U.S. Sen. Al Franken says the federal government should resurrect a plan the state of Minnesota used to get people back to work a quarter century ago. Franken says his proposal to subsidize wages could put half a million Americans back to work, including 15,000 Minnesotans.
Franken, DFL-Minn., calls the plan "Cash for Jobs," but its formal name is the Strengthening Our Economy Through Employment and Development Act, or SEED Act.
Franken proposes using $5 billion from the Troubled Asset Relief Program to subsidize job creation in the private sector.
"The SEED Act will incentivize rapid job creation by offering small and medium-sized companies, and non-profit companies, a direct wage subsidy to hire new workers and expand their operations," Franken said.
The SEED program is very similar to the approach taken by Minnesota officials in the early 1980s. At the end of back-to-back recessions at that time, the state's unemployment rate reached 9 percent.
Times were tough statewide, and especially on the Iron Range. People needed jobs. And one way the state tried to put people back to work was by giving employers up to a $5 an hour subsidy for hiring the unemployed.
"I think it worked very well back then, and I think it would work again," said Joe Samargia, who was commissioner of the Minnesota Department of Jobs and Training back then.
“It's probably going to take something like [this] to kickstart the small businesses and get them going again.”Mike Gramse, Minn. Precision Manufacturing Assn.
The jobs program was known as the Minnesota Emergency Employment Development Act, or MEED for short.
The state allocated about $100 million to fund the program from 1983 to 1985. About 30,000 people enrolled in the program. About 15,000 ended up landing permanent unsubsidized jobs through the program during its first two years.
Longer term, Samargia recalls, the kick was greater as the program continued.
"I think in the five or six years that it was in existence, we had like 40,000 people that got jobs," said Samargia.
Forty thousand jobs is about as many jobs as the state added in all of 2005, the year that saw more job growth than any other since 2000.
A report on the MEED program indicates most of the funding went to job subsidies, and only about 5 percent went to administrative costs.
Timothy Bartik, an economist at the W.E. Upjohn Institute in Michigan, has studied job creation programs and he says the MEED program was one of the most cost effective he's seen.
Bartik estimates it cost about $34,000 in current dollars to create a job under the MEED program.
"I think it's worthy of emulation, particularly now," he said.
Bartik says employers had to do quite a lot under the MEED program. And he says that would be true under Franken's plan, too.
"They have to hire someone who has been unemployed for a certain length of time, and it has to be for a new job. It can't be for a job vacancy. And they also have to retain them for a considerable period of time," said Bartik.
Franken's bill would provide a 50 percent wage subsidy up to $12 per hour. The money would be available only to companies with fewer than 500 employees. Additional subsidies would be available for employers hiring veterans or offering health insurance.
Workers would only qualify for a wage subsidy if they had already exhausted their unemployment insurance payments. In most cases, workers receiving subsidized wages would have to be paid at least $10 an hour.
Leaders of some major business groups say a wage subsidy could spur employers to add jobs.
Mike Gramse, president of the Minnesota Precision Manufacturing Association, says he's concerned about growing federal budget deficits, but he adds, "I think it's probably going to take something like that to kickstart the small businesses and get them going again. Subsidizing payroll will help, I believe."
Other business leaders are more bullish about the Franken bill.
David Radziej, president of the Printing Industry of Minnesota, has no doubts a wage subsidy would encourage companies to consider hiring new workers.
"It certainly would stimulate them to take a look at it," he said. "Absolutely."
Some business leaders say it's critical to coordinate any wage subsidy with broader efforts to revive the economy and restore the confidence of employers. That's the view of Bill Blazar, senior vice president of the Minnesota Chamber of Commerce.
"As appreciative as we are of Sen. Franken's effort to get more people working, we want to ask the question: So, what else are we going to do to make sure once the subsidy ends, the jobs continue?" said Blazar.
A Senate committee hearing date for Franken's bill has not yet been set. A spokeswoman for Franken says the senator believes the wage subsidy plan fits wells with Obama administration proposals to create jobs.