Let's just have the government employ our way out of the recession!Submitted by amartin315 on Wed, 07/11/2012 - 23:03
So I was looking for an answer to the liberal proposal for government to just employ people out of the terrible employment situation. Comment on my research? The toughest thing was finding a good K/L ratio.
The size of the civilian labor force is about 150M. Let's not talk about discouraged workers for simplicity. 1% of 150M is 1.5M. Assuming 5% unemployment is "good" and rounding 8.2% to 8, 3% is 4.5M. Assuming the worst, that we could create that many jobs but only pay them 20K, 20K multiplied by 4.5M is about 90B if you're just going to hand the money out. Of course you cant do that or people will just quit their jobs, and it costs money for the physical capital required to make the job in the first place. Now if we include the "normal" labor force participation of 66%, the labor force is 205M. 1% of that is 2M. We're at about 11% there. reducing that to a "normal" 5% would be to create 12M jobs. At 20K that would cost 240B, again just handing it out.
Now, in 1985 the capital to labor estimate was 185000 to 1 worker. That means the market spends on average $185000 per worker on physical capital to make or do whatever it is they do. (Google around for K/N ratio or Capital/Labor Ratio). If you take that into account when you want to take that unemployment out, it amounts to $2.2 Trillion, plus of course the 240B in labor costs giving you a whopping $2.44T. That is for dirt poor wages and government jobs that I didnt even mention never produce as efficiently as the private sector, even when you ignore corruption.
It gets worse though. If you spend that $2.44T on a bunch of people making only 20K per year, food would skyrocket to the point where they and anyone else cant afford it, even on their $50K job.
If someone knows of a better K/L ratio I could use, let me know. And on anything else, let's just play devil's advocate. It'll give us a more solid argument against the neo keynesians