10 Recommendations To Help Reduce Youth Unemployment

Through Entrepreneurship

EYVoice
Building A Better Working World

Maria Pinelli, EY

Youth unemployment remains stubbornly high at 16% across the G20

nations. Encouraging entrepreneurship is widely seen as one of the
solutions to the problem, thanks to the jobs a vibrant entrepreneurial
organization can create and the path to employment that starting a
business provides.
All is not lost, then, as G20 governments increasingly take concerted
action that supports entrepreneurs and youth at the same time.

We recently launched theAvoiding a lost generation ten key

recommendations to support youth entrepreneurship across
the G20 report that spells out some of the ways this can and is being
done by governments across the globe.
10 key actions for governments to take to rescue the
lost generation
1. Create funding mechanisms that are contingent on
mentorship and financial education. Sure, show them the
money but make equally certain young entrepreneurs are mentored
by experienced role models and gain access to financial literacy
programs. Our conclusion: capital without mentorship is lost capital.
2. Think outside the traditional money box. We are
fortunate in the rich array of alternative funding there is today for
fledgling businesses in many markets. Foster relationships between
venture capitalists, incubators, business angels and a host of up-andcoming accelerators and crowd-funding platforms. Create a
community that is easy for everyone to access and dont forget that
offering tax incentives, credits,deductions, to name a few
are all within a governments power. Our conclusion:
access to alternative funding is critical.
3. Dont forget the importance of public
funding. Sponsor start-up growth with low-cost funding for targeted
groups especially female-led start-ups and academic institutions
looking to boost the business readiness of students. Our conclusion:
public funding matters.
4. Banks are still important especially when it comes
to keeping the credit moving. Consider creating new classes of
loan for young entrepreneurial firms that offer targeted funding to
meet expansion capital needs. Help aggregate microfinancing options
into a single one stop shop website. Our conclusion: banks still have a
critical role in accelerating growth.
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5. Target tax and business incentives so they support

young entrepreneurs in scaling their
businesses. Identify and encourage the best investment schemes.
Develop tax incentives to encourage youth job creation across
industries and sectors. Our conclusion: make the tax system work to
encourage business growth.

source: iStock

6. Support global mobility for young

entrepreneurs. Promote inbound start-up activity by promoting
relocation funding support and relaxing visa restrictions for targeted
groups. Support immigrant entrepreneurs by linking them to funding
institutions and business incubators. Our conclusion: dont sell a
countrys economic opportunity short by blocking talent at the
borders.
7. Simplify, simplify, simplify. Complex tax and burdensome
regulatory rules frighten lots of business people and especially hold

back the young. Streamline these areas, relax complex and

burdensome rules in areas such as taxes and provide support and
guidance to young entrepreneurs so they move forward, not backward.
Our conclusion: now is the time to review and cut red tape.
8. Spread the good word. Jack Ma, Richard Branson, Oprah
Winfrey, Steve Jobs. What great role models to encourage
entrepreneurship across the globe. Tell the positive story, publicly
celebrate success and bring in the private sector to help get the word
out and engage youth from an early age in the wonders of economic
opportunity. Our conclusion: one success story can lead to another.
9. Encourage a national, regional and local culture of
entrepreneurship.Foster hubs, incubators, accelerators and
networks to bring the best talent together. Start early with outreach
programs aimed at young people while they are still in school. Our
conclusion: set the stage early for youth to think about
entrepreneurship.
10. Provide the ecosystem for success. Create the
foundation and framework that fosters and attracts talent, capital and
most importantly, entrepreneurial leaders. We need to ask ourselves:
is there more that can be learned from Silicon Valley and other
successful ecosystems?
Clearly, the issue of global youth unemployment is lingering issue,
even as our own economy gains momentum. I believe that if we can all
take the time to step back, realize the gradual successes and absorb the
lessons learned, we can make great headway in resolving this issue.

What's the Solution to Unemployment?

The solution for unemployment is, of course, to create new jobs. Usually, a healthy
economic growth rate of 2-3% is enough to create the 150,000 jobs needed to
prevent high unemployment. When unemployment creeps above 6-7% and stays there,
it means the economy isn't strong enough to create sufficient new jobs without help.
That's when the government is expected to step in and provide solutions. See what it's
tried withUnemployment Rate by Year.
Monetary Policy
The first solution is expansive monetary policy from the Federal Reserve because
it's powerful, quick and usually effective. Lower interest rates allow families to borrow
more cheaply to buy what they need, like cars, homes and consumer electronics. That
stimulates enough demand to put the economy back on track. Low interest rates also
allow businesses to borrow for less, giving them the capital to hire new workers to meet
rising demand.
Fiscal Policy
CONTINUE READING BELOW OUR VIDEO

What Is Expansive Monetary Policy?

