Can the Broken Job Market Be Fixed?

The White House is under fire for a worsening employment situation.

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Nearly three decades ago, as unemployment climbed in step with the deficit, President Reagan turned to the radio waves to defend his economic plan against charges that it wasn't yet producing the desired results. ''You've also been told our program hasn't worked,'' Reagan said. ''Well, of course it hasn't. It hasn't really started yet.''

Sound familiar? Following Friday's jobs report, President Obama said he was still working on "implementing the recovery act that's already helped to bring back America from the brink of a much worse situation." Vice President Biden summarized the administration's message when he was asked about the thinking on a second stimulus: "We're working on finishing the first one here," Biden said. Reagan's plan in 1982 was tax cuts, compared with the stimulus package in place today, but the message is similar: patience.

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Since the start of the recession, nearly all the economic experts and talking heads have warned that employment is a lagging indicator and that the job market would be lousy even as the economy began to recover. This job market has not disappointed those predictions. While other areas of the economy appear to be improving, the Labor Department reported that employers cut an additional 263,000 jobs in September, leaving 15.1 million workers unemployed. There is some worrisome evidence, however, that these data are not merely economics as usual and that this job market is performing much worse than most had expected. Nearly 4out of 10 unemployed workers have been out of work for six months or more. Unemployment benefits are expected to be extended by Congress again, even though they already last 79 weeks for eligible workers in hard-hit states. The problem is clear—there are not nearly enough jobs to go around—but the solution is complicated.

In general, governments can spend money to create jobs, says Dean Baker, codirector of the Center for Economic and Policy Research. But Obama's problems are also political: If Congress is not inclined to spend, the president's tool belt is much smaller.

The first stimulus bill was intended to save or create about 3.5 million jobs by the end of 2010, and while that number is hard to measure, forecasts that unemployment would top out at 8 percent have clearly been way off. The White House said Monday it was looking at using tools such as further unemployment benefit extensions, extensions of COBRA insurance benefit subsidies, and overall stimulative efforts like the first-time homebuyer tax credit.

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Rep. Barney Frank has suggested extending more federal money to state governments, as they, along with local governments, are beginning to lay off workers to deal with budget shortfalls. The White House is also considering incentives, such as tax credits, that would encourage employers to beef up hiring, according to the New York Times.

Economist Robert Reich says Congress should plug stimulus funds and money from the troubled assets relief program, known as TARP, into public education, public health, and public transportation, as well as offer a limited payroll tax holiday and offer small businesses a tax credit for net new jobs. Reich, who points out that small businesses create most new jobs, suggests that the Small Business Administration have more money to lend, to make up for continued tight credit.

The president has resisted the possibility of another stimulus package, no doubt because it would suggest that the earlier $787 billion effort was ineffective or insufficient. Many said then that the package was too small, but deficit hawks were practically apoplectic at such a level of deficit spending. For their part, Americans support the government taking steps to create jobs over taking steps to bring down the deficit, according to a new survey of voters by Economic Policy Institute.

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There are multiple employment issues confronting the administration: long-term unemployment; continued job cutting; shorter workweeks, thanks to slashed worker hours; discouraged workers dropping out of the labor market; and mismatches between worker skill sets and employer needs. To get the long-term unemployed back to work—a tougher job than getting others back to work because of skills lost during unemployment as well as employers' preferences—Harvard economist Lawrence Katz says that a government tax credit to companies who hire such workers might be an option.