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The jobs emergency: A response proportional to the crisis

Robert Reich, professor of public policy | August 9, 2010

Washington’s latest answer to the worst jobs crisis since the Great Depression is $26 billion in aid to state and local governments. This still leaves the states and locales more than $62 billion in the hole this fiscal year. And because every state except Vermont has to balance its budget, the likely result is 600,000 to 700,000 more state and local jobs vanishing over the next 12 months (including private contractors and other businesses that depend on state and local governments) according to the Center on Budget and Policy Priorities. Say goodbye to even more of the teachers, firefighters, sanitary workers, and police officers we depend on.

In July alone, state and local employment dropped 48,000. Not counting temporary census workers, the federal government shed 11,000. So with private payrolls increasing a paltry 71,000, July’s overall increase in payrolls was just 12,000.

12,000 new jobs in July — when 125,000 are needed monthly just to keep up with population growth, when more than 15 million Americans are out of work, and when more than a half million more state and local jobs are on the chopping block.

With the worst jobs crisis since the Great Depression worsening, you might expect emergency action out of Washington. But the biggest upcoming debate there is whether to extend the Bush tax cuts for the richest 2 percent, or for everyone, or for no one. This is like debating whether to get a mousetrap when your home is sinking in quicksand.

We need a response proportional to the crisis. Obama, Pelosi, and Reed should summon Congress back to Washington for action on the jobs emergency.

First item on the agenda: establishing a federal bank that will provide states and locales zero-interest loans, to be repaid when their unemployment rates drop to 5 percent or below.

Second item: eliminating payroll taxes on the first $20,000 of all incomes and make up the difference by subjecting all income above $250,000 to the payroll tax. (Remember, the wealthy save most of their after-tax income, lower-income Americans spend it.)

Third item: recreating the WPA to hire Americans directly. The Works Progress Administration put Americans back to work during the Depression rebuilding the nation’s infrastructure.

The jobs emergency requires no less.

Cross-posted from Robert Reich’s blog.

Comments to “The jobs emergency: A response proportional to the crisis

  1. The delayed “Employment Function” predictions of 1930’s Keynesian economics, he realized employment was going to be the long, hard battle to hire. He created the WPA. Today, we believe that task is even more difficult because banking can be of little help, overloaded with toxic debt; and commercial development is more dependent on new technology challenges. Therefore, we must encourage project finance by private investment. First-phase gov’t hiring must transition into sector business and contracts as it is organized and operating.

  2. We certainly agree that a powerful response to the employment crisis
    is extremmely important particularly to counter a last minute, GOP media-
    blitz before the Nov. election. We think that
    major action employment response is essential to save sufficient numbers in
    Congress to conserve Pres.Obama’s victories. But we may disagree about how.
    Any viable project muet use every means to minimize short-term gov’t

    When FDR saw the delayed “Employment Function” predictions of 1930’s
    Keynesian economics,he realized employment was going to be the long,hard
    battle to hire. He created the WPA. Today, we believe that task is even more
    difficult because banking can be of little help, overloaded with toxic debt;
    and commercial development is more dependent on new technology challenges.
    Therefore, we must encourage project finance by private investment. First-
    phase gov’t hiring must transition into sector business and contracts as it
    is organized and operating.

    A Nov.2nd campaign promise should be made even if its first chances are
    slim with the caveat that moderate-conservatives and investors will support
    the future employment and needed infrastructure investment. Such a major
    employment project would be:

    The 21st Century Intercontinental, Electric Superhiway System

    Demonstration, Phase I. First phase would complete several SHS, Superhiway
    Segments between major cities at Demo sites across the US. Each SHS saves
    siteing costs by combined automotive, advanced rail and electric grid
    functions since these connect city, transport & power destinations. SHS are
    financed by better-return, US. Guaranteed Highway Investment & Savings Bonds
    plus Toll-right Sales. Old highways would remain free with limited demo-
    phase funding for bridge load-limit and life-extension refurbishment.

    Immediately hired, field teams would begin siteing, engineering ,bond
    finance; and personnel/private-sector functions while a temporary SHS demo-
    administration is formed. That resides in an appropriate federal agency.
    Each SHS site would have a surrounding, multistate-national district to
    distribute most skills-hiring from within. When the public visits a
    complete SHS their enthusiasm for wonders of modern technology , signs of
    reenvigorated world leadership;and employment benefits already in evidence;
    public enthusiasm will approve. A decade of finance will complete system
    construction and retire system debt.

  3. Proposal to Immediately Reduce Unemployment in the U.S.
    (Using FICA Tax Forgiveness to Reduce Unemployment Below 5%)

    For all employers with payrolls of more than 15 people, who have laid off employees, who, in turn, have collected unemployment benefits, require those employers to rehire those employees based on the following terms: (1) Hire back at least 1 past laid off employee for every 15 currently working. (2) Rehire using a rule that the longest unemployed worker who has a home mortgage obligation is hired back first (e.g. on basis that employees who have incurred the most personal economic injury are hired back first). (3) The government will then fully credit to the employer the expense of this rehire (including health care) against the employer’s total payroll FICA tax obligation (approximately 1/15th total payroll). Note: This FICA credit loss to the government can be offset by crediting back to the social security system the amount of unemployment benefits the rehired employees would have otherwise collected, e.g. the overall amount unemployment benefit expense to the government is reduced by implementing this rehiring plan.

    In this manner national unemployment could be reduced immediately to the 5% range or better. The mortgage foreclosure crisis could essentially be broken and cured. The resulting improvement in consumer demand from the rehired employees’ increased spending would generally make those rehired employees more needed and useful on the job to their employers as those employers experience generally improved sales. And the cost of lost FICA collections by the government would be more than offset by the lift in general revenues. The downward national debt spiral would be arrested as general revenues immediately rise.

    As the economy stabilizes the FICA credit to employers could then be phased out gradually over time.

    Clearly a FICA tax credit for mandatory employer rehiring is the key which will unlock and open the door to returned prosperity at essentially no economic cost and no increase in national debt, equivalent to Alexander’s slashing the Gordian Knot.

    Compared to the heavy lifting the country has already done to save wall street, this will require negligible effort. There is no excuse for the current 9.5% unemployment rate. All that is required is that our leaders have the imagination, creativity, and fearlessness to stop fearing and to put the country back to work.

  4. We are a payroll software provider for small business. Some of our customers did not renew ezPaycheck this year and told us they stopped hiring people. That is really bad for them and for us.

    This downturn is longer and deeper than we expected.


  5. America most definitely needs more intellectuals who can bring reason and civility back into the public dialog. The current negative political rhetoric of divisiveness that dominates the thinking of far too many people must be overcome so that we can recover, rebuild and continue to grow economically as the world’s leader like we did after WWII.

    We need to make everyone as competitive as possible, as quickly as possible, so that we can all make opportunities for ourselves, and education has always been the best way to achieve that goal.

    Cal professors and scholars must take the lead in leadership now, to get America back on track before the next election.

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