0:00

1:14

However, when monetary policy doesn't work, then fiscal policy is usually required. That
means the government must either cut taxes or increase spending to stimulate the
economy. Expansionary fiscal policy is slower to get started since Congress and the
President must agree on what to do. However, it can be more effective once executed. It
also provides much-needed confidence that the government will stimulate the economy,

and things will get better. Confidence is a crucial ingredient in convincing people to
spend now for a better future.
Cutting taxes has a similar, and more direct, effect as lower interest rates. It gives
consumers more money to spend, increasing demand. It also cuts costs for businesses,
which can use the cash to invest in their business and hire more workers. Government
spending usually takes the form of jobs programs, where the government hires workers
and businesses directly to build things or provide services. That acts like a tax cut, by
providing consumers the cash they need to buy more products.

What's the Most Cost Effective Unemployment Solution?

However, not all fiscal policy solutions are created equal. Dollar for dollar, what's the
bestinvestment that creates the most jobs? Several research studies show that the most
cost effective solution is providing construction jobs for, of all things, mass transit. The
next most cost effective isunemployment benefits, and the third best jobs provider is
funding education. Tax cuts, whether payroll or across-the-board income tax, are less
effective. What's the least effective jobs producer?Defense spending. Here's why.
Tax Cuts
According to a U Mass/Amherst study, the most popular fiscal stimulus, across the
board income tax cuts, is not the most cost effective. One billion dollars in cuts created
10,779 jobs, because only half the money ($505 million) workers received was spent.
The rest was saved or used to pay down debts. (Source: UMass/Amherst, Robert Pollin
and Heidi Garrett-Peltier, Department of Economics and Political Economy Research
Institute, The Employment Effects of Military and Domestic Spending Priorities, October
2007)
It's more cost effective to provide businesses payroll tax cuts. A study by
the Congressional Budget Office (CBO) found that every $1 billion in payroll tax relief
created 13,000 new jobs. The best place to give business tax relief is with small
businesses, which are the key driver for 65% of all new jobs. (Source: CBO, "The
Economic Outlook and Fiscal Policy Choices," September 28, 2010)
Spending Solutions

The U Mass/Amherst researchers found that funding mass transit gives the most bang
for the buck. One billion dollars spent creates 19,795 construction jobs. Another cost
effective solution is spending on education. One billion spent hiring teachers creates
17,687 jobs. It has the additional benefit of adding an additional $1.3 billion into the
economy, as more highly educated people get better jobs on their own, and are able to
buy more things with the higher wages they earn.
The least cost effective in jobs creation is military spending, which only creates 8,555 for
the same investment. That's because it's more capital intensive, as modern defense
relies more on drones, F-16s, and aircraft carriers than infantry.
Unemployment Benefits
Next to public works projects, the second most cost effective use of government funds is
providing benefits to the unemployed. The CBO study found 19,000 jobs are created for
every $1 billion in benefits. That's because the unemployed are most likely to spend
every dime they get on the basics, like groceries, clothing and housing. This drives
retailers and manufacturers to hire more people to meet the additional demand. The
other advantage of unemployment benefits is it is fast. The government just writes a
check, which immediately goes into the economy. Public worksprojects can take a while
to get implemented. For more, see Why Extended Unemployment Benefits Are the Best
Way to Boost the Economy.
Fiscal Policy Risks
The downside of fiscal policy is it can add to the budget deficit, creating
more government debt. As debt approaches 100% of the economy's total output, it can
slow economic growth. That's because investors lose demand for that government's
debt, which makes interest rates rise, increasing the cost of borrowing.
However, advocates of supply-side economics say that, over time, the economy will be
boosted so much that it will make up the lost tax revenue. All solutions to reduce
unemployment must create demand to stimulate the economy. For more, see Job
Creation: Ideas, Statistics, and Creation by President. Article updated January 12,
2016.

Do Tax Cuts Create Jobs?

A payroll tax cut that targets hiring works best. (Photo: Time Boyle/Getty Images)

By Kimberly Amadeo
US Economy Expert

SHARE

PIN

Updated February 09, 2016.

