How to boost employment
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Given the urgency of boosting employment and reducing unemployment, we need much more than vague ideas about training and apprenticeship. The good news is that there are at least two very good ideas which could be implemented quite easily and which would have a direct effect on employment.
The first—and this can’t be stressed enough—is simply extending the federal unemployment extensions. As Menzie Chinn notes, the CEA has scored this, and the numbers are enormous: already, the program has increased the level of employment by 793,000 jobs. If the extensions are kept dead, there will be 593,000 fewer jobs in a year’s time than there would be if they were resuscitated, including more than 46,000 jobs in Florida and more than 26,000 jobs in Michigan.
This is not intuitive, especially to economist types who think that incentives matter and that at the margin, paying people to remain unemployed is not going to increase their chances of getting a job. But the fact is that those unemployment benefits are spent, and the extra economic activity naturally creates employment.
These jobs aren’t cheap: spending $65 billion to create 593,000 jobs works out at about $110,000 per job created. But remember this is just a second-order effect of a policy which makes a lot of sense on its own. (And the net cost is less than $65 billion, thanks to the extra taxes generated by all that new economic activity.)
Cornelius Hurley has a much cheaper idea: using the Federal Home Loan Bank System to try to create jobs rather than homes. He has three specific proposals:
This paper provides three suggestions that utilize the existing system of the FHLB to promote job creation and promotion: 1. making small business and other job-creation loans a more viable and readily accessible source of collateral for advances; 2. expanding the membership of the FHLB System to include firms that are lending to small businesses; and, 3. creating an AHP-like jobs-creation program with the support of funding that formerly went to pay down REFCORP obligations. Changing the mission of the FHLB System to make job creation a primary goal would allow for the use of a pre-existing structure with a channel directly into over 8,000 community banks to increase the amount of credit available to small businesses and thus allow those businesses to immediately create new jobs and the preservation of others.
This I think is a great idea: we’ve learned the hard way that homeownership can cause more harm than good, while employment is a pretty unalloyed Good Thing.
Under Hurley’s plan, the FHLB system would be much more willing than it is now to accept small-business loans as collateral against its own bank lending. Yes, those loans are inherently quite risky, but so in one way it’s much safer to lend against small-business loans than it is to lend against mortgages: souring small-business loans don’t destroy local banks in the way that souring mortgages do.
It’s impossible to know in advance exactly how much these ideas would boost employment. But at the margin they would surely help, and the mechanisms by which they would do so are far more obvious than the mechanisms by which the Fed hopes that quantitative easing will increase employment. So let’s do it: as Hurley notes, some of his ideas could be implemented by presidential fiat, and not even need Congress to pass any laws. What are we waiting for?