A Novel Approach: Using Unemployment Benefits as a Means for Stimulus

Now that the stimulus plan has passed, the second guessing has already begun: It wasn't enough. it won't be effective. It isn't directly stimulative.

Well, if it wasn't sufficient, it's going to be very hard to get more money out of congress considering the opposition to this one. In light of that, here's a stimulus idea that costs almost nothing:

Why not allow recently laid off workers to apply their unemployment benefits toward their next job in the form of a voucher? In other words, let them (if they so choose) subsidize a portion of their next salary by underwriting a chunk of it with their benefit.

As I mentioned, the objections to the current plan are numerous: It doesn't do enough to provide immediate job creation. It doesn't allow the markets to operate freely. It's too expensive and runs up the debt. It doesn't help the employer (business owner) as much as tax-breaks would, at a time when credit is tight.

This idea would address all of those things.

The Government Wins

The Federal government is going to have to pay these unemployment benefits anyway, so diverting the funds into a voucher to underwrite a salary is actually cost neutral--it may be the one stimulus idea that doesn't cost a lot of money. Rather than incurring more debt, the money would be targeted specifically toward job creation without any red ink at all. Moreover, the worker has suddenly turned from a dependent to a taxpayer so the government actually recoups some of the money.

The Worker Wins

Instead of living on a stipend, the worker is able to become re-employed more quickly. He becomes instantly desirable in the work-force because the employer is only having to pay a portion of the salary. (Finding a job gets a lot easier armed with such a voucher.) Beyond the dignity of being employed, that individual is now a taxpayer and a consumer, further stimulating the economy... and all this is done with money the government was going to have to pay anyway. Under the current system, once a worker obtains employment they lose their benefits. In this scenario, they would keep receiving the benefit to underwrite the salary for the full length of their eligibility.

The Employer Wins

Instead of searching for programs that are "shovel ready" this idea would be driven by the market. In other words--the jobs will only go where there is already some demand. When an employer gets 6 months to a year of a salary partially underwritten, there is a chance he will actually grow his work-force instead of laying people off. If benefits could be extended to one year (as many suggest), businesses that are having trouble obtaining credit would actually get the relief they need to see them through tough times.

It may be the one idea that trickles up and down at the same time. As such, it should be attractive to both liberals and conservatives. It's a job creation program by definition, so Democrats who chafed at the emphasis on tax cuts should appreciate a program that directly benefits an unemployed worker. Conservatives should embrace this because it gives immediate relief to businesses that are strapped for cash and can't obtain credit. Wouldn't an employer rather have a salary underwritten now, than get a tax break a year from now? It's also driven by market forces, (jobs go where they are needed) so Republicans should relax about the perceived threat of social engineering through stimulus spending.

Now of course there are logistical problems inherent in this, but I believe they can be overcome.

1. Unemployment benefits are jointly administered by the Federal Government and the various states, so there are literally 50 different programs. But all of these programs pay out benefits and it should not be that difficult for the Dept. of Labor to administer a voucher program federally. I suppose the worker could sign over the benefit to the Dept. of Labor who would in turn issue the voucher.

2. One would have to make sure that an employer did not fire a worker in order to hire a cheaper "voucher" worker. But this should be easy as well. You could restrict the program to new job creation and only allow a business to add a "voucher worker" if they were growing their roles. This could be easily verified through payroll taxes and would prevent an abuse of the system.

3. You would need to prevent the worker from being fired once the benefit ran out. But this could be done contractually. Once a voucher worker is hired, that person could be given a contract for a time to exceed the length of the benefit. (They could only be fired for cause.) How many business would not want to have part of its workforce underwritten in exchange for guaranteeing employment a year from now? It's basically like receiving a no interest loan for one year. What business, strapped for cash and unable to obtain credit wouldn't seize that opportunity?

4. What is the difference between this, and a worker just giving cash to an employer? Well first of all, they're not allowed to work without jeopardizing the benefit. Currently, when someone obtains work, they lose their unemployment check. This program would keep them subsidized for up to a year in their job. Secondly, there may be instances in which an employer could end up contributing less than minimum wage, with the balance being made up by the voucher. What would be illegal becomes permissible under the voucher system since the worker is receiving minimum wage or higher.

Needless to say I'm no economist, and right now, I can hear legions of policy wonks claiming these ideas belong more in my movie Dave, than in actual public policy. But if there is a good argument against this, I haven't heard it yet, though I am certainly open. (Look, if this stimulates an out-of-the-box discussion, that's victory enough.) Will there be administrative headaches? Sure. But how many administrative challenges will there be in the existing stimulus plan? Or in bailing out financial institutions? These aren't normal times and it seems that an idea which could achieve so much for business and labor, and is potentially cost neutral deserves a closer look. Many economists feel the current stimulus package wont be enough to stem the tide of unemployment and yet the appetite for further funding isn't great. Where is the next round of money going to come from? A stimulus idea that is already largely funded is certainly worth examining.

