PreCentral Forums - Off Topic

Quote:

Krugman: On job creation, Germany can teach U.S. a lesson

By Paul Krugman
San Jose Mercury News
Posted:11/13/2009 02:41:14 PM PST

Consider, for a moment, a tale of two countries. Both have suffered a severe recession and lost jobs as a result — but not on the same scale. In Country A, employment has fallen more than 5 percent, and the unemployment rate has more than doubled. In Country B, employment has fallen only half a percent, and unemployment is only slightly higher than it was before the crisis.

Don't you think Country A might have something to learn from Country B?

This story isn't hypothetical. Country A is the United States, where stocks are up, GDP is rising, but the terrible employment situation just keeps getting worse. Country B is Germany, which took a big hit to its GDP when world trade collapsed, but has been remarkably successful at avoiding mass job losses.

Germany's jobs miracle hasn't received much attention in America — but it's real, it's striking, and it raises questions about whether the U.S. government is doing the right things to fight unemployment.

In America, the philosophy behind jobs policy can be summarized as "if you grow it, they will come." That is, we don't really have a jobs policy: We have a GDP policy. The theory is that by stimulating overall spending we can make GDP grow faster, and this will induce companies to stop firing and resume hiring.

The alternative would be policies that address the job issue more directly. We could, for example, have New-Deal-style employment programs.

Alternatively, or in addition, we could have policies that support private-sector employment. Such policies could range from labor rules that discourage firing to financial incentives for companies that either add workers or reduce hours to avoid layoffs.

And that's what Germany has done. Germany came into the Great Recession with strong employment protection legislation. This has been supplemented with a "short-time work scheme," providing subsidies to employers who reduce workers' hours rather than lay them off.

In a recent interview, Lawrence Summers, the Obama administration's highest-ranking economist, was dismissive of such ideas: "It may be desirable to have a given amount of work shared among more people. But that's not as desirable as expanding the total amount of work."

True. But we are not, in fact, expanding the total amount of work — and Congress doesn't seem willing to spend enough on stimulus to change that unfortunate fact.

The usual objection to European-style employment policies is that they're bad for long-run growth — that protecting jobs and encouraging work-sharing makes companies in expanding sectors less likely to hire and reduces the incentives for workers to move to more productive occupations.

But these aren't normal times. Right now, workers who lose their jobs aren't moving to the jobs of the future; they're entering the ranks of the unemployed and staying there.

And long-term unemployment inflicts long-term damage. Workers who have been out of a job for too long often find it hard to get back into the labor market even when conditions improve.

Should we introduce an employment tax credit, like the one proposed by the Economic Policy Institute? Should we introduce a job-sharing subsidy proposed by the Center for Economic Policy Research? Both are worthy of consideration.

The point is that we need to start doing something more than, and different from, what we're already doing. And the experience of other countries suggests that it's time for a policy that explicitly and directly targets job creation.