How to Create New Jobs Now—and Why

The House has voted to extend unemployment benefits in states with high unemployment, and the Senate is moving to pass a broader version. That not only helps the growing ranks of the jobless but also increases demand for goods and services.

There now seems to be growing interest in a new temporary jobs tax credit for employers that would roughly offset social security payroll tax costs of new hiring. Although backed by former Labor Secretary Robert Reich and the progressive Economic Policy Institute president Larry Mishel, it could appeal to some conservatives as a tax cut — but not Wall Street Journal editorialists.

They cite criticism of such a tax credit by liberals as doing nothing to create demand for products that would merit new hiring. But Mishel argues it could encourage employers who are hesitant but thinking about hiring.

Center for Economic and Policy Research economist Dean Baker would link a payroll tax credit for all workers to employers reducing their hours of work but at the same pay, thus creating demand for new employees. (Reich also suggests simply a one-year payroll tax holiday for the first $20,000 of income – a tax cut for workers and employers that would be skewed to help lower-income workers.)

Mishel, like all liberal analysts, proposes an extension of the safety net – unemployment insurance, access to health insurance, and food stamps. He and Reich also advocate more aid to state governments. ​“Helping state and local governments avoid job cuts is as effective as creating new jobs,” Mishel testified to a house Ways and Means subcommittee last week. Reich proposes using existing authority under the stimulus legislation and the Troubled Asset Relief Program to create a single state aid fund.

Mishel recommends increased infrastructure spending – which may be slow to kick in, but will still be needed since high unemployment is likely through early 2011. And he proposes funding for public service as ​“a direct and cost-effective way to create jobs.” A staple of Democratic anti-recession policy proposals since FDR, public service job creation has received little attention in this downturn.

Worries about the cost of these programs or increases to the deficit are misguided. High joblessness creates huge deficits in production, income and taxes, and failure to spend to create jobs is more costly in human and social losses than the deferred bill for stimulus programs that so far have been half the size needed.

But legislators should get the biggest employment bang for stimulus bucks. Currently, the least effective — an employer tax credit for hiring — seems more likely to win support than more effective measures like aid to states, public service jobs, or a social security holiday for reducing worktime.