President Obama's Job Creation Mirage 

We've heard plenty about Obama's post Labor Day job
creation speech, but will it contain anything that
might actually work? 

by Dean Baker

Published on Monday, August 29, 2011 by The Guardian/UK

http://www.guardian.co.uk/commentisfree/cifamerica/2011/aug/29/president-obama-job-creation

Distributed by Common Dreams
http://www.commondreams.org/view/2011/08/29-6

President Obama has discovered how serious the
recession is. That's what he told an audience in
Chicago last week. To be fair, he was referring to
revised data from the commerce department showing that
the falloff in GDP was larger than originally reported.

But ridicule is appropriate. He and we knew all along
how many people were out of work. The employment
numbers told us the size of the hole and the desperate
need for government action.

This sort of ridiculous comment, and President Obama's
weak response to the recession over the first two and a
half years of his presidency, explains the tidal wave
of scepticism facing his widely hyped upcoming speech
on jobs after the Labor Day weekend. The list of
remedies leaked ahead of time does little to inspire
hope.

At the top of the list of job-creating measures is
extending the 2 percentage-point reduction in the
social security payroll tax. This provides no boost to
the economy, since it just keeps in place a tax cut
that was already there, but if the cut is allowed to
end at the start of 2012, it will be a drag on growth.

As it stands, the social security programme is being
fully reimbursed for the lost tax revenue, but there is
always the possibility that Republicans will use this
as a basis for attacking the programme. Given President
Obama's willingness to support cuts to social security,
it is understandable that this part of his jobs agenda
doesn't generate much enthusiasm.

A second item frequently mentioned is an infrastructure
bank. This would allow the government to treat
long-lived infrastructure investment as capital
expenditures depreciated over their expected lifetimes,
rather than expenditures to be paid for in full in the
years the construction takes place. This is good policy
and accounting (it is the same approach used by both
private businesses and state governments), but it is
not going to create many jobs and certainly not in the
next couple of years.

The other items on the list are less clear. On bad
days, we hear that President Obama is going to tout the
trade agreements with Panama, South Korea and Colombia.
These deals are all problematic at best, but even their
supporters can't claim with a straight face that they
will generate any noticeable number of jobs.

There are also reports that President Obama may propose
some sort of tax subsidy for job creation. Such a
subsidy can be bad or not so bad. One of the proposals,
temporarily eliminating the employer side of the
payroll tax, is a great plan - if your intention is to
give still more money to business and undermine social
security.

There is extensive research showing that increases in
the minimum wage of 15-20% have no measurable impact on
employment. If raising the cost of labour by 15-20%
doesn't reduce employment, then we can't think that
reducing the cost of labour by 6.2% as a result of
temporarily eliminating the payroll tax will increase
employment. (Sorry, Mr President, logic can be cruel.)
This means that we should expect few jobs will be
created by this sort of subsidy; we will just be
further supplementing the record profit share of
national income.

And if we pursue that policy, we will also be raising
further questions about social security. It is
important to remember that if the point is simply to
hand a specific sum to business or individuals, we can
do this without ever mentioning "social security" at
all. In other words, if the point is to give businesses
a tax subsidy equal to 6.2% of their payroll, then we
can just specify that they get a tax credit equal to
6.2% of their payroll. It is understandable why
Republicans, who explicitly want to end social security
as we know it, would insist on tying the subsidy to the
social security tax. It is hard to understand why
President Obama would adopt the same approach.

Of course, we should not be defeatist about creating
jobs. Anyone who cares knows how to do it.

At the top of the list should be a jobs programme for
young people that would be modelled on the Civilian
Conservation Corps. There are many parts of the country
where the unemployment rate for young people is 40-50%.
These young people have no realistic prospect of
getting jobs. Giving them work at or near the minimum
wage, cleaning up streets, parks and abandoned
buildings in their neighbourhood, can make a big
difference in their lives - and considerably enhance
those localities.

A more far-reaching policy would be to promote
work-sharing as an alternative to layoffs. The money
that is paid out in unemployment insurance could
instead subsidise shortened work hours. If just 10% of
the people who lose their jobs each month could be
retained with this policy, it would be create another
2.4m jobs a year. This policy has been so successful in
Germany that its unemployment rate is now lower than
before the downturn even though its growth has been
almost the same as ours.

Finally, getting the dollar down is the most important
long-term job creation policy. If we managed to get
back towards balanced trade, it would lead to almost 6m
manufacturing jobs.

On past form, however, President Obama seems unlikely
to go for real job-creation measures. Look forward to
being disappointed - especially if you're one of the
unfortunate unemployed. 

(c) Guardian News and Media
Limited 2011 Dean Baker

Dean Baker is the co-director of the Center for
Economic and Policy Research (CEPR). He is the author
of The Conservative Nanny State: How the Wealthy Use
the Government to Stay Rich and Get Richer and the more
recently published Plunder and Blunder: The Rise and
Fall of The Bubble Economy. He also has a blog, "Beat
the Press," where he discusses the media's coverage of
economic issues. more Dean Baker

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