US jobs: The White House admits the US unemployment rate is headed higher. It won’t get much real help from a new Senate bill. The effort was supposed to address the need for job creation, but looks more like a bipartisan boondoggle. It provides little bang for the buck, while handing costly favours to interest groups.
Obama administration economists reckon the jobless rate will hover around 10 per cent this year, and now say the US economy will generate an average of just 95,000 jobs a month. That tallies with Team Obama’s forecast of anaemic 3 per cent GDP growth. Monthly job growth of 125,000 to 150,000 is needed to start bringing the unemployment rate down from its current 9.7 per cent. That’s what would normally be expected more than two years after the onset of a recession. It’s not happening, at least not yet.
Enter the US Senate. Democrats and Republicans are pushing a roughly $80 billion bill called the Hiring Incentives to Restore Employment Act. Despite the name, it has little to do with job creation. The centrepiece proposal would spare businesses from paying payroll taxes on some new hires for the rest of 2010. Based on a Congressional Budget Office analysis, this measure might create a feeble 50,000 to 90,000 jobs. The rest of the bill is a hodgepodge of business tax break extensions, aid to the unemployed and billions to postpone cuts in Medicare payments to doctors.
Aside from the bill’s limited potential effects, short-term fixes are not what’s needed. America’s job machine didn’t suddenly break down in 2008. It has been sputtering since the Internet bubble burst. Some economists now think a decline in education, innovation and other former US advantages means the realistic minimum unemployment rate has gone up from 4-5 per cent to as much as 7 per cent.
That suggests legislative efforts at improving the employment picture should focus on long-term measures to improve education and help innovative businesses. Options in the latter category include a reduction in the US corporate tax rate, targeted infrastructure spending and long-term tax credits for research and development. It’s a shame Washington seems able to set politics aside to accommodate special interests, but not for what’s really needed.