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A Bipartisan Answer to Unemployment in Stagnant Economies

By: Jose Ortiz


Unemployment in America

America is facing a crisis of enormous proportions. People are still unemployed although corporations are at record highs for profits and stock values. How do we encourage growth and prosperity given the huge strides in efficiency that helped to offset losses? Is the Blockbuster kiosk more to blame for our high unemployment then the poor economy? There are so many questions and issues. We have to assume that unemployment will be present for some years into the recovery. Although there are many estimates that 12 million jobs will be created during our recovery; we need to be prepared for the next recession no matter how near or far away it may be. What we need is a shift in policy that focuses on encouraging hiring more than supplementing job searches. The current unemployment numbers range around 7.8% and we are estimated to need just under 8 million jobs to return to the normal level of employment. We have to focus on the fact that these jobs are either lost due to technological gains or being reserved until better economic certainty. Either way, our current system is logically and economically flawed.

While modern policies best reflect only the work of John Maynard Keynes, the suggested policies I propose will use economic theories based on Keynesian principles of government intervention that also mirror policies that best reflect those put forth by Adam Smith in his numerous books and papers on unrestricted economic autonomy for private marketplaces.


Where A Federal Response Can Come In

The Federal government now has the opportunity to make a radical change from the normal and institute a policy that truly crosses the isle. We need a policy that can be founded in the top down approach so aggressively sought by the Republican Party while requiring those benefiting from the policy to seek out the interest of unemployed individual, a concern for Democrats. We currently well above $100 billion a year on unemployment benefits and the tracking of Labor Statistics. We need a new program that addresses the unemployment when it happens, before it happens, and while still tracking employment statistics. We need a policy tool that is scalable to all possible concerns and works independently so that changes and implementations are smoother and less costly than major policy changes of the past.

The response that I have crafted is an industry or segment targeted wage subsidy. The subsidy will be dealt with directly by employers and will have no involvement with the potential new employee and not address any job seeker on an individual basis. The subsidy will be paid to companies meeting specified requirements and the numbers will need to be reported monthly to a new federal agency that monitors company specific hiring figures. It will be mandatory that this information be reported by the 5th of the month for the month prior. Based on the information from the accumulated hiring numbers of specific industries, we can track job growth data as well as industry specific job movements. We can use this new reporting system; along with the already present unemployment funds spend by the federal government, to initially address our high unemployment. We will offer subsidies with the specified annual fund limits to address areas of concern in regard to labor growth and pay discrepancies.

Using just $90 billion of the current unemployment related spending, we can create a new agency that works with and aligns itself with the Small Business Association. Given an initial startup operational budget of $9 billion for the first year and a much more reduced amount after that, we can assume there will be $81 billion in an account to be dispersed to companies. The first stage of this policy will be to pay a $350 a month subsidy for every new employee added for a period of 12 months. This will lower the costs of hiring new employees by $4,200 a year or $2 an hour. Given the amount of the subsidy, this will essentially lower the cost of minimum wage for new employees to as low as $5.50 an hour for the employer. This will lower employment costs and make it possible to afford more help, or even to offer more pay on top of current offers to attract better talent. By requiring the companies to submit employment number reports and to have it categorized, we can ensure that employers that dismiss employees to hire new ones for the benefits purposed will receive no additional funds. This will mean that only new employees will be eligible to get the subsidy. This will also make participation mandatory which is a major issue within policies like this. Unemployment wage subsidies were tried in the early 1980’s in Ohio. Some have speculated that program’s failure was due to complicated payment systems and voluntary nature of the program. Being that the program would be mandatory and payments would be automatic, this would not present itself as a problem. It would also be successful by not classifying the individual as needing help or having some sort of “handicap”.

Given an initial budget of $81 billion to address unemployment, this mandatory program would have funds set aside to subsidize the work of over 19.28 million Americans. If this amount proves to be far more than we need then the additional funds that are left over can snowball to the next year to allow for budget cuts. This policy is not only flexible and very scalable. Once unemployment has reached a desirable level for the economy overall, the policy can be used in other ways. We could reduce funding and target specific groups; such as single parents, veterans, minorities, elderly, or other disadvantaged workers, to increase their opportunity in the job market. We can even use funds to create or encourage industry specific job growth. We could use basic wage subsidies to encourage companies to bring manufacturing back to the United States, increase pay for undervalued jobs like home health aides, and even try to help nurture new industries like the “green sector”. This policy could even be used to encourage growth in targeted geographic areas such as Detroit.


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