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Government Spending as a Means to Create Jobs

Achieving a high level of employment is one of the main objectives of macroeconomic policy. The economic system that creates additional jobs sets the task to increase the volume of social products and thus to a greater extent meet the material needs of the population. With the incomplete use of available manpower resources, the system works not reaching the limits of its production capacity. There is a basic set of policy tools: active, moderately passive, passive. Passive policy – is oriented financial support to the unemployed and the provision of simple services for the selection of the workplace through the state employment service – the most efficient way in terms of public spending. The active employment policy (active labor market policies) is a set of measures, with organizational and economic measures undertaken by the State to reduce the level of unemployment (training, retraining and job seekers, active search and selection of jobs). The active policy is a course of action aimed at improving the competitiveness of the workforce and expanding the scope of work in order to prevent unemployment and increase employment.

1. General characteristics of the state employment policy in the U.S.

State policy in the field of employment and unemployment is one of the most important components in the sphere of labor relations in the United States. There is a constant need for regulating and stimulating the functions of the state in this area.

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The main goals of the state policy in the sphere of labor are monitoring and maintaining the proper functioning of the market mechanism in time. There are two basic functions of government regulation of the labor market in the U.S.:

  • Control over the growth of the reserve army of labor;
  • Vocational training and retraining of the manpower, the development of education, health care, etc.

The main directions of the state policy in the sphere of employment and unemployment are:

  • Government programs aimed at stimulating growth in employment and an increase in the number of jobs;
  • Programs for the training and retraining of the labor force;
  • Programs that are aimed at maintaining the employment of labor (this is the direction of special importance in recent years);
  • Government programs for unemployment insurance.

The constant and massive government regulation of employment and unemployment that exists in the United States identifies many trends in the area. In particular, it is reflected in the changes in the number of employed and unemployed, labor mobility, scale and dynamics of the level of unemployment and employment.

The U.S. government monitors the status of employment. For this purpose, a variety of reports and indicators exists:

  1. Statement of employment – in the U.S. – a monthly report which characterizes the level of employment. Employment report consists of two parts:
    • The first part, based on a survey of 60,000 households, used to calculate the unemployment rate;
    • The second part, based on a survey of 375,000 businesses, used for the calculation of employment in different sectors of the economy.
  2. Nonfarm payrolls in the United States is a monthly index showing the number of new jobs created in the non-agricultural sectors of the economy over the last month.

The growth of this indicator characterizes employment and leads to the dollar growth in foreign exchange markets.

There is a rule of thumb, according to which the increase in Nonfarm payrolls by 200,000 per month equates to an increase in GDP by 3.0 %.

2. Social and economic measures to regulate the employment of the elements of the active employment policy

The system of employment regulation that operates in the U.S. stands out as the formation of such a trend in labor demand. The state uses the following control measures:

  1. Measures to increase the supply of jobs. These include grants, the government directed businesses in the hiring of labor.
  2. Increasing the supply of jobs in the service sector and promoting small businesses.
  3. The creation of jobs for departments working under the “public work”.
  4. Measures for the sharing of jobs. These include measures such as raising the age of entry into employment, termination of employment for foreign workers, empowerment of early retirement.
  5. The reduction of working time. For example, the development of part-time employment, flexible working hours, job sharing, etc.
  6. Measures to preserve jobs. The government uses a system of tax benefits, pays subsidies to entrepreneurs for preserving jobs.

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Some measures of the state support mitigation of seasonally adjusted employment, affect the growth or reduce the level of unemployment among certain groups of the working population, others stimulate the hiring of workers, ensure the preservation of jobs, others require employers to carry out job training.

Currently, the U.S. government’s credit policy is aimed at encouraging small and medium-sized enterprises, which make a significant contribution to the national income, development of scientific and technological progress, expanding employment opportunities for a large portion of the U.S. population.

Among the economic measures of interest of monopoly are capital lucrative contracts, which are subject to the obligations of the employment to certain categories of unemployed. Another important area of regulation of the labor market in the U.S. is adjusting the supply of labor to the existing demand. Enacting these programs involves the state and entrepreneurs. Every year, these measures cost about 30 billion dollars to American companies. The state is spending on the implementation of programs aimed at retraining most of the money. By the end of the 90s, in the United States, about 50 million people were retained and trained. In order to create new jobs, the state also assumes the implementation of such public works as roads, sewers, etc. In a time of economic crisis, the government increases investment in state-owned enterprises. Employment programs are also carried out by preferential taxation of companies that create jobs.

Nationally, the modern state reduces the ranks of the unemployed trying to adjust wages to a level such that its rate of growth is slower than the growth of labor productivity. “Incomes policy “, an active monetary policy, etc. are being developed for this purpose. This tactic is used by private firms that try to make sure that the level of labor productivity grows faster than paying labor. The greatest success in this matter has been reached in the U.S.

