Coming Soon to an Employer Near You: Cash for Hires

Picture 3I recently wrote about the need to directly stimulate job creation by giving employers incentives to hire workers. I’m glad to say that the government is taking the advice seriously.

I guess the White House has gotten over the Olympics debacle. Okay, I can’t claim the credit, but the good news is that several measures are being seriously considered to provide a tax credit for creating jobs.

One program, devised by the Upjohn Institute for Employment Research, and a similar one from the Economic Policy Institute, would give employers tax credits for two years for increasing the number of jobs they have, above some baseline, or adding significant new hours. The amount of credits is small — from one to two times the amount of payroll taxes on each new hire, but it’s still progress. Far better than paying for bridges and roads and healthcare programs that at best indirectly create some temporary jobs.

The idea isn’t anything new. In 1977 to 1978 the federal government created the New Jobs Tax Credit — a wage subsidy equal to $7,000 for each additional worker hired. The program is estimated to have added about 2.1 million new jobs, at a cost of about $20,000 per job (in 2008 dollars). Compare that with the estimated $92,000 per job created under the current stimulus package and one has to wonder why this wasn’t started earlier.

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If implemented, the credit is estimated to result in the creation of 1.3 million new jobs per year. This can’t happen soon enough. The unemployment picture is worse than the numbers suggest: over half a million people are estimated to have stopped looking for work altogether. Had they stayed looking, the official rate would be over 10% already. The tax credit would also arrest the attrition of skills that’s occurring with such a large portion of the workforce being unemployed for so long. The loss of value in human capital is orders of magnitude more than the loss of income.

The program is not perfect. Some of the jobs for which credits are claimed would have been created anyway. Other jobs may go away when the credit expires. Ideally the credit should be large enough to offset the payroll cost of creating new jobs. But beggars can’t be choosers, and right now there are a lot of people close to being very real beggars.

Raghav Singh, director of analytics at Korn Ferry Futurestep, has developed and launched multiple software products and held leadership positions at several major recruiting technology vendors. His career has included work as a consultant on enterprise HR systems and as a recruiting and HRIT leader at several Fortune 500 companies. Opinions expressed here are his own.

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6 Comments on “Coming Soon to an Employer Near You: Cash for Hires

  1. How about cutting my corporate taxes allowing us to keep more of a profit which in turn will allow us to hire more employees. Paying the outragous taxes we already pay limits the number of people we can hire. This tax credit will only help those ALREADY planning to hire. It will do nothing to stimulate hiring.

  2. I don’t exactly recall 1977 and 1978 to be “robust” years when it came to hiring, and in fact, the economic policies of the Carter administration, that the current administration so confusingly seems determined to follow into the ashbin of economic malfeasance, was entering the throes of its “malaise”. Whether the program created 2.1 million new jobs is almost beside the point, for it was the Reagan policies of low taxes across the board that set the foundation for the creation of TWENTY MILLION jobs.

    A “cash for hire” program is another example of fiddling while Rome burns, as these tax credits are more than offset by the devastating impact cap & tax will have, to say nothing of the debacle of health care “reform”, and the loss of purchasing power as massive deficits bring rise to inflation, higher interest rates, and a devaluing of the dollar.

  3. Jobs? Gentlemen, please, give the administration some credit! They are completely on top of the situation and will get around to addressing the creation of new jobs soon. Let’s remember that they currently have their hands full with their number 1 priority, that of waging a major war against their dreaded enemies…at Fox News.

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