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24/7 Wall St. looked at 10 possible solutions that could decrease unemployment to the 5% level that most economists think is healthy and normal for an expanding economy.
None of these plans are new, but some of them have not been used in America for decades, and others have only been used by other nations. There are few complex aspects to any of these solutions, although most of them would require an organization as large as the federal government to administer them. And some of these proposals would be unpopular with voters, at least those who are employed. More from 24/7 Wall St.: • Sudden Excitement in Jobs & Staffing Companies• Too Many Cell Phone Companies Expect Huge Unit Growth• The Cities The Great Recession Left Behind
1. Tax Credits. Tax credits will almost certainly be part of any program to improve unemployment because businesses need a concrete reason to hire during a difficult economic period. Companies have become used to employing people part-time to keep the costs of benefits and severance low. Any plan to increase the number of full-time workers in the labor force will need to address this "part-time" issue.
The federal government will need to provide a simple tax credit equal to the first year's compensation of new workers or workers converted from part-time status. This would give enterprises that would like to expand but are ambivalent about the economy enough of an incentive to do so in many cases.
2. Funding Reduced Pay. Germany has a government policy that provides tax credits to companies that shorten work hours rather than lay off employees. This gives enterprises that want to increase their number of workers the ability to fund a portion of the cost by cutting the hours of existing workers with the financial aid from Berlin.
The German government is effectively decreasing unemployment by aiding the private sector when it needs to bring down costs. An enterprise that lowers the average compensation of its workers by 10% through reduced hours can add net new workers indirectly using government aid. Using the same system, a U.S. company with 100 people could add 10 if the federal government offered a stipend to keep the balance of employees' compensation "whole."
3. Saving Small Business. Economists, Fed Chief Bernanke, and organizations like the Small Business Administration have repeatedly made the point that small businesses are and have been the primary engine of job creation in America. Companies with work forces under 500 create nearly half of private non-farm GDP. Large companies have had easy access to capital markets even with the depressed economy. They have been able to take advantage of historically low-interest rates to stockpile capital.
By contrast, banks have been reluctant to fund small operations that have little or no cash and uncertain prospects and usually a relatively small number of customers. The idea that the federal government should shoulder some of the risk of small business loans has been proposed several times, but no legislation has been passed to support small business bank aid on a wide-scale basis. Without a well-funded small business sector, unemployment is unlikely to improve.
4. Working for the Government. Many of the FDR economic stimulus programs of the 1930s were failures when viewed through the lens of permanent job replacement. But, giving people work, even it if is not permanent, helps buoy the economy during sharp downturns. The criticism of programs like these is often that they represent a step toward socialism. It is time to allow Americans to intelligently explore what price we are willing to pay to stabilize our volatile economy that has resulted in persistent unemployment without labels that are political and not productive.
Large initiatives like health-care reform represent a similar challenge, and eventually decisions about capitalism in the U.S. will gather enough force so that programs put in place to help citizens during a historically difficult period may be set aside later. The Works Progress Administration was created in 1935. It added nearly 8 million jobs to the economy by a number of measurements. The first three years of the WPA cost the country $7 billion, which by today's standards would be several dozen times that. However, the jobs created allowed the government to avoid unemployment support to people who would have been essentially idle and gave them job skills that in many cases were useful when the economy recovered.
The alternative that the government had during the Depression was to offer the unemployed no support at all. The ranks of the indigent would have swelled well beyond the appalling levels that they achieved in the years before WWII.
5. Jobs Not Projects. A second stimulus package has been mentioned several times by the White House as the most likely option to reverse the slide in the economy. A stimulus package as large as the first one -- nearly $800 billion -- would encompass some of the other programs on this 24/7 Wall St. list. What should not be in a new stimulus package is as important as what should be. Not enough of the first stimulus package went to direct job creation and too much went to tax incentives. This slowed the rate at which the money had a significant impact on unemployment.
The most badly crippled segments of the economy would need to receive money most rapidly. The state and municipal governments, which have been almost completely destroyed by the downturn, require money immediately, if for no other reason than to keep them from firing and furloughing more workers. The budget cuts of states and municipalities have been a tremendous burden on the economy because they have added hundreds of thousands of people to the ranks of the unemployed. The other weakness of the first stimulus is that it was based to some extent in investment in specific sectors like infrastructure expansion. This ended up as an attempt to put large sums of money into industries and sectors of limited size. A new stimulus program would have to be much broader in its goals than the first, which focused too much on modest-sized sectors of the economy.
