Posts Tagged ‘Unemployment’

Tax Credits for Hire

Monday, October 12th, 2009

An editorial in today’s Wall Street Journal takes aim at proposals floating in Washington to offer tax credits to firms that hire new empoyees. “One plan would grant a $3,000 tax credit to employers for each new hire in 2010,” according to the editorial. ”Under another, two-year plan, employers would receive a credit in the first year equal to 15.3 percent of the cost of adding a new worker, an amount that would be reduced to 10.2 percent in the second year and then phased out entirely.”

Smeal’s Charles Enis argues that these tax incentives, which were tried once in the late 1970s resulting in mixed reviews, are unfair to firms who resisted layoffs during the recession, essentially punishing them for keeping their employees working. By making the tax code even more complicated, however, the tax credits will likely succeed in creating some jobs—in tax accounting.

More from Enis:

Imagine buying a car and learning that you could have made the purchase a week later and received a generous rebate. Firms that resisted layoffs may have a similar sentiment if one of the proposed credits is enacted. These credits reward firms that increase the size of their workforce or add significant hours of work. Firms that laid off many workers will likely increase their hiring when the economy improves and thus benefit from the credit. What about firms that absorbed the cost of keeping excess people? What do they get?

The income tax regime is one of many policy tools available to combat economic difficulties. However, the tax code has been summoned to remedy virtually all of our problems (e.g., pollution, health care, energy, etc.). These well intentioned provisions have contributed to the complexity of a tax system described as “a national disgrace” as far back as President Carter.

The tax system as a policy tool raises cost-benefit dilemmas. Straightforward provisions result in benefits to unintended taxpayers at substantial costs to the Treasury relative to the economic goals achieved. Provisions targeted toward intended taxpayers must be laden with many complex features (e.g., phase-outs, caps, restrictions, uncertainties regarding extensions, etc.). Such features frustrate small businesses, which are important job creators. The jobs credit that was enacted for 1977-1978 had a mathematical specification too complex to explain in this short blog post. The former credit was tied to the federal unemployment tax regime, while the proposed credit is tied to the Social Security tax regime, and is likely to be even more complex after it is “tweaked” by political compromises.   

Whether the ’77-‘78 jobs credit was successful depends more on one’s political perspective then on evidence from rigorous economic analyses. The complexity and poor promotion of the ’77-’78 credit rendered the findings of traditional analyses tenuous and mixed. Economists believe that the new hires from the ’77-’78 credit were largely lower-skilled workers, which is not a bad thing. However, the tax code already contains the Work Opportunity Tax Credit, a provision aimed at encouraging businesses to hire individuals who are disadvantaged in the labor market. Is another credit really necessary or can the existing credit be updated?

The enactment of the proposed jobs credit will significantly increase the hours of work for tax practitioners, IRS personnel, tax form printers, HR departments, software writers, and hopefully many otherwise unemployed Americans.

Tags: Economic Crisis, Economy, Enis, Politics, Taxes, Unemployment
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Stimulus, Part II

Friday, July 10th, 2009

Warren Buffett yesterday joined the chorus in favor of a second economic stimulus package to stem the rising unemployment rate and boost consumer confidence. Smeal’s Terrence Guay, however, argues that the timing isn’t quite right for another round of stimulus:

It’s hard to justify a second federal stimulus package at this point in time for economic or political reasons.  Much of the $787 billion package from earlier this year has not yet worked its way through the economy, so there’s very good reason to give it more time to have its effect.  Even with the unemployment rate just short of double digits, other parts of the economy such as housing and consumer spending appear to be stabilizing.  And growing public concerns over the size of the federal budget deficit, projected to be near $2 trillion for the fiscal year ending in September, would make a second stimulus package politically explosive.  Perhaps most importantly, the Obama administration has more important priorities now, including health care reform and a more serious U.S. commitment to climate change.  Wasting political capital on an unpopular second economic stimulus package just doesn’t make sense this summer, if President Obama is to have any chance of success on these other two issues.

Tags: Economic Crisis, Economy, Guay, Politics, Unemployment
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Michigan Greening

Thursday, June 11th, 2009

With Michigan’s unemployment rate growing right alongside the constricting U.S. auto industry, the state is looking to reinvent its economy in industries other than auto manufacturing. The state is wooing Hollywood film crews and venturing into wind and solar energy manufacturing. In fact, a new report from the Pew Charitable Trusts finds that Michigan gained 23,000 jobs in clean energy between 1998 and 2007.

Smeal’s Gerald Susman, associate dean for research and director of Center for the Management of Technological and Organizational Change, studies the economic impact of the clean energy industry and says that Michigan is well suited to excel in the green economy:

Michigan already has some very good alternative energy companies that are growing rapidly. One is Hemlock Semiconductor Corp. (HSC), a Dow Corning joint venture that makes polysilicon for use by solar cell manufacturers. Also, Dow Corning Corp. is building a facility to manufacture monosilane gas next to HSC. This specialty gas is used in making thin-film solar cells. Another company is United Solar Ovonic, which manufactures solar cells. These examples suggest that Michigan has a good base upon which the solar industry can grow. Growth may not be dramatic, however, as a typical expansion creates 500 to 600 permanent jobs (excluding construction jobs) and Michigan’s unemployment rate is the highest in the nation.

