Jan. 25, 2013, 6:01 a.m. EST

3 things Washington could do to create more jobs

Commentary: Even Obama has stopped talking about unemployment

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By Rex Nutting, MarketWatch

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WASHINGTON (MarketWatch) — A year ago, both political parties seemed to agree that our nation’s biggest problem was finding enough good jobs for everyone who needed one.

Today, both political parties have given up on doing anything about what remains our most immediate challenge. A shameful silence has descended upon the capital while other less urgent or momentous issues fill the vacuum.
The problems of gun violence, our deficits, the security of our diplomats must be solved, no doubt, but none of them can touch the jobs crisis for impact or urgency.
Over the past four years, the Republicans delighted in taunting President Barack Obama with the refrain “Where are the jobs, Mr. President?” But since Obama’s re-election, the Republicans have discarded the taunts and the issue. It was just a political talking point for them.

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For his part, the president gave a stirring defense of liberalism at his inauguration the other day. His speech touched on nearly every principle held dear by liberals except one: full employment.
This omission is astonishing, given the jobs crisis in our nation.
Let’s review where we are:
Despite steady job growth over the past three years, nonfarm payrolls are still some 4 million lower than they were five years ago, according to the Bureau of Labor Statistics’ survey of work places. Employment in the private sector has risen by more than 5 million over three years, but remains 3.5 million lower than at the peak. See the Bureau of Labor Statistics data on employment.
The official unemployment rate is 7.8%, down from the 10% rate recorded in late 2009, but significantly higher than the 4.4% of mid-2007. Just over 12 million people are classified as unemployed (meaning they are actively looking for work), with an additional 6.5 million who aren’t looking but say they want a job, according to a separate BLS survey of individuals. See the BLS data on employment status.
Many of them have been without work for months, if not years. Among those still looking, nearly 4.8 million have been out of a job for longer than six months. The average unemployed person has been looking for nine months. Read the BLS data on the duration of unemployment.
Millions more are working only part time, or in jobs they are overqualified for.
Almost every working person is directly affected by mass unemployment. Because there’s so much competition for jobs, the bosses have the upper hand in negotiating wages, benefits and working conditions. Real compensation per hour (adjusted for inflation) has risen by less than 1% since 2007, even though the average worker produces 9% more per hour.
By any measure, unemployment is a national tragedy and disgrace.
But it’s not just the United States that’s suffering. The unemployment rate in Europe is 10.7%, with 26 million out of work. With the recession in the developed world restraining exports from the developing nations, nearly 200 million people worldwide are unemployed, the International Labor Organization reported this week. Read the latest from the ILO.
The politicians know it’s bad, and they know what needs to be done to fix it, more or less: More demand, more spending.

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“Strong job growth will not come back until companies feel confident about the economic outlook,” said Guy Rider, director-general of the ILO, who said rising inequality around the globe has squeezed incomes and slowed growth. The masses don’t have the income to spend, which means the companies don’t have any reason to invest the trillions of dollars they are sitting on.
In more reasonable times, we might look to governments to pick up the slack temporarily, but pro-growth Keynesian economics is out of fashion. Instead, austerity and fiscal contraction are prolonging our jobless recovery.
Fiscal stimulus is off the table, except in China and Japan. The choice in the U.S. and Europe is between a big helping of austerity and a medium-sized helping of austerity. Government spending has been contracting in the United States for three years, adding to our unemployment problems.
No matter what happens to the sequester, government spending will still decline this year.
So is there nothing to be done to create jobs now? That seems to be the conclusion of both Republicans and Democrats in Washington.

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Republicans still seem to cling to the idea that those 18 million who want to work would have jobs if only they tried a little harder, or if we gave the “job creators” another tax break to encourage hiring. Obama is still pitching more education as the cure-all to our unemployment problems, even though the evidence shows that even educated people are having a difficult time finding work right now.
Both parties are focused on supply-side solutions to a demand-side problem
Not everyone has given up. Here are some practical ideas to boost job growth right now:

Work sharing

Instead of keeping some workers on and laying others off entirely, companies could cut all their employees’ hours a little. Government unemployment benefits would make up part of the lost wages.
Working sharing has been successful in Germany, and it’s technically available in many states, although it’s underused. It should be tried on a massive scale here, says Heidi Shierholz, an economist at the Economic Policy Institute. “It doesn’t cost anything, and it could save millions from short-term and long-term job loss.” Read more about work sharing from the Center for Economic and Policy Research.

Maximum bank reserves

U.S. banks now have about $1.6 trillion in reserves parked at the Federal Reserve, not doing anything except making the banks feel super, super safe. Economist Robert Pollin of the University of Massachusetts-Amherst and the author of “Back to Full Employment” suggests that the Fed put a cap on bank reserves, forcing the banks to do something with about $1 trillion in excess reserves, like lending it out to small businesses that are now being strangled by tight credit.

Raise the minimum wage

This would be controversial, since some theorists say raising the minimum wage reduces employment. The empirical studies suggest otherwise. Raising the minimum wage would put more money in the hands of the working poor, boosting consumption and leading to higher output, suggests James Galbraith, an economist at the University of Texas.
Just because we can’t get Congress to reverse course and do the right thing on fiscal policy doesn’t mean we are helpless to fight back against this global depression. Life is too short to simply wait years for things to get better.

Alan Russell | Sr Loan Agent

Friday, January 25, 2013