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EconomicPolicyInstitute October 25, 2010

Last week, the National Bureau of Economic Research announced that the Great Recession officially ended in June 2009. While this statement was in line with most economists’ expectations, unemployment remains a major problem. The nationwide rate in June 2009 stood at 9.5%. In August of 2010, a full 14 months later, the unemployment rate was 9.6%. As EPI Economist Josh Bivens wrote on EPI.org, “The recession may be over, but the real work of recovery has just begun.”

Over the course of the years-long unemployment crisis, much of EPI’s research has focused on the best policies for creating jobs. But our most recent Policy Memo outlines how a so-called job creation plan by House Minority Leader John Boehner would actually eliminate more than one million jobs.

Tax cuts for top earners not an efficient way to stimulate the economy
In How to Lose Over a Million Jobs, EPI Policy Analysts Andrew Fieldhouse andRebecca Thiess analyze Boehner’s proposal to extend all of the Bush-era tax changes while at the same time cutting domestic spending. Boehner’s plan would result in an estimated employment reduction of more than one million jobs, while “only negligibly” improving the fiscal outlook. 

The authors note that while Rep. Boehner’s proposed spending cuts may suggest fiscal responsibility, his  plan to exempt defense and security spending from those cuts would “result in drastic and politically unrealistic cuts to many human needs and investment programs,” including education, research, and infrastructure.  The second part of Rep. Boehner’s plan-to preserve Bush-era tax cuts for the richest Americans-would result in a smaller net fiscal contraction, and prioritize cost-ineffective tax stimulus instead of investment with high social and economic returns.

The EPI report  stresses that the better path to economic growth is to prioritize job creation and to delay tightening spending until the recovery is further along and unemployment has come down to 6%. (EPI Research and Policy DirectorJohn Irons introduced this idea of a trigger for fiscal consolidation in an August 2010 memo, where he proposed a “6-for-6″ trigger in which unemployment remain below 6% for six consecutive months.) 

Macroeconomic policy can create jobs
A central issue in the debate over the best practices for job creation has been whether macroeconomic policies such as fiscal stimulus can be effective. A popular opposing argument is that the current unemployment crisis is notcyclical, but rather structural, meaning that unemployed workers lack the necessary skills for jobs that are available, or simply do not live in the places where the jobs are.

EPI’s new Briefing Paper, Reasons for Skepticism About Structural Unemployment, shows that that evidence for the structural unemployment narrative is scarce. The paper, by EPI President Lawrence Mishel, EconomistHeidi Shierholz, and Researcher Kathryn Edwards, notes that the ratio between unemployed workers and job openings provides some of the best evidence against structural unemployment. Currently, there are almost five unemployed workers for each job opening, meaning that there are just not enough jobs. They also note that while unemployment is relatively low in some states, these states do not have nearly enough jobs for all of the country’s 14.6 million unemployed.

Mishel also published a commentary on the topic on EPI.org, where he said it was important to understand the cause of the unemployment crisis, because that would dictate the policy prescription. While the policy implications of structural unemployment would be a focus on worker retraining rather than investing in job creation, Mishel notes that “a better explanation for high unemployment is that there are simply not enough jobs to go around.”

New York Times columnist Paul Krugman called the paper “an important report on why you shouldn’t believe the hype on structura0l unemployment.” He noted, “Claims that there has been a huge jump in structural unemployment-that is, unemployment that can’t be cured by increasing aggregate demand-are playing a large role in the argument that we should basically do nothing in the face of a terrible economy.”

Progress on reversing Chinese currency manipulation
International Economist Robert Scott, who has extensively documented how unfair Chinese trade practices-including currency manipulation-have cost American jobs, applauded a new piece of legislation that Congress is considering to combat that currency manipulation. In an op-ed published September 24 inThe Huffington Post, Scott said that the legislation by Representatives Tim Ryan (D-Ohio) and Tim Murphy (R-Pennsylvania) “is a first step in the fight against currency manipulation.”

The Ryan-Murphy legislation would allow the United States to impose tariffs and other penalties on countries that undervalue their currency. However, Scott stressed that since the legislation would only apply to a small share of total U.S.-China trade, its passage would be a largely symbolic victory. “If the Ryan-Murphy bill is passed and China does not get the message, then it will soon be time to consider much broader restrictions on Chinese imports,” he wrote.

Health insurance and low-income households
EPI’s Director of Health Policy Research Elise Gould discussed new Census Bureau data on health insurance at a September 24 Capitol Hill briefing sponsored by the Community Service Society. Gould outlined how overall rates of health insurance coverage and employer-sponsored health insurance coverage declined in 2009, and how lower-income groups generally had lower rates of coverage. However, she also stressed that, while the total number of uninsured Americans under age 65 rose from 45.7 million in 2008 to 50 million in 2009, it would have risen further without Recovery Act investments that enabled state governments to maintain spending in the State Children’s Health Insurance Program (SCHIP).

EPI in the news
EPI’s paper, Reasons for Skepticism about Structural Unemployment, was cited widely, in The New York TimesThe Wall Street JournalMother Jones, and other media outlets. Washington Post columnist Robert Samuelson cited Robert Scott’s research about the large number of American jobs lost to China. An NPR piece cited EPI’s analysis of the new Census Bureau data on poverty. Economist Josh Bivens was quoted in a PBS piece about the official end of the recession and the economic challenges that remain. EPI President Lawrence Mishel took part in a similar interview for NPR’s Marketplace. “We have to be creating jobs and rapidly lowering unemployment, and people need to see the paychecks of their family members rising,” Mishel said. “Instead, unemployment’s still near 10 percent, and it’ll probably be well into next year until private employers start hiring enough people to make a dent.”

From the EPI Blog
Joshua Smith
Myths and Facts About Corporate Taxes, Part 3: Are American Companies’ Profits Trapped Overseas?
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High-income Households Pay a Large Share of US Taxes—But This Doesn’t Make Our Tax System Progressive
Lawrence Mishel and Will Kimball
The Top 1 Percent of Wage Earners Falters in 2013—Was it a Temporary Event?
Joshua Smith
Myths and Facts About Corporate Taxes, Part 2: Will Congress’s Idea of “Base-Broadening, Rate-Lowering Tax Reform” Fix What’s Wrong With Our Corporate Tax Code?
Ross Eisenbrey
Corporations Are Stealing Your Constitutional Rights: Forced Arbitration Clauses
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