Obama's Rural Job Creation Plan May Simply Shift Resources

Aug. 17, 2011 — -- President Obama announced new economic initiatives the administration said will help create jobs in rural areas, but economists say any gains may be minimal and might even displace jobs in metropolitan areas.

Obama announced hisrural jobs initiatives plan, at the White House Rural Economic Forum in Peosta, Iowa, on Tuesday, as part of his bus tour of the Midwest.

He will announce the specifics of a wider jobs plan in September.

The rural plan includes doubling the U.S. Small Business Administration investment funds for rural small businesses over the next five years and launching a series of Rural Private Equity and Venture Capital conferences nationwide.

It also will expand Department of Labor and USDA jobs search and training information at 2,800 USDA field offices, increase rural physician recruitment and expand health information technology in rural hospitals and clinics.

"America is going to come back from this recession stronger than before," Obama said in Iowa. "And I'm also convinced that comeback isn't going to be driven by Washington. It is going to be driven by folks here in Iowa. It's going to begin in the classrooms of community colleges like this one. It's going to start on the ranchlands and farms of the Midwest, the workshops of basement inventors, and storefronts of small business owners."

ABC News asked three economists to weigh in on the first look at the plan.

"They're worth doing, but very tiny compared to the size of the problem we face: the huge shortfall in consumer demand and unwillingness of business to create enough jobs when consumers aren't able to buy," Robert Reich, a professor of public policy at the University of California, Berkeley, said. "The White House must do more than come up with policy miniatures."

Stephen Bronars, senior economist with Welch Consulting in Washington, D.C., said the "modest" proposals are likely to do no harm and may have a small benefit for the job situation in rural America. He said hosting conferences between private investors and rural start-ups is the "best idea" of those announced.

"We know that start-ups and small businesses will create many jobs as the economy recovers," Bronars said. "I like the idea that private investors and venture capitalists, rather than government bureaucrats, will decide which of the many small businesses have the best ideas and opportunities for growth."

Bronars also said the allowing citizens to access Labor Department job search information at field offices could be beneficial, but the key question is whether applicants' skills will match the positions for which employers are hiring.

Economists would have difficulty estimating the number of jobs created from the preliminary plans. Bronars warns that targeting job creation in rural areas could potentially displace a job in another area of the country.

As part of the plan, the Department of Health and Human Services will modify the National Health Service Corps loan repayment program to allow more than 1,300 small, rural hospitals to recruit new physicians.

The White House estimates that the addition of one new primary care physician in a rural community generates $1.5 million in annual revenue and creates 23 jobs annually. The average critical access rural hospital creates 107 jobs and generates $4.8 million in payroll annually.

If this rural physician is displaced from an urban or suburban area, Bronars said there may be one fewer physician in urban and suburban areas, which could lead to less revenue and fewer jobs where the physician would have otherwise been placed.

"The net impact of this program on jobs must account for both the increase in health services provided in the rural communities and the decrease in services provided in other areas," which will likely lead to lower job creation numbers, Bronars said.

And while encouraging physicians to care for the growing aging rural population may be sensible health-wise, it may do little to stem the tide of younger populations migrating to other cities, Bronars said. The latest Census figures released earlier this summer indicate that 16 percent of the U.S. population lives in rural areas.

"It is not just physicians who are unlikely to migrate to rural areas after completing their degree. Every year young people leave rural areas to acquire business, computer science, engineering and other technical degrees and then move to metro areas after completing their schooling," Bronars said. "Rural areas will face a challenge when looking for talented job applicants."

Phillip Swagel, former assistant secretary for economic policy at the Treasury Department from 2006 to 2009 and former chief of staff at the White House Council of Economic Advisers, said it may be "helpful" to remove obstacles facing rural hospitals as they seek to recruit doctors and purchase new IT systems.

He said the president's announcement is "more enhancement than new policies."

"It's akin to putting a new ribbon on last year's birthday present and using it as a gift again," Swagel said, describing only some of the proposals as "useful."

Swagel, now professor of international economic policy at the Maryland School of Public Policy, said access to information about job training is an appropriate response to the weak labor market, which faces a 9.1 percent unemployment rate.

But he said the announced programs to expand government loans for targeted projects seem less promising, in light of recent reports about the failure of similar programs in the stimulus bill.

He cited the bankruptcy filing by the solar panel manufacturer Evergreen Solar in Massachusetts this week, which was awarded $58 million in tax breaks and other state aid. Though the company did not take advantage of all of those incentives, the state is trying to recoup some of the money it did get, according to the Boston Globe. The company said it was unable to compete with Chinese competitors as prices of solar products dropped.

"In general it's not a good idea for the government to seek to pick winning sectors or technologies. This is better done by the private sector," Swagel said.