Jobs, Jobs, Jobs

With nearly one in ten American labor force participants out of work, it is clear that more needs to be done to stimulate hiring. Action is required, and I’m pleased to add my voice to those calling for a well-designed temporary hiring tax credit. This proposal has earned the support of 21 leading economists, including folks who are often on very different sides of economic debates.
Alan Blinder has a useful article in last Friday’s Washington Post, explaining the logic of the hiring credit. Here’s the key:

The search for a cheaper way [to raise employment] leads to policies specifically targeted at job creation. The two main options are direct public-service employment and a new-jobs tax credit. The Obama administration and several members of Congress have proposed the latter. If most of the new public-service positions are low-wage jobs, and if the tax credit is designed well, the per-job costs of these policies are comparable: $30,000 to $40,000. I would recommend doing both, targeting roughly a million new jobs with each program, at a budgetary cost of perhaps $70 billion. While 2 million more jobs won’t end America’s gaping shortage, it would make a significant dent.

Those numbers are important: Adding two million jobs, with a fiscal impact of less than $250 per American. With so many people out of work, it’s the least we can do.
And here’s another idea I would like to see taken seriously: wage subsidies focused on the long-term unemployed. I’m worried that these folks are going to find it difficult to get back to work even when the economy starts to gather steam. If the long-term unemployed lose skills, or lose touch with the labor market, there’s a chance that inflationary pressures may develop even when the unemployment rate remains high. The best way to prevent inflationary pressures from developing is to ensure that all workers remain job-ready.
The full letter-sent to the Congressional leadership of both sides-is below the fold:

Dear Speaker Pelosi, and Messrs. Boehner, Reid, and McConnell:
A great number of different policy actions–including the American Recovery and Reinvestment Act, the financial rescue, and the extraordinary monetary policy measures taken by the Federal Reserve–have in their sum played an important role in changing the trajectory of the economy from one of terrible decline to one of growth. But with the latest unemployment rate at 9.7 percent, it is clear that additional emergency policy measures to jump-start job creation are still warranted.
A well-designed temporary and incremental hiring tax credit is a cost-effective way to create jobs, and could work well in the current environment. At a time when GDP is beginning to rise and demand is starting to return, private firms are likely to respond to such a tax incentive by hiring sooner and more aggressively than they otherwise would have done. Such a credit could thus help put Americans back to work more quickly than otherwise. And by targeting firms that are growing, such a tax credit supports the businesses most likely to lead the recovery of employment.
There are many ways to design an effective hiring tax credit, but in general the beneficial effects will be greater the stronger the hiring incentives and the lower the administrative burdens placed on firms. It is critical that such a tax credit be put into place quickly and that it is publicized widely. Firms will begin to accelerate hiring only when know they can count on such tax relief.
We judge that a well-designed hiring tax credit is a well-targeted and economically sound strategy for aiding job creation at this phase of the recovery, and so we support a well-designed hiring tax credit.
In our personal capacities, we are sincerely yours,
Mark Zandi
Justin Wolfers
Laura Tyson
Mark Thoma
Peter Temin
Joseph Stiglitz
Betsey Stevenson
Isabel Sawhill
Dani Rodrik
Robert Reich
Richard Portes
Larry Katz
Barry Eichengreen
Peter Diamond
Brad DeLong
David Cutler
Robert Cumby
Tyler Cowen
Menzie Chinn
Alan Blinder
George Akerlof