Tax cuts create jobs in different ways, depending on the type of tax cut.
Income tax cuts stimulate demand by putting more money into consumers' pockets.
That's important because consumer spending drives 70% of economic growth. It then
creates jobs when businesses ramp up production to meet higher demand. A study by
the Congressional Budget Office(CBO) found that theBush tax cuts would create 4.6
jobs for every $1 million if extended into 2011-2012.

However, there is some debate over whether tax cuts for higher income families create
as many jobs as tax cuts for low- and moderate-income families. The theory is that
lower income families must spend the tax cuts, driving demand, while higher income
families will save their tax cut. Furthermore, higher income family spending is less
influenced by tax cuts because they families can maintain their spending by cutting into
their savings, or getting loans or credit. Their tax cuts are more likely to be used to pay
back loans.
CONTINUE READING BELOW OUR VIDEO

What Is Expansive Monetary Policy?

0:00

1:14

Payroll tax cuts are one of the most cost-effective ways to increase jobs. According to
the CBO, every $1 million in payroll tax cuts creates 13 new jobs. Payroll tax cuts create
jobs in four ways. First, some companies use the savings to reduce prices. That
increases demand, which necessitates hiring more workers.
Second, other companies raise wages to retain good workers, who would then spend
more, increasing demand. Third, some firms keep the tax savings, allowing them to buy
more and increase demand. Fourth, companies that already had popular products
would use the savings to hire more workers. This fourth method is the most costeffective way to create jobs.
In fact, if Congress only gives payroll tax cuts for new hires, then every $1 million in
payroll tax cuts creates 18 new jobs.(Source: CBO, "The Economic Outlook and Fiscal
Policy Choices,"September 28, 2010)
By the way, the most cost-effective way to increase jobs is not a tax cut at all. The CBO
study found that extending unemployment benefits are the best way to boost economic
growth. Benefits create jobs because the unemployed wind up spending every dollar

they receive on essentials like as food, clothing and housing. . Every $1 million in
unemployment benefits creates 19 new jobs. A study by Economy.com found that every
dollar spent on unemployment benefits stimulates $1.73 in economic demand. Although
extended benefits cost taxpayers $10 billion every month, they generate $17.3 billion in
economic growth, creating jobs and additional tax revenue.

Do Tax Cuts Boost Economic Growth?

Supply-side economics is the theory that says tax cuts increase economic growth. A
study by theTreasury Department showed that, in the short-term and in an economy that
is already weak, tax cuts provided an immediate boost. The cuts must ultimately be
balanced with a reduction in spending to avoid increasing the Federal debt.
Left unchecked, the Federal debt would eventually slow the economy. If the debt-toGDP ratio is too high (near 90%), it's perceived as a tax increase on future generations,
who ultimately must pay it off. (Source: U.S. Treasury Department, A Dynamic Analysis
of Permanent Extension of President's Tax Relief, July 25, 2006)

Effect of the Bush Tax Cuts

During the 2001 recession, the percentage of Federal revenue to GDP went up to
20.9% -- higher than the norm. That's because the economy shrank. To stimulate
growth, the government cut taxes in 2001 (JGTRRA) and 2003 (EGTRRA). After the tax
cuts of 2001, Federal revenue fell to 18% of GDP. The tax cuts of 2003 reduced the
revenue percentage even further, to 16% of GDP in 2004. However, these tax cuts were
initially a success. The economy recovered. Even though thepercent of government
revenue to GDP decreased, the total revenues increased because GDP increased.
Supply-side proponents said the growth in GDP was because of the tax cuts. Other
economists pointed out that interest rates were also lowered during the same period.
The Federal Reserve lowered the all-important Fed funds rate from 6% to 1% between
2001 - 2003. (Source: New York Federal Reserve, Historical Fed Funds Rate)
The Tax Increase Prevention and Reconciliation Act of 2005 extended lower tax rates for
long-term capital gains and dividends through 2010. That did not significantly impact
government income, and the percentage of GDP returned to 18% by 2006.

Can Tax Cuts Increase Federal Budget Revenue?

The Laffer Curve states that tax cuts reduce government revenue dollar-for-dollar, but
recoup that loss over the long term by boosting economic growth, and the tax base.
However, the National Bureau of Economic Research found that only 17% of the
revenue from income tax cuts was regained and 50% of the revenue lost from corporate
tax cuts. One reason for this discrepancy could be the tax rate before tax were cut.
According to Laffer's model, the tax rate must be in the "Prohibitive Range" -- above
50% -- for the cuts to stimulate the economy enough to recoup all the losses. (Source:
NBER, Dynamic Scoring: A Back of the Envelope Guide, December 2004)

Best Way to Create Jobs

If tax cuts aren't great at creating jobs, what about government spending? That's not a
good way to create jobs either. It takes $1 million in spending to create 19 jobs. That's
still over $50,000 of your tax dollars needed to create one job. The CBO didn't analyze
what type of jobs, or the income from the jobs.
The best way to create jobs is not through tax cuts, government spending, or any fiscal
policy at all. Instead, it's through monetary policy. That expands the money supply,
making more liquidityavailable to businesses to invest. Fiscal policy is only necessary
when monetary policy is already as expansionary as possible. That happened in 2009
and 2010 after the Great Recession forced the Fed funds rate to zero. Article updated
August 7, 2015.

