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YOU DECIDE: How can we create jobs?

February 19, 2010

MEDIA CONTACT: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu


Dr. Mike Walden
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Ask just about anyone what the top economic issue is in the country today, and they will say jobs. Creating jobs is the number one priority, most think, to getting our sick economy well.

It's easy to see why people are concerned about jobs. Since the recession began in late 2007, 8.4 million jobs in the nation have been lost, and the national unemployment rate has jumped from 4.4 percent to 10 percent. Here in North Carolina, the numbers are equally disturbing: 250,000 jobs lost and a jobless rate rising from 4.4 percent to over 11 percent.

So what can be done? With most economic forecasters predicting a slow increase in jobs - at best - what are the best ideas for giving people work and a paycheck?

As you might expect, there are a range of suggestions. At one end of the spectrum is the idea that the government should simply hire the unemployed. Certainly this could be done, but it would be costly. For example, if the government hired the 8.4 million unemployed and paid them the average salary (roughly $40,000), the annual cost would be $320 billion.

There are other issues with this approach. What jobs would the new government employees perform, and would every individual be qualified for their assigned job? Also, would the new government workers compete with private sector workers, thereby causing unemployment in the private sector to increase? In other words, would unemployment simply be shifted rather than being reduced?

Finally, how would the $320 billion annual cost be financed? If it is paid for by increasing taxes, would those households paying more taxes reduce their spending and thereby cause other jobs to be cut? Or, if the program is financed through borrowing - thus adding to the national debt - would the government's higher debt load also slow economic growth and hike unemployment?

What about the idea of the government mandating a shorter work week, meaning that companies would have to hire more workers to accomplish the same amount of work? This idea is appealing for two reasons. First, it would cost the government virtually nothing. And second, it would spread the wealth - here, jobs - around to everyone.

Yet there are questions here too. In the days when most jobs required a specific number of hours per week, a mandated work week made sense. But today, more and more jobs are salaried without a specific number of hours attached. People work until the job is done. Obviously in these cases, a shorter required work week doesn't apply.

In addition, if the same pay is to go with the shorter work week, then this would result in an increase in the cost of workers, and businesses would actually be motivated to cut back on workers rather than adding them. Conversely, if pay is to be cut along with hours worked, then the result is a reduction in everyone's salary.

Another tactic is for the government to use the tax code to encourage businesses to add jobs. This means reducing the cost to businesses of adding jobs by reducing taxes. For example, this could be accomplished by lowering payroll or corporate income taxes or giving tax credits to firms that increase their workforce.

Past experience with this kind of plan shows it can create jobs, but there are two concerns. First is the question of whether the jobs created using the tax reduction would have been created anyway without the tax cut. It's hard to know. Second is the issue of how the tax reduction used to encourage new jobs is funded. If the government has to increase other taxes or go further into debt, then some economists worry this will slow economic growth and increase joblessness elsewhere.

The first job creation approach - having the government directly hire the unemployed - has its 180 degree counterpart. That is, some economists think the best approach for the government to follow in encouraging jobs is to do less! This approach would have the government reduce taxes across the board, reduce spending, reduce the national debt and effectively get out of the way of private entrepreneurs. However, the big question here is, will less government get us more jobs?

So the policy options for boosting jobs couldn't be wider - from the government doing a lot more to the government doing a lot less. But one conclusion is certain: there is no easy plan, no silver bullet, for getting us back to job growth. Furthermore, each option has its pluses and minuses, its benefits and costs. Yet, our leaders will have to decide.

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University's College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The Department of Communication Services provides his You Decide column every two weeks. Earlier You Decide columns are at http://www.cals.ncsu.edu/agcomm/writing/walden/decide.htm

Related audio files are at http://www.ncsu.edu/waldenradio/

Posted by Dave at February 19, 2010 08:29 AM