Paul Krugman argues that “the recession is probably over in a technical sense” the government must nonetheless treat the 10.2 unemployment rate as a crisis because there are “six times as many Americans seeking work as there are job openings, and the average duration of unemployment — the time the average job-seeker has spent looking for work — is more than six months, the highest level since the 1930s” and because “financial crises have typically been followed not just by severe recessions but by anemic recoveries; it’s usually years before unemployment declines to anything like normal levels.”
Beyond that, “The long-term unemployed can lose their skills, and even when the economy recovers they tend to have difficulty finding a job, because they’re regarded as poor risks by potential employers. Meanwhile, students who graduate into a poor labor market start their careers at a huge disadvantage — and pay a price in lower earnings for their whole working lives. Failure to act on unemployment isn’t just cruel, it’s short-sighted.”
So, he says, “it’s time for an emergency jobs program.”
One such measure would be another round of aid to beleaguered state and local governments, which have seen their tax receipts plunge and which, unlike the federal government, can’t borrow to cover a temporary shortfall. More aid would help avoid both a drastic worsening of public services (especially education) and the elimination of hundreds of thousands of jobs.
Meanwhile, the federal government could provide jobs by … providing jobs. It’s time for at least a small-scale version of the New Deal’s Works Progress Administration, one that would offer relatively low-paying (but much better than nothing) public-service employment. There would be accusations that the government was creating make-work jobs, but the W.P.A. left many solid achievements in its wake. And the key point is that direct public employment can create a lot of jobs at relatively low cost. In a proposal to be released today, the Economic Policy Institute, a progressive think tank, argues that spending $40 billion a year for three years on public-service employment would create a million jobs, which sounds about right.
Finally, we can offer businesses direct incentives for employment. It’s probably too late for a job-conserving program, like the highly successful subsidy Germany offered to employers who maintained their work forces. But employers could be encouraged to add workers as the economy expands. The Economic Policy Institute proposes a tax credit for employers who increase their payrolls, which is certainly worth trying.
Now, I’m not opposed in theory to either state aid or employer incentives and both strike me as a better response to the financial crisis than the massive corporate bailouts of the recent past. The WPA-like program, however, is a head scratcher given Krugman’s stated goals. How does doing low paying make-work jobs keep highly perishable skills from eroding or make someone seem less “risky” to a potential employer? And Krugman himself complains that having a low paying job tends to depress your subsequent earnings.
If the problem is that there are no jobs for low-skill workers, something like WPA makes sense — preferably coupled with some sort of training program. But it makes little sense for laid-off MBAs to spend a couple years filling potholes while they wait for the economy to get better.
