People@Work: Obama Has Plenty of Work to Do on Jobs

With his health care insurance overhaul sidelined for the time being, President Obama has turned his focus to lowering the nation's stubbornly high unemployment rate. For millions of jobless Americans, that shift comes none to soon. While government statistics show 10% of the country's workers have no job, labor economists will tell you the real unemployment rate hovers somewhere around 17%, after accounting for those who are "discouraged" from seeking a job or underemployed.In his State of the Union speech Wednesday, Obama laid out a plan to spark job creation that includes offering small employers a $5,000 tax credit as an incentive to hire more workers, along with other tax breaks to increase wages. Speaking Friday to an audience at a small machinery business in Baltimore, Obama said his proposal "is a simple, easy-to-understand mechanism that will cut taxes for more than 1 million small businesses."

Credit the plan's simplicity in part to one John Bishop, professor of human resource studies at Cornell University, who along with a colleague began shopping the idea around Washington last fall. Bishop says the Obama jobs plan is similar to one introduced in the late 1970s during the Carter administration, which contributed to "the fastest-growing two-year period in peacetime in U.S. history," he says.

Employment had been in the doldrums in the six months leading up to the introduction of the New Jobs Tax Credit, as Carter's team called it then, and job growth stalled when the program expired a year later. But in the interim, it reduced the nation's unemployment rate by 2 percentage points, Bishop says.

"Very Powerful Subsidy" -- or Quite Limited?

A similar tax credit today would likely have a bigger effect given technological advances such as the Internet. "It's a very powerful subsidy that should result in a substantial increase in employment," Bishop says. The incentive could result in a 3% to 4% increase in employment, or "many millions of jobs," he says.

Other labor experts aren't quite as sanguine. "I think the benefit of this is mostly psychological," says New York University economics professor Joseph Foudy. The credit may tip the balance in favor of hiring for firms on the cusp, but the actual impact would be quite limited, he says. "I don't expect this to have even a 1% effect on unemployment."

Foudy likens the proposed credit to the one first-time homebuyers are now getting. A majority of them fall into one of two camps: those who are going to buy a home and those who aren't. For a "handful of others," he says, the credit is incentive enough to pull them into the market.

A Giant Recessionary Hangover

Beyond the tax credit, another proposal Obama put forth by in Wednesday's speech -- to boost infrastructure spending -- would have deep, long-lasting economic effects through increased productivity, says Farrokh Hormozi, professor of economics and public administration at Pace University. "That increased productivity translates into more jobs, more employment and [improved] economic conditions," he says.

Though experts disagree on the impact of the proposals, most agree that at present, many employers remain reluctant to hire, content for now to simply squeeze more work out of existing employees. The reasons for reluctance are myriad, Hormozi says, but can be lumped into one giant recessionary hangover. The headache caused by overindulgence in easy credit is still being felt.

Foudy says employment is picking up and will slowly gather steam this year, but the country isn't likely to feel the pace of job growth until year-end -- too late in his estimation to help Democrats in November's midterm elections. Not only has the job market been slower to recover following this recession than in prior ones, Foudy says, but sentiment among job seekers has also lagged. That perception will change, he says, "only when people see concrete increases in jobs."
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