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As joblessness rises, reporters need to focus on calls for a second stimulus.

COMMENTARY | October 09, 2009

Economist Dean Baker sees a new, large stimulus as urgent. He has an alternate plan, also: Give companies tax credits to reduce workers’ hours (but not their pay) and put on new staff to take up the slack.

(Part of our series on "Reporting the Economic Collapse.")

By John Hanrahan

Dean Baker, one of the few economists who correctly foresaw the housing bubble years before it burst, is a strong advocate of additional government – a second stimulus – to boost the economy and reduce unemployment.

As he advised in an August 5, 2009, article: “The only way to prevent double-digit unemployment will be another, much bigger round of stimulus. The Obama stimulus threw out around $700 billion to counteract a $2.6 trillion two-year shortfall in demand. The stimulus helped, but you can’t put out a forest fire with a few buckets of water. We need much more spending. The alternative is a much poorer country today and a poorer country for our children.”

But, anticipating political resistance to a follow-up stimulus package utilizing direct government spending, Baker proposes another path to keep people in their jobs and create new jobs: Specifically, a tax credit to any employers who would agree to provide paid time off to their workers.

Baker, co-director of the Center for Economic and Policy Research (CEPR) and author and columnist for The Guardian Unlimited of London, said in an interview with Nieman Watchdog that his proposal is not a federal jobs program per se, but rather a plan to provide a tax credit for employers to shorten work hours and still pay employees the same amount as if they were working full time.

With official unemployment currently at 9.8 percent and expected to hit 10 percent or more (not including those who have given up on finding work or are working only part time), millions of employed people wonder nervously whether their jobs might be the next to go. Addressing this worry, Baker said his plan would help stabilize existing jobs, as well as create new jobs. He gave the following example:

If an employer of, say, 100 workers, agreed to shorten each employee’s work week by 6 percent, then, based on a 2,000-hour work year, each employee would get 120 extra hours off work annually -- or the equivalent of three extra weeks. But this would not be an unpaid furlough, as has been common in some state and local governments. Rather, the employees would all receive their same amount of pay, despite the shortened work week. The government, through a tax credit, would reimburse employers for the extra time off.

Since the employer would be getting 6 percent less work time out of the employees, the employer might find it necessary to increase his workforce by as much as 6 percent -- resulting in the creation of six new jobs. If, say, employers of 100 million workers signed up for the program, this would have the potential to create 6 million new jobs -- which would drastically lower the unemployment rate to a number closer to the 4.5 percent figure the Congressional Budget Office views as being the sustainable rate of unemployment, Baker told us.

An employee could take the time off in the form of paid vacation, paid family leave, paid sick days, or a shorter work week. The tax credit program would not have to be permanent, but could run for two years, Baker said, with the hope that the economy would sufficiently be on its way to recovery by then.

In a paper issued by CEPR in March 2009, Baker proposed that the tax credit range up to $2,500 per worker. He said that “could cover a substantial period of paid time off for most workers...Not all employers will opt to take advantage of this tax credit, since it will require some restructuring of work arrangements. However, many employers will see it as an opportunity to provide valuable benefits to workers at little or no cost to themselves.”

As for the taxpayer, Baker wrote that the “net cost per job on this policy ends up being considerably lower than other forms of stimulus.” A paid time off tax credit “also has the advantage that it can take effect almost immediately and would require very little bureaucracy or oversight.”

Since Republicans tend to gravitate toward tax-credit programs, Baker said, his proposal might be “more politically appealing across a broader spectrum than a New Deal-style government jobs program” because of its benefits to private sector employers as well as their employees.

Although he understands that there are always employers who would try to cheat under his or any other program and get the tax credits without giving employees the benefits, Baker believes most of these problems can be headed off by having the government require employers to publicly post on the Internet that their companies are receiving the tax credit and, therefore, their employees should be getting extra time off.

“The employees of any company receiving the tax credit would see on the Internet the time off benefit they are supposed to be getting as well as the tax benefit their employer is getting,” Baker said. Presumably, if the workers were not getting the benefit indicated, they would report their employer to the government, Baker said.

Besides keeping many people in jobs they might otherwise lose in the troubled economy, Baker said his plan also would put U.S. employees more on an equal footing with their European counterparts. In his March 2009 paper, Baker said that over the last three decades, “while other countries have passed laws requiring that workers get several weeks of paid vacation each year, in addition to paid family leave and paid sick leave, workers in the United States have no such legal guarantees. Tens of millions of workers have no paid time off whatsoever.”

A variation of his tax credit plan has already been tried in the Netherlands with good success, Baker said. There, the standard workweek in the health care sector was cut by 10 percent -- which helped alleviate a shortage of nurses. “With a shorter workweek,” he said, “nursing became a more desirable profession, attracting more workers.”

In line with other stories in this Nieman Watchdog “Reporting the Collapse” series, Baker’s ideas are meant to be starting points for journalists. As debate proceeds on a possible follow-up stimulus to the economy, reporters and editors should be open to taking a look at Baker’s plan, as well as at standard government stimulus spending, or creation of new jobs programs, or any other options that reputable economists throw into the mix.

Next in the series: Economist James Galbraith, in the second part of his interview with John Hanrahan, advocates increased spending in the form of more recovery bills, laments mostly poor news coverage of deficits and fiscal policy, and says aiding banks before households “is exactly backward.”

Earlier in this series:

Doing a better job coping with economic disaster. Writer Henry Banta lays out what has gone wrong and why it is so important for the press to do a better job.

Rein in entitlements? No. Increase them, says James Galbraith. It’s time the press stopped falling for false, ongoing efforts to portray Social Security and Medicare as going broke, says Galbraith in the first installment of his interview with John Hanrahan.

Posted by ken berg
01/25/2010, 11:00 AM

If you keep thinking, we can buy our way out of this is crazy...

(as if you can charge you way out of credit card debt)

Taxes must be raised, spending cut, the stimulas cancled.

Pay as we go...

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