How to Reduce Unemployment and Revive the Economy

As President Obama begins the second half of his term with a campaign for “jobs and competitiveness,” we would do well to consider how he might achieve these worthy goals. It is jobs that matter most to the vast majority of Americans, and unemployment remains at 9.4 percent – about double its pre-recession level. This is a terrible punishment to inflict on millions of Americans who did nothing to deserve it. It will cause long-term and even permanent damage to many of the unemployed and their children.

What can the government do to relieve this suffering? One relatively simple measure is to subsidize employers who are willing to reduce hours rather than lay people off. Germany has demonstrated the success of this approach in the last couple of years. Unemployment in Germany was 7.4 percent just before their recession began in the third quarter of 2008. Today it is 6.7 percent. And Germany had a much steeper decline in output than we did.

The idea is straightforward: employers who are faced with reduced demand can either lay off workers or reduce hours. If they reduce hours for any worker, the government in Germany puts up 60 percent of the lost pay for these reduced hours. The worker keeps her job, with reduced hours but the pay is not reduced nearly as much.

With all this talk now about Democrats and Republicans “reaching across the aisle” and working together, a program that is acceptable to a conservative German government ought to have bi-partisan appeal here. The government can use unemployment insurance funds to cover much of the cost, and seventeen states do offer such work-sharing programs. But they are under-funded and participation is small.

My colleague Dean Baker estimates that this program can create three million jobs at a cost of $68 billion. That is less than one-tenth of our bloated Pentagon budget. Imagine a national poll where voters were to choose between continuing to occupy Afghanistan versus creating three million jobs? (Actually about 4.6 million jobs if we really get out of there). A no-brainer.

Another proposal that would help boost the economy, and wouldn’t cost the taxpayers anything would be to allow homeowners who are underwater on their mortgages to become long-term renters. An independent appraiser would set the fair market rent for their home. Millions of homeowners who bought homes at bubble-inflated prices would see a sizeable reduction in their monthly payment. Others would find that their bank, not wanting to be a landlord, would negotiate a reduced mortgage payment. This program would free a lot of people from the prolonged stress and uncertainty of unpayable debt, and boost consumer demand.

Of course demand for goods and services is what is needed to achieve the growth that will boost the economy and provide jobs. Unfortunately, it is not enough for the President to kiss up to business by appointing their friends to high places, or slathering more tax breaks on them. Our corporations are already sitting on more than $2 trillion of cash; they are not expanding or hiring because there is not enough demand out there for what they can already produce. The bursting of the housing and commercial real estate bubbles will limit demand in those sectors for years to come.

That means that the federal government will have to pick up some of the slack. At the very least it should subsidize the state and local governments so they stop laying people off and raising taxes – thus shrinking the economy and employment further while making this a less educated country. It would be nice to see President Obama take some leadership on these issues, even if it means having to fight for what is right.

MARK WEISBROT is an economist and co-director of the Center for Economic and Policy Research. He is co-author, with Dean Baker, of Social Security: the Phony Crisis.

This column was originally published by the Sacramento Bee.



More articles by:

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. and president of Just Foreign Policy. He is also the author of  Failed: What the “Experts” Got Wrong About the Global Economy (Oxford University Press, 2015).

Weekend Edition
March 16, 2018
Friday - Sunday
Michael Uhl
The Tip of the Iceberg: My Lai Fifty Years On
Bruce E. Levine
School Shootings: Who to Listen to Instead of Mainstream Shrinks
Mel Goodman
Caveat Emptor: MSNBC and CNN Use CIA Apologists for False Commentary
Paul Street
The Obama Presidency Gets Some Early High Historiography
Kathy Deacon
Me, My Parents and Red Scares Long Gone
Jeffrey St. Clair
Roaming Charges: Rexless Abandon
Andrew Levine
Good Enemies Are Hard To Find: Therefore Worry
Jim Kavanagh
What to Expect From a Trump / Kim Summit
Ron Jacobs
Trump and His Tariffs
Joshua Frank
Drenched in Crude: It’s an Oil Free For All, But That’s Not a New Thing
Gary Leupp
What If There Was No Collusion?
Matthew Stevenson
Why Vietnam Still Matters: Bernard Fall Dies on the Street Without Joy
Robert Fantina
Bad to Worse: Tillerson, Pompeo and Haspel
Brian Cloughley
Be Prepared, Iran, Because They Want to Destroy You
Richard Moser
What is Organizing?
Scott McLarty
Working Americans Need Independent Politics
Rohullah Naderi
American Gun Violence From an Afghan Perspective
Sharmini Peries - Michael Hudson
Why Trump’s Tariff Travesty Will Not Re-Industrialize the US
Ted Rall
Democrats Should Run on Impeachment
Robert Fisk
Will We Ever See Al Jazeera’s Investigation Into the Israel Lobby?
Kristine Mattis
Superunknown: Scientific Integrity Within the Academic and Media Industrial Complexes
John W. Whitehead
Say No to “Hardening” the Schools with Zero Tolerance Policies and Gun-Toting Cops
Edward Hunt
UN: US Attack On Syrian Civilians Violated International Law
Barbara Nimri Aziz
Iraq Outside History
Wilfred Burchett
Vietnam Will Win: The Long Hard Road
Victor Grossman
Germany: New Faces, Old Policies
Medea Benjamin - Nicolas J. S. Davies
The Iraq Death Toll 15 Years After the US Invasion
Binoy Kampmark
Amazon’s Initiative: Digital Assistants, Home Surveillance and Data
Chuck Collins
Business Leaders Agree: Inequality Hurts The Bottom Line
Jill Richardson
What We Talk About When We Talk About “Free Trade”
Eric Lerner – Jay Arena
A Spark to a Wider Fire: Movement Against Immigrant Detention in New Jersey
Negin Owliaei
Teachers Deserve a Raise: Here’s How to Fund It
Kollibri terre Sonnenblume
What to Do at the End of the World? Interview with Climate Crisis Activist, Kevin Hester
Kevin Proescholdt
Secretary of Interior Ryan Zinke Attacks America’s Wilderness
Franklin Lamb
Syrian War Crimes Tribunals Around the Corner
Beth Porter
Clean Energy is Calling. Will Your Phone Company Answer?
George Ochenski
Zinke on the Hot Seat Again and Again
Lance Olsen
Somebody’s Going to Extremes
Robert Koehler
Breaking the Ice
Pepe Escobar
The Myth of a Neo-Imperial China
Graham Peebles
Time for Political Change and Unity in Ethiopia
Terry Simons
10 American Myths “Refutiated”*
Thomas Knapp
Some Questions from the Edge of Immortality
Louis Proyect
The 2018 Socially Relevant Film Festival
David Yearsley
Keaton’s “The General” and the Pernicious Myths of the Heroic South