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September 14, 2010

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The IMF Calls for Job Creation

Posted: 14 Sep 2010 12:21 AM PDT

As Paul Krugman noted, the OECD has "climbed down" from its recommendation that advanced nations begin cutting spending and raising interest rates right away. The IMF seems to be tempering its message as well:

I.M.F. Calls for Countries to Focus on Creating Jobs, by Liz Alderman, NY Times: Rising long-term unemployment, especially among young people, poses the next big threat to the global economic recovery, the International Monetary Fund warned on Monday. ... Dominique Strauss-Kahn, the managing director of the I.M.F., said the financial crisis "won't be over until unemployment significantly decreases."
Mr. Strauss-Kahn urged governments to start factoring back-to-work policies into their overall equation for stoking growth. He added ... that a failure to halt persistent high joblessness could fan social tensions in several countries and restrain growth over time. ...
While governments hit by the financial crisis have had to tighten their belts, in part to address investor concern about rising debt, countries that need to rebuild credibility should first reallocate spending to get the long-term unemployed and young people back into the labor market, said Olivier J. Blanchard, the I.M.F.'s chief economist. ...
Countries that have so far avoided the harsh judgment of financial markets could afford a small increase in debt to ward off persistent joblessness, Mr. Blanchard said. He added that such a move could pay for itself in the form of increased economic activity. ...
Policy makers at the conference referred to the prospect of rising long-term unemployment as a crisis... Mr. Blanchard ... said the United States, too, should consider subsidies to help the long-term unemployed...

links for 2010-09-13

Posted: 13 Sep 2010 11:02 PM PDT

FRBSF Economic Letter: Labor Force Participation and the Future Path of Unemployment

Posted: 13 Sep 2010 06:02 PM PDT

How many jobs do we need to create each month on average in order to bring the unemployment rate down to 8% by June 2012? Uncertainty about how the labor force participation rate will change between now and then lead to uncertainty in this number, but the estimates range from 208,000 to 294,000 jobs per month (source):

Figure 1
Job creation needed per month

Assuming 8% unemployment in June 2012Job creation needed per month; Assuming 8% unemployment in June 2012
Source: Sources: BLS, CBO, SSA, authors' calculations.

If the SSA is right and labor force participation falls to 64.6% in 2012, we will need to create an average of 208,000 jobs per month over the over the 22 months beginning in September 2010 to bring the unemployment rate down to 8% in June 2012. But if the labor force participation rate rises to 65.5%, as the BLS predicts, we will need to add 294,000 jobs per month in order to reach that level.

An 8% unemployment rate 22 months from now would be an improvement, but nothing to write home about. An 8% rare is still fairly elevated and we should try to do better. But given the job creation rates we've seen lately -- the numbers are far short of even the lowest estimate of what is needed to hit the 8% target -- and the lack of any serious attempts from Congress to spur additional job creation, we'll be lucky to achieve even that.

Lieberman Favors Extension of Bush-Era Tax Rates for the Wealthy

Posted: 13 Sep 2010 11:34 AM PDT

Joe Leiberman, team player:

Lieberman Favors Extension of Bush-Era Tax Rates, NY Times: ...Senator Joseph I. Lieberman, the Connecticut independent who is aligned with the Democrats, said on Monday that he favored maintaining the lower rates for everyone, including the wealthiest Americans, for at least one more year.
"I don't think it makes sense to raise any federal taxes during the uncertain economy we are struggling through," Mr. Lieberman said... "The more money we leave in private hands, the quicker our economic recovery will be. And that means I will do everything I can to make sure Congress extends the so-called Bush tax cuts for another year, and takes action to prevent the estate tax from rising back to where it was." ...
Senate Republicans control enough votes to use the threat of a filibuster to block any legislation on the tax cuts that they do not support. Without the support of all 59 members of the Democratic caucus, it would be all but impossible for Democratic leaders to overcome such a block. ...
Mr. Lieberman ... did not say whether he would join Republicans in such a filibuster. But in similar situations in the past, on issues that he feels strongly about, he has been open to teaming up with them.
The other Senate Democrats who have expressed doubts about letting the tax breaks expire for the rich are Evan Bayh of Indiana, Kent Conrad of North Dakota, Ben Nelson of Nebraska and Jim Webb of Virginia. ...

Many of the Democrats supporting an extension of the tax cuts for the wealthy have expressed concern about deficits in the past. Interesting that when push comes to shove, the wealthy are more important that the deficit. It's framed in terms of worries about the effects on spending, but as noted below, if that is really the concern there are better ways to address it than tax cuts for high income taxpayers.

If Lieberman is really concerned about the effects on aggregate demand -- which would likely be relatively small for wealthy taxpayers -- he could have proposed transferring the tax cut from the wealthy to lower income groups where the money is more likely to be spent. The effects on aggregate demand would be much larger. The fact that he didn't propose this, and instead chose to defend tax cuts for the wealthy on such a flimsy basis -- and threw in the estate tax for good measure -- is telling as to what his real concern is.

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