Labor Day 2011: Not Everyone Will Be Celebrating

If you look up the words “Labor Day” on the web site of the U.S. Department of Labor (DOL), you will learn that this holiday — first celebrated on September 5, 1882, in New York City — “is dedicated to the social and economic achievements of American workers.” The labor force, the site notes, “has added materially to the highest standard of living and the greatest production the world has ever known…. It is appropriate, therefore, that the nation pay tribute on Labor Day to the creator of so much of the nation’s strength, freedom, and leadership — the American worker.”

Unfortunately, for 9.1% of these lauded American workers, Labor Day 2011 finds them without a job and, in some cases, with little hope of finding one soon. The economy continues to limp along two years after the financial crisis, and most economists don’t expect the employment situation to improve until the end of 2012, at the earliest. Department of Labor figures released on September 2 piled on more bad news: Not only did the  unemployment rate remain unchanged for the month of August, but no new jobs were added to the economy despite expectations that the figures would show some improvement.

Acknowledging the importance of jumpstarting the economy and getting people back to work, President Obama plans to lay out a jobs agenda in a speech to Congress on Thursday.

KnowledgeToday asked several Wharton professors to each propose one idea for getting people back to work.

Peter Cappelli, director of Wharton’s Center for Human Resources and professor of management: “The most successful government policy for encouraging jobs is hiring subsidies — programs where the government gives employers some kind of subsidy for each new hire they make, usually in the form of a tax break of some kind. There has been extensive research on these programs, especially in Europe where they have been popular, and they work better than anything else at promoting new jobs. They have been tried in various forms in the U.S., mainly to help disadvantaged workers get into the labor market, but they were also used after the 1991 recession to promote hiring. While the results have not been spectacular, they are better than any other option under consideration.”

Mauro Guillén, director of the Joseph H. Lauder Institute and professor of management: “There are two types of unemployment — long-term and short-term. It is impossible to design effective policies that do not distinguish between the two. Long-term unemployment includes people whose jobs (or even industries) have disappeared. These people need re-training, and they need to be reminded that there is a place for them in the global economy, because otherwise they will feel discouraged and drop from the labor force. Therefore, education and training policies are needed.

“Short-term unemployment is a different story. It affects workers who have the skills to play a role in the global economy, but are jobless because of the economic downturn. The policies needed to tackle this type of unemployment all have to do with accelerating GDP growth. The debate among politicians, policymakers and academic economists is about the best way to stimulate the economy so that it creates jobs. Some argue that lower taxes, less regulation and a balanced budget is the way to go. Others maintain that the economy needs a boost in order to start growing in a sustainable way, so cutting government programs is not appropriate because aggregate demand will suffer. It is also important to keep in mind that the lingering doubts about the banking sector and the continued lack of confidence and trust in financial markets is adding to the problem because credit is not flowing to businesses as it should.

“As an aside, I think long-term unemployment among the young is the most disturbing aspect of the present economic situation. This problem is not as severe in the U.S. as it is in Europe and in the Middle East (hence the Arab Spring and the protests in the U.K., Spain, and elsewhere). Still, youth unemployment poses its own set of policy issues. A mix of education, training and economic growth is needed.”

Peter Linneman, emeritus professor of real estate: “The answer is reduce political risk. The government has been awash in new and unformed regulations and interventions for three years. There are no predictable ‘rules of the game.’ To that end, announce that taxes will not be changed in any way for five years, and there will be no new regulations introduced for three years. Give predictability a chance.”

Kent Smetters, professor of business and public policy: “I would focus on removing the distortions that companies currently face when making business investments.

“Under current law, the cost of a business investment can be used to reduce reported taxable income according to (usually) a straight-line depreciation schedule (with some modifications). For example, if I bought a machine for $100,000 that is projected to last for five years, I could report $20,000 in expenses against my business income over each of the next five years. Instead, I would move immediately to a tax system that allows for ‘full expensing’ of all business investments. In other words, all $100,000 would be immediately deductible against current income, regardless of the life of the asset. This idea dates back to the late, great Princeton economist David Bradford, during his time at Treasury under Ronald Reagan, and it has been supported by some prominent Democrats in the past as well, including [former senator] Tom Daschle. Full expensing would encourage the private sector to stimulate investment without the government trying to pick winners and losers. To be sure, full expensing is costly; it would likely cost the Treasury up to $1.5 trillion over the next 10 years. But it could be cheaper than all of the other stimulants and command-and-control methods currently being used by the Administration.”

Susan Wachter, professor of real estate: “Bring stability to the housing market. Consumer confidence is at all time lows. Construction and construction jobs are at record lows. Buyers are sidelined in what is the most affordable market in history. Ironically, this requires long-term thinking. Buying and putting equity at risk is not in order when buyers are worried about what the future holds. We need to build consensus on the provision of housing finance going forward. This is a large segment and the most underperforming segment of our economy. We need certainty to replace the fears of what is to come.”

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"Labor Day 2011: Not Everyone Will Be Celebrating." Knowledge@Wharton. The Wharton School, University of Pennsylvania, [02 September, 2011]. Web. [26 October, 2014] <http://knowledge.wharton.upenn.edu/article/labor-day-2011-not-everyone-will-be-celebrating/>

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