work welcoming for them.

While there has been a good deal of progress regarding gender and racial discrimination since the 1930s, we are still a long way from equity. And while much attention has been paid to gender and racial equity, the same is not true for immigrant status and nativism.

In terms of equity, while it was accepted during the 1930s to limit pay and participation for women and people of color, the group occupying this status today is immigrants. Indeed, one does not have to look far to find examples of immigrants being used as scapegoats for a variety of societal ills. Care will need to be taken in any current work program to challenge nativist sentiments and to ensure fair treatment based on citizenship status.

4. Set Payment Rates At Least Equal to a Living Wage

Policies regarding setting payments remained contentious throughout the 1930s, and were periodically changed in response to demands from workers, on one hand, and from the private sector, on the other. Perhaps the clearest example concerned the changing policies regarding a minimum work relief wage rate. Implemented in July 1933, the virtually unremitting complaints that the minimum rate of thirty cents per hour was above some private sector rates and thereby attracted workers away from the private sector to the work programs led to its abrupt termination in November 1934.

In the intervening years, progress has been made. The enactment of the Fair Labor Standards Act in 1938 established a federal minimum wage, although many states have enacted a higher minimum wage because the federal rate has been so eroded since 1968 by the failure to sufficiently adjust it for inflation. And for several decades we have witnessed the spread of living wage campaigns, which mandate that city employees and employees of companies that do a certain amount of business with a city should be paid a wage that is high enough to keep a family of four about the poverty line.

A minimum pay rate that provides a living wage—one that enables a family to have a reasonable standard of living—also makes good economic sense. It contributes to “bubble-up” economic policies that channel money into the hands of people who will quickly spend it on necessary consumer goods and services, which in turn leads business owners to expand production and hire more workers. During the 1930s, this was described as increasing the “purchasing power of the masses.” It is a far more stable route to economic expansion than “trickle down” policies that give tax breaks to the rich with the hope that they will use it for productive investment to create jobs.

5. Develop a Range of Projects

It is helpful to look to the FERA, CWA, and WPA for inspiration about the types of projects that could be developed in the current era. Plans thus far represent a good beginning. Yet much more needs to be done.

Current plans are primarily for construction projects. Development of renewable energy and other “green technology,” as well as repairing our dilapidated infrastructure and developing public transit, are sorely needed. Focus has been on projects that are “shovel ready” and can be quickly started. It would be helpful to also consider longer-range plans, and projects that take longer than two years to complete, such as development of light rail systems, as these could address some of the pressing needs for green infrastructure.

Services will be aided indirectly through some of the billions of dollars going to states. This is also important—although given the sizable budget deficits faced by many states, even these funds will only begin to cover many necessary services that will otherwise go unfunded. Along these lines, the monies allocated to keep people on Medicaid and SCHIP (State Children’s Health Insurance Program) will be critical. Thus far, most of the Recovery Act funds for health and education have been allocated for research. There are additional needs that should be addressed as well. Provision of services in education, health care, and eldercare throughout the country could benefit from additional resources. And we would do well to recall the federal support for the arts during the 1930s, which provided jobs for a variety of artists as well as classes and productions for the public.

The third category of projects from the 1930s—production-for-use—has remained dormant since those programs ended. Perhaps they should be resurrected. Of particular concern is the growing numbers of factories that are being shut down. What should happen with the plant and equipment as well as the former employees? As a society, should we just accept that if something is not sufficiently profitable, then it should be abandoned? Or should the Ohio Plan be brought back—and previous employees put to work in their old places of employment? This does not mean that the old production methods and former goods should be brought back unchanged. For example, support for the auto industry could be based on changing production from environmentally unsustainable vehicles to public transit such as buses and trains. The alternative to planning is simply to let the “law of the market” hold sway, as factories as well as retail establishments throughout the country shut down.

6. Enact a Permanent Public Employment Program

Instead of periodically reacting to escalating unemployment by developing programs to create jobs, it would make good social and economic sense to implement a permanent job creation program. This is not a new idea.

The initial version of the Social Security Act included a provision for Employment Assurance. This would have provided jobs, similar to the FERA, CWA, and WPA, after people exhausted their unemployment compensation.

And as the 1930s’ programs wound down, a permanent employment program was recommended by the National Resources Planning Board, a high-level federal commission requested by President Roosevelt to develop overall economic plans for the post-Second World War period. They called for an “economic bill of rights” that would ensure the basic necessities of life, including the right to a job provided by the government if the private sector failed to do so, and advocated the “formal acceptance by the federal government of responsibility for insuring jobs at decent pay to all those able to work regardless of whether or not they can pass a means test.” This would have been accomplished through a permanent “Work Administration” that would provide “socially useful work other than construction…for the otherwise unemployed.” However, as the Second World War pulled the country out of the depression, calls for a permanent work program were abandoned.

The commitment to national planning was incorporated into the Full Employment Bill of 1945. Declaring that “all Americans able to work and seeking work have the right to useful, remunerative, regular, and full-time employment,” it would have committed the federal government to ensure full employment. An annual “National Production and Employment Budget” would have estimated the amount of (both public and private) expected investment and the level of spending needed for full employment. The federal government would fill this investment gap, if necessary with deficit spending.

