HIRE Doesn't Need to Create Many Jobs to Help

By Daniel Indiviglio

If a program meant to directly urge firms to hire only helps indirectly, is it a failure or a success? Yesterday, we learned that the Obama administration is attempting to extend HIRE. The stimulus measure provides firms a $1,000 tax credit per new hire and exempts those companies from paying the 6.2% Social Security contribution for those new employees who were jobless for more than 60 days and remain on the payroll for more than one year. A major criticism of the measure is that most of the firms who take advantage of the legislation would have hired anyway. So what?

First, that criticism is very likely quite valid. We saw a similar effect with "Cash-for-clunkers" and the home buyer credit. Many companies that would have hired anyway may simply stick out their hand for a wad of cash from Uncle Sam. The number of truly new jobs that the $18 billion in funding would create is actually quite low. The Congressional Budget Office projects the program to create just 300,000 new jobs, as my colleague Derek Thompson pointed out back in March. That's something, but it's doesn't do much to chisel away at the 15-17 million unemployed Americans.

So is the effort a waste -- just another loser government program? Not necessarily. Most businesses -- especially small ones -- would gladly welcome some extra cash these days. Even if most of the additional jobs that qualify for the program's funding would have materialized without it, who cares? Firms that hire are getting a reward for doing so, and they could use the help.

Perhaps we shouldn't think of HIRE as a direct effort to create lots of new jobs, but as a stimulus measure to directly benefit firms that bring on additional workers. It's sort of like a tiny, pseudo-payroll tax holiday for companies that do their part to help the labor market's turmoil. Businesses are very concerned with their tax burdens these days, and HIRE will reduce the total amount they owe.

And remember, once firms have that cash, they're going to have to do something with it. Ideally, they'll spend it on equipment or more hiring. But even if they sit on the cash, it will help strengthen banks or the capital markets, as well as strengthen the firms' stability. The private sector can certainly use the money. At a time when passing any kind of stimulus is so difficult that Congress can't even get unemployment benefits extended, any bipartisan measure that tangibly benefits businesses belongs in the 'win' column.

This article available online at:

http://www.theatlantic.com/business/archive/2010/07/hire-doesnt-need-to-create-many-jobs-to-help/59674/