Hey Obama, Here are 9 Big Ideas to Beat Unemployment

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The White House is hosting a job summit today to brainstorm ways to tackle unemployment. The numbers are familiar -- 10.2 percent unemployed; another 7 percent underemployed -- but the widespread pain they represent is extraordinary. Think of it this way. The number of unemployed Americans is currently about 16 million. That's the population of Pennsylvania and Connecticut combined. If you factor in underemployed workers, you get a population larger than the state of Texas. More than eight million have lost their jobs since December 2007. That's New Jersey. Almost six million Americans have been unemployed for more than six months. That's everyone in Maryland.

Beyond the numbers, the jobs crisis is multidimensional. Most importantly, those millions of Americans represent devastated families, broken investments and uprooted dreams for their children. But they also represent devastated consumer demand for products and services, which discourages employers from investing and hiring, feeding a vicious cycle. Politically, high unemployment mocks the White House's hundreds of billions of stimulus dollars and leaves incumbents vulnerable in 2010.

Unemployment in America deserves the White House's attention, which is why I'm cautiously optimistic about today's "jobs summit" where the administration will field advice from economists and public policy experts about how to slay this beast. To that end, I offer this menu of job stimulus ideas for White House fiscal policy with an eye out for pros and cons.


Here they are, without much editorializing, listed in order of how likely it is that they will be in a jobs stimulus bill.

1) Direct aid to states
State governments have been decimated by the recession, forcing them to to make steep cuts to programs like education to avoid deficits. Direct state aid would avoid these potentially devastating cuts. 

For: It's simple: direct aid would save state government jobs (the first stimulus saved an estimated 250,000 education jobs). Now that private sector industries like manufacturing are beginning to rebound while state government continue to face a new wave of job cuts, we should be focusing on saving crucial state jobs and services.

Against: Some argue that the key to job growth is stoking private sector businesses to hire, rather than padding what they see as already-bloated state government rosters with easy money.

2) Infrastructure projects
One classic stimulus strategy is to fund infrastructure projects across the country that keeps construction workers working on roads and bridges and our roads and bridges, well, just working.

For: The CBO estimates that infrastructure projects have one of the highest multipliers, meaning that the money doesn't just sit in the pockets of employers, but rather it circulates through the economy at a good velocity which pads incomes and increases services. In other words, these projects are efficient creators of both jobs and demand and they produce roads and bridges that last.

Against: Some worry that infrastructure projects are one-offs that don't contribute meaningfully to GDP because the stimulus only helps a handful of construction large construction companies. Others worry about the kind of projects that are funded. "Shovel-ready" projects might be front-loaded, which means that some necessary, long-term construction projects are left out.

3) Tax credits for companies who hire
The Economic Policy Institute, a liberal think tank, says the government should offer tax credits for companies that expand their payrolls. They estimate that "a job creation tax credit that refunded 15% of new wage costs in 2010 and 10% of new wage costs in 2011 could create 5.1 million additional jobs in the U.S. economy over these two years."

For: We want companies to hire, and they're nervous about money. So why not simply tell employers: "Hire somebody and we'll give you money?" It's the easiest way for the government to dangle a shiny reward in front of employers' faces, and it's better than a public works project because it take on the entire salary of the newly created job.

Against: Tax credits can be gamed, and this one is no exception. Employers might try to finagle tax credits for hires they've already made, or were poised to make anyway. Some are concerned that firms might fire workers before the credit kicks in and hire them back to take the credit. That would turn the policy into free money for devious companies.

4) Small business loans (or tax cuts)
Let's not be too clever here. We know that small businesses have the potential to create a lot of jobs. So why not offer them non-recourse loans (or targeted tax cuts) to encourage them to expand and hire while protecting them against losses?

For: Since around 70 percent of job creation comes from small business, loans for those firms could go a long way in preserving and creating new jobs.

Against: Like job sharing and a payroll tax holiday, there's no guarantee that loans or tax cuts will directly create jobs, and the government might incur losses on the some loans if we promise business they don't have to pay back in full if profits don't rebound.

