The Inclusive Economy
Filling the Job Gap
By Bill Schweke on 03/04/2011 @ 12:30 PM
At this juncture of a painfully slow recovery from a major recession, there remains a massive job gap in the U.S. The Upjohn Institute for Employment Research argues that if the country is to restore the employment to population ratio to the level it was in December, 2007, the American economy must create 320,000 net new jobs per month for five years.
What might this mean on the state level? What is the challenge facing North Carolina, for example? During 2010, according to the NC Justice Center, the state netted just 10,400 jobs. In order to get to pre-recession employment numbers by 2015, it must create slightly more than 14,000 net jobs per month. That’s approximately 168,000 annually.
These are big hurdles to leap over. Especially given the worries caused by the drag on the economy caused by the budget deficits in America’s states, along with Republican intentions to make large federal budget cuts in the spring and rapidly-increasing oil costs, another recession or a bout of stagflation is not unimaginable.
Given the larger fiscal and political context, any viable series of options must be grounded in recognizing certain facts that largely eliminate some courses to take, such as another infusion of stimulus money, a more cautious and slower route to budget balancing and large-scale public employment programs.
Consequently, alternatives must be relatively inexpensive (and public monies will very likely need to be shifted from ineffective programs to more promising ones). They must minimize the use of cash and, instead, pursue, in many cases, the sound design and implementation of appropriate tax expenditures. All direct spending must leverage other money, along with professional resources. Furthermore, the jobs agenda must include ways to save jobs, modernize firms and encourage the expansion of existing enterprises. They must also employ methods of aiding small businesses for political and practical reasons (foremost among these is the fact that nearly all net job creation since 1980 has occurred in small business startups less than five years old). Because of the depth and length of this recession, some of the approaches must address the problem of permanent job loss, the likelihood of substantial drops in lifetime earnings, the growth in the long term unemployed and discouraged workers. Finally, they must deliver significant results in the short-term, while dealing with the massive job gap that the country now faces.
During the past few years, I have been working on three ideas that mostly conform to these guidelines.
- A new Job Growth Tax Credit, which would provide a 30 percent tax credit on the first $14,700 of wages paid to each additional employee over and above 102 percent of the baseline employment. This incentive would be offered statewide to all sizes of business only in years of high unemployment and would play a countercyclical function. It would, moreover, mean that lower-wage jobs are subsidized at a higher rate and more such jobs will be generated. Lastly, the concept could be set up rapidly and would be attractive to a fairly wide spectrum of firms.
- A Targeted Job Creation Program, which offers small existing private employers direct wage and benefit subsidies in its most economically disadvantaged counties for hiring unemployed job seekers (ideally, ones that have exhausted their UI). Although more complicated to administer than the Growth Tax Credit, it is structured to reach those more deeply in need.
- Use the Federal Tax System to drive American job growth by leveraging tax time to reach out and support (especially) low-income start-up businesses. The federal tax system is the interface with 22 million self-employed individuals who file Schedule C each year, as well as 2 million new entrants to the system. VITA sites are now allowed to prepare Schedule C, and they should be encouraged to. It turns out that the tax system can be the entry to badly needed new benefits, like claiming EITC, the Make Work Pay Credit, and the Child Tax Credit, as well as a variety of other benefits which cost states nothing, but make a huge difference to struggling entrepreneurs and families. It is also the ideal venue for encouraging the fledgling business owner to access other managerial, educational and technical assistance resources and move out of the gray economy. The program would even be a positive incentive for doing so. Given the numbers of such firms - in the millions - encouraging and enabling only a small percentage to hire an employee or two would still amount to a big number and impact.**
This is a good place to start a major effort to bridge the job gap.
**My peers at CFED have developed this body of work. I have been comparatively a second or third violin, regarding this third idea. Thanks to Nancy, Gene, Bob and many others.