During the 1970's, a program of employment tax credits was suggested in a pair of reports prepared by the late economist Robert Edmonds, L.V. Watkins, and I, for the Commerce Department. A new analysis enlarges on, but in no way contradicts the earlier studies.
The primary addition in the Second Report was a unique analysis of causes of unemployment that suggested that overfull rather than merely full employment may prove possible. Overfull employment (2% unemployment) was achieved during World War II.
The 1977 job tax credit program, which reflected a few of the recommended incentives, generated 900,000 private-sector jobs, fully 20 percent of all new jobs created that year. To that moment it resulted in more jobs in less time than any prior legislation. A Census Bureau survey showed that only 34 percent of all businesses were aware of the little-publicized program. Only a third of the eligible businesses utilized the credits. The White House opposed the job tax credit, and it was little advertised.
If promoted with all of the suggested incentives, it might have met the original goal of generating three million to six million new jobs and encouraging one million to four million people to become self-employed. The following year the program was gutted and became the targeted jobs-tax credit, with only a fraction of its previous effectiveness. The tax incentives in the Human Investment Tax Credit program have been updated and can be voted into law. That should be one aspect of the first order of business for the new Administration and Congress.
The analysis behind these tax credits split employers into three categories: large corporations, medium corporations and government, and small business. The only category having the potential to absorb very large numbers of new employees is the small employer.
A huge small business reservoir, rather than government as an employer of last resort, appears to be available.
Employment tax credits could be used as a more effective alternative to a general tax cut. This is a rifle shot approach, instead of a shotgun, aimed specifically at lessening unemployment as rapidly as possible without contributing new inflationary pressures.
A concept of the "employer force" was advanced. This seeks to supplement the existing studies of the labor force by examining the impediments to additional employment from the other side of the coin.
Long-term policy would aim at the underlying structural corrections necessary for the economic roller coaster to move toward equilibrium. Were these new directions adequately explored, new management tools could become available. These include, for example, an Income Maintenance Savings Program, providing what might well prove to be socially and politically attractive alternatives to the present structure of social security, unemployment insurance, student loans and the welfare system.
The first two Reports were first steps toward an alternative economic analysis. This early beginning has been followed by a 2009 paper by L.V. Watkins. The new perspectives open a path to a comprehensive attack on the root causes of unemployment and inflation.
Unemployment is rising and has impacted millions of individuals and families. As unlikely as it may seem at first glance, providing jobs for all who seek them may prove possible.
Standing in the way of a better attack on unemployment and inflation is the need to reconsider the assumptions behind widely accepted economic ideas - which now appear to be erroneous.
Economists, political leaders and the public all need to consider, as rapidly as practical, these new perspectives.
The new points of view can be summarized as follows: