Economy Would Improve With Implementation of Economic Reserve Corps

The development of an economic reserve corps, in combination with unemployment or inflation-triggered legislation, will enable shovel-ready projects to counteract economic downturns. 

According to Keynesian economics, government expenditure should increase during a recession in order to keep domestic output and aggregate demand constant, thereby stabilizing the economy. However, increasing government spending in a recession is more complex in reality than it is in theory, as evidenced by the 2008 recession and the strong political opposition to stimulus projects. 

After the passage of the American Recovery and Reinvestment Act (ARRA), President Obama stated, “there’s no such thing as shovel-ready projects”. Infrastructure projects are broadly defined as public goods with long, useful lives, such as roads, utilities, and broadband Internet. Such projects require approval for funding, site selection, and authorization, as well as worker selection and training, all of which take a significant amount of time and can often delay implementation. As currently implemented, infrastructure projects may not be agile enough to be a reliable tool for stimulating the economy. However, as other sectors of the United States government have demonstrated, these delays can be reduced. 

For instance, the reserve components of the United States armed forces enables the U.S. military to maintain a large, responsive, and trained military at a lower cost and without drawing workers away from the private sector when compared to a similarly sized standing military. 

Analysis 

A four-pronged solution is necessary to enact efficient and responsive stabilization funding: pre-approval, identification, evaluation, and utilization. First, infrastructure projects would be proposed during periods of economic growth. By designing and pre-approving infrastructure projects, we can ensure quick access to them during times when they are most needed to stabilize the economy. Second, an economic trigger based on unemployment or inflation rates will be determined so that the government will automatically begin the implementation of the predetermined infrastructure plans. Third, to ensure that infrastructure projects stay up-to-date with our societal needs, all approved projects will be regularly reviewed. Finally, the Economic Reserve Corps should be formed using funds from an optional unemployment insurance program that will be paid by employers who sponsor employees to participate in this program. The majority of unemployment insurance spending occurs during periods of recession. 

For example, disbursements of unemployment insurance totaled $128.4 billion, or 0.9% of GDP, in 2009.3 Thus, up to 50% of spending on the Economic Reserve Corps could be offset by tax credits toward unemployment insurance, as all employees in a participating workplace would be less likely to claim benefits since early flexible staffing policies could reduce the need for mass layoffs later. 

When the infrastructure triggers are reached, an infrastructure project will be set in motion, and members of the Economic Reserve Corps at participating companies that are seeking to reduce their workforce will be transferred to the infrastructure projects. In exchange for a greater guarantee of employment and the opportunity for paid skill training, the employee who is in the Economic Reserve Corps agrees to return to his/her sponsoring employer once the company has the capacity to rehire. The company’s participation in the Economic Reserve Corps promotes profitability during a recession, reduced hiring, training, and firing costs, and serves as an additional incentive to recruit talented workers to a company, regardless of the employee’s participation in the reserve corps. Additional incentives, such as tax credits, could be offered to encourage companies to re-hire reserve corps workers as soon as possible. 

Next Steps 

In order to prevent another “Great Recession”, the U.S. Congress should propose the Economic Reserve Corps program and establish a procedural standard for recession triggers on future infrastructure projects. Information should be distributed to employers, who can opt in, and select employees to sponsor in the Economic Reserve Corps.