6. China. It will be hard for the economy to recover and for the jobs picture to improve if China keeps it currency advantage compared to the U.S. The value of the yuan almost certainly improves China's ability to keep the costs of its exports to the U.S. low and raise the cost of imports from the U.S. Some analysts have said that the increase in costs of labor within China may even make the situation worse for the U.S.
The People's Republic will be anxious to pass along higher labor costs to its trade partners. The yuan's value could be an effective tool for that. The federal government would have to do two things to get China to rethink its trade and currency policy. Each is risky. The first is that the Treasury Department would have to make a direct threat to Beijing to label it as a "currency manipulator," a designations that carries with it a number of trade sanctions. The second action by the American government would require that "strategic" imports from China be taxed. This would probably have to include finished metals like aluminum and finished commodities like tires. Each of these tend to be products in which China can use its labor cost and currency advantage to allow its exporters high margins, often at the expense of competing American companies.
7. Underwriting Exports. The Administration has said that the economy needs to evolve from a consumer-based economy to one that relies more on exports. If the issues of trade with China are resolved, there are still some hurdles to this goal. Among the most meaningful is the cost of physical shipping. For products that have low profit margins, the price of air, sea or ground transportation can be the difference between a significant cost of goods sold and one that is manageable.
The government could elect to underwrite the cost of shipping, particularly for businesses that are relatively small or larger manufacturing businesses that are in sectors that have had large layoffs. The direct government payment of export shipping costs would almost certainly become a trade issue with other nations, but that is one of many hurdles that almost any other trade-based solution to the economy and employment faces. The Administration is correct. Consumer spending will never again be 65% to 70% of GDP. Export increases have to be part of the solution.
8. The Minimum Wage. The part of the work force that usually has no savings and no visible means of withstanding a long period of unemployment is the lower class, those who live at or below the poverty level. These workers are often paid only the minimum wage and receive no or the most modest benefits.
The government could choose to reimburse some part of the minimum wage paid to each American who is compensated at this level This would give many workers who are among the lowest paid in the country a chance to keep their jobs. It would allow many modest-sized businesses that pay people the minimum wage an opportunity to avoid layoffs or find capital to bring on new people.
9. Construction Jobs. The industry that has been hit as hard if not harder than any other during the recession is construction. The intractability of this portion of the unemployed population is well-described. Those construction workers without money cannot afford to move to areas where there is still some work in this sector. This has created large pools of unemployed workers in the areas of California, Nevada and Florida. These regions often have jobless rates above 15% and in some cases 20%.
The towns that these people inhabit have sharply dropping real estate prices, record-setting foreclosures and a tax base erosion that forces them to cut essential services. But the construction industry is not universally depressed. People who build a house cannot build nuclear reactors, but they can work on infrastructure products, including the building and improvement of schools and government-owned facilities. The current stimulus package has reserves for just this kind of construction work.
10. Immigration. There is an extent to which the argument that undocumented workers from abroad take American jobs is reasonable. The truth of that is hard to refute. It is equally hard to say that immigrants, even those with illegal status, should be sent back to the nations they came from immediately and without any provision for their economic futures. The immigration debate has become more violent as the recession has continued. It may be that the federal government's best course would be to ignore the issue of who has come to America and focus on the economic impact of the migration.
Some states have exacerbated jobless problems due to immigrants, and others are not affected at all. The southern states that border Mexico are those that have had the worst economic impact. Other states like Ohio and Illinois have substantial labor problems that have nothing to do with immigration at all. The most logical solution to the problem is to provide supplemental aid to states that have large illegal immigrant populations to create more public sector jobs -- jobs that the states and municipalities within them may find essential, but that cannot be performed due to the recession.
It may be harder to find a job in New Mexico because of immigrants. That does not mean that there is still not important work to do in some of the state's financially beleaguered regions. The emotion surrounding the immigration issue makes it one of the most difficult unemployment issues of all to solve.
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