Comments

[swkidder]

I like this suggestion very much indeed. I respectfully suggest that some of those who have posted negative reactions might be confusing a strategy with tactics? The strategy is sound, and the tactics to implement this would certainly require lots of attention to "the devil in the details."
But it seems to me to combine a series of well recognized virtues. To whit - ,job creation goes where the demand lies, and the plan supports, favors, or at least doesn't disadvantage small business where most job creation generally occurs. It's an incredibly creative "hybrid" program that combines direct federal spending ... with support for the states ...with support to business (free enterprise) ... with support to the unemployed. It offers significant potential for "leverage," and it's focused on job creation as a direct economic stimulus.
What's not to like?

[rjmiller]

This plan is fatally flawed. Because of their artificially low wages, recently laid off workers would be more desirable to employers than those that are not receiving unemployment, or even more desirable than current employees. Why keep your employees if you can fire them and hire someone else to do the same job for significantly less money? And don't worry about the people you fired, since they're on unemployment now you can be sure another company will hire them as a subsidized employee too.

[vim876]

You'd have to be really careful with something like this. The temptation would be high for politicians to extend the benefits, and then we could end up with something like Britain's 18th-19th century Speenhamland poor laws. Read Karl Polanyi's book The Great Transformation for a more in-depth look at historical problems in social programs involving aid-of-wages.

[Iam4thiscountry]

The Idea is good and bad. A program like this would need more oversite. This would be great if people were not loosing their jobs by the thousands.

My husband was laid off in Dec. He went to his boss just last week and offered to work for less money. He was told that they had no work at all for anybody.

So, if this plan is for newly created jobs only, then all the people who were laid off would have to be offered back their old jobs at their previous salary; then new jobs could be created and qualify for this program. When you get laid off, the company must offer you your job back if you have not found another job. A company cannot, under the law, offer a job to someone else for 1 year if the last person on that job was "Laid OFF".

The core problem with the economy is that People Need Jobs. Companies are shedding jobs by the thousands. So if they are shedding jobs there is no way they are going to create new jobs. What we Americans need to learn to do, is quit living on credit. When we started being able to purchase our grocers on credit cards , we should havere realized that we were in trouble.

[TheFriendlyAtheist]

Interesting idea. I have one problem with it. What's to stop an employer from laying off workers and hireing them back after they get their unemployement benefits so that they can cut their labor cost in half at gov. expense? Or for that matter, firing the unemployed he has resently hired as soon as their benefits expire and then hiring more unemployed so as to keep his cost down? There are probably ways to prevent this and if they were enacted this may turn out to be a good idea.

[steve-in-abq]

Folks, this guy, this article is awesome. Out-of-the-box thinking. With some tweaking, this plan could work.

[starboymikey]

I was laid off from my job of nine years in December and have been collecting unemployment insurance since then. I am in basic agreement with this idea, as long as employers don't cheat by firing regular workers to hire a cheap substitute, then fire the substitute when his/her benefits run out and replace them with another person on unemployment. But health care costs are probably the single biggest burden employers face when hiring someone new, which is why so many are hiring contract workers who do not get benefits. The way to solve this is with a single-payer program. Why we must be the only major industrial power that doesn't have this escapes me.

Well, it doesn't totally escape me since I know how much power the HMOs have in Congress, but if our Senators and Congressmen don't have the cajones to stand up to these people pretty soon, we'll become a banana republic. Just do it!

[Henryk A. Kowalczyk - Huffpost Blogger]

It is a core of our economic system that an employer just in order to stay in business should fire an employee if he or she can find a cheaper substitute.

[mckinley]

Yes, but Mr. Ross would destroy the level playing field.

And can we assume you are a proponent of off-shoring and sweatshops?

[DHOYT]

It's a good idea.
Better than the "spendulous" package, which has little or no incentive to hire. But what about this idea:
Pass a law that gives any employer that hires somenoe, and keeps them employed for a year, a $10k tax credit against payroll or corporate taxes. You could even requrie that the job pays over 20k and has health benefits. Give a $25k credit if the job pays over $50k a year. The benefits:
1) Each one million jobs costs $10 bil, or $25 bil respectively.
2) 4 million new jobs - total cost around $50 bil a year with a combination of high and low paid jobs. MUCH LESS THAN 800 BIL!
3) Jobs are created where they are needed, not where special interest wants them.
4) It is immediate and can be rolled next year if needed, or dicontinued if not. Try doing that with all of the goverment jobs that will come along with the "spendulous" plan.
5) It is easily mointored through existing payroll reporting.
Sounds like a good idea? They'll never consider it, or Mr Ross's plan, because the party in power doesn't benefit from it. And isn't that what it's all about?
I am sad that Obama has backed this "spendulous" bill. It is a thinly disguised political agenda grafted onto a national crises. Sounds like Bush 101. I was hoping that he really would change Washington, but it seems like business as usual with a different set of masters.

