Washington politicians are flailing for job-creation ideas like a drowning man lunging for a life preserver. President Obama probably remembers Ronald Reagan’s setup and punch line: “A recession is when your neighbor loses his job. A depression is when you lose yours. And recovery is when Jimmy Carter loses his.”
So it’s no surprise that rumors of new payroll-tax cuts and dreams of a new infrastructure bankhave followed the miserable jobs report released June 3. New York Times columnist Paul Krugman seems to be scavenging Grandma’s attic for old Works Progress Administration signs to put up again.
Here’s a simple idea to cut unemployment that won’t cost the government any more money and won’t require devaluing our currency: Turn unemployment benefits into a signing bonus.
Until the Great Recession, few economists could have imagined that the government would offer laid-off workers up to 99 weeks of jobless benefits, the maximum now allowed. Ninety-nine is a very large number, and most likely the wrong number if you’re trying to spark a recovery. And so, here we are with a 9.1 percent unemployment rate — even higher when you count those millions of discouraged, marginalized Americans who’ve given up looking for work and are hoping to hang on to their sanity.
It’s time to turn the joblessness machine into a jobs machine. By transforming unemployment benefits into a signing bonus, we can create new incentives to propel people back into the workplace sooner, rather than later. Too many Americans are sitting on the sidelines, waiting for the end of benefits or for a higher-paying job to come along. You can’t blame them.
John Maynard Keynes pointed to the “sticky wages” problem. The laid-off U.S. Steel worker who had earned $60 an hour isn’t eager to pack his lunchbox for a 25 percent pay cut. Eventually, unless his skills justify $60 an hour, he will have to relent or retire permanently. This does no good for his mental health, and it damages the overall economy.
When you combine sticky wage expectations with 99 weeks of jobless benefits, pretty soon you’ve got a lot of depressed people sitting on their sofas watching daytime reality shows on the flat-panel TVs they bought on credit. You wind up with 2.1 million private-sector jobs created in the past 15 months, while actual hiring looks flat.
More than 6 million Americans have been out of work longer than six months, and the average span of joblessness is nearly 40 weeks and rising since last year, according to the Bureau of Labor Statistics (BLS). The Federal Reserve Banks of San Francisco and Chicago have calculated that unemployment benefits may have added between 0.4 and 1.7 percentage points to the jobless rate, even before benefits were extended to 99 weeks.
The federal government and the states must overhaul unemployment payments to prod people forward, not cushion them while they wait for the phone to ring. Here’s my plan for structuring a better system to do that:
After 26 weeks of receiving benefits, a job-seeker would be eligible for a “signing bonus” equal to three additional months of benefits if he or she took a full-time job. It wouldn’t matter whether the job paid more, less or the same as the worker’s old one. We don’t want the logistics mess of a “cash for clunkers” type of program, in which the government had to figure out which clunkers really clunked.
After 39 weeks, weekly benefits would expire, but the job-seeker would be eligible for a two-month signing bonus if he or she took a job. This bonus opportunity would expire after 52 weeks.
This plan would create a greater incentive to take a job after 26 weeks than after 39 weeks, and a huge incentive to go back to work before a year has passed. The longer one holds out, the less one gets.
While this proposal may sound harsh to some, since it would cut off weekly benefits at 39 weeks instead of 99, the signing bonus effectively would give the job-taker 11 months of support. During the brutal recession of the early 1980s, which drove the jobless rate to 10.8 percent and bludgeoned factory workers with an uncompetitive dollar, benefits maxed out at 42 weeks.
Under my plan, the signing bonus would be available only as long as the national unemployment rate remains above 7.5 percent. This, too, creates urgency to get back into the workforce before the economy returns to normal.
Moreover, getting people back on the job sooner would help replenish the empty coffers of state and local governments.
To avoid “take the money and run” scams, the bonus would be paid out over three months and would be a one-time-only benefit. If the recipient left the job voluntarily or was fired “for cause” within a year, any payout would be subject to a federal tax rate of 70 percent.
Would this plan get public support? Libertarian critics might complain: “You’re using tax dollars to pay people to get a job, which, after all, they should be doing anyway!”
First, forget fantasyland; we have to start our assessment at the status quo. Isn’t it better to pay people to pack a lunch and show up for work instead of paying them to stay home? Second, since these jobs would be in the private sector, they would be far more stimulative than the sort of public jobs envisaged in the 2009 stimulus plan. Third, the impact on the federal budget would be far more positive than current law.
Let’s say Jobseeker Max, who has been collecting unemployment for six months after losing his $45,000-per-year job, takes a new job for $40,000. His signing bonus would total $5,625 — equivalent to three months’ worth of his unemployment benefits. At first, it might seem that the government has thrown away $5,625. But Jobseeker Max now pays taxes on his new wages, roughly 15 percent of $40,000, or $6,000. This sum is greater than the bonus, assuming he stays on the job for a year.
Remember, aside from reforming entitlements, nothing would help fight the U.S. deficit more than spurring more people to show up for work in the private sector.
The left side of the political spectrum might harp: “You’re throwing hapless people to the wolves. Already, 44 million Americans receive food stamps.” But this plan would not throw people to the wolves; it would lure them back to the workplace.
The BLS reports 3 million job openings at the moment. Granted, not every seeker is well-matched for available jobs. We need more software engineers and miners who understand fracking for natural gas than mortgage brokers baying for borrowers.
But don’t take the “structural mismatch” claim too far. Remember, just four years ago our jobless rate was 4.5 percent. Does anyone believe that in those four years, 6 million American workers hit their sell-by date?
Finally, I can’t deny that food-stamp and jobless rates have soared to frightening levels. But this is an indictment of the current system.
There’s no avoiding some falling wages in a recession. More than half of people who lost jobs between 2007 and 2009took pay cuts to rejoin the workforce, and 36 percent took at least 20 percent haircuts. It’s better for the economy, though, if we speed the hiring process, not throw wrenches into it. Does that mean wages must keep sliding? Of course not. As the economy slowly and painfully gets back on its feet, we can expect some pay raises. In fact, among employed workers today, wages are crawling upward.
Still, as Milton Friedman always reminded, there’s no free lunch. Companies can’t pay employees more unless the employees upgrade their skills. Right now, software engineers are back in fashion in Silicon Valley. But if the only computer code you know is Fortran, your resume is frozen in 1985, and so are your wages.
Losing a job hurts deeply. For all the Dilbert cubicle jokes and television parodies such as “The Office,” most Americans like to work and like their jobs. Gathering around a water cooler beats waiting around for the mailman to show up at the house. We want to feel that rush of dopamine when we face a new challenge at work. We need that forward momentum to be creative and to find some slivers of happiness in this crazy world.
And a signing bonus, like pro athletes and Wall Street guys get — albeit with fewer zeroes — could be a pretty nice push.
Todd G. Buchholz was a White House economic adviser to George H.W. Bush and a former managing director of the Tiger hedge fund. He is the author of “Rush: Why You Need and Love the Rat Race.”