Support for the intensive federal planning and investment included in the 1945 bill was undermined by economic and political events. Instead of the expected post-war recession, the U.S. economy began an almost three decade period of substantial growth. Most fundamentally, the expansive vision in the Full Employment Bill was doomed by a growing antipathy toward national government planning, which was portrayed as antithetical to American values of freedom and democracy, largely embodied by a “free market.” Instead, planning was equated with the state control that existed in communist and fascist societies, a view that fed on, and contributed to, the growing anti-communism that flourished after the war.

The results were not surprising, as the Full Employment Bill of 1945 became the watered-down Employment Act of 1946. Instead of an unequivocal commitment to “full employment” there was only tempered support for “maximum employment,” which, in the context of the debates, was clearly understood as less than “full employment.” In place of the “National Production and Employment Budget” and its planning mechanism was only an advisory body, the Council of Economic Advisors, and an annual report to the president.

Support for a permanent jobs program resurfaced again in the 1970s with the Humphrey-Hawkins Full Employment and Balanced Growth Act. The original bill promised to “establish and guarantee the rights of all adult Americans able and willing to work to equal opportunities for useful paid employment at fair rates of compensation.” It called for systematic federal planning of production and investment in order to fulfill “human and national needs” in a variety of areas: conservation; housing; antipollution and recycling activities; health care; education; day care; infrastructure construction, e.g., railroads, subways, and other mass transportation; and “development of artistic, esthetic, cultural, and recreational activities.” Its centerpiece was a countercyclical public service employment program. The government would serve as employer of last resort for people unable to find jobs through the labor market, establishing a program that would go into effect when the unemployment rate rose above 3 percent. Wages would be set at “fair rates of compensation,” the highest of prevailing local wage rates, the minimum wage, or wages specified in existing collective bargaining agreements. And attention was given to combating discrimination—based on race, gender, age, and physical and mental capacity.

Benefits of full employment described in the Humphrey-Hawkins Act bear remembering today. Economic impacts included increased aggregate demand which would counteract recessions, rescuing labor power that would otherwise be lost, and reducing the cost of transfer payment programs. Social benefits focused on increasing people’s self-esteem and avoiding the distress and depression that often accompany unemployment, as well as mitigating societal unrest.

The Humphrey-Hawkins Full Employment and Balanced Growth Act was finally passed in 1978 as an amendment to the Employment Act of 1946. “Balanced growth” meant that real full employment was sacrificed to a focus on restraining inflation.

A permanent government job creation program continues to garner support from economists and other social scientists. The National Jobs for All Coalition was founded in 1987 to build a movement and advocate for real full employment at livable wages. They stress that the United States has a chronic jobs deficit since “full employment” is considered to be an unemployment rate of 4 to 5 percent, so that a return to this “normal” situation would still leave millions of people unemployed and underemployed. The Center for Full Employment and Price Stability at the University of Missouri–Kansas City has been advocating that the government serve as “employer of last resort,” providing jobs in order to maintain real full employment. And The Nation has been publishing more articles supporting full employment at fair rates of pay.

In making the case for a permanent job creation program, we should remember that these programs do two important things. They provide both jobs for people who are unemployed and underemployed, as well as much needed public facilities, services, and in the 1930s, consumer goods.

Job creation is important, but it is not sufficient. In order to give both women and men real choices about combining work in the home with jobs outside the home, we also need progressive family and labor market policies. All we have to do is to copy programs that are already in effect in Canada and western European countries. A family allowance, instead of welfare, would help enable parents to more easily spend time doing this valuable caring labor. A paid six-month family leave would make it easier for both women and men to take care of infants as well as family members who are ill. Flexible work hours would allow women and men to reduce hours of wage labor in order to spend more time working in the home. Universal federal health care would enable everyone to obtain quality health care regardless of their welfare or labor market status. Federally supported quality child care, including subsidies for child-care workers, would recognize the social responsibility for children and similarly eliminate this expense as a barrier to wage-labor. And an adequate supply of low cost housing would help provide shelter for all people.

Money for these programs could come from a truly progressive income tax, a tax on the sale of assets held for a short period of time (which would also discourage speculation), and the military budget. And those responsible for the financial industry fiascos, not taxpayers, should be forced to repay the billions of dollars that they squandered.

An important difference between the 1930s and today is the current lack of a mobilized mass left. During the 1930s, this proved critically important in continually putting pressure on the Roosevelt administration, and resulted in more progressive policies and programs than otherwise would have been the case. In this light, there was a great deal of organizing to elect Obama. Yet much of this dissipated after he won the election. Further, as a politician, without continued pressure from a mass left, Obama has too easily acceded to demands from the right. This can be clearly seen in the seemingly endless stream of funds that has been channeled to bail out financial institutions—instead of nationalization. It can also be seen in the rather conservative economic stimulus plans described above.

History shows that we can do better.

Notes

Sources: References and citations are to be found in the 2009 edition of Put to Work