Last Updated Sep 8, 2011 9:16 PM EDT
Launch a federal jobs program
Perhaps the best way to reduce unemployment is for the government to hire jobless workers directly. Along with being cost-effective compared with other forms of stimulus, it targets the major problem afflicting the U.S. economy -- weak demand -- by enabling the unemployed to start spending again.
Among other advantages, starting a jobs program would allow people to start working and earning income immediately, rather than waiting for jobs to materialize; let the feds create jobs for those who need them most, such as the long-term unemployed; and help kick-start private-sector hiring by putting money in consumers' pockets.
The annual cost of a program aimed at creating 1 million jobs: a modest $46.4 billion, according to New York think tank Demos. The best part is that, as FDR showed with the Works Progress Administration (and with the government "hiring" that occurred during World War II), we know direct hiring is an effective way to combat unemployment (see chart at bottom for comparison of the efficacy of job-creation measures).
Invest in clean-energy technology and other national infrastructure
Boosting government expenditures on renewable energy, "green" construction and related initiatives is already a proven recession-buster. Obama's 2009 stimulus package pledged $93 billion in such investment through the end of 2010, with one estimate calculating that this spending lifted GDP by $146 billion and created or saved nearly 1 million jobs. An even larger-scale clean-energy program would also lay the groundwork for future innovation while speeding America's transition to a greener economy, a major step in fighting global warming.
Other forms of infrastructure spending are equally vital. Increasing government spending to fix the nation's roads, bridges and other transportation resources by $213 billion over the next decade, as Obama proposed under his 2012 budget, would generate 350,000 jobs over two years, according to Washington's Economic Policy Institute. Other benefits include heightened fuel efficiency, business savings and fewer accidents. The country sorely needs such a makeover. Studies shows that one-third of America's major roads need repair, while more than a fifth of the country's 650,000 bridges are in danger of collapsing.
Cut taxes for companies that create jobs
According to economists John Bishop and Tim Bartik, a two-year tax credit that refunded to employers 10-15 percent of new wage costs (meaning employee pay subject to Social Security) could create at least 2.4 million new jobs over the duration of that rebate. Along with appealing to both political parties, such a credit would give businesses an incentive to hire immediately and cost only $27 billion.
Enable national "worksharing"
Such labor arrangements, which have been widely used for years in Germany, Italy and other European countries, typically require employees to work fewer hours and accept a small pay-cut. In return, they get to keep their jobs. In the U.S., states could use unemployment insurance funds to make up for a portion of the wage cut, while businesses would kick in the rest.
Economist Dean Baker calculates that government-funded worksharing could boost employment by 1-2 million jobs per year, depending on the level of adoption by employers.
Promote housing-market recovery by fighting foreclosures
Perhaps the biggest drag on consumer spending is that homeowners are "underwater" on on their mortgages. Even for people who aren't at risk of losing their homes, a glut of foreclosures on the market hurts housing prices and reduces property values. The entire economy suffers.
A government program to help people modify or refinance their loans would help them keep their homes, preserving the main source of wealth for most Americans, and free up income for other spending. In related measures, Washington think-tank the Center for American Progress favors allowing bankruptcy courts to "cram down" mortgages in cases where lenders refuse to modify a loan; turning foreclosed homes into rental housing; and requiring mediation for any foreclosure that involves a federally guaranteed housing loan, such as those issued by Fannie Mae (FNMA) and Freddie Mac (FMCC).
This list is by no means exhaustive, and such ideas aren't sufficient on their own to turn the employment tide. They must be part of a broader -- and much bigger, in dollars and cents -- government initiative that also includes basic steps such as extending emergency unemployment benefits and payroll tax cuts for low- and middle-income employees, and increasing federal aid to the states. As the EPI notes, the Federal Reserve also must do its part by launching a third round of quantitative easing. Economist Joseph Gagnon estimates that an additional $2 trillion of asset purchases by the central bank would boost GDP by the equivalent of $500-$800 billion, producing millions of new jobs.
The standard refrain among stimulus skeptics is that the U.S. can't afford to "go strong" in tackling unemployment. With the jobs crisis threatening to carry on for years, however, it's clear we can't afford not to.
Chart from the Center for American Progress