Related

Does Boosting Supply Create Economic Growth?

The best ways to solve high unemployment according to research

Why Lowering Tax Rates Today Won't Help As Much As in the 1980s

The 4 Best Real-World Ways to Create Jobs

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...

Federal Tax Policy

Unemployment Benefits Are

the Best Stimulus

Each dollar of unemployment benefits generates $1.64 in economic growth. Photo: Tetra Images/Getty Images

By Kimberly Amadeo
US Economy Expert

SHARE

PIN

Updated September 14, 2015.

Federal unemployment benefits are the best economic stimulus. That's because more
funds are pumped directly into the economy, boosting growth.
Unemployment benefits provide a lifeline to the jobless when they need it most. They
give those without jobs enough money to supply the basics of life. These benefits
prevent the breadlinesand tent cities seen during the Great Depression.
These federal benefits boost economic growth. The unemployed use the money to buy
basic shelter, food, and clothing. As a result, every dollar spent on unemployment
benefits stimulates $1.64 in demand. (Source: Moody's Economy.com study)
How can $1 create $1.64? That's because of the ripple effect. For example, a dollar
spent at the grocery store pays for the food. It also helps pay the clerk's salary, the
truckers who haul the food, and even the farmer who grow it. The clerks, truckers and
farmers then buy groceries, which pays more staff, and on it goes.
This ripple effect keeps demand strong, creating added benefit.
Stores keep their employees to supply the goods and services the unemployed need.
Every $1 billion spent on unemployment benefits creates 19,000 jobs, according to
a Congressional Budget Office study. Without these benefits, demand would drop. Then
retailers would need to lay off their workers, increasing unemployment rates.
Unemployment benefits work fast. The government just writes checks, which
immediately goes into the economy.
During the final quarter of 2008, unemployment programs paid $34.9 billion in benefits
to eight million unemployed workers. That boosted economic growth by $57 billion.
Every month in extended benefits costs taxpayers $10 billion. But, it generates $16.4
billion in economic growth.

Why Unemployment Benefits Work Better Than Tax Cuts

Unemployed benefits are more cost-effective than other methods of stimulating the
economy. Republicans usually advocate income tax cuts. The cuts will give more money
to businesses that will then hire new workers. That argument is known as supplyside economic theory. President Reagan used it to end the 1981 recession. See Did
Reaganomics Work?

A U Mass/Amherst study found that unemployment benefits were more productive. The
research showed that $1 billion dollars in tax cuts created 10,779 jobs. That's fewer than
the 19,000 created if the same funds went to the unemployed. That's because those
who have a job will only spend half of their tax cuts. Since they receive income, they can
use the tax cuts to pay down debts, save, or invest the rest. For more, see Do Tax Cuts
Create Jobs?
Studies showed that each dollar from the 2008 Bush tax rebate only generated $1.19 in
additional economic growth. Looked at this way, the $168 billion from the Bush rebates
generated $200 billion in demand.
(On a side note: One of the advantages of the Bush tax rebate was that it was sent out
in checks, which people promptly spent. The Obama tax cut didn't show up until tax
time. Most people didn't even realize they received it.)
Reductions in the tax rate may ultimately damage the economy. Every dollar in lost tax
revenueonly creates 59 cents in economic growth. That's because people usually don't
realize they're getting a break until tax time. Since they are paying out money in taxes,
they are less likely to spend anything extra. It just doesn't feel like a bonus. As a result,
people are more likely to save anything they get or use it to pay down other debts.
To compare unemployment benefits to all types of expansionary fiscal policy,
see Unemployment Solutions. Updated September 14, 2015.

Related

The best ways to solve high unemployment according to research

Why Did Obama Extend the Bush Tax Cuts in 2010?

Why Bush's 2008 rebate checks didn't work to head off recession

Do Tax Cuts Create Jobs?

