Mark Zandi: How to fix the U.S. Job Market

In November 2009, Mark Zandi of Moody's Economy.com conducted some estimates of what were the best measures to kick-start the job market. Zandi is a Democrat, but he was an economic adviser to Sen. McCain's presidential campaign, so he's clearly not a raging partisan.

Zandi considered various measures, such as various forms of business tax cuts and spending increases. The chart is read this way: for every dollar the government spends on a measure, what's the estimated increase in Gross Domestic Product? If the figure is above $1, then it's a good tax cut. If it's below $1, the government is basically wasting money. These figures are estimates, so figures close to $1 may be no different from $1 in real life.

Job Creation Policies' Bang for the Buck
Estimated one-year dollar change in GDP for each dollar reduction in
federal tax revenue or increase in spending.

Tax Cuts

Nonrefundable lump-sum tax rebate $1.01
Refundable lump-sum tax rebate $1.22

Temporary Tax Cuts
Payroll tax holiday $1.24
Job tax credit $1.30
Across-the-board tax cut $1.02
Accelerated depreciation $0.25 [Editor: This cut and the next one are corporate tax cuts]
Loss carryback $0.22
Housing tax credit $0.90

Permanent Tax Cuts
Extending alternative minimum tax patch $0.51
Making Bush income tax cuts permanent $0.32
Making dividend and capital gains tax cuts permanent $0.37
Cut in corporate tax rate $0.32

Spending Increases
Extending unemployment insurance benefits $1.61
Temporary federal financing of work-share programs $1.69
Temporary increase in food stamps $1.74
General aid to state governments $1.41
Increased infrastructure spending $1.57

Source: Moody's Economy.com

Some folks may complain that increases in unemployment insurance, food stamps and aid to state governments don't have anything to do with jobs. The bottom line is that these folks are wrong. People who get money from UI and food stamps will spend every dime. That money will stimulate the economy. Increased aid to state governments will cause them to not make cuts they would otherwise have, or will enable them to take on new projects - just because governments can be a bit bureaucratic does not mean that they aren't an integral part of the economy. They are, and they put money into the economy with the work that government workers do directly, and by hiring private contractors. Anyway, the three provisions discussed here will provide the most immediate stimulus effect, and they are clearly the best bang for the buck.

Increased infrastructure spending is also highly stimulative and is warranted; it may take a while to plan the projects. And, as Zandi says, a payroll tax holiday or payroll tax credit, which will give companies that increase their payrolls either a temporary break from payroll taxes or a tax credit, is warranted.