The Economics of Rejection

In announcing his rejection of part of the federal stimulus money, Louisiana Governor Jindal stated that Louisiana can fund its own unemployment program without outside assistance, and that in any case, the only way the state could spend the additional unemployment-related stimulus money would be to extend unemployment benefits to people who were only employed part-time. The National Employment Law Project has projected that the unemployment extension would benefit 24,981 Louisiana residents. In his public statement, Jindal instead focused his concern on the possible negative impact on the state’s businesses, apparently believing that he has to choose between Louisiana’s unemployed and its businesses. Fortunately for both groups, that is not the case.

Even if one were to accept Jindal’s premise that people who lose part-time jobs don't, for some reason, disserve any unemployment benefits, it is worth bearing in mind that the primary impetus behind the federal legislation is to stimulate the economy. The unemployment benefit extension is, in that context, simply a vehicle used to help deliver the stimulus. It is logical choice, given that unemployed workers, especially those workers who have lost even part-time employment, spend every dollar they receive--immediately, and in the local economy. This spending, in turn, creates full-time jobs, income, and yes, even tax revenue in the state.

According to data from the Institute on Taxation and Economic Policy, Louisiana residents who earn $24,000 or less a year, a level that would include most part-time workers, pay an average of 10.5% or slightly more in state and local sales and excise taxes. Applying some simple math, $49 million a year in federal dollars going to Louisiana’s unemployed residents would generate a little over $5 million a year in sales and excise tax revenues to Louisiana. These tax revenues would contribute to the support of public services, many of might otherwise be cut back, along with the jobs involved in delivering those services, given the sagging recessionary economy.

Other than for these state and local taxes, almost the entire amount of the federal support going to Louisiana’s unemployed during a time of severe economic downturn immediately materializes as consumer spending, most which would go directly Louisiana retail businesses. Subtracting out the sales and excise taxes, the unemployment funding would still represent an additional $44 million in consumer spending by Louisiana residents.

Louisiana’s economic history suggests that $44 million in consumer spending would support about 650 private sector jobs in the state, while the $5 million in state and local funding would maintain 100 or so additional jobs--school teachers, policemen, firemen, and so on. Together, the $49 million in annual employment benefit extension would support about 750 jobs each year of the federal stimulus effects. Just as the stimulus program intended.

Seven hundred and fifty new jobs (or possibly saved jobs, given the severe recession) might not seem like a lot to Govern Jindal. However, most governors, if approached by someone suggesting that they were considering employing 750 jobs to their state, would bend over backward, and probably offer the keys to the executive mansion, to make it happen. Governor Jindal can help Louisiana’s unemployed workers, its businesses, and the economy by just saying “yes.”