Let's Change Labor Day to Jobs Day!

Politically, economically and morally, there is no issue of more importance in this country today than jobs. One in 10 Americans is officially unemployed and that does not include an additional seven percent who have just given up looking for work or can only find work part-time. Add to that the fact that more than a third of the unemployed have been unable to find work in more than six months and you have the primary reason for the level of anger and discord in our country right now.

As President Obama begins the second half of his term with a campaign for “jobs and competitiveness” all of us should collectively take a moment and think about how he might achieve what appears to many of us such a lofty goal. It is after all, jobs that matter to most Americans and unemployment remains at more than nine percent—double its pre-recession level. This is a horrific punishment to inflict on millions of Americans who despite what the Tea Party says, did absolutely nothing to deserve it. This crisis of unemployment will ultimately cause long-term, and for some families permanent damage.

Is there a role for government to play in this crisis? Some would have you believe that this is the last thing needed but as the recent survivors of Hurricane Irene who have lost their homes understand, there is always a role that government can play in times of regional and/or national crisis. One relatively simple measure would be for government to subsidize employers who are willing to reduce hours rather than lay people off. Germany has demonstrated the success of this approach over the past couple of years where unemployment was at 7.4% just prior to the beginning of their recession in the third quarter of 2008. Today, it has fallen to 6.7% and Germany had a much steeper decline in output than we have.

This strategy is both straightforward and simple. Employers who are faced with reduced demand can either lay off workers or reduce hours. If they reduced hours for any employee, the German government put up 60% of the lost pay for those reduced hours. The employee keeps their job with reduced hours but the pay is not reduced nearly as much.

The irony is that our own government’s level of division and stalemate is not nearly as divided as the German government was in 2008 and yet, they were able to come up with a program that was acceptable to both sides. That fact alone should make it possible for American legislators to achieve bi-partisan support for such a strategy. We could use unemployment insurance funds to cover much of the cost and 17 states offer such work-sharing programs already. The challenge there however is that they are under-funded making it difficult to serve all those who are unemployed or who are facing unemployment.

The noted economist Dr. Dean Baker (whom I have quoted many times in previous blogs) 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 initiative in which voters would choose between continuing to occupy Afghanistan versus creating three million jobs for America’s unemployed! The reality is that if we were truly serious about this crisis, we could possibly squeeze another 1.6 million jobs out of that initial investment of $68 billion.

Another strategy that would result in putting Americans back to work while simultaneously boosting the economy and more importantly not cost taxpayers a dime, would be to allow homeowners who are under water on their mortgages to become long-term renters. An independent appraiser would set the Fair Market Rate (FMR) rent for their home. Millions of homeowners who purchased homes at “bubble-inflated prices” would see a sizeable reduction in their monthly payment. Because many banks would reject outright their position as landlord, they would either have to contract that role out to a property management company or even to the local public housing authority. Or, the bank could choose to do what it should have done already, re-negotiate the terms of the mortgage thereby reducing the payment. This plan of action would free a large number of homeowners from the prolonged stress and uncertainty of un-payable debt and boost consumer demand while ultimately making us all better customers for the bank, something that seems a positive development for both banks and consumers.

Of course, demand for goods and services are needed to achieve the growth that will boost our economy and provide jobs. Continuing to provide tax breaks to the wealthy and not taxing oil companies who are practically getting richer by the minute is not going to grow the economy. American corporations are stubbornly hoarding more than $2 trillion of cash; they are not expanding or hiring because there is not sufficient consumer demand to warrant that. The bursting of the housing and commercial real estate bubbles will limit demand in those sectors for years to come.

Consequently, the federal government will have to step up. At the very least, it should subsidize the state and local governments so as to stem the tide of laying their employees off while raising taxes—thus shrinking the economy further and adding to unemployment simultaneously. This would mean however that President Obama would need to truly seize leadership on this issue, even if it means upsetting those same Republicans in Congress who drove our country to the brink of total economic collapse.

It is time to reflect on the lessons of the New Deal and explore new, big ideas on how to get Americans back to work. The strategy of subsidizing employers who spread work hours out as opposed to laying people off could operate as a tax credit to companies of up to $3,000 per job created to shorten work hours while leaving everyone’s pay unchanged. The reduction in hours could take the form of sick pay, paid family leave, shorter work weeks or longer vacations. The employer would select the method that is best for their company and their workers.

In principle, the government could implement this course of action as part of its effort to save jobs at an investment of a shade over $20,000 per job—far less than the cost per job saved through the 2009 stimulus package.

If a work share program reduced involuntary job loss by 20 percent, or 400,000 per month, it would have the same effect as adding 400,000 new jobs. Over a full year, this would generate nearly 5 million new jobs. This would be a quick and effective way to reduce unemployment while at the same time, boosting the economy.

For 9.1% or 13.9 million Americans who are out of work today, there is no “Happy Labor Day” in their vocabulary or frame of reference. Let’s change that—NOW!