For all the focus on healthcare, a different issue ranks more than twice as high on Americans’ priority list: the state of the economy and job market.
That domestic priority comes into focus Thursday with a jobs summit, at which President Obama will solicit ideas on everything from worker retraining to how to create more clean-energy jobs.
The unemployment rate reached double digits in October. Next year, the jobless rate could approach the highest it’s been since World War II – matching the 10.8 percent level reached in the 1982 recession, forecasters say.
In addition to Thursday’s White House jobs forum with business leaders, Democratic leaders in Congress say they’ll be working on a “jobs bill” early in the new year. And Republican lawmakers are warning that the Democratic plans are job killers rather than job creators.
The question is how to translate the goal of employment into reality. “We’re at the bottom” after a deep recession, says James Galbraith, an economist at the University of Texas in Austin. “The risk is that we don’t get off the bottom very soon.”
That is a very real concern. Often after deep recessions, the recovery of consumer spending and jobs has been swift. This time, economists worry that consumers will be held back by record debt levels and the decline in their net worth caused by falling home values.
Adding to the difficulty of a jobs recovery is the depth of the problem. Some 7.3 million jobs have been lost since the recession began in December 2007, and the labor force is growing by more than a million people per year. Yet the biggest year for job creation in the past three decades was 1984, when 4.3 million workers were added to US payrolls.
What can be done to get that kind of jobs rebound? Ideas span from the restrained – based on concern that federal budget deficits are growing dangerously large – to the ambitious:
Just wait, jobs will come back. The first Obama administration stimulus package of $787 billion is still only partly spent. That, plus a nascent consumer recovery, will generate job growth next year, some economists say. And there’s this tough-love recipe for jobs: Let US wage rates adjust downward, so that the demand for labor comes into balance with supply. That’s a process that tends to be slow, however.
Help credit to flow. The Obama administration is working on several fronts to expand lending activity, including through the Small Business Administration’s loan programs. But some economists say more efforts are needed to repair channels of credit that broke down during the recession.
Tax credits. As it did with incentives this year for people to buy cars or houses, Congress may dangle cash in front of employers who hire. The liberal Economic Policy Institute estimates that if the Treasury refunds 15 percent of new wage costs in 2010, and 10 percent in 2011, the result could be 3 million jobs next year and 2 million in 2011. Some experts argue the credit won’t be that successful.
Emphasize tax cuts and free enterprise. On the political right, economists would take the idea of a temporary tax break for hiring a step further. They say business and household confidence will get a bigger boost from permanent reforms to the tax code. This could increase incentives to hire, while reducing the risk that future tax hikes or government borrowing will put a drag on economic activity.
Kevin Hassett of the American Enterprise Institute recommends a permanent cut in the income tax on business, to make the US more competitive with other nations. Others call for elimination of payroll taxes.
Encourage shorter hours so more people can work. If firms keep more people on the payroll, working fewer hours, the decline in income for those workers could be partially offset with payments from the unemployment insurance system.
If you can’t hire them, train ’em. The 15 million unemployed American workers include many whose old jobs will not come back as the economy recovers. The jobless also include many high-school graduates with limited access to internships or other opportunities. Government-supported training opportunities could help both groups be better prepared after today’s job-drought eases, says Margaret Simms, a researcher at the Urban Institute in Washington.
Provide more aid to states. Obama’s initial stimulus helped reduce layoffs in 2009 by state and local governments. But without additional support, more cuts appear likely in 2010. A job saved is one that doesn’t need to be created.
Create jobs through direct spending. Some economists say fear of deficits is misplaced, and that government should take a much stronger role in job creation. The American Recovery and Reinvestment Act is already boosting spending on infrastructure projects such as roads, but Gary Burtless, a labor expert at the Brookings Institution in Washington, calls for more such spending. The industries hardest hit by job losses include construction and makers of heavy machinery, both of which would benefit.
Another sector ripe for job creation is energy, such as retrofitting homes and buildings to cut heating and electric bills, says Professor Galbraith. The question policymakers should ask is, “How many jobs do you need to create?” he says, not how much it will add to the deficit.
Americans want Washington to do something. “Economy/jobs” is the top priority for 45 percent of Americans, according to a recent CBS News poll, versus about 20 percent for the second-place issue, healthcare.
But polls also show voters are worried about rising federal deficits. In a November survey, members of the National Association for Business Economics ranked US deficits above unemployment as their top concern.
Lawmakers on Capitol Hill appear mindful of this.
“What they’re looking at is trying to help the economy help itself,” says Scott Lilly, a public-finance expert at the Center for American Progress, a left-leaning think tank in Washington. The goal, he says, is “to provide as much stimulus with as little increase in the deficit as possible.”
Given all this, it seems likely that Obama and Congress will end up steering a middle path.
President Obama acknowledged his conundrum in a recent interview on Fox News: “One of the trickiest things we’re doing right now is to, on the one hand, make sure the recovery is supported and ... at the same time, making sure that we’re setting up a pathway long term for deficit reduction.”