Arthur M. Okun, chairman of the Council of Economic Advisers in the Johnson administration, said yesterday that the employment tax credit approved by the House last month "is an ineffective way to create jobs or reduce labor costs."
Okun and Michael K. Evans, head of Chase Econometric Associates, Inc., also cautioned Congress against rushing into programs designed to help the long-term and structurally unemployed before solving the general unemployment problem that persists from the recession of 1974 and 1975. Chase is a major economic forecasting firm.
Okun acknowledged that the economy is "plagued by severe structural unemployment among the disadvantaged groups in our labor force," such as teenagers and minorities.
"But the problems of those who are chronically at the back of the hiring line cannot be soved while the front of the line is swollen with experienced and skilled breadwinners on layoff," he testified before the Senate Budget COmmittee.
"Some well-intentioned proposals to pinpoint remedies for unemployment are basically misconceived: they are like an effort to deal with a soft tire by pumping up merely the bottom. A general infusion of pressure - or purchasing power - is the way to get the tire back in shape," Okun told the committee members.
Evans cautioned that "We can't do everything at once," and warned that subsidizing the hiring of one worker in a pinpointed unemployment program will usually result "in the laying off of someone else." The real question now, he said, is raising overall demand.
Okun criticized the House-passed employment tax credit, which gives employers tax credits for 40 per cent of the first $4,200 in wages paid to new employees, up to a maximum of $40,000, or 24 employees.
The former Economic Council chairman, now a senior fellow at the Brookings Institution, said the credit is so msall it would have no influence on the hiring decisions of big employers, who account for most of the employment in the nation and will hire more than 24 workers anyway. Instaed, he said it would just be a $40,000 tax rebate.
TO very small firms, in shrinking industries, the credit would make no difference, he added.
To the firms who will hire between zero and 24 workers, the credit creates an incentive to hire part-time and low wage employees, Okun said. To these employers it is better to "hire two part-time workers at $4 an hour than one full-time worker."
The House tax credit substitutes for a Carter proposal that would have cut payroll taxes by a quarter point. Okun said the administration proposal, while also not a direct incentive to create jobs, would have cut labor costs and inflation.
Harvard economist Otto Eckstein, who like Okun is also a president of a major economic forecasting firm, Data Resources Inc., told the budget committee that it must be careful not to build the temporary programs of the Carter and congressional stimulus packages into the "permanent support base" the federal government provides local governments.
He cautioned that the budget could get out of control and be "an obstacle to the solid four-year expansion which is in our grasp." CAPTION: Picture 1, OTTO ECKSTEIN . . . budget could be obstacle; Picture 2, ARTHUR M. OKUN . . . cautions Congress