Job Subsidies Also Provide Help for Private Sector

The government is using stimulus money to subsidize small businesses to hire the unemployed.

While hundreds of thousands have found work in the program, critics wonder what will happen once the stimulus money runs out.

States are putting hundreds of thousands of people directly into jobs through programs reminiscent of the more ambitious work projects of the Great Depression.

But the new efforts have a twist: While the wages are being paid by the government, most of the participants are working for private companies.

The opportunity to simultaneously benefit struggling workers and small businesses has helped these job subsidies gain support from liberals and conservatives. Congress is now considering whether to extend the subsidy, which would expire in September, for an additional year. A House vote is expected on Thursday or Friday.

Despite questions about whether the programs displace existing workers, many economists have argued that direct job creation programs are a more cost-effective way to put some of the nation’s 14.6 million unemployed back to work than indirect alternatives like tax credits and construction projects.

The average duration of unemployment continues to break records, after all, and studies have shown that the longer people are out of work, the less employable they become.

Businesspeople seated side by side
John Cumming | Digital Vision | Getty Images
Businesspeople seated side by side

“I never, ever, ever thought I’d end up in an art gallery,” said Tremaine Edwards, 35, a former computer technician who had been unemployed for two years before he was hired in May by Gallery Guichard, a private gallery in Chicago. Mr. Edwards now earns $10 an hour, financed by the government, through the Put Illinois to Work program, to maintain the company’s Web site, curate exhibits and run gallery events.

He has also become the gallery’s star salesman, selling five paintings during the most recent gallery opening despite no background in fine arts or sales.

“I feel like if I knew I could have done this 15 years ago, I would have,” he said, grateful for the opportunity to escape cubicle life. “As long as I keep selling like this, I think I’ll be fine, no matter what happens with Put Illinois to Work.”

Proponents of these national job subsidies, initially financed with $5 billion of stimulus money, say it is better to pay people for working in real jobs than to pay them jobless benefits for staying idle.

Placing workers in the private sector is also more promising than giving them make-work government jobs, they say, because market forces can be harnessed to figure out where people like Mr. Edwards should invest their skills for the long run.

Others contend that training and financing will accomplish little if businesses are unwilling to hire on their own. They argue that government policies should instead be encouraging business growth robust enough to create jobs independently.

The effectiveness of these programs will not be clear for many months, if ever. As the stimulus money dries up, employers will decide whether to keep the workers at their own cost or cast them back into the unemployment pool.

Moreover, some economists fear that people hired with government subsidies may simply be displacing other workers, rather than adding to total employment, no matter how earnestly the programs are policed.

“There’s always a concern that the employer or somebody else who hires them would have simply hired someone else,” says David Card, an economist at the University of California, Berkeley.

About 247,000 workers will have been placed in these subsidized jobs by the end of September, according to the Center on Budget and Policy Priorities, a research organization. The jobs cover everything from assembly-line work to white-collar positions like business development, and typically pay $8 to $15 an hour, according to LaDonna Pavetti, a director at the center. There are exceptions: San Francisco, for example, pays up to $74,000 in annual salary, which employers can also supplement with additional pay.

So far just over a billion dollars has been approved to create subsidized employment programs in 36 states and the District of Columbia, according to the Department of Health and Human Services. The biggest year-round program is run by Illinois, which has put 22,000 workers in subsidized jobs (and 5,000 in subsidized summer youth jobs) and has 30,000 people on its waiting list.

Most states pay 100 percent of workers’ wages up to a certain point. To qualify for the subsidy, workers must have a low household income. They must also have minor children, or be under age 21 themselves. Employers seem to hear about the programs largely through word of mouth, and some states actively help match eligible workers with companies.

These eligibility restrictions are part of the Temporary Assistance for Needy Familiesprogram, created in the welfare reform legislation of 1996, which is now being used to channel the job subsidy money to states.

"This is the bailout program designed for you."

States, cities and local companies have been among the biggest advocates for extending the program beyond September. Small businesses benefit in particular since having an additional worker can make a bigger difference to a company with a small staff. Getting a worker at no cost can also free up cash for other types of investments.

“We have been saying to small businesses, ‘This, finally, is the bailout program designed for you,’ ” says James Whelly, deputy director of work force development at the San Francisco Human Services Agency.

Gallery Guichard, which sells paintings and sculptures of the African diaspora on Chicago’s South Side, has hired five employees, who are all college educated or are enrolled in college, through the Illinois program. While only one had any experience in fine arts, the gallery owners gush about the group’s value to the company.

“But not for Put Illinois to Work, we would not have been able to get this injection of young new talent and start to expand again,” said André Guichard, one of the owners.

Gallery revenues fell by 40 to 60 percent last year, Mr. Guichard said, as collectors stopped buying its works (generally, at least $1,000 a painting) and stalled on payment plans. As a result, the gallery began cutting its hours from seven days a week to six days a week to, begrudgingly, by appointment only.

More worrisome, it had fewer exhibit openings and other events, which Mr. Guichard says are the source of most sales.

Since bringing in the new workers, he says, the gallery has had more major events than ever, including back-to-back openings in July.

"We have been saying to small businesses, ‘This, finally, is the bailout program designed for you." -San Francisco Human Services Agency, James Whelly

The business has been expanding in other ways, too. Mr. Guichard’s wife and business partner, Frances, is starting a sales program tailored to corporate buyers. And the couple is traveling to South Africa this week to hunt for undiscovered artists, something they have never done outside of the United States. This is possible, they say, not only because they have saved enough money on labor costs to afford the trip, but also because they now have sufficient staff to run the gallery in their absence.

Assessing the success of these subsidies, and the sustainability of the jobs they create, is complicated.

Mr. Guichard said he expected to keep three of the five new workers after the program ends. But the month before it began using the program, the gallery had four employees on its payroll (in addition to a few who worked hours as needed); none of these workers are still there. Three left on their own, said Mr. Guichard, in part because they were frustrated after their hours were cut and their income fluctuated.

But one — Mr. Guichard’s cousin Juan Rodriguez — was laid off.

Mr. Guichard said he wanted to keep Mr. Rodriguez, a 24-year-old, precocious curator and a “hard worker,” but decided not to because Mr. Rodriguez did not qualify for Put Illinois to Work.

Instead, Mr. Guichard hired Mr. Rodriguez’s younger brother, Patrick, whom the gallery now can employ free.

The older brother is pondering a move to Atlanta, where he hopes to find more job opportunities. Because the program has helped his younger brother, who had been out of work a year, he tries not to harbor a grudge.

“I think it’s basically a good program, but it needs to be somewhat less restrictive basically,” Juan Rodriguez said. “Still, the whole idea is to put people to work, but it’s a situation where it’s actually put me out of work instead.”