5) Tax credits for weatherizing homes
The NYT's David Leonhardt did a great job summing up this idea, and giving it a spiffy name: "Cash for Caulkers." The basic idea is that the government would give households money to pay for weatherization projects, which save energy costs in the future.

For: Here's a tax credit that helps construction and also saves us money in the future. Leonhardt writes: "The housing bust has idled contractors and construction workers, who could be put to work insulating homes and caulking air leaks. Many households, meanwhile, would save substantial money -- not to mention help the climate -- by weatherizing their homes."

Against: Would anybody use this credit? Homeowners can already save money by weatherizing and they're not doing it. Why? Because choosing how to retrofit your home is a really, really complicated process that even befuddled one of the NYT's most nimble economic thinkers.

6) Payroll tax holiday
The payroll tax is shared by employees and employers and a holiday would give both sides more money to spend on goods and services -- for employers, that might be enough to encourage hiring.

For: Cutting the payroll tax, which is shared by employees and employers, would give workers more money to spend and employers more money to hire. It's the perfect blend of demand-stimulus and incentive for employers to hire.

Against: The Center on Budget and Policy Priorities argues that the payroll tax holiday would lose the government an enormous amount of money (in the hundreds of billions of dollars) without any guarantee that the foregone profit would stoke job growth -- it's just an incentive after all. Also, tax cuts are very difficult to undo and some officials worry that cutting payroll taxes too steeply will create a new expected baseline for FICA that will make it politically difficult to end the holiday.

7) Tax deferrals
What's a good way to lower taxes without really lowering taxes? Tax deferrals for struggling firms. They could avoid paying taxes until the unemployment rate hits a certain level, at which point they could begin to pay back what they owe when their profits are healthier.

For: Simple. If taxes are temporarily deferred, firms will have more earnings to plow into business spending and hiring.

Against: Like the payroll tax holiday, when you mess with tax levels, you create a new reality. Ten years ago, there were no Bush tax cuts. Now Democrats and Obama want to extend them for percentiles 1-99 because it would be political suicide to do otherwise. In other words, Congress might just treat those future bloated tax returns as more money to spend, resulting in these deferrals looking more like a tax cut.

8) Job sharing
Job sharing is common in European countries like Germany, but it's practically unheard of in the U.S. Basically the idea is that the government goads employers to hire by offering them a pile of cash if they shorten the work week. Left with more cash and fewer payroll hours, they're tempted to bring on an extra pair of hands.

For: As Dean Baker (one of only a handful of job-sharing advocates) explained here: "Job sharing would use tax dollars to pay firms to shorten the typical workweek or work year, while keeping pay constant. If workers' purchasing power is held constant even as they work fewer hours, then labor demand will be held constant. This should cause employers to want to hire additional workers to make up for the fewer hours worked by their incumbent work force."

Against: Like the payroll tax holiday, the basic idea here is that employers have more money to hire. But the same critique applies: a shorter subsidized work-week guarantees more money in employers' hands, but it doesn't guarantee more jobs, because employers could pocket the subsidy.

9) Public works projects
Forget incentives. Forget the "middleman" employers we're trying to goad into hiring. Let's just have the government employ a lot of people directly. Wouldn't that be the most cost-effective way to guarantee that we're creating jobs?

For: Think of this idea as an extension of unemployment benefits, which are good public policy because they put money in the hands of poorer Americans who are more likely to spend their next marginal dollar. This would just put more money in their hands, and put them to work doing construction or urban renewal projects rather than have them stay at home and collect insurance.

Against: There's a lot of pushback here. First, some worry that a 21st century Works Progress Administration creates the expectation that the government is in the business of directly creating public works projects, which smells like socialism. Second, it's difficult to know when you unwind these projects when the economy picks up. Third, even though the economy is sluggish, you don't want the government elbowing out private construction companies from potential projects. Fourth, some states might not have enough "shovel-ready" public projects to justify a large scale reinvention of the WPA.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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