It’s not often that the government of the United States has anything to learn from the government of Singapore, but when it comes to job creation the city has something to offer. The Jobs Credit initiative provides cash grants to employers on a certain percentage of monthly wages per employee. The result: unemployment remains among the lowest in the world at 3.3%, even though the wider Singapore economy has continued to contract. Obviously it’s much easier to do this in a single city and it may not transfer to America, but we seem to be fresh out of ideas that work when it comes to creating jobs.
Despite hundreds of billions of dollars in stimulus spending and lots of government programs, we’re now close to 10% unemployment, having lost 7.2 million jobs since the recession began. If the economy were creating 200,000 jobs a month it would still take three years just to get back to where we were. And that isn’t all. The economy needs an additional 100,000 jobs a month to keep up with population growth. If the job market returns to the rapid pace of the 1990s — adding 2.15 million private-sector jobs a year, double the 2001-2007 pace — the U.S. wouldn’t get back to a 5% unemployment rate until 2017.
So what’s holding things back?
Plenty. Most jobs come from the private sector, and that has been hit with a double whammy of first an increase in minimum wage, and second a lack of sales. The increase in minimum wage couldn’t have been worse timed. Whatever the merits of increasing minimum wage, it does nothing to increase employment. That change alone is directly responsible for increasing the unemployment rate for teens to 26% — the highest rate since 1948. Which reinforces the second problem: some $385 billion fewer was paid out in wages and salaries over the last 12 months. Small and medium businesses, which generate most of the jobs in the country, are the hardest hit. Sales have dropped, credit is still tight, and legislation like healthcare and cap-and-trade only adds to uncertainty over costs. Instead of a concerted focus on job creation, the administration and Congress keep coming up with asinine ideas like Cash for Clunkers.
The First Law of Motion
If there’s a bright spot here it’s that historically, the harder the fall, the faster the recovery. Call it the economic version of Newton’s law that every action has an equal and opposite reaction. Economic growth jumped following deep recessions in the past. Following the depression, when unemployment hit 25%, the economy grew at an almost 10% annual rate for four years. The unemployment rate dropped by 11%. Following the deep recession of 1981-82, the economy grew an average of 7.7% for six years. The Economic Cycle Research Institute, which has successfully predicted the start and end of the last three recessions, has an index on the U.S. economy, and points to a very strong recovery in the coming months. That’s good news, but jobs growth doesn’t always parallel economic recovery.
A near immediate impact on the jobs picture could be achieved by following the Singapore example – a tax credit for businesses that create jobs. For such a program to work, the credit would have to offset the cost of creating jobs — basically equal to the payroll cost of new jobs created — and it would have to be around for a few years. That would light a fire under employers and nullify the effect of the two factors limiting job growth that I mentioned above.
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What’s needed is action where it’s needed the most. Trouble is that the need to do something drastic for job creation doesn’t seem to be registering in Washington. Instead, on the heels of the Cash for Clunkers boondoggle we have Dollars for Dishwashers — a program to provide rebates for buying new energy efficient appliances. What’s next? Pennies for Potties, to put in new toilets?
Tell your representatives to call 65-6235-8577: the Prime Minister’s office in Singapore.