With nearly one in ten American labor force participants out of work, it is clear that more needs to be done to stimulate hiring. Action is required, and I’m pleased to add my voice to those calling for a well-designed temporary hiring tax credit. This proposal has earned the support of 21 leading economists, including folks who are often on very different sides of economic debates.
Alan Blinder has a useful article in last Friday’s Washington Post, explaining the logic of the hiring credit. Here’s the key:
The search for a cheaper way [to raise employment] leads to policies specifically targeted at job creation. The two main options are direct public-service employment and a new-jobs tax credit. The Obama administration and several members of Congress have proposed the latter. If most of the new public-service positions are low-wage jobs, and if the tax credit is designed well, the per-job costs of these policies are comparable: $30,000 to $40,000. I would recommend doing both, targeting roughly a million new jobs with each program, at a budgetary cost of perhaps $70 billion. While 2 million more jobs won’t end America’s gaping shortage, it would make a significant dent.
Those numbers are important: Adding two million jobs, with a fiscal impact of less than $250 per American. With so many people out of work, it’s the least we can do.
And here’s another idea I would like to see taken seriously: wage subsidies focused on the long-term unemployed. I’m worried that these folks are going to find it difficult to get back to work even when the economy starts to gather steam. If the long-term unemployed lose skills, or lose touch with the labor market, there’s a chance that inflationary pressures may develop even when the unemployment rate remains high. The best way to prevent inflationary pressures from developing is to ensure that all workers remain job-ready.
The full letter-sent to the Congressional leadership of both sides-is below the fold:
Dear Speaker Pelosi, and Messrs. Boehner, Reid, and McConnell:
A great number of different policy actions–including the American Recovery and Reinvestment Act, the financial rescue, and the extraordinary monetary policy measures taken by the Federal Reserve–have in their sum played an important role in changing the trajectory of the economy from one of terrible decline to one of growth. But with the latest unemployment rate at 9.7 percent, it is clear that additional emergency policy measures to jump-start job creation are still warranted.
A well-designed temporary and incremental hiring tax credit is a cost-effective way to create jobs, and could work well in the current environment. At a time when GDP is beginning to rise and demand is starting to return, private firms are likely to respond to such a tax incentive by hiring sooner and more aggressively than they otherwise would have done. Such a credit could thus help put Americans back to work more quickly than otherwise. And by targeting firms that are growing, such a tax credit supports the businesses most likely to lead the recovery of employment.
There are many ways to design an effective hiring tax credit, but in general the beneficial effects will be greater the stronger the hiring incentives and the lower the administrative burdens placed on firms. It is critical that such a tax credit be put into place quickly and that it is publicized widely. Firms will begin to accelerate hiring only when know they can count on such tax relief.
We judge that a well-designed hiring tax credit is a well-targeted and economically sound strategy for aiding job creation at this phase of the recovery, and so we support a well-designed hiring tax credit.
In our personal capacities, we are sincerely yours,
Mark Zandi
Justin Wolfers
Laura Tyson
Mark Thoma
Peter Temin
Joseph Stiglitz
Betsey Stevenson
Isabel Sawhill
Dani Rodrik
Robert Reich
Richard Portes
Larry Katz
Barry Eichengreen
Peter Diamond
Brad DeLong
David Cutler
Robert Cumby
Tyler Cowen
Menzie Chinn
Alan Blinder
George Akerlof
and 
. You can also watch it on 
Do we never learn from what got us here in the first place? This situation was caused by too much government meddeling (ie. pressure to lend to the uncreditworthy). A better solution get government out of the way. Unintended consequences anyone?
@Community member
Definitely not a troll, I’m quite genuine in my thinking here, even if you disagree.
“The job growth is to help the health of the economy.”
– Tax cuts would would spur job growth and help the health of the economy as well.
“The $250 per tax-payer cost is mentioned in absence of any implied costs that may exist. For example, is the poor state of the economy preventing every tax payer from getting a $250 raise? I’d say so.”
– I genuinely don’t understand your point here. The way I see it is: Poor economy = lack of raise; solution = stimulate economy; method = higher taxes to cover a tax credit OR lower taxes overall. In this situation, I’d say lower taxes is a clear winner.
“You say you have a “much better idea” meaning, I assume, one you like better because of personal preferences and idealogical attitudes.”
– No, by “much better idea” I mean a “much better idea” overall. Basic economics discusses dead-weight loss incurred by taxes, it’s also well known that government is not as efficient as the private sector; thus decreasing taxes and decreasing the involvement of government in the changing-hands of money provides a greater economic outcome.
Tax cuts will only work if the government ALSO cuts spending. Tax cuts without spending cuts is what got us our Trillion-dollar deficits.
Of course, cutting spending is hard, since the majority of the spending is non-discretionary (eg: Medicare, Social Security, Medicare) or Defense, and there aren’t enough politicians in the House, Senate, and White House with the balls to actually cut spending in these areas. If there were, we’d already have healthcare reform, tax reform, and, dare I say it, actual leadership from our so-called leaders.
Let’s crunch the numbers a little more, shall we?
$30,000-40,000 per job. Using the 250/per american number, that comes to $37,500 per job created. Most of these jobs will be ‘low wage,’ which one can assume to mean under the median American wage, currently hovering around $40,000.
This means the government will be paying $37,500 per job to create a $35,000 position! With no guarantee that these jobs will last longer than the credit. This is essentially a way to hand money to businesses, who then would hand *less* money over to their employees.
The government needs to stop giving away money, particularly to businesses.
I wish I knew how to encourage jobs ceation (see front page link).
While it is true successful Americans should receive tax relief and not have to pay for others irresponsible behavior I think there is a much more simple solution to unemployment among the common man. Abolish the draconian minimum wage law! The average laborer is desperate for work but how can he compete with a Chinese or Bangladeshi worker who is able to set his own wages? If the employers had the freedom to hire a worker for two or three dollars per hour we would see employment skyrocket in this country! Also we wouldn’t have a need for transfer payment banditry like social security if we allowed children to work at a younger age. I say give American youngster the freedom to enjoy the fruits of his brow sweat! Suppose a hard working young fellow begins a job working fifty hours per week at two dollars an hour. If he saves just half of his money he could already have retirement savings of $25,000 by the time he turns 20! But I ask you my friends, how many of the American poor really have the discipline to do that? Very few I would wager.
What about strengthening and actually enforcing the laws against age discrimination? The government shouldn’t have to bribe employers to hire older workers. Older workers often have superior experience and qualifications for the jobs they apply for. The idea that older workers do not know technology is a myth. People apply for jobs that match their qualifications. Unless the hiring of older workers is faced directly, unemployment in this sector will continue, subsidies or not.
Subsidies are not a substitute for linking the H1-B rate to the unemployment rate in the high tech sector.