Unemployment - Policies to
Reduce Unemployment

Levels: AS, A Level

Exam boards: AQA, Edexcel, OCR, IB, Other

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Which economic policies can be used to reduce unemployment?
Revision tutorial video on unemployment policies
Distinction can be made between demand-side and supply-side policies to improve
the working of the labour market in matching people to available jobs
Reducing occupational immobility: Immobility is a cause structural unemployment.
Policies such as apprenticeship schemes aim to provide the unemployed with the
newskills they need to find fresh employment and to improve the incentives to find
work. In 2013, over 500,000 people started apprenticeships in the UK.
For many years the poor quality of work-place training has been a concern, with
evidence of a persistent skills-gap in the UK. In a report published in 2011, a trade union
reported that 11% of British adults do not have any qualifications.In some areas such as

parts of Glasgow and Birmingham, more than a third of people of working age have no
qualifications.
Reducing the geographical immobility of labour: Many people have the right skills to
find fresh work but factors such as high house prices and housing rents, family and
social ties and regional differences in the cost of living make it difficult and sometimes
impossible to change location in order to get a new job. Many economists point to a
persistently low level of new house-building as a major factor impeding labour mobility
and the chances finding new work.
Benefit and tax reforms: To some economists, a policy that reduces the real value of
welfare benefits might increase the incentive for the unemployed to take a job. But it is
rare that the root cause of someone staying out of work is the prospect of out of work
welfare handouts. Targeted measures to improve people's incentives might include
linking welfare benefits to participation in work experience programmes or lower
marginal tax rates for people on low incomes.
Boosting aggregate demand:

A Keynesian-style stimulus is an active policy during a recession.This might

include increases in state investment spending or lower taxes to boost
disposable income

Both are a fiscal stimulus. Many governments have turned to fiscal policy as a
way of creating new jobs; some economists refer to such programmes as
providing 'shovel-ready' jobs, typically involving construction projects that are
labour intensive

The hope is that extra spending on new roads, housing and other infrastructure
projects will lead to a strong positive multiplier effect on output, incomes and
jobs.

Employment subsidies and/or employment tax cuts (demand-side policy):

Government subsidies for businesses that take on the long-term unemployed

for example, as part of the UK Youth Contract, payments of up to 2,275 are

available to employers who take on young people (aged 18-24) who have been
claiming JSA for more than six months

Lower taxes on businesses that employ more workers might be effective, for
example cuts in employer national insurance contributions for young, low-paid
workers

Changing the participation age

From 2013, young people in the UK will be required to continue in education or training
until they turn 17 and from 2015 they will be required to continue in education or training
until they turn 18.
Will job guarantees help to lower unemployment?
Globalisation, Unemployment & Inequality
Globalisation and technological change favour the highly skilled. In the middle of the income
distribution, a strong pair of arms, a willingness to work hard and a bit of common sense used to
provide a comfortable income. No longer
Source: Tim Harford, Financial Times

Evaluation on Unemployment Policies

Unemployment policies are designed to
1. Improve skills / human capital to make people more flexible in the workplace
2. Provide stronger incentives to look for and accept work
3. Increase the occupational and geographical mobility of labour
4. Maintain a sufficiently high level of demand to create enough new jobs
5. Encourage entrepreneurship and innovation as a way of creating new
products and market demand which will generate new employment opportunities

There are always cyclical fluctuations in employment. If growth can be sustained it

should be possible to create a steady flow of new jobs. There are always changes in the
pattern of demand for different jobs the labour force needs to be sufficiently flexible to
deal and adjust to this.
An economic recovery creates new jobs; the issue is whether people in the labour
market have the right skills, qualifications and experience to take them many training
schemes lead to qualifications which don't necessarily help people back into work.
Demand and supply-side policies need to work in tandem for unemployment to fall.
Simply boosting demand if the root cause of unemployment is structural is an ineffective
way of tackling the problem. If demand is stimulated too much, the main risk is rising
inflation
Full-employment does not mean zero unemployment! There will always be some
frictional unemployment it may be useful to have a small surplus pool of labour
available. Most economists argue that there will always be some frictional
unemployment of perhaps 2-3% of the labour force.
There are still large regional differences in unemployment levels which causes
significant economic and external costs. Urban and regional regeneration can take
decades to achieve

Youth unemployment by country

Policies for Reducing Unemployment Key Themes

Boosting human capital - education and training - a long run strategy to make the
workforce more employable and to raise the level of labour productivity

Lower employment taxes to increase labour demand - for example, a reduction in

national insurance contributions

Stimulus to demand from both the public and private sector - keeping aggregate
demand high to drive the creation of new jobs

Improved export competitiveness to provide an injection of demand into the

circular flow of income

Improving work incentives - making work pay to reduce benefit dependency and
expand the size of the labour supply

Raising the total level of employment is an important aim of labour market policies. The
UK economy has seen some success in this regard in the last few years.

