During the last two downturns, the highest the unemployment rate reached was 7.8% before declining again. The Great Recession has been far worse for the job market. In fact, we have now been a full percentage point over that level for more than two years: the unemployment rate has been at or above 8.8% for the past 28 months.
The unemployment crisis is not improving, yet much can be done to stimulate the economy and create jobs. President Obama and Congress can implement policies that will rejuvenate the labor market, including: enacting a program to repair and upgrade the nation’s 100,000 public school buildings; implementing direct job creation programs in hard-hit communities; approving additional spending on transportation infrastructure; providing fiscal relief to states; and expanding the safety net (because doing so gets money into the hands of people who will immediately spend it).*
And there is more that can be done. Additional job-creating policies include: supporting work-sharing to avoid layoffs; boosting manufacturing by ending currency manipulation by foreign governments; encouraging the Federal Reserve both to resume asset purchases in order to lower long-term interest rates and to target a higher inflation rate (e.g., 3-4%) to reduce real interest rates and erode debt; and reducing household debt through mortgage forgiveness and refinancing.
*These five actions would be most effective in stimulating the economy and creating jobs if they were not offset with budget cuts or tax increases in the near-term, as the recent debt ceiling agreement requires.