[Kinker]

You give options to benefit companies thyat hire workers. You don't say why they should need to hire workers. The gist of the stimulus plan, is to get business working, so they hire workers. A company needs to have some work to do, before it hires workers.

[DHOYT]

How exactly does this stimulus plan get businesses working? A great dealof the money is used as relief. That maybe needed, but does not create investment. A great deal is in consumptive tax cuts - $400 per person? That's not going to create 4mm jobs. Some of it is for infrastucture, but most of that won't kick in for years. The rest is socila spending and government jobs which is just more liability down the road. It is not a good "stimulus" plan.

[Soulsurfer]

One thing we could do if the insurance industry didn't have a hold on the legislators, is to remove the burden of health care from the backs of businesses. A single payer government administered health system would do great things for the business environment (except insurance companies, which are parasites anyway). Here in California, it costs your employer just about double your actual wages to employ you because of health insurance.

[steve-in-abq]

Some of us receive health insurance as part of our compensation. With a single payer health system, would that portion of our recompense just vanish? That would kind of suck. People like me are not likely to say, "I obtained a college degree and worked my ass off to get the salary and benefits I get, but oh well, some of my compensation is now being donated to the 'common good'." Do you want my car, too?

[melpol]

Giving politicians stimulus money to fix the economy is no better than letting the Fox fix the chicken coop. Politicians are only interested in getting reelected. The money they receive from Washington will be distributed to political friends and not make jobs for unemployed strangers. But if you throw enough of the smelly stuff against the wall some of it will stick. Lets hope it trickles down.

[nomoredead]

How about CEO pay as a ' Means for Stimulus. ' They bring a job back to the US and get a $1000 bonus....s­end a job outside the US and get $1000 taken from their bonus or salary.

[joanndarc]

Suplimentary income to low paying jobs instead of wellfair will improve employment as well as productivity. Such additional productivity could be a long term investment such as infrastructure in broader terms, e.g. large public transportation projects. Any such investment will improve the long term effeciency of the economy overall. The result is.. killing two birds with one stone. And wellfair itself is just only gonna kill one skinny bird!

[jackwaddington]

The STIMULUS package is an oxymoron. Stimulating the economy is tantamount to trying to revive a dying duck after it was shot by a hunter. The ECONOMY is dying and it cannot be saved (capitalism finally failed) . We have to learn to live without money and the study of it's flow, called economics. Governments biggest expense is the so called 'defense department' (another oxymoron) , which is an 'offense department' to bully others into our own way of thinking (now in tatters). Do away with police forces which are run and manned by guys with a bully mentality and way to expensive for what they actually provide. Lastly to abolish prison and prison guards just another expensive and unproductive expense run by guys that love humiliating others. Legalize ALL drugs and let us all chose our own personal pain killers. It's the procurement of illegal drugs that is the problem, not their ingestion.

Nothing less radical than this is going to save us--the human race. Thinking otherwise is the REAL problem.

[loudspeaker]

Legalize all drugs? Are you paid by George Sor0s or something?

[WaynedKing]

Very interesting concept. Add the ability for folks to take a lump sum payment to start their own business and you have the working of a very entrepreneurial approach.

[nationalist757]

So collect all your unemployment at once? This idea assumes that any business owner wouldn't mind the gov't dictating who to fire and hire, not realistic. Why would people need their benefits if they get the job. This country is screwed!

[webnuts4u2]

How about at least making unemployment benefits TAX FREE. That way I get to keep more of what the government doles back out to me after years of paying into the program?

[rocketman69]

You still need to pay your fair share, unemployed or not.

[robotfog]

but they give us a PERCENTAGE of what we make. We spend it all trying to live while looking for work and then the next year, we wind up OWING taxes.

It's stupid to tax unemployment. Not to mention we pay sales tax and other taxes the whole time we are receiving it.

[Changeizgood]

Yeah but, how many times do they tax our income, bundling the taxes if you save.

I mean, if they tax your full income weekly, then slap another tax on what you save, not just the interest, then if you pull or draw some money out, they penalize you for like, 25 to 30%.

I've notice the same on a car you purchase.(­buy?)
You pay taxes on it when you buy it for the full amount, then you are paying taxes on it year after year after year that you own it, supposedly for road and toll upgrading, but we are already taxed on that by the state, the same for a house, so wtf?

Do WE ever really own anything in this country or are WE really just long term renting them or getting shook down for buying in this country. So even if you owe no more payments and are paid in full, you still have to be taxed on what you already paid taxes on annually?
Money already taxed, that WE save to pass on to our children, that's right, you guessed it, taxed again.
So we really don't get to own sh8, in this country.