Coming Soon to an Employer Near You: Cash for Hires

Oct 20, 2009
This article is part of a series called Opinion.

Picture 3I recently wrote about the need to directly stimulate job creation by giving employers incentives to hire workers. I’m glad to say that the government is taking the advice seriously.

I guess the White House has gotten over the Olympics debacle. Okay, I can’t claim the credit, but the good news is that several measures are being seriously considered to provide a tax credit for creating jobs.

One program, devised by the Upjohn Institute for Employment Research, and a similar one from the Economic Policy Institute, would give employers tax credits for two years for increasing the number of jobs they have, above some baseline, or adding significant new hours. The amount of credits is small — from one to two times the amount of payroll taxes on each new hire, but it’s still progress. Far better than paying for bridges and roads and healthcare programs that at best indirectly create some temporary jobs.

The idea isn’t anything new. In 1977 to 1978 the federal government created the New Jobs Tax Credit — a wage subsidy equal to $7,000 for each additional worker hired. The program is estimated to have added about 2.1 million new jobs, at a cost of about $20,000 per job (in 2008 dollars). Compare that with the estimated $92,000 per job created under the current stimulus package and one has to wonder why this wasn’t started earlier.

If implemented, the credit is estimated to result in the creation of 1.3 million new jobs per year. This can’t happen soon enough. The unemployment picture is worse than the numbers suggest: over half a million people are estimated to have stopped looking for work altogether. Had they stayed looking, the official rate would be over 10% already. The tax credit would also arrest the attrition of skills that’s occurring with such a large portion of the workforce being unemployed for so long. The loss of value in human capital is orders of magnitude more than the loss of income.

The program is not perfect. Some of the jobs for which credits are claimed would have been created anyway. Other jobs may go away when the credit expires. Ideally the credit should be large enough to offset the payroll cost of creating new jobs. But beggars can’t be choosers, and right now there are a lot of people close to being very real beggars.

This article is part of a series called Opinion.
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