Biden’s soft infrastructure agenda may not fuel growth

A $1.2 trillion bipartisan infrastructure deal and a reconciliation bill passed by the Senate earlier this year are Democrats trying to cut from their original $3.5 trillion price tag, which President Biden called a “once-generation investment” in the economy. as described. .

Investment generally refers to spending that generates a stream of profits in the future, making the economy larger and more productive. A recent White House memorandum cited a letter from 17 Nobel Prize-winning economists as saying that both bills qualify as infrastructure “human capital, the care economy, research and development, public education, By making significant investments in more…[T]His agenda invests in long-term economic potential and will enhance the ability of more Americans to participate productively in the economy.”

Other economists are not so sure. Most agree that items funded by the bipartisan bill such as roads, bridges and airports—referred to as tough infrastructure—qualify as investments. But the research is less helpful whether things in the reconciliation bill such as free community college, expanded Medicare eligibility and benefits, and paid family leave—called soft infrastructure—would spur economic growth.

There is no simple answer to what Mr Biden’s overall agenda will benefit from because there are so many different components and it can take decades to fully measure their effectiveness. Eight decades later, economists are still divided over Franklin D. Roosevelt’s New Deal.

Furthermore, all the intended benefits of a reconciliation bill, such as improving quality of life for families, reducing inequality, slowing global warming and expanding healthcare, cannot be measured with GDP.

“While our competitors are investing in the care economy, we stand still,” Mr Biden said earlier this month in Michigan. “Millions of American parents are feeling squeezed, having a hard time doing their jobs, earning a paycheck, while taking care of their kids or aging parents.”

White House spokeswoman Emily Simmons said in a statement: “The Build Back Better reconciliation package is a historic, long-term investment in our nation’s economic future – an investment that research shows will increase GDP, a larger labor force.” will build global competitiveness and improve living standards and more equity in the coming decades.”

While both sides of the debate can point to studies that favor their case, here’s what academic and other research says about three major components.

free community college

Mr Biden’s proposal would waive tuition for two years of public community college, as well as provide more cash to cover living expenses that sometimes prevent low-income students from attending.

The argument is that education and training increase human capital and boost future income and GDP. According to the National Center for Education Statistics, more than a quarter of students in higher education are enrolled in a public two-year community college.

Research on free-college programs in several cities and states in recent years shows that they generally boost enrollment. Actual educational attainment and wage growth is less clear because many students who enroll do not graduate, often because they are not prepared for college level education.

Beginning with the high school class of 2015, the Tennessee Promise Program has offered free tuition to all recent high-school graduates from two years of community college, while still accessing other state and federal financial aid. In its first year, according to the system that governs Tennessee’s community colleges, the state saw a first-time increase of about 25% of freshmen.

“The Tennessee experience shows that we can expect more students to go to college if they know for certain that it will be tuition-free,” said Celeste Carruthers, an economics professor at the University of Tennessee who studied the program. has done.

According to the Tennessee Higher Education Commission and the Tennessee Student Aid Corporation, just 18.1% of the Tennessee Promise in 2015 graduated after three years. Almost half – 48.8% – had dropped out.

In a research paper published in August, Jack Mountjoy, an economics professor at the Chicago Booth School of Business, said free community college could prevent some students from earning a four-year degree, which could lead to higher incomes. They found limited evidence that increasing enrollment in two-year colleges enhances educational attainment and income.

“Whatever upfront cost savings a student gains by studying in two years instead of four straight years is probably going to be outweighed by the loss of professional earnings,” Mr Mountjoy said in an interview.

Mr. Mountjoy found offering a free community college positive economic results for students who would not otherwise attend a college. “About 10 years after they enter, wages increase by about 20%,” he said.

paid family leave

The Biden administration has argued that its proposal to spend $225 billion over a decade to offer 12 weeks of paid leave for parents, family, illness and other needs, up to 80% of a worker’s salary, is Will boost both quality of life and economic. Production by encouraging more women with children to enter the workforce.

In 2002, California became the first state to implement a paid family leave program. Since July 2004, the Paid Family Leave Act has offered six weeks of partial paid leave, funded by payroll deductions, to attend to a serious health condition of an employee or family member, or to bond with a new child. .

According to the state employment development department, the number of annual claims has increased from 154,425 in 2005 (the first full year of the program) to 288,778 in 2020.

The White House cites a study from the California Program that suggests new moms who take leave are more likely to work nine to 12 months after the birth, perhaps because those with weaker attachments to the labor force have taken up jobs. There was an increase in the continuity of .

But taking a longer view, a 2019 research paper written by three economists in academia and one at the Federal Reserve Bank of Chicago using IRS tax data found that “there is little evidence that[the law]has allowed women to do so.” increased employment, wage income, or attachment to employers.”

Compared to women who gave birth in earlier years and in other states, the paper found that new mothers using paid parental leave “reduced employment by 7 percent and six to 10 years after giving birth.” Later, the annual wage was reduced by 8 percent.

The study found that new moms with access to paid leave can expect to receive about $1,833 in salary replacement for one year, but about $25,681 less income over the next decade, with a net 10-year net of nearly $24,000. For loss.

Free or discounted pre-school and babysitting

The Biden administration says its plans to expand access to preschool and affordable child care will help support long-term economic growth by making it easier for parents to work.

The Washington Center for Equitable Growth, a think tank dedicated to reducing income inequality whose former head is now on Mr Biden’s Council of Economic Advisors, found that the benefits of a universal pre-K system to the nation’s GDP are three. may be more than that. greater than investment.

The group’s research shows that an annual public investment of $35 billion in high-quality, 30-year pre-K schooling will result in 353,000 new jobs within 2 years. It stated that increases in tax revenues and reductions in government spending exceeded the cost of the program “by a 1.61-to-1 ratio”, meaning “greater investment in the form of both greater GDP and budgetary savings”. pays in.”

However, merely extending hair care does not guarantee results; The quality of being away from parents and the impact on children also matters. A 2019 study found that a program launched in Quebec in 1997 to promote labor-force participation among women to offer very low-cost child care but not attendees later in life Worse outcomes were reported for health, life satisfaction and criminal activity.

There weren’t enough places in high-quality facilities to meet the dramatic increase in demand, said Jonathan Gruber, an economist at the Massachusetts Institute of Technology and one of the study’s authors.

“There is now a large economics literature that suggests that access to high-quality child care improves outcomes, but expanding access without investing in ensuring adequate supplies can lead to poor outcomes,” Mr. Gruber said.

The study’s authors found that participating in child care had lasting negative effects on things like non-cognitive skills, patience, and perseverance. “The increase in aggression and hyperactivity is concentrated in boys, as is an increase in crime rates,” they wrote.

The White House responded by saying that the proposal put forth by Mr Biden is different. “In Quebec, the program was scaled up rapidly, which created challenges,” Ms Simmons said. “The president’s proposal invests in building the capacity of the system as the program is phased out so that families can access high-quality care.”

Kent Smeters, professor of economics at the Wharton School of the University of Pennsylvania, said the positive impact of preschool and other programs depends on how well they are targeted.

“If it’s very targeted preschool and targeted child care, it could actually increase GDP by about 0.1%,” Mr Smeters said. But a universal program would pay for child care for parents who would have paid anyway. “Now you’re creating an even bigger loss, but you’re not really adding productivity to those people because they would have otherwise bought it themselves.”