For Immediate Release: Monday, August 2, 2010
Contact: Phoebe Silag or Karen Conner, news@epi.org 202-775-8810

A memo released today by the Economic Policy Institute calls for federal policymakers to wait until the unemployment rate reaches six percent and remains at or below that level for six months before implementing any deficit reduction measures. EPI Policy and Research Director John Irons sent the memo calling for a “6-for-6” deficit trigger to the members of the National Commission on Fiscal Responsibility last week.

Though the unemployment rate has stopped rising, the economy has not generated jobs quickly enough to improve the labor market since the end of the recession. The unemployment rate in June of this year was 9.5 percent, the same level as it was in June 2009, and nearly half of unemployed workers–6.8 million people–have been unemployed for more than six months. The economy has seven million fewer jobs than it did at the start of the recession; added to the three million jobs the economy needed in order to keep pace with population growth, the economy has a “jobs hole” of ten million jobs. For every job opening, there are almost five unemployed workers.

Economic recovery spending like the American Recovery and Reinvestment Act has helped to save and create jobs. However, the Recovery Act was designed as a temporary measure, and Recovery Act funding is fading, as it was designed to do. In the coming months and years, further public investment is critical. Economists project the unemployment rate to remain in the 9.5 to 10 percent range through 2011 and to average 8 percent through 2012.

The current federal budget deficit is largely a product of the recession, and to a smaller extent, the result of emergency measures to address it. Sharply cutting federal funding at this point could imperil the recovery by exacerbating existing economic problems. For example, state and local governments face severe budget shortfalls, incomes of workers across the country have stagnated and a strong dollar threatens to increase the U.S. trade deficit. A 6-for-6 deficit trigger will enable policymakers to address the long-term structural budget deficits the United States faces, particularly rising health care costs, without short-circuiting the progress the economy has made.

Once the nationwide unemployment rate reaches six percent, there will still be a number of communities that need federal help. States such as Michigan and North Carolina face economic challenges independent of the recession and could benefit from targeted government programs. Similarly, African-Americans and Latinos have historically had higher levels of unemployment than the general population. Deficit-reduction policies should take these disparities into account.