Find more statistics at Statista

10 Ways to Cut Unemployment in Half

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2 4 / 7 WA L L ST.

SEP 5, 2010

BUSINESS
With unemployment expected to remain above 9 percent for the next year, the
government is considering fresh steps to add jobs. 24/7 Wall St. looked at ten
possible solutions that could help return us to full employment, which most
economists consider around 5 percent. None of these plans are new, many of
them are expensive, and some of them have not been used in America for
decades, if ever. But in the worst recession of the post-war era, they all deserve
consideration.

1. Germany has a government policy which provides tax credits to companies

that shorten work hours rather than lay off employees. Let's say there's a
company with 100 jobs that wants to slash its payroll by 10 percent. It can fire
10 people. Or it could reduce hours by 10 percent and get a tax credit from the
government to make the employees "whole." Companies save money, but add
workers.
2. Saving Small Business. Economists repeatedly make the point that
small businesses are and have been the primary engine of job creation in
America. They're also at a disadvantage. Large companies have easier access
to capital markets and low interest rates even with the depressed economy. By
contrast, banks have been reluctant to fund small operations that have little or
no cash and uncertain prospects and a relatively small number of customers.
The federal government should shoulder some of the risk of small business
loans and provide new incentives for banks to lend to smaller businesses.
3. Tax Credits. Tax credits will almost certainly be part of any program to
improve unemployment because businesses need a concrete reason to hire
during a difficult economic period. Companies have become used to
employing people part-time to keep the costs of benefits and severance low.
Any plan to increase the number of full-time workers in the labor force will
need to address this "part-time" issue. The federal government could provide a
tax credit to companies who hire new workers or convert workers from parttime status. This would give enterprises that would like to expand, but are
ambivalent about the economy, an incentive to do so.
4. Working For The Government. Many of the FDR economic stimulus
programs of the 1930s were failures when viewed through the lens of
permanent job replacement. But giving people work, even it if is not
permanent, helps buoy the economy during sharp downturns. The Works
Progress Administration, created in 1935, added nearly eight million jobs to
the economy. Rather than pay the unemployed to stay idle, the government
gave them job skills that were useful when the economy recovered.
5. State Jobs, Not Projects. Not enough of the first stimulus package went
to direct job creation and too much went to tax incentives. State and municipal
governments have been decimated by the downturn and they require money
immediately, if for no other reason than to keep them from firing and

furloughing more workers.

6. Pressing China. It will be hard for the economy to recover and for the
jobs picture to improve if China keeps its currency advantage compared to the
US. The value of the yuan almost certainly improves China's ability to keep the
costs of its exports to the US low. It also raise the cost of imports from the
US.The federal government would have to do two things to get China to
"rethink" its trade and currency policy. Each is risky. The first is that the
Treasury Department would have to make a direct threat to Beijing to label it
as a Currency Manipulator, a designation which carries with it a number of
trade sanctions. The second action by the American government would
require that "strategic" imports from China be taxed. This would probably
have to include finished metals like aluminum and finished commodities like
tires.
7. Underwriting Exports. The Administration has said that the economy
needs to boost exports. Even if trade issues with China are resolved, there are
still some hurdles. Among the most meaningful is the cost of physical
shipping. For products which have low profit margins, the price of air, sea, or
ground transportation can be prohibitive. The government could elect to
underwrite the cost of shipping, particularly for businesses that are relatively
small or larger manufacturing businesses which are in sectors that have had
large layoffs.
8. The Minimum Wage. What if we could make the cheapest labor even
cheaper -- not for employees, but for employers? Employers would add
workers a certain wage below than the minimum wage, and employees would
get reimbursed by the federal government. This would not only keep low-wage
workers in their jobs, but also it would help businesses add more people for
less.
9. Construction Jobs. Construction has been hit as hard as any industry in
the recession. With demand for new homes at half-century lows, things could
get worse. Construction workers without money can't afford to move to areas
where there is still some work. This has created large pools of unemployed
workers in the areas of California, Nevada, and Florida. People who build a
house cannot build nuclear reactors, but they can work on infrastructure
products including the building and improvement of schools and governmentowned facilities. We need more money for this kind of construction work.

