Governor Newsom Needs a Jobs Policy for the Fourth Industrial Revolution

By Alison Schmitt

After listening to Governor Newsom’s first State of the State on February 12 and reading through his proposed 2019 budget, there is one glaring omission from his progressive spending plan: a comprehensive jobs policy.

Although it does include a much-needed plan to expand the Earned Income Tax Credit, Newsom’s statewide budget agenda is incomplete without a comprehensive strategy for increasing the quality and number of jobs throughout the state. While it is energizing that Newsom has prioritized major investments in early childhood education and housing, two areas in severe need of funding increases, these investments must connect to a larger vision for statewide economic prosperity that includes employment.

The Fourth Industrial Revolution, characterized by the implementation of smart technology and rise of cyber-physical systems, will have major implications for the future of the employer-worker relationship, which will in turn impact economic advancement and mobility opportunities for Californians. The dramatic restructuring of the labor market, coupled with increasing income inequality, has intensified the need for a new paradigm to guide interactions among employers, governments, and other cross-sector actors. As wages stagnate and worker bargaining power continues to decline, a new relationship is needed to ensure workers can achieve economic prosperity.  

In order to help workers and businesses navigate the painful transitions of this new revolution, the public sector needs to redefine its role as an economic actor and leverage its position as employer, purchaser, and policymaker to pilot new initiatives and model behavior for the rest of the state.

The public sector as an employer

Governor Newsom’s current budget proposal includes increased funding for apprenticeship and pre-apprenticeship programs, including $27 million for apprentices in the green economy. In addition to this funding, which will expand private sector apprenticeship opportunities, state agencies can develop their own apprenticeship programs internally in non-traditional fields such as cybersecurity and human resources. Doing so would allow them to model the behavior they wish to see in private companies and act as a test case for apprenticeable occupations outside of the construction trades, which currently account for the majority of these opportunities.

These civil service apprenticeships can serve as a crucial workforce development tool for racial minorities who often face discrimination and other barriers to employment in traditional private sector career pathways.

The public sector as a purchaser

The State of California spends several billion dollars each year procuring products and services from external vendors. Public agencies can use this purchasing power to make positive changes in their communities and benefit workers.

For instance, many agencies, such as the Port of Oakland, currently use Project Labor Agreements (PLAs) and Community Benefit Agreements (CBAs) to increase the number of local and disadvantaged residents they hire to work on public construction projects. As a powerful buyer, the public sector should expand its usage of these types of agreements to ensure economic activity benefits local community members.

The public sector as a policymaker

The government primarily uses two policies to intervene in the labor market: wage subsidies and wage insurance. A wage subsidy program is a way to encourage employers to hire workers by providing a financial incentive. Subsidies can be structured to incentivize general employment or to target the employment of specific groups and can be in the form of a tax credit or direct wage subsidy.

Examples include the federal New Jobs Tax Credit in the 1970s, in which tax credits were given to companies that hired any type of worker, the Work Opportunities Tax Credit, which provides discretionary tax credits to firms that hired specific disadvantaged groups, and the Minnesota Employment and Economic Development program (MEED). Through MEED, the State of Minnesota subsidized up to $4 in wages and $1 in benefits per hour to incentivize firms to hire residents that were ineligible for workers’ compensation and unemployment insurance, or were on public assistance. Employers did not have to repay the subsidy if they retained the worker for one year after the six month subsidized period, and Minnesota’s return on investment was 11.9 percent per year. This type of policy provides a financial carrot to companies and in turn supports strong private sector employment growth.

Wage insurance, a policy tool that has typically been used to address trade-related structural job losses, uses government funds to temporarily pay a portion of the difference between a laid-off worker’s old wage and new wage if the new job pays less. Unlike unemployment insurance which inherently contains a work disincentive, an individual only receives the payment if they obtain a new job. Just as communities have struggled to adapt to factory closures in declining industries such as automobile manufacturing, automation will cause painful layoffs that will likely harm workers at the bottom of the income distribution. The Fourth Industrial Revolution will inevitably result in numerous new jobs as companies learn to expertly match workers with artificial intelligence, yet these workers will also be forced to up-skill into new career pathways, often late in their careers. There is currently no infrastructure in place to ameliorate the financial strain of this transition for workers, and a policy like wage insurance is needed as a financial cushion to assist workers as they enter a new industry.

As our economy transitions in the coming years, the public sector needs to leverage its position as a powerful actor and be proactive in making policies to support the economic security of workers.

Alison Schmitt is a Master of Public Policy candidate at the Goldman School of Public Policy.

The views expressed in this article do not necessarily represent those of the Berkeley Public Policy Journal, the Goldman School of Public Policy, or UC Berkeley.