No New Jobs from the Job Bill

by Odysseas Papadimitriou on February 24, 2010

no-jobsThe current Job Bill being debated on Capitol Hill, in its most recent form, holds at its core an incentive to hire people who have gone more than sixty days without a job.  Businesses that hire these workers are allowed to forgo paying their social security taxes throughout 2010.  The extent of this benefit depends both on the employee’s rate of pay and on the length of their employment.  The hope is that this will provide employers incentives to create new jobs.

Whether the bill passes or not, it’s unlikely to do much by way of solving the unemployment problem in this country because it’s built upon a faulty premise: that the reason employers aren’t hiring is because they can’t afford to pay social security taxes—which only amounts to about 6.2% of the employees paycheck.  The truth is that employers hire people because they need the help.  If there is no demand for their products, then they certainly don’t need more people to help them manage their dwindling operations.  To put it plainly, an incentive of 6.2% simply doesn’t address the problem of dried up demand.

To use an analogy, whoever thinks that the 6.2% tax break will create new jobs is like saying that business owners across the country are not investing on something that they need for their business that costs $30,000, but once the price drops to $28,140 they will then go ahead and make the investment. Sure there might be a few people on the margin that the tax break will help them make the decision to invest, but for everyone else the tax break is not big enough to encourage them to invest $28,140 on something that they do not see the demand for.

The likely recipients of this tax break, then, are those businesses and business owners who were already likely to hire new employees anyways.  Thus, the end result of the Job Bill is a predictable tax break for businesses that are already doing well, and very little help for businesses that are struggling or for the large number of Americans who are currently out of work.

The most optimistic estimates of the jobs bill’s impact speculate that it will create between 80,00-180,000 new jobs, hardly a dent in the population of 8.4 million unemployed Americans.  So, while Democrats and Republicans duke it out over whether they will let this legislature pass and in what form, the best case scenario is only a tiny change in unemployment.

Ultimately, this is just another example of our nation’s politicians’ inability to really address the problems the average person faces in this country.  They are trying to make new jobs with tax incentives when what we need are bold national projects that will put Americans to work.   We need a new industry to help us pull ourselves up from our boot straps.  If we had such a project, we wouldn’t need to worry about tax incentives to help put people to work—there would simply be work that needed to be done, and we’d have to hire people to do it.

Discussion

Swathi
Great article! If you look at unemployment statistics, the unemployment is higher in construction and other low skilled areas. The government should have a jobs bill or stimulus bill that is more targeted like more infrastructure spending. As you mentioned in other articles this can be building a green economy in a manhattan style project. Producing and installing wind turbines and solar panels in recession proof and pay better than an average job in construction. Your articles are amazing!
March 13 at 09:29 am
John
Finally someone that understands how business owners make decisions.
February 24 at 16:22 pm

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