Unemployment: How to Slow the Bleeding

It's now become apparent that the most painful part of the economic downturn—the part where many thousands of people lose their jobs—is picking up speed. On Friday, Nov. 7, the Labor Dept. announced that this year through October the U.S. economy lost 1.2 million jobs. That brought the unemployment rate to 6.5%—its highest level since 1994. Add to that a stream of recent layoff announcements (BusinessWeek.com, 10/20/08) by the likes of Merck (MRK), General Electric (GE), and Yahoo (YHOO). Just this week, DHL (DPWGN.DE) announced it would cut 9,500 jobs as it pulled out of express package delivery in the U.S.

In his press conference on Nov. 7, President-elect Barack Obama said that passing an economic stimulus plan would be his first priority as President. "The American people need help," said Obama. "This economy is in bad shape." A stimulus package of very large government spending projects is almost certain, if not in the lame-duck congressional session beginning Nov. 17, then immediately after Obama takes office on Jan. 20.

Some of the likely congressional actions will address the immediate needs of those who are without work. It is likely to enact a package that includes extending the period in which the unemployed can draw benefits, from 26 weeks to up to 39 weeks.

Heavy Dose of Job Creation

But beyond that, there are conflicting views on which spending is the most likely to create jobs, how soon, and for whom.

Taxpayer money can be used in several ways to aid the job market—directly, by creating jobs or investing in companies that will hire people to build things; and indirectly, putting cash in people's pockets in hopes that they spend it and maintain jobs down the line. Many Republicans argue that the government is better off cutting taxes; the party has put forward ideas like doubling the child tax credit and temporarily scrapping the capital-gains tax.

But with an incoming Democratic Administration and Democrat-dominated Congress, an economic stimulus bill will likely have a heavy dose of job creation and increased benefits for the jobless.

Focus on Infrastructure and Energy

On the campaign trail, Obama proposed creating jobs in two main areas: infrastructure and energy. For infrastructure, he suggested the U.S. create a National Infrastructure Reinvestment Bank, an independent entity that would receive $60 billion over 10 years from the federal government to finance transportation infrastructure projects. He said this plan would create up to 2 million new direct and indirect jobs and stimulate approximately $35 billion per year in new economic activity.

In October, U.S. House Speaker Nancy Pelosi (D-Calif.) unveiled a $150 billion stimulus plan that includes infrastructure spending and federal support to states governments, which Obama backed. The U.S. House had passed a stimulus bill in September with $18.5 billion for infrastructure projects, but Republicans opposed it.

The Bush Administration's Transportation Dept. has criticized such proposals, saying that building or rebuilding highways, bridges, and train systems requires a long series of steps to plan, design, get environmental clearance, and construct. Jack Wells, the department's economist, says that only 27% of the funds being proposed in the Pelosi package would be disbursed within a year.

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