THE BLOG
03/14/2009 05:12 am ET Updated May 25, 2011

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.