From 1974 to mid- the 80s 23 million new jobs have been created and 12 million immigrants have been hired. Characteristically, during this time 500 of the most powerful corporations in America have cut 3 million jobs and created 7 million new places.

The significant element of social protection is the legal regulation of wage labor, which is carried out by statutory minimum wages, pensions, order fulfillment, collective bargaining with respect to conditions of work, payment of labor, social security, and vacations. By setting the minimum wage in the documents, it should consider the needs of workers and their families, the cost of housing, social benefits, the rate of inflation, as well as factors that affect the level of employment.

For the base of the minimum wage, a set of basic goods and services that satisfy the basic physiological and social needs of an individual or various types of model families (one child, two, and so on) is developed. However, this set in different countries is different. In the U.S., for example, it includes payment of wage housing, about 20 types of meat products, buying a used car every five years, etc. The minimum wage in the developed Western countries is 30 to 50% of the average wage. In the U.S. the figure now stands at $ 4.5 per hour. The separate minimum is set for the youth.

Thus, the impact on employment and unemployment is part of the general economic policies in the United States. Therefore, the government changes forms, directions, methods, and objectives of general economic regulation and determines the appropriate restructuring of the economic and institutional organization of goals, objectives of the state in the area of employment.

3. Public sector entrepreneurship

Public sector entrepreneurship is a direct method of job creation policies. The modern world experience shows that public enterprise includes the following activities:

  • The financing, organization, and management of government contracts (programs) on goods and services for the needs of public consumption;
  • Programming of the strategic sectors of the economy;
  • Management, rental, and maintenance of public, private and mixed-ownership;
  • Financial- credit and banking, taxation, loans, services, benefits, insurance;
  • Socio-economic activities (education, preservation, and reproduction of the labor force, environmental protection, health care, pension file, etc.).

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The state order is one of the main forms of the state business. State order is always placed in certain territorial and sectorial structures and meaningful “bound” to the specifics of the industry.

The construction industry is one of the main sectors of the economy, which forms the basis for all other economic sectors (economic activity) for an extended period and is one of the major artists of the state order. Quite often it could be heard in mass-media that the release of the U.S. budget of billions of dollars is a measure intended to create jobs for the construction of bridges, roads. This is the leading socio-economic function to create properties that form the infrastructure of all social processes.

History shows that public ownership in any social system and the political regime is one of the key pillars of the state and is the most important part of the government. State ownership of the country allows it to act as an independent subject of economic relations with other countries, is the guarantor of the relevant treaties and agreements.

The presence of state ownership helps to ensure favorable macroeconomic conditions for the success of the private sector; state ownership guarantees the functioning of the non-profit social environment. This property supports national security (funding from law enforcement to the maintenance of the army). Finally, realizing the ownership of natural resources (especially land) the state creates a stable relationship with many local institutions and business entities.

State ownership of national wealth ranges from 20 % in the U.S. and 35 % in Italy. In Japan, the state-owned enterprises accounted for more than 10% of the capital stock and approximately 9 % of employment in the economy. The presence of state-owned enterprises can solve the problem of employment. To carry out projects that have a high degree of risk by reducing the prices of products of public enterprises and non- profits in periods of rising inflation, the state carries out anti-inflationary measures. State-owned enterprises are assisted by local private producers to supply raw materials and components at a lower price and ensure a steady market. In this case, state-owned enterprises by virtue of their national objectives are certain guarantees of the state: various kinds of subsidies, protection against bankruptcy, waivers on import, the benefits of public procurement.


The American model of state regulation of the employment relationship has a number of specific features.

First, despite the fact that the state legal mechanism for regulating the field of employment, in the form in which it was formed in the United States, does not have direct counterparts in other Western countries; the experience of its operation has been repeatedly and successfully used in the formation of national industrial relations systems. In contrast to Western Europe, the current U.S. system of labor relations is relatively new.

Until the beginning of this century, labor relations in the United States looked like a jungle, where the hosts prevailed tyranny, protecting the interests of which were repressive organs of the state. In the very early years of the American state workers attempting to assert their rights were suppressed by all means possible: the history of labor relations in the United States is one of the deadliest in the world.

The mechanism of regulation of labor relations was formed in the United States for nearly 50 years and currently is an extensive system of public administration. Each of them knows its particular sphere of activity that almost eliminates the possibility of conflict between them on matters of competence. This kind of clear role is an advantage of the American system of regulatory agencies.

Another obvious advantage of this system – a clear definition of the range of resources used by each of the agencies (recommendations from intermediaries, the parties may accept or reject, to enforceable arbitration awards).

Thus, at the present stage of the American government through a variety of activities, including training and retraining of the workforce and the social security system actively intervene in the sphere of employment and unemployment.

Further improvement in the labor market is not possible without active state regulation. The principles and mechanisms inherent in the American system of state regulation of labor relations in the 1930s make it one of the most efficient in the world.