Another area that could result in job growth is solar energy installation. Although more service than manufacturing, the solar installation business is labor intensive and market entry into it is easy. Job growth prospects may be higher here than in manufacturing. 

Additionally, Michigan is well placed to transfer existing technology and skills in metal fabrication from the auto industry to the wind industry. Gear boxes and generators used in wind turbines are similar to those used to make auto transmissions, for example. 

One problem is that most of the major turbine manufacturers are foreign owned (mostly European) and have developed their supply chain relationships with European suppliers, especially for high-value added components. Currently, they would rather source from Europe, even with high transportation costs, than develop new relationships with American suppliers. The exceptions are for low-value added items like engine mounts or nacelles. These products contain little intellectual property and low risk of IP leakage to new and untested vendors. Also, towers and blades are too large and bulky to import so they tend to be manufactured close to where they will be installed.

One prominent study estimates that every 1,000 MW of additional installed capacity would create 3,000 manufacturing jobs, 700 installation jobs, and 600 operations and maintenance jobs. More than 8,500 MW of wind capacity was added last year, which should have created about 36,500 new jobs. Before 2008, this rate of job growth would have been considered highly optimistic. However, recent data from the American Wind Energy Association suggest that such projections are becoming realistic. A recently released study by the Pew Charitable Trusts indicates that California, Texas, Pennsylvania, Ohio, New York, and Florida (in that order) created the highest number of green jobs from all renewable energy sources in 2007. Michigan should look to those states as examples of how to grow its green energy sector.

Tags: Auto Industry, Susman, Sustainability, Unemployment
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Unemployed Abroad

Tuesday, March 10th, 2009

The New York Times reported last week on the predicament facing expatriates who have been laid off overseas, and in most cases given only weeks to find a new job or leave the country.  “Add to that urgent disruption the calamity of a collapsing industry and you have the life more or less of thousands of American expatriates in banking and finance,” The Times noted.

Smeal’s David Harrison studies how expatriates and repatriates adjust to their work assignments and new surroundings. Below, he explains some of the other challenges facing expats who suddenly find themselves unemployed:

The initial wave of expatriates, especially in finance and banking, are younger and more likely to be single, with fewer foregone opportunities in their home countries. Their adjustment to expatriate life—although by no means easy—is still quite different than someone with a spouse and children in tow, both of who are going through the same rocky process. As the next wave of layoffs hits, these married, somewhat older expatriates will be even more  hard-hit. They will likely have made the trip overseas as a sacrifice they deemed necessary to move upward or stay on at their firms. Doing so also meant loosening or even cutting ties with colleagues and many friends. Returning, especially with a long tenure abroad and no parachute back home, will be extremely difficult.

One of the reasons is that most repatriates feel truly homeless, even in good economic times. If they owned property, many would have sold it before shipping out. The culture they’re returning to is going to be different than the one they left, and they see it through substantially different eyes. At a time when their interpersonal network is absolutely vital to getting another job, many of their social connections will have moved on. This is a crucial difference from other white collar or managerial employees laid off domestically; many of those folks at least retain a good portion of their support systems.

Beyond getting a new job and securing income for their families, the repatriates’ biggest challenge is going to be wrestling with their new/old identity. Many will expect that their international experience puts them head-and-shoulders above others competing for jobs, but they’ll find that many firms merely give lip service to that positive feature—especially during a recession. That generates an extra level of frustration and resentment. On the plus side, for those firms with the foresight to see past the recession, now is absolutely the best time to land tested, internationally seasoned managers and executives.

Tags: D. Harrison, Economic Crisis, Globalization, Unemployment
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U.S. Economy Sheds 651,000 Jobs in February

Monday, March 9th, 2009

The national unemployment rate rose in February to 8.1 percent, the highest it has been since 1983. Since the start of the recession in December 2007, the United States has lost 4.4 million jobs.

“And economists expect that unemployment will continue to rise for the rest of the year and into early 2010, with the unemployment rate reaching 9 to 10 percent by the time a recovery begins,” The New York Times reports. “But even then, with so many job losses centered in manufacturing, economists say that many positions devoured during this recession will not be coming back.”

Smeal’s John Jordan, executive director of the Center for Digital Transformation, writing in the January edition of his newsletter Early Indications, also ponders, “Where will all the new jobs come from?”

Jordan writes:

Mass hirings are infrequent even in the best of times: “GM adds 4,000 new machinists” wasn’t something one saw in the news, regardless of the era. Jobs get added far more slowly and in more dispersed fashion than they get cut, especially when some firms are measuring severance in the tens of thousands. Part of the policy challenge is the asymmetry between the big cuts and the reality that small, growing firms add jobs by the handful or dozen.

… The rapid shift of the U.S. economy to a services-driven structure with a massive trade imbalance presents the Obama recovery team with many new challenges. Government employment is already high, and will be limited by falling tax revenues. The M&A activity of the previous decade has generated some very large organizations that, along with Detroit’s Big Three, are shedding jobs at a rapid rate. Even though a “knowledge economy” sounds intuitively appealing, at some point U.S. manufacturing will need to be redefined for employment and trade to behave more sustainably.

Tags: Economic Crisis, Economy, Jordan, Unemployment
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