10. Immigration. There are many metro areas, for example some highimmigration cities in the south, where labor supply swamps labor demand.
The federal government can help by providing supplemental aid to these
metro areas to create public sector jobs for states and municipalities with
particularly high unemployment.

The 10 Things the Government Could Do

to Cut Unemployment In Half
By Douglas A. McIntyreSeptember 3, 2010 3:00 AM

24/7 Wall St. looked at 10 possible solutions that could decrease unemployment to the 5%
level that most economists think is healthy and normal for an expanding economy.
None of these plans are new, but some of them have not been used in America for
decades, and others have only been used by other nations. There are few complex aspects
to any of these solutions, although most of them would require an organization as large as
the federal government to administer them. And some of these proposals would be
unpopular with voters, at least those who are employed.

More from 24/7 Wall St.:

1. Tax Credits. Tax credits will almost certainly be

part of any program to improve unemployment
because businesses need a concrete reason to

Sudden Excitement in Jobs & Staffing

Companies

hire during a difficult economic period. Companies

Too Many Cell Phone Companies Expect

have become used to employing people part-time

Huge Unit Growth

to keep the costs of benefits and severance low.

Any plan to increase the number of full-time

The Cities The Great Recession Left

workers in the labor force will need to address this

Behind

"part-time" issue.
The federal government will need to provide a simple tax credit equal to the first year's
compensation of new workers or workers converted from part-time status. This would give
enterprises that would like to expand but are ambivalent about the economy enough of an
incentive to do so in many cases.
2. Funding Reduced Pay. Germany has a government policy that provides tax credits to
companies that shorten work hours rather than lay off employees. This gives enterprises
that want to increase their number of workers the ability to fund a portion of the cost by
cutting the hours of existing workers with the financial aid from Berlin.
The German government is effectively decreasing unemployment by aiding the private
sector when it needs to bring down costs. An enterprise that lowers the average
compensation of its workers by 10% through reduced hours can add net new workers
indirectly using government aid. Using the same system, a U.S. company with 100 people
could add 10 if the federal government offered a stipend to keep the balance of employees'
compensation "whole."
3. Saving Small Business. Economists, Fed Chief Bernanke, and organizations like the
Small Business Administration have repeatedly made the point that small businesses are
and have been the primary engine of job creation in America. Companies with work forces
under 500 create nearly half of private non-farm GDP. Large companies have had easy
access to capital markets even with the depressed economy. They have been able to take
advantage of historically low-interest rates to stockpile capital.
By contrast, banks have been reluctant to fund small operations that have little or no cash
and uncertain prospects and usually a relatively small number of customers. The idea that
the federal government should shoulder some of the risk of small business loans has been

proposed several times, but no legislation has been passed to support small business bank
aid on a wide-scale basis. Without a well-funded small business sector, unemployment is
unlikely to improve.
4. Working for the Government. Many of the FDR economic stimulus programs of the
1930s were failures when viewed through the lens of permanent job replacement. But,
giving people work, even it if is not permanent, helps buoy the economy during sharp
downturns. The criticism of programs like these is often that they represent a step toward
socialism. It is time to allow Americans to intelligently explore what price we are willing to
pay to stabilize our volatile economy that has resulted in persistent unemployment without
labels that are political and not productive.
Large initiatives like health-care reform represent a similar challenge, and eventually
decisions about capitalism in the U.S. will gather enough force so that programs put in place
to help citizens during a historically difficult period may be set aside later. The Works
Progress Administration was created in 1935. It added nearly 8 million jobs to the economy
by a number of measurements. The first three years of the WPA cost the country $7 billion,
which by today's standards would be several dozen times that. However, the jobs created
allowed the government to avoid unemployment support to people who would have been
essentially idle and gave them job skills that in many cases were useful when the economy
recovered.
The alternative that the government had during the Depression was to offer the unemployed
no support at all. The ranks of the indigent would have swelled well beyond the appalling
levels that they achieved in the years before WWII.
5. Jobs Not Projects. A second stimulus package has been mentioned several times by
the White House as the most likely option to reverse the slide in the economy. A stimulus
package as large as the first one -- nearly $800 billion -- would encompass some of the
other programs on this 24/7 Wall St. list. What should not be in a new stimulus package is
as important as what should be. Not enough of the first stimulus package went to direct job
creation and too much went to tax incentives. This slowed the rate at which the money had
a significant impact on unemployment.
The most badly crippled segments of the economy would need to receive money most
rapidly. The state and municipal governments, which have been almost completely
destroyed by the downturn, require money immediately, if for no other reason than to keep

them from firing and furloughing more workers. The budget cuts of states and municipalities
have been a tremendous burden on the economy because they have added hundreds of
thousands of people to the ranks of the unemployed. The other weakness of the first
stimulus is that it was based to some extent in investment in specific sectors like
infrastructure expansion. This ended up as an attempt to put large sums of money into
industries and sectors of limited size. A new stimulus program would have to be much
broader in its goals than the first, which focused too much on modest-sized sectors of the
economy.
6. China. It will be hard for the economy to recover and for the jobs picture to improve if
China keeps it currency advantage compared to the U.S. The value of the yuan almost
certainly improves China's ability to keep the costs of its exports to the U.S. low and raise
the cost of imports from the U.S. Some analysts have said that the increase in costs of labor
within China may even make the situation worse for the U.S.
The People's Republic will be anxious to pass along higher labor costs to its trade partners.
The yuan's value could be an effective tool for that. The federal government would have to
do two things to get China to rethink its trade and currency policy. Each is risky. The first is
that the Treasury Department would have to make a direct threat to Beijing to label it as a
"currency manipulator," a designations that carries with it a number of trade sanctions. The
second action by the American government would require that "strategic" imports from
China be taxed. This would probably have to include finished metals like aluminum and
finished commodities like tires. Each of these tend to be products in which China can use its
labor cost and currency advantage to allow its exporters high margins, often at the expense
of competing American companies.
7. Underwriting Exports. The Administration has said that the economy needs to evolve
from a consumer-based economy to one that relies more on exports. If the issues of trade
with China are resolved, there are still some hurdles to this goal. Among the most
meaningful is the cost of physical shipping. For products that have low profit margins, the
price of air, sea or ground transportation can be the difference between a significant cost of
goods sold and one that is manageable.
The government could elect to underwrite the cost of shipping, particularly for businesses
that are relatively small or larger manufacturing businesses that are in sectors that have had
large layoffs. The direct government payment of export shipping costs would almost
certainly become a trade issue with other nations, but that is one of many hurdles that

almost any other trade-based solution to the economy and employment faces. The
Administration is correct. Consumer spending will never again be 65% to 70% of GDP.
Export increases have to be part of the solution.
8. The Minimum Wage. The part of the work force that usually has no savings and no
visible means of withstanding a long period of unemployment is the lower class, those who
live at or below the poverty level. These workers are often paid only the minimum wage and
receive no or the most modest benefits.
The government could choose to reimburse some part of the minimum wage paid to each
American who is compensated at this level This would give many workers who are among
the lowest paid in the country a chance to keep their jobs. It would allow many modest-sized
businesses that pay people the minimum wage an opportunity to avoid layoffs or find capital
to bring on new people.
9. Construction Jobs. The industry that has been hit as hard if not harder than any other
during the recession is construction. The intractability of this portion of the unemployed
population is well-described. Those construction workers without money cannot afford to
move to areas where there is still some work in this sector. This has created large pools of
unemployed workers in the areas of California, Nevada and Florida. These regions often
have jobless rates above 15% and in some cases 20%.
The towns that these people inhabit have sharply dropping real estate prices, record-setting
foreclosures and a tax base erosion that forces them to cut essential services. But the
construction industry is not universally depressed. People who build a house cannot build
nuclear reactors, but they can work on infrastructure products, including the building and
improvement of schools and government-owned facilities. The current stimulus package has
reserves for just this kind of construction work.
10. Immigration. There is an extent to which the argument that undocumented workers
from abroad take American jobs is reasonable. The truth of that is hard to refute. It is
equally hard to say that immigrants, even those with illegal status, should be sent back to
the nations they came from immediately and without any provision for their economic
futures. The immigration debate has become more violent as the recession has continued. It
may be that the federal government's best course would be to ignore the issue of who has
come to America and focus on the economic impact of the migration.

Some states have exacerbated jobless problems due to immigrants, and others are not
affected at all. The southern states that border Mexico are those that have had the worst
economic impact. Other states like Ohio and Illinois have substantial labor problems that
have nothing to do with immigration at all. The most logical solution to the problem is to
provide supplemental aid to states that have large illegal immigrant populations to create
more public sector jobs -- jobs that the states and municipalities within them may find
essential, but that cannot be performed due to the recession.
It may be harder to find a job in New Mexico because of immigrants. That does not mean
that there is still not important work to do in some of the state's financially beleaguered
regions. The emotion surrounding the immigration issue makes it one of the most difficult
unemployment issues of all to solve.