The U.S. job creation machine is sputtering, and Washington seems at a loss at how to fix it. The usual recession-fighting tools - spending increases, tax cuts, dramatically easier monetary policy — have been tried. And even if that were not the case, Republicans and Democrats would probably be ideologically deadlocked over what to do next.
The Obama administration is reportedly considering a temporary cut in the employer share of the Social Security payroll tax. This has the advantage of being potentially acceptable to Republicans, and it might encourage a few businesses to hire people they would not have otherwise. But, in a country that produced barely 54,000 new jobs in May - and needs another 21 million to return to pre-recession unemployment levels by 2020 — it’s no panacea.
Like other fiscal and monetary tweaks under debate, a payroll tax cut would address cyclical joblessness: unemployment attributable to the collapse in demand brought about by the financial crisis of 2008. Yet the problem is also structural. It’s due not just to the latest downturn in business conditions but also to broader, more lasting changes to the U.S. and global economies. As a new report from the McKinsey Global Institute notes, technology increasingly enables companies to cut costs in a recession through permanent layoffs; the growing global middle class can do many jobs that once had to be performed in the United States. Difficult as it has been to develop a counter-cyclical economic policy that works, the United States also needs to meet these structural challenges.
Fortunately, the McKinsey report implies that progress against structural causes of joblessness may be easier than countering the business cycle. There are practical solutions to suit every ideology.
The U.S. economy faces a huge challenge to employ its growing population in the coming years. Its advantage, as always, is the talent of the American worker. But it will take a lot more pragmatism to make the most of it.