Obama can create jobs by modeling two good ideas
He should combine New Deal-era solutions with Germany's successful work-share program.
On display is an exhibit of New Deal-era paintings that show men building roads, laying pipe, and shoveling snow. The artists were paid by the New Deal to paint these portraits; and the people in them were paid by the New Deal to construct public-works projects and the nation’s infrastructure.
Almost every community in the United States has a park, bridge, or school constructed during the New Deal, built by the calloused hands and strong backs of Americans who were working directly for the government.
With the US unemployment rate surging to historic proportions, why has the White House avoided New Deal-type programs that could keep Americans employed?
Aside from a small summer employment program for young people, Mr. Obama seems unwilling to create jobs on the public payroll. But feeling the urgency of the dismal job market, recently he proposed using some leftover money from the Troubled Asset Relief Program (TARP), originally allocated for bailing out failing banks, to lend to small businesses to create jobs. He also proposed increased spending on infrastructure investment and home-weatherizing, also targeted to create jobs.
That’s in addition to last February’s economic stimulus, which provided billions for investments in energy efficiency, broadband access, and other areas partly to stimulate job growth.
But it may be too little or too late. So what else should Obama do? After visiting the Smithsonian, he should look across the Atlantic.
Even as US unemployment has more than doubled, in Germany the unemployment rate has hardly increased. Germany was one of the first advanced economies to emerge out of recession and now has a considerably lower unemployment rate than the US, 7.6 percent. The remarkable resilience of the German economy is directly attributable to shrewd policies that have better stimulated its economy.
The most important of these is known as kurzarbeit, which encourages firms that face a temporary decrease in demand for their products or services to avoid laying off employees by trimming the hours of all employees.
Under such so-called work-sharing programs, employers spread the burden, and the government then makes up some, or all, of the workers’ lost wages. This encourages firms to use reductions of hours instead of layoffs.
The economic arguments in favor of such a policy are considerable. For workers, having a job that has been reduced to 80 to 90 percent of full time is vastly better than being unemployed, as it keeps you engaged in the workforce and puts far more money in your pocket than if you were living off unemployment alone. For employers, it keeps the workforce ready for an economic upswing. And for the government, supporting a worker whose hours are reduced is much less costly than paying full unemployment.
The German program this year has cost only $2.9 billion. Adjusting for the larger US population, that suggests the US could fully copy the German system for $10.6 billion – about 1/70th the cost of the $750 billion economic stimulus last February, estimates Kevin Hassett, economic analyst at the American Enterprise Institute.
A program based on Germany’s work-share model would be attractive to firms, workers, and taxpayers because it is cheaper than paying unemployment and it keeps more people employed. That in turn would help maintain consumer spending, which is a big driver of the national economy.
Seventeen US states allow this sort of work-sharing, but few companies are participating, mostly because, unlike in Germany, the government’s contribution is not large enough to make work-share attractive. Sen. Jack Reed (D) of Rhode Island and Rep. Rosa DeLauro (D) of Connecticut have proposed bills to expand existing state work-share programs, but the White House is not supporting them.
Administration officials say they want to “create” new jobs rather than “save” old ones, but that’s silly, says economist Dean Baker. Reducing the number of layoffs by a million workers has the same impact on the labor market as creating a million additional jobs.
Obama’s proposal to use some TARP money for lending to small businesses could help, as could his proposal for funding New Deal-type jobs to rebuild America’s infrastructure. China is spending billions in stimulus funds on public-works projects, as is Europe. But will an increasingly deficit-fixated Congress go for it?
Across the Atlantic, “social capitalism” is weathering this storm better than US-style “Wall Street capitalism.” If the White House can’t figure this out, it may end up as Obama’s “Katrina moment,” hurting the country as well as his political fortunes.
Steven Hill works at the New America Foundation. His forthcoming book is “Europe’s Promise: Why the European Way Is the Best